7 per cent on $50,000,000 when one of them is earning about 1 per cent, or something like that, and the other one about 4 per cent, or something like that?

Colonel LADUE. Judge, I can not prove to you that they will. In fact, I can not prove to myself that they will. I do not think that anybody is prepared to state as a positive and definite matter that they will earn it.

Mr. GILBERT. It is a very remote hope, is it not?

Colonel LADUE. It will require a change in present conditions; yes, sir. It will require an increase in income from car riders. It will require a material reduction in the cost of operation-operating expenses in order to do it. I think it is a very pleasant hope to contemplate.

Mr. GILBERT. This merger anticipates the separation of the power

company.

Colonel LADUE. Yes, sir.

Mr. GILBERT. The power company has been bearing the burdens of the Washington Railway & Electric Co.?

Colonel LADUE. The Washington Railway & Electric Co. owns the power company and the revenue from the power company has gone into the general treasury of the Washington Railway & Electric Co., and has thereby put that treasury in a much more flourishing condition than it would have been if it had been obliged to depend entirely upon the earnings of its traction properties.

Mr. GILBERT. This proposition, if consummated, then, will result in a very material benefit to the power company?

Colonel LADUE. I do not know that that is exactly involved here. The power company, I take it, goes on as now. It continues to be owned by the Washington Railway & Electric Co., which remains in existence as a holding company. It will be operated as now, supplying power to the general consumers and also supplying power to the railway companies essentially the same in amount and exactly on the same terms as now.

Mr. GILBERT. What will become of the earnings of the power company after the merger?

Colonel LADUE. The power company's net earnings will go to the stockholders. The Washington Railway & Electric Co. is the owner of the stock-and I may say also to its bondholders. I believe it has some bonds.

The income of the power company, after paying the interest on its bonds, will go to its preferred and common stockholders. The Washington Railway & Electric Co. owns the entire common stock. Mr. GILBERT. Will the present stockholders of the Washington Railway & Electric Co. receive those increased dividends, independent of the owners of the merged system?

Colonel LADUE. The owners of the merged system will be the common and the preferred stockholders; just what the division of that stock will be I am unable to say. The agreement provides that the preferred stock shall go to the present stockholders of the Capital Traction Co. and the common stock shall go to the Washington Railway & Electric Co. as a holding company.

But it is provided in the merger agreement that the stockholders of the Capital Traction Co. may at their option exchange their preferred stock for common stock on a certain basis which is set forth in the agreement.

Leaving out whatever differences, slight changes in the distribution of stock may result from the exercise of that option by the Capital Traction Co. stockholders, the dividends, the net income on the preferred stock will go to the individual present stockholders of the Capital Traction Co., or whatever person they may assign their stock to. The dividends on the common stock will go into the general treasury of the Washington Railway & Electric Co. along with the dividends from the power company and any other income that they may have, and from that general treasury will be paid such dividends as the stockholders, both preferred and common, of the Washington Railway & Electric Co. are entitled to.

Mr. GILBERT. Now, the profits that are now made by the power company and which go to increase the earnings of the railroad companies will after the merger be separated from that, and the deficit between the earnings of the railway properties and a fair return upon their valuation will become wider?

Colonel LADUE. I do not see it that way, Judge. The Washington Railway & Electric Co. will be a holding company, holding stock in the electric power company and also holding stock in the traction company.

Mr. COMBS. That is the merged company?

Colonel LADUE. That is the merged company, yes, not the present company, because the present traction company properties of the Washington Railway & Electric Co. go to the merged company, and the Washington Railway & Electric Co. will be a holding company, holding stock in the new traction company and in the Potomac Electric Power Co.; and whatever dividends or return come from either of those properties will go into the general treasury of the Washington Railway & Electric Co. I presume that when it gets there it will be properly and fairly and lawfully distributed among the stockholders of the Washington Railway & Electric Co. as a holding utility company.

Mr. GILBERT. Of course, we must assume that and will gladly assume that, but the thing I am not clear on is that while now the profits of the power company to some extent relieve the embarrassments of the railway properties, after the merger, should the railroad companies go into court for a fair return on their propertues, will not the advantages they now derive from the power company under this agreement be excluded and a fair return be required on their properties exclusive of the earnings that they get on the power company?

Colonel LADUE. Oh, no doubt, but I think the same is true now. Mr. GILBERT. You say that is true now?

Mr. COMBS. That 1 per cent dividend.

Mr. GILBERT. It is true if you consider their earnings now at 1 per cent instead of at 6 per cent which they paid because of the fact that they received dividends from the power company?

Colonel LADUE. In the case of the merger, that would undoubtedly be true if they came into court or came before the commission for an increased fare, in order to earn a fair return upon the fair value of the merged traction property, the power company would be entirely out of it; but I believe the same is true now, because if the Washington Railway & Electric Co. came in, say, to the Public Utilities Commission, demanding an increase in fare in order to enable then to earn a fair return, the property, the basis on which that fair return would

be figured, would be not their entire holdings, but their holdings in property used and useful to the public in transportation.

Mr. GILBERT. Will not that result in permitting them through a court or commission to very materially increase their income of their transportation property and retain unaffected the very greatly increased profits that will result from their holdings in the power company?

Colonel LADUE. Their return and their rights as holders of stockof course, the Washington Railway & Electric Co. could not come in and ask for an increase in fare for the traction company in that case, but assuming that the traction company would come in, for an increase in fare, the rights of the stockholders, whether they are the holders of the preferred, who will be the individuals, or the holders of the common, which will be the Washington Railway & Electric Co. as a holding company, the rights of these stockholders will be determined entirely by the value of the property of the traction company, the merged company, which is used and useful in furnishing transportation in the public service, and the power company would be out of it entirely.

Of course, the power company's profits are things that need not. cause any one any great concern, because the power company is likewise under regulation by the Public Utilities Commission and the power company's return on the fair value of its property will be kept down to a reasonable figure. It will be kept to a ppint where the power company will not be earning any more on its property than it is entitled to earn.

Mr. GILBERT. What are they earning now under the commission? Colonel LADUE. Nine and one-fourth per cent, I think.

Mr. GILBERT. Nine and a quarter per cent; and with that earning did they not add about $2,000,000 to their surplus last year?

Colonel LADUE. I believe it was something less than $2,000,000-a million and a half.

Mr. GIBSON. It was $1,709,465.

Mr. BRAND. That does not agree with our reports.

Mr. GIBSON. I thought you checked this for me?

Mr. BRAND. I did check it; but I do not think that you will find that that earning statement was correct. I gave you a separate earning statement, because that was changed around in such a way that I could not exactly check it.

Mr. GILBERT. Accuracy at this point is not necessary. It is conceded they added about a million and a half to their surplus. Mr. BRAND. Yes.

Mr. GILBERT. With over 9 per cent income.

per

Mr. BRAND. Nine and a quarter per cent is the return-the net operating income applied to the value of their properties as agree d upon by the courts and the commission. In other words, that 9 cent on $40,000,000-it was $3,750,000 that they earned before paying interest and dividends; but that is the figure with which we worked. We worked with net operating income as return on their power properties.

Mr. GILBERT. I catch that. Now, with these facts before you and that this profitable company is divorced under the merger, is not my guess of $20,000,000 as a value for the transportation properties from an investment standpoint approximately correct?

Colonel LADUE. I am entirely unable to answer that.

Mr. GILBERT. Put in these words, if a private concern would come in here and buy these transportation properties divorced from the power company, solely for the purpose of making money, having in mind the hazards of the business, would the income heretofore received justify them paying anything more than $20,000,000 for these properties?

Colonel LADUE. Well, Judge, I hope you will excuse me from attempting to give an answer to that question, which is entirely beyond my knowledge. I do not know what a banking house or a bond house or an underwriting holding company would be willing to give for these properties or what they would be justified in giving. That is a matter on which I am entirely unable to express an opinion. There are others who could give an opinion on that much better.

Mr. GILBERT. You understand that I, too, am just nothing but a "hill billie," with ordinary common sense-nothing but common sense-just ordinary common sense without any technical knowledge. But it does seem with that much knowledge, having before you the figures of the return on these properties in the past and knowing the value of the use of money that you ought to be able by taking the income to arrive at some idea as to what the value of the property is as an investment; and under those figures does it not show that $20,000,000 as an investment is about all this transportation property is worth?

Colonel LADUE. Well, Judge, I again ask that you excuse me from attempting to answer a question of that sort.

Of course, this is property which is devoted to the use of the public for a public service. The courts have held repeatedly that the companies are entitled to have that property valued at a fair valuation, taking into consideration the fact that it is used for public purposes and that it is circumscribed and regulated more or less; and the courts have laid down certain principles to govern that valuation. I suppose that in making a fair valuation of the properties the question of its earning power is one of the matters to be considered. But certainly it is not the only one, and it is not even the most important one probably, from our point of view. It is one of the things to be considered, but I could not say that the value of this property is $20,000,000, based upon its earnings.

Mr. GILBERT. I recognize the difficulties of my question, and that it is not a complete yardstick by which you can measure the situation. Yet it has its bearing undoubtedly.

Now, enlighten me on this further proposition: By this agreement are we not perhaps put in the situation of saying to these companies, "Yes, we can consent for you to divorce and retain your valuable investment property and then you can come at the end of one year and say to the public 'You take care of our unprofitable investment property'"?

Colonel LADUE. The two kinds of property are both devoted to the service of the public in different ways. The power property is devoted to the service of the public, is serving the public under regulation by the Public Utilities Commission as a power utility. The transit properties are devoted to the public use and are serving the public under regulation of the Public Utilities Commission as traction

properties. The two classes of property stand each on its own bottom.

Mr. GILBERT. I understand, but there is no reason why a light user who does not use the street cars ought to be made to keep up the street cars?

Colonel LADUE. No; I do not think he is.

Mr. GILBERT. Every light user adds to the profits of the power company?

Colonel LADUE. Every light user and power user pays for the services that the power company renders to him, and he pays at rates which are under the regulation of the Public Utilities Commission and are approved by them, and which are based upon a decision of the highest court we can get to state what is the proper value and what is the proper rate.

Mr. GILBERT. I understand; but that is just contrary to the position these companies are taking as to policemen, and I thoroughly agree with them, that it is none of their business to pay for policemen, because while the public, after all, is paying the police, yet there is a difference between the general public and the street-car rider. I can see no reason why a man who rides the street cars should pay for the policemen to protect the fellow who rides in the automobile because, after all, he is the one in danger. Nine-tenths of their usefulness is for the benefit of pedestrians and automobilists and not for the street-car riders, and I do not believe that the street-car riders ought to be required to pay for that protection to somebody else. They maintain that position in my opinion correctly. But, then, they ought not to be heard to say that the light user and streetcar riders ought to be put in the same position, because after all they are the general public.

Colonel LADUE. I do not take it that they are taking that position; I do not understand it so.

Mr. GILBERT. Is not that the position you are taking in answer to my last question?

Colonel LADUE. No; I did not intend to take such a position. My understanding of the situation and my position in the matter is that the light company-the power company-distinct and separate and independent of the traction companies, is owned by an entirely different set of people.

Mr. GILBERT. That is true. Therefore, when you divorce them under this merger you let the companies retain their profit-making investments?

Colonel LADUE. You let the stockholders

Mr. GILBERT. Let the stockholders retain their profit-making investments; and then come to the courts and say, "Make the public pay us a return on our nonprofitable investments.'

Colonel LADUE. They have the right to do that right now, Judge. This power company is not scrambled up with the railroad company now; it is a separate entity entirely, simply owned by the railroad company, that is all. that is all. It is just as separate and distinct an entity and power agency

Mr. GILBERT. I understand that.

Colonel LADUE. You are not trying to unscramble anything that is already scrambled. It is not scrambled; it stays just as it is; it stays owned by the present stockholders.