mittee. It is addressed to the chairman and dated May 5, 1928. [Reading:]

Hon. F. N. ZIHLMAN,

GOVERNMENT OF THE DISTRICT OF COLUMBIA,
Washington, May 5, 1928.

Washington, D. C.

MY DEAR MR. ZIHLMAN: I acknowledge receipt of your letter of the 3d instant in which an opinion is asked as to "whether or not the committee has authority to alter or amend the pending resolution dealing with the question of street car merger and ratifying the unification agreement between the two traction companies." You ask me further whether, in my opinion, "the committee must either approve or disapprove the pending resolution without amendment, or whether it has the power to write in provisions of regulations and law which would alter the purpose of the unification agreement." I take it that you

mean in both inquiries whether the Congress has such power, for the committee is but a recommendatory body, and I shall so assume in my reply.

As the law now stands, I do not believe that Congress has an unqualified right to alter or amend the pending joint resolution. Nor do I think that Congress is bound by the existing law. It can enact another law or it can, if it so desires, take any constitutional action in the premises. I am considering the question of a voluntary merger solely in the present legal situation.

By the act of March 4, 1925, the street railway companies are authorized to "merge or consolidate, subject to the approval of the Public Utilities Commission, but such a merger must be approved by a joint resolution of Congress before it is consummated. It is interesting to review the exact wording of that law: "The street railway companies * * * are hereby authorized and empowered to merge or consolidate upon such terms and conditions as may be agreed upon by a vote of a majority in amount of the stock of the respective corporations.' It is clear, then, that such a proposal must be initiated by the companies themselves, and must be “agreed upon by a vote of a majority in amount of the stock of the respective corporations.

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The law, then, states that such a merger or consolidation must be such a one 'as may be approved by the Public Utilities Commission. When this approval is secured, it is provided "that no merger of the said companies shall be finally consummated until the same is approved by a joint resolution of Congress. Congress thus manifestly intended that it should have final determination of the terms of such a voluntary merger and such a question as to whether there may be a voluntary merger upon the terms set out in the unification agreement is presented for such determination. Congress, to my mind, may, therefore, only approve or disapprove it in the terms -presented.

Should Congress, however, decide that it desires to alter or modify the terms of the merger, it may do so, but, in legal effect, it would amount only to a counter proposal and be subject to acceptance or rejection by the utilities involved.

Should the Utilities take the position that such legislation is confiscatory of their properties or rights, that they were denied due process of law, or that any of their constitutional rights had been invaded, they would unquestionably be. entitled to seek relief in the courts that such rights may be determined.

Yours very truly,

WILLIAM W. BRIDE, Corporation Counsel, District of Columbia.

I understood that the committee wished to hear next from Mr. Ham; I was so informed when I came back at noon to-day.

TESTIMONY OF MR. WILLIAM F. HAM, PRESIDENT WASHINGTON RAILWAY & ELECTRIC CO.

(The witness was duly sworn by the chairman.)

The CHAIRMAN. State your

full name.

Mr. HAM. William F. Ham. Mr. Chairman, I will not go into a lengthy discussion. The general subject of merger, it seems to me, has been very fully covered by Mr. Hanna in his statement. I will confine myself more particulerly to those matters which refer par

ticularly to the Washintgon Railway & Electric Co., one of the parties to this agreement.

I wish to say, gentlemen, that I have been connected with the Washington Railway & Electric Co. since 1899; have occupied the positions of comptroller, treasurer, vice president, and, for the last 10 years, that of president. In that length of time I have had an opportunity to not only see the growth and development of the company, but perhaps have realized more than the ordinary person the tremendous advantages that have come to the public through the merger of the number of companies which are now included in the Washington Railway & Electric Co. system. That merger took place by the purchase of stock of these various companies, some ten or twelve in number, in or about 1899, under the ownership of what was the Washington Traction & Electric Co. That company went into receivership, and in 1902 an act of Congress was passed which permitted the consolidation of these companies into the Washington Railway & Electric. Co.

It seems to me that one who has followed the development of the city since 1900 or 1899 must realize what a tremendous factor this consolidation has been in the development of the city in the improvement of traffic conditions, in the upbuilding of real estate values. If we were to think of going back to the conditions that existed at that time, with 8 or 10 small railroad companies and 2 separate light companies, I think we would realize fully the advantages that come from the consolidation, and, as I will touch upon later, it seems to me that we could well expect similar good results from this merger of the three existing transportation companies within the city. We are apt frequently to take a short view of things rather than looking any considerable distance in the future; and if a merger that took place nearly thirty years ago has done this very valuable thing for the upbuilding of the city I believe that 30 years hence the people will realize that this merger has been equally important in bringing about a proper development of the city and of its transportation facilities. Surely for the last 15 years there has been manifested in every way a great desire for merger. This has been evidenced by the actions of various civic bodies and the public press and here in Congress as well. It has gone to such an extent that because of the failure of the companies to merge Congress has considered the passage of legislation that would require a merger and penalized the companies for failure to merge.

I might say I have myself participated in three attempts at merger prior to this one, all of which failed for one reason and another, primarily because the companies could not come to a basis of agreement as to the standing of the security holders of the two companies. But we have now come to a point where the companies have agreed, and that agreement has been approved by the Public Utilities Commission. It now awaits upon Congress as to whether that merger shall be effective or not.

I have stated I have been here since 1899. This merger is sometimes referred to as a merger that has been forced upon the companies by Mr. Wilson, who is the owner of the Washington Rapid Transit Co. and a large stockholder in the North American Co. It has been stated that it has been forced upon these companies by the North American Co. The North American Co. came into this picture

The

through the purchase by interests allied with the North American Co. in 1922. I think there is some misunderstanding as to what is meant by control, when we speak of the North American Co. having a 47 per cent stock interest in this company, thereby having a control of the company. It does have a voting control; it can elect a board of directors of its own selection. But it has not exercised any such control, and since 1922 the North American Co. at no time has had more than 4 directors out of 15. It has at no time attempted to influence that board in the exercise of its independent judgment. board of directors of the Washington Railway & Electric Co. consists of gentlemen who are well-known to the public of Washington, probably to many of the members here. They consist of Mr. Charles J. Bell, chairman of the board, now chairman of the board of directors of the American Security & Trust Co.; Mr. Woodbury Blair; I think he is vice president of the National Savings & Trust Co. Mr. Edwin C. Brandenburg, an attorney, having lived all his life in Washington; Mr. Daniel J. Callahan, vice president and general manager of the Norfolk & Washington Steamboat Co.; Mr. F. W. Doolittle, a vice president of the North American Co.; Mr. Robert V. Fleming, president of the Riggs National Bank; Mr. William T. Galliher, chairman of the board of directors of the Federal-American National Bank; Mr. Julius Garfinckel, merchant, in Washington; Mr. Edwin Gruhl, vice president and general manager of the North American Co.; myself; Col. Robert N. Harper, president of the District National Bank; Mr. Lennard H. Mitchell, a retired gentleman of considerable independent means; Clarence F. Norment, chairman of the board of the National Bank of Washington; Mr. Eugene E. Thompson, of Crane-Parris Co., investment bankers; Mr. Harley P. Wilson, owner of the controlling interest in the Washington Rapid Transit Co.

I think the very recital of the names constituting the board of directors of the Washington Railway & Electric Co. is such as to convince the public of Washington that this merger has not been put over at the insistence of Mr. Wilson or upon the demands of the North American Co., but because it was felt to be a good merger, not only for the owner of some 47 per cent of stock, but also for the remaining 53 per cent of the stockholders. These gentlemen would not have entered into this merger if they had not felt it was to the interests of the stockholders as a whole; and it is not the so-called Wilson plan. Mr. Wilson came down here or began to work on this plan some years ago, as I have been informed. After some months he presented, I think, first to the Public Utilities Commission, a plan of merger; and about November of last year the companies were urged by the commission to go into conference with each other and with Mr. Wilson in an effort to bring about some plan of merger. The Wilson plan, as it had then been outlined, did not prove acceptable to the companies, and these companies got up this plan in conjunction with Mr. Wilson.

Mr. Wilson is entitled to a great deal of credit for his industry and his insistence that some plan of merger be developed. But this is not anything that Mr. Wilson has forced upon the companies, but a plan of merger which the companies worked out among themselves; and it is a very good merger, as I see it, not only for the companies but for the public. I do not believe we could have come upon a

distribution of securities which was more fair, taking all of the circumstances into consideration, and I do not see how anyone who is properly informed-and by that I mean one who has had an opportunity to be informed-could complain or find fault with a single feature of this merger. The necessity of a value of some kind was immediately recognized, because the earning power of this new company formed the basis of the distribution of securities.

Some question has been raised in these hearings as to what impelled the companies to sacrifice the difference between sixty-two and a half million dollars and the fifty million dollars proposed rate base. The $62,500,000 is a fair statement of the value of these properties for rate-making purposes for the companies separately administered. Mr. Hanna has testified to the value of the Capital Traction Co. as determined by the Court of Appeals of the District, and I want to say that where statements have been made that this value of $62,500,000 is nothing more than an estimate it is in my judgment an entirely erroneous way of expressing it. The Capital Traction Co. was valued at the same time as the Washington Railway & Electric Co. and the Potomac Electric Power Co. Very extensive and complete, minute inventories were made of the properties of all of these companies. Months-I might say years were spent in the preparation of those inventories. The man in charge of making up the inventory for the Public Utilities Commission, Mr. Pillsbury, is an engineer of marked ability, and I can conceive of no more thorough inventory having been made of the properties than was made. under his direction in the years 1914-15. The first company that was finally valued was the Potomac Electric Power Co., and the basis of the valuation was the reproduction values of 1914. The Commission in 1917 fixed the value of the Potomac Electric Power Co. in the spring, and in August of that year reduced our rates. The CHAIRMAN. What was the original value fixed?

Mr. HAM. The value as fixed by the commission December 31, 1916, was $11,231,170. Because of the reduction of rates, the company took an appeal to the Supreme Court of the District of Columbia, and that hearing was not prolonged by any failure to act on the part of either the commission or the company, but the court did take a considerable time in reaching a conclusion. The findings of the commission were sustained by the Supreme Court of the District. The company promptly appealed. The case was heard by the Court of Appeals of the District of Columbia, who ruled favorably to the company, and particularly on one point which was of sufficient consequence to warrant them not to go into any other questions.

Mr. COOMBS, Jr. Mr. Chairman, it seems regrettable that we have not a full attendance of the committee at this time, because I believe this question into which Mr. Ham is going is one of the greatest interest to the committee, and almost, I think, a decisive one, so far as the ascertainment of value is concerned. Is there no way in which we can obtain the presence of a little greater number than we have now?

The CHAIRMAN. There may be a way, but I have never found it out. Mr. COOMBS, Jr. Following the disposition of the Welch bill, do you not think we might be able to get a larger number?

The CHAIRMAN. I could not answer that, Mr. Coombs.
Mr. HAM. Shall I continue?

The CHAIRMAN. Proceed, Mr. Ham.

Mr. HAM. From the decision of the Court of Appeals of the Dis trict of Columbia I will read:

The second question relates to alleged errors in the rule adopted by the commission in finding present value. The commission found the fair value of the property as of July 1, 1914, to be $10,250,000. The uncontradicted evidence showed that between that date and December 31, 1916, "the time of said valuation," there had been a sharp rise in values. On this point the commission said:

"The European war did not commence until August, 1914. Its effect was, first, a depression of short duration, since which prices have advanced under this artificial stimulus with such rapidity and to such an extent as to prevent the formation of reliable opinion as to their permanency or future effect upon the industrial and economic situation in this country.'

Appellants contend that the commission, as matter of law, in reaching a conclusion as to the fair value of their property on December 31, 1916, should have taken into consideration the increased value of that property, as shown by the evidence, between the earlier and later dates. This the commission declined to do, but, taking for a basis the fair value of the property as of July 1, 1914, the commission added the net additional expenditures on the property subsequent to that date, and entirely ignored the evidence as to the increase in the value of the property forming the basis of the valuation of July 1, 1914. In its decision the commission said:

"Claims by the company for greater allowances in the reproduction estimate of the physical property were based largely upon the difference in prices created by extraordinary conditions which arose subsequent to July 1, 1914."

The trial court was of the view that the rule adopted by the commission was correct. We are unable to concur in that view.

The principal object of valuation, of course, is to provide a rate base, and the statute clearly contemplates that the commission shall ascertain the value as of "the time of said valuation," and not as of some. anterior date. It has been ruled many times that there must be a fair return to a public utility "upon the reasonable value of the property at the time it is being used for the public." San Diego Land and Town Co. v. National City (174 U. S. 739, 757; Minnesota Rate cases, 230 U. S. 352, 434). In the present case the commission, in effect, declined to find the present value of the property because not satisfied as to how long existing conditions would continue. In assuming this position the commission must have over-looked paragraph 9 of the statute, authorizing it at any time, of its own initiative, to make a revaluation of the property of any public utility. In our view, it was the duty of the commission to have considered and given due weight to the evidence as to the then value of the property. As conditions changed and values were substantially affected, it would have been the further duty of the commission to exercise its discretion and revalue the property. The conditions existing were world-wide and, while their duration and future effect were problematical, there was no immediate prospect of a return to normal conditions. It may be suggested, although the point was not raised in the opinion of the commission, that practical difficulties would have been encountered in an attempt to ascertain the increase in value of the property between July 1, 1914, and December 31, 1916. But there was substantial evidence before the commission as to the rise in values and a brief investigation would have enabled the commission to determine, with substantial accuracy, how much in fairness should be added to the earlier valuation.

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Much reliance was placed by the trial court upon the language of former Justice Hughes, as referee, in the case of Brooklyn Borough Gas Co. v. Public Service Commission-July 24, 1918-but we find nothing in the report, as we read it, justifying the action of the commission here in entirely ignoring the evidence as to value at the time the finding actually was made. The contention was that the rates should be based upon a plant valuation simply representing a hypothetical cost of reproduction" at a time of abnormally high prices due to exceptional conditions. There is a very substantial difference between considering the present cost of reproduction as one of the essential and important elements in the determination of present value, and the acceptance, as conclusive evidence of such value, or mere expert estimates of present cost of reproduction.

We are of the view, therefore, that the present cost of reproduction is one of the necessary elements for consideration, along with other relevant facts, in