$6,000,000 plus. When I say "plus," I mean there will be no further contributions outside by the companies making Mr. HAMMER. Do the figures show it? Mr. CLAYTON. Yes; I have shown it to the committee. I thought you were here. The CHAIRMAN. Suppose you repeat the figures for Mr. Hammer. Mr. HAMMER. I am not questioning your statement. Mr. CLAYTON. My testimony went to this extent, Mr. Hammer, that under our utility act here, paragraph 76, it provides that no utility shall issue any stocks, certificates of stock Mr. HAMMER. I understand that. Mr. CLAYTON. You understand that? Mr. HAMMER. Yes, sir. Mr. CLAYTON (continuing). In excess of the bond issue of the two companies merging, or by one purchasing the other; and this is admitted buying of the Capital Traction Co. by the Washington Railway & Electric Co. or by the new company. The stock of the Capital Traction Co. is $12,000,000, the stock of the Washington Railway & Electric Co. $15,000,000, or $27,000,000; and the stock issues provided in this unification agreement aggregate $31,000,000 plus, because it provides that the contributions from both companies over cash shall then be stock issues, too. So there is $6,000,000 more stock that will be in existence with less assets back of it than in the other company. Mr. HAMMER. The Capital Traction Co. is one corporation. Mr. HAMMER. The Washington Railway & Electric Co. is a corporation consisting of a number of smaller ones, but does one company that has one line or probably more than one line-how many of these lines that go into the new company are not included in the corporation of the Washington Railway & Electric Co.? Mr. CLAYTON. The Washington and Kensington Mr. HAMMER. Does that go into the merger? Mr. CLAYTON. That is not owned by the Capital Traction Co., but is under a five-year lease. That does not go in. Mr. HAMMER. Is there anything except the Washington Railway & Electric Co., $15,000,000 and $27,000,000 included in this merger? Mr. CLAYTON. I do not know. Mr. HAMMER. $12,000,000 for the Capital Traction-how many millions? Mr. CLAYTON. $27,000,000. Mr. HAMMER. Twelve and twenty-seven equals thirty-nine million, and that is 27-27, and this is 31. Are there any street railway lines that are to go in the merger that are not embraced in this 27-27 in the 15-27 and in the $12,000,000? That makes 27-27, does it not? Only the one referred to? Mr. CLAYTON. I referred to Kensington line. Mr. HAMMER. That is not going in anyway? Mr. CLAYTON. No, that is only a leased line. I do not think there are any properties of the Washington Railway & Electric Co.-yes, there is one. Mr. Ham, can you tell me? Is there not one, Mr. Ham, of your properties that does not go into the merger? Mr. HAM. No railway company. Mr. CLAYTON. Then, I am correct on that; they put theirs all in—I want to be specific. Mr. HAMMER. Colonel, this is confined to $12,000,000 and the $15,000,000, or $27,000,000. Mr. BRAND. $27,000,000, yes. Mr. HAMMER. The total of those two. Mr. CLAYTON. I do not want it confined-the law confines it. Mr. HAMMER. Of course, you want it confined if it is the law. Now, then, your properties make $31,000,000, and he made some explanation awhile ago I did not get. Have you any comments on what he said about it, as to the correctness of his statement that it might not exceed? Mr. CLAYTON. Colonel Brand does say that the total stock and bond issues of the merged company, as I understand it, would be in excess of the present stock and bond issues of the two companies. Mr. HAMMER. Did he not say "apparently?" Mr. CLAYTON. No, I think he agreed on it; that is the way I understood it. Then there is a still further provision in that that will affect this proposition, if you take stocks and bonds. I take stock, and I do not accept his interpretation of this act of Congress, which means just what I contend it means: Stocks are one thing and bonds are another. Mr. HAMMER. Absolutely. Mr. CLAYTON. You cannot put stocks or bonds together for the purpose of clarifying or helping out a situation. Mr. HAMMER. I have not looked up the law. Mr. CLAYTON. I stand upon the law, and I say this law is breached by_the unification agreement, and you are asked to breach it. The CHAIRMAN. Does the law say "stocks and bonds"? Mr. CLAYTON. It says "stock, bonds." That does not mean what he says. Stocks are one thing and bonds another. The authorization of the Capital Traction Co. provides that bonds should only be 50 per cent of the stock issue. That provision was written in. You can not throw the two together. Mr. COLE. Mr. Clayton, may I ask a question along that line? Mr. COLE. You have made the statement that the combined capital for the new company is $6,000,000 in excess of the bond issue? Mr. CLAYTON. Stock issues. Mr. COLE. On this very definite statement there is about $6,000,000 watered stock in violation of paragraph 76 of the public utilities act. It is perfectly apparent on the exhibit which the proponents of the bill 276 have offered that the outstanding issue of stocks and bonds-that is a matter of record which anybody can get-is $51,756,000, and the law is perfectly plain that it includes stocks, bonds, and other evidences of indebtedness. How do you reconcile this situation with your statement of $6,000,000, in excess? Mr. CLAYTON. I believe the interpretation of this law would be just as I state here. Mr. HAMMER. What does it say? Mr. COLE. Have you any legal interpretation of that? Mr. CLAYTON. Yes. [Reading:] That no public utility shall issue any stocks, certificates of stock, bonds, or other evidences of indebtedness it does not say "and" or other evidences of indebtedness secured on its property in the District of Columbia for the purpose of any reorganization or consolidation in excess of the total amount of the stocks, certificates of stock, bonds, or other evidences of indebtedness then outstanding against the public utilities so reorganizing or consolidating. It separates them. Mr. HAMMER. That includes bonds, Mr. Clayton? Mr. CLAYTON. I say it does, but it puts them in two specific classes. Anyway, so far as I am concerned, the additional fact is this, that there will be an additional issue of stock in addition to this, which will carry it beyond the amount that is here stated. It is not outside capital coming in to justify it, but they get no additional assets whatever except from the old companies. Mr. MCLEOD. It is just the significance of the words "or" or "and"-"stocks or bonds" and "stocks and bonds." Why would not that be interpreted practically the same thing? It is going to make up the whole. Mr. CLAYTON. My interpretation is that the stocks and bonds stand by themselves. Mr. MCLEOD. Does not that mean the total evidence of indebtedness of the new concern shall not exceed the total evidence of the two combined concerns; and is not your interpretation correct whether stocks, bonds or whatever evidences of indebtedness, it is immaterial, just so the total evidence of indebtedness of the new company shall not exceed those of the two merged companies? Mr. COLE. I think the fair interpretation of this Act is that the commission must recognize the outstanding stocks and bonds. As I gather your theory, there would be some outstanding bonds in excess of the capital of the old companies, which is in violation of this provision of law; is that right? Mr. CLAYTON. Yes. Mr. COLE. Which the commission has recognized and if that is true there is an illegal issue. Of course, no broker would buy the shares on the market and no lawyer would approve such an issue if in violation of the law. Mr. CLAYTON. The North American Company bought in this line here, and I believe acted in good faith. They bought it and found they had bought it when in the light of the Public Utilities Act they had no right to buy it, and they had to sell it. Years ago the Washington Gas Light Company bought stock in the Georgetown Gas Light Company, and the commission went to court and compelled them to sell that stock they had bought. Sometimes corpora tions do things and take a chance on it; it has been done here. It has been done in the cases I referred to. Another matter I want to call attention to is the valuation that the Capital Traction Co. puts on its own property here, which is worthy of consideration of this committee. It provides in the unification agreement that the merged company, after the merger is in effect or the consolidation or unification, whatever you choose to call it I would call it anything else but "merger", because it is not a merger-it provides they shall have the right, if they care to exercise it, to purchase the stock of the Capital Traction Company, the $12,000,000 seven per cent preferred at 120. You take the $12,000,000 stock, and the stockholders will be bound by this if they ratify-and they have ratified this agreement up to this time. Suppose they make that purchase at 120. That would give them $14,400,000, is it not? Their bond issue of the Capital Traction is about $5,600,000. That would be their own estimate of the value of the road, and what they are willing to sell for at $20,000,000, and what they bind themselves to sell for; and for the purposes of this agreement here they are bound to sell at $20,000,000. Yet they say the law of the land says their property is worth for a great many purposes, $26,000,000. Now, I call attention to this fact that if that is the law of the land and they are buttressed, as they claim, so strongly, it is worth that, why is it they were willing to take the $20,000,000 and bind themselves? In other words, our contention is this, that this committee of Congress here does not want to go into rate-making purposes or establishing a basis upon which rates shall be made. And why invite a controversy on that when it can be eliminated, and take their stock arrangements just as they take them and let them exchange them in that way. That is their own base. What the Capital Traction Co. can do for the Washington Railway & Electric Co. stockholders is a matter of no concern, as between themselves, to the car riders of Washington. But when you talk about valuation for the purpose of securing rates of return, they you are invading a field in which the people are intensely interested. I referred awhile ago to the fact that there will be possible development if this bus line is left out of the merger; that it is left out of the merger. Of course, there is a provision that the commission may when they see fit, when they desire, or something of that kind. But as it stands today they want either flesh or fish on this bus proposition, and we are entitled to it, I claim to this committee. Either you merge that line or bring it in or you leave it outside the merger; do not leave it suspended in the air. Mr. MCLEOD. It is not merged, in your opinion? Mr. CLAYTON. No. Mr. MCLEOD. Why not? Mr. CLAYTON. Before you came in I said it is not, because if you examine and go carefully over these unification agreements you will find that it simmers down to this, it is a purchase of the Capital Traction Co. by the new company, called the Capital Transit Co.that and nothing else. The Washington Railway & Electric Co. remains as a holding company for purposes of their own which have not yet been disclosed to this committee, and which I am not familiar with; and the bus company is not merged-I spoke of it awhile ago-but simply bought. Mr. MCLEOD. That is merged as one company, buying? Mr. CLAYTON. Absolutely not, because, Mr. McLeod, here is our situation: If it were merged and goes into the merged company, the rate of fare might be anything I think it would be just what the merged company is charging. The fare continues for awhile, which it will, at 8 cents. It is receiving a 10-cent fare now. Consequently, it is to the interest of the bus companies, at least those operating at a profit, to keep the 10-cent fare, which they would lose by going into the merger. Consequently, it is not merged; it is left outside. Then, another thing, about transfers. We are intensely interested here on the matter of these transfers. We always believed that when the unification agreement-call by any name you please—would come, a merger, that there would be one fare in the District of Columbia. But whatever that fare might be, the initial fare, with the right of transfer in any other way to reach your destination. Now, we are faced with this proposition, and it is perfectly apparent just what will happen. We will get transfers free between the railway cars, just as the law provides we should have them now, and the former commission decided-after Congress operated and free transfers were obligatory between independent street railway lines operating here. That is the law so far as the Utilities Commission is concerned. So, we get nothing in that but what we already have. When it comes to the great development of the future, which is bus transportation, the situation is left in this condition: All the improvements in transportation in the District for the last 10 years have been bus-no street railway development at all. I very much doubt if there is any place where rails could be laid. Therefore, it will be extensions of buses and, as we argue, in order to be a help to the people there should be some compensation, because when they alight from the street car and have to pay one cent, two cents or three cents, whatever it may be, for a bus transfer they are being put to an inconvenience. They much prefer to have that rail run right along, and if it did there would be no additional charge for transfer. There would be no transfer. But we accept the extensions of the buses. We have always quarreled with the commission for charging for the transfer. We thought it was a logical extension of the rail, substituting the bus, which under the law could clearly entitle us to one fare. We believed when the merger company would come that would be so. We are told, "No, that will not; you will have to continue to pay a transfer from the rail to bus and from bus to car.” That is in the discretion of the commission, and if it believes they ought to have two or three cents the commission has a right to give it to them. How does that help the traveling public of Washington? Absolutely, it makes the condition worse confounded; and, not only that, but we are not getting any place on our unification. You take a token and look at it, and it says "One fare in the District of Columbia." That is always the idea of all these charters that Congress for 60 years has been passing here-"One fare in the District of Columbia." It is not so now. But we believed unification would bring it about. |