Mr. GIBSON. Oh, yes; and I will concede, right in that connection, it has a duty, too, to the public-service corporation. It is to protect the people and also protect the public-service corporation.

In ar

Something has been asked you concerning depreciation. As I came in, I think you were using that term "depreciation." riving at this valuation, did you figure any depreciation?

Mr. BRAND. In our computations I took off $4,000,000 of depreciation from the figures of the Washington Railway & Electric Co. Mr. GIBSON. In the decision which you have referred to, the opinion of the court of appeals, was any depreciation taken into consideration?

Mr. BRAND. No, sir; it was considered, but it was not deducted.

Mr. GIBSON. Do you know of any other decision of a court involving either the transfer, merger, or valuation of a public-service corporation in a city comparable in size to Washington, where depreciation was not figured?

Mr. BRAND. No, sir.

Mr. GIBSON. Of course, you can inform the committee just what is meant by "depreciation," so that we may have that in the record. Mr. BRAND. "Depreciation" has several meanings. Its ordinary sense, it seems, is a lessening of value; in accounting it very often means an amount set aside from earnings each year to add to a reserve, which is accumulated for the purpose of providing for replacement of the property, or for in some cases-not ordinarily in the public-service corporation but in some cases-for the recovery of the investment in the property out of earnings.

Mr. GIBSON. Do you mean by this that the sum is set aside each year which in the aggregate at the end of a given number of years will be equal to investment?

Mr. BRAND. Of course, the salvage is taken into consideration, and the life of the property is estimated, and the only depreciation is figured from that.

Mr. GIBSON. Of course, you might have a property with different units, which would have different terms of life.

Mr. BRAND. Another view of depreciation is the actual observed deterioration, or decrease in value or in usefulness, and that is the sense in which it is used by the courts in connection with valuation. They do not consider the accrued depreciation that is charged on the books, but they do consider the estimates of engineers as to the actual observed depreciation.

Mr. GIBSON. You say they do not figure accrued depreciation?

Mr. BRAND. No, sir-not taken on the basis of an annual accrual. Mr. GIBSON. Of course, you are familiar with the situation that arose when the city of Chicago dealt with the same subject? Mr. BRAND. I can not say that I am.

Mr. GIBSON. And in that case accrued depreciation was figured, was it not?

Mr. BRAND. I do not know.

Mr. GIBSON. And accrued depreciation equal to 48 per cent of the value of the property set by the public-service corporation?

Mr. BRAND. No, sir.

Mr. GIBSON. Well, are you familiar with the situation that arose in connection with the Cleveland Street Railway?

Mr. BRAND. No, sir.

Mr. GIBSON. Under a decision rendered by Judge Taylor of the United States court, where the capitalization, in order to bring the thing down upon a reasonable basis, was scaled down 55 per cent; are you familiar with that case?

Mr. BRAND. No, sir.

Mr. GIBSON. As a result, there has been saved to the car riders of the city of Cleveland, from 1918 to 1923, by actual computation, the sum of $25,575,000. Do you know what the capital account of these different corporations now stand at?

Mr. BRAND. Their own figures?

Mr. GIBSON. Yes; approximately, I mean.
Mr. BRAND. About $50,000,000.

Mr. GIBSON. About $50,000,000?

Mr. BRAND. Yes, sir; that is what they stand on their books at. Mr. GIBSON. Do you know how many passenger cars there are? Mr. BRAND. I do not know that offhand; but I can give it to you. The Washington Railway & Electric Co. has 587 cars and the Capital Traction Co. 562; that includes, however, all kinds of cars.

Mr. GIBSON. Yes.

Mr. BRAND. Passenger cars, the figure that you probably want. Mr. GIBSON. That is slightly more than a thousand.

Mr. BRAND. That includes all kinds of cars, some of which are not in use; and the passenger-carrying equipment amounts to 338 for the Capital Traction and 455 for the Washington Railway & Electric Co.

Mr. GIBSON. Do you know the total track mileage of all these railroads?

Mr. BRAND. Yes, sir. The total for the Capital Traction is 64.18 miles owned, 7.15 miles operated under contract, 2.11 miles under trackage rights; a total of 73.44, including Maryland; 64.1 in the District and 9.34 in Maryland-that is, for the Capital Traction Co. For the Washington Railway & Electric Co. the total miles in the District is 67.339 miles, in Maryland 11.144 miles, a total of 78.483 miles; that includes single and double track. The total mileage of each track for the Washington Railway & Electric Co. was 149.877 miles. Mr. GIBSON. Give us the total track of both companies of all the companies that are included in this proposed merger.

Mr. BRAND. The total of those is 223.31.

Mr. HAMMER. That is double track?

Mr. GIBSON. That is the total trackage?
Mr. BRAND. Yes, sir.

Mr. GILBERT. Mr. Chairman, the present examination is developing a good deal of information, and it is very valuable. I have to be on the floor, and I do not want to miss it. So I suggest that we now, as you, Mr. Gibson, can not possibly complete your examination, set some other time for another session. It is practically time. now for the House to convene.

Mr. GIBSON. May I just come to a point I was trying to arrive at? Maybe the colonel can give me the information. Will you find out, if possible, what the Cleveland Railway lines cost the city? I understand that Cleveland at the time it was taken over had 1,469 cars and had a mileage of 33.59, and that the total capital account

of the company stood at $34,541,000. You have a less number of cars and less mileage.

Mr. BRAND. We have an entirely different class of track, however, which must be remembered and considered.

Mr. GIBSON. Is that track more expensive than Cleveland, because Cleveland has a reputation of being the best-maintained railway equipment in all the country?

Mr. BRAND. You must understand that underground construction is far more expensive.

Mr. GIBSON. We will differentiate that.

The CHAIRMAN. The committee will stand adjourned until Monday morning at 10.30.

(Thereupon, at 11.55 o'clock a. m., the committee adjourned to meet Monday, April 23, 1928, at 10.30 o'clock a. m.)

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE DISTRICT OF COLUMBIA,

Monday, April 23, 1928.

The committee met at 10.30 o'clock a. m., Hon. Frederick N. Zihlman (chairman) presiding.

Present: Messrs. McLeod, Gibson, Rathbone, Lampert, Gilbert, Hammer, Combs.

The CHAIRMAN. The committee will be in order. Colonel Brand will please resume.

Mr. HAMMER. Mr. Chairman, may I inquire whether these witnesses that we have been examining have been sworn?

The CHAIRMAN. No, sir.

Mr. HAMMER. Do you not think that we ought to swear them? The CHAIRMAN. I would be very glad to.

Mr. HAMMER. I have heard complaint-I do not know how true it is that the evidence before the public utilities commission in their hearings was not sworn to. They wanted to know why we were not swearing these witnesses. There certainly is no objection to swearing them?

The CHAIRMAN. I have no objection.

STATEMENT OF HARRISON BRAND, JR.-Continued

(The witness was duly sworn by the chairman.)

The CHAIRMAN. When the committee adjourned on Saturday Colonel Gibson was cross-examining Colonel Brand. I have just called Colonel Gibson's office, and he is on his way here. I would suggest that until he comes any other member of the committee that wishes resume the cross-examination.

Mr. HAMMER. Mr. Brand, had you had experience in the valuation of properties of this kind before this?

Mr. BRAND. Not of this kind; no, sir.

Mr. HAMMER. Valuation is a very important matter as a rate base for the commission to fix rates on, is it not?

Mr. BRAND. Yes, sir.

Mr. HAMMER. With whom did you consult in arriving at your opinion as to the correct valuation of this property?

Mr. BRAND. I consulted first with Major Covell, and then I consulted with Mr. H. Carl Wolf, engineer of the Maryland Public Service Commission, who has had considerable experience in valuation, and I have since consulted with Mr. Walter H. Dunlap, an engineering cost analyst now in the employ of the commission, who is now going ahead with a computation based upon the inventory of 1914 and additions since that time, in which he is segregating the amounts into labor and various classes of materials, and is bringing those down to date by separate trend curves for each of the classifications.

He has not completed that work. As soon as he does I shall be glad to submit it.

Mr. HAMMER. Was there any suggestion that you accept the services of experts on the valuation representing regulatory bodies, as well as street-car railways, and if such was offered, would it have been of any value to you?

Mr. BRAND. I do not remember any such suggestion.

Mr. HAMMER. I have heard it stated as a criticism-how just it is I do not undertake to say, because the same custom prevails with our committee-that after you had had your hearings you went into secret conference with the utility company officials.

We in Congress have frequently followed that custom. I never have objected to it, but I have often thought there was some doubt as to whether we should do it. I am not now referring to this committee, but I have been on committees that frequently called in the proponents of the measure after we had the hearings to help us smooth it out after we had decided in their favor. There is nothing unusual in that, as I understand it; but I have heard that you were criticized for that, and for not calling in the opposition.

Mr. BRAND. Judge Hammer, the people were represented in those conferences by Mr. Fleharty, the people's counsel.

Mr. HAMMER. You understand there are committees of the House that are engaged in the same custom in order to get an intelligent conception of how to draft a measure after they have decided in favor of the principle involved in it.

Mr. BRAND. Yes, sir.

Mr. HAMMER. I am not saying that it is a bad practice, but I have heard the complaint that you should have called in the others. Mr. BRAND. We had practically agreed on some points, but others were still in doubt.

Mr. HAMMER. I have not heard a suggestion that you were unduly influenced, but I take it the purpose of the criticism was to leave that impression.

Did you look into the Capital Traction Co.'s valuation sufficiently to realize that their method of computing their value was in harmony with the rules laid down by the Supreme Court?

Mr. BRAND. The value found in that company is reproduction cost new plus certain intangible elements and working cash, materials, and supplies without deducting any depreciation, for reasons that were stated by the court, the principal reason being that the company maintained a sinking fund for depreciation, approximately half of which was invested in securities and the other half was invested in the property itself.

The Supreme Court in the Indianapolis Water case decided that the valuation fixed by the lower court-or the value of the company was at least that fixed by the lower court, and examination of the figures presented in the case indicates that they must have considered reproduction cost new as the controlling element.

Mr. HAMMER. This committee brought out a bill-and I voted for it-to establish a people's counsel. That was a bill that our chairman had very much at heart. Who is that people's counsel now? Mr. BRAND. Mr. Ralph B. Fleharty.

Mr. HAMMER. I understand that he was before you and that he agreed to the $50,000,000 figure; representing the District, he agreed that that was a correct valuation.

Mr. BRAND. As a temporary rate base.

Mr. HAMMER. Did you consult with any expert engineers or others who had information about it, when you arrived at your opinion that 15 per cent was an adequate depreciation for these lines? Mr. BRAND. Yes, sir.

Mr. HAMMER. Would you mind telling us with whom?

Mr. BRAND. Mr. H. Carl Wolf, of the Maryland Public Service Commission. He is the engineer for that commission; he is not a member of the commission. I went over with him the computations I had made, and I had used 10 per cent depreciation at first. He said that as a maximum, knowing as he did the condition of these properties, 15 per cent was better.

Mr. HAMMER. Do you know how much money the carriers have allowed or taken out of their operating expenses to put in their depreciation reserve fund at the present time?

Mr. BRAND. I can give you those figures.

Mr. HAMMER. Very well.

Mr. BRAND. I know them approximately, but I would rather give them to you exactly.

I have an exhibit showing an analysis of the depreciation reserve for the Capital Traction Co., showing a balance in that reserve at the present time of $3,019,086.03.

Also a similar exhibit for the Washington Railway & Electric Co., showing a balance in reserve of $4,219,965.95.

Mr. HAMMER. That is about $7,000,000, then?

Mr. BRAND. Yes, sir.

Mr. HAMMER. Did you know whether you excluded all property that is not used and useful from your valuation?

Mr. BRAND. To the best of my knowledge, I did.

Mr. HAMMER. How about the steel-mill line in Anacostia and the line running out to Laurel? That is not in use now. Is not that included in the valuation-both of those lines?

Mr. BRAND. I believe they are. They are about 8 miles, as I understand it, which would be at approximately $63,000 a mile, since it is unpaved.

The entire cost of the Portland Street line was not paid by the company. A part of it was paid by the steel mill.

Mr. HAMMER. I learned from a member of the citizens' association, or the city council, or some kind of an organization of that kind, that these cars that are in use, of one or both of the companies-a large portion of them has been in use about 20 years. I can hardly believe that. Do you know; I do not?