The CHAIRMAN. It was passed yesterday, but Wednesday was our regular committee day, and it was to be five days after that. The Chair was asked to expedite hearings and to conclude them in five days.

Mr. MCLEOD. Do you withdraw your motion? If so, I wanted to make another motion.

Mr. BOWMAN. My motion would have no force and effect unless we reconsider the former motion.

The CHAIRMAN. The motion of that kind is in order, but the Chair would call the attention of the gentleman from West Virginia to the fact that the resolution providing for five days further hearing was arrived at in executive session, and the Chair thinks the motion to reconsider ought to be taken up in that way.

Mr. COOMBS. Mr Chairman, what other witnesses are there? The CHAIRMAN. The committee can call all they desire. The companies' witnesses have not been heard. The chamber of commerce asked for a brief period and the board of trade asks for a brief hearing; the Central Labor Union have asked for a hearing, as have the Parent-Teachers' Association of the District of Columbia for about 10 minutes to speak in behalf of half-fare plans for school children. These are the applications that the committee has received for hearing.

Mr. MCLEOD. Which will undoubtedly take up those five days; is that the opinion of the Chair?

The CHAIRMAN. Well, the Chair thinks that the committee can by holding night sessions hear all the parties who have made application and any other witnesses the committee desires to hear.

Mr. MCLEOD. That would be Tuesday or Wednesday of next week that the hearings would close. I therefore move at this time that the last of next week the committee go into executive session for action on the bill one way or the other.

The CHAIRMAN. That motion is not in order unless the committee closes the hearings.

Mr. MCLEOD. The hearing will conclude in five days according to the motion passed?

The CHAIRMAN. Yes.

Mr. MCLEOD. Therefore I move that when the hearings close at the end of this next week we go into executive session for the consideration of the bill. That will give us two days to look over the transcript or whatever there is in the line of material so that we might take some kind of intelligent action.

The CHAIRMAN. The Chair thinks that inasmuch as the committee laid out the plan of action in executive session that your motion ought to be taken up in executive session.

Mr. MCLEOD. Is it in order that we now go into executive session? I make that motion.

The CHAIRMAN. The rules of the committee are that the committee goes into executive session upon the request of any one member. At the conclusion of the executive session the committee will adjourn to meet tomorrow morning at 10.30 o'clock.

(Thereupon, at 11.55 o'clock, a. m., the committee proceeded to the consideration of executive business, and at the conclusion thereof adjourned to meet to-morrow, Friday, May 4, 1928, at 10.30 o'clock a. m.)

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE DISTRICT OF COLUMBIA,
Friday, May 4, 1928.

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

The CHAIRMAN. The committee will be in order. The committee in executive session yesterday instructed the Chair to call next the people's counsel. Mr. Clayton, however, desires to clarify a statemant made by him yesterday, and we will permit Mr. Clayton to do so, with the understanding that he will relinquish the stand to Mr. Fleharty.

TESTIMONY OF WILLIAM MCK. CLAYTON-Resumed

Mr. CLAYTON. I appreciate, Mr. Chairman, the courtesy. One of the reasons I want to add to my opinion, as I believe, why the bus company is not merged by the unification agreement, in addition to those stated to the committee yesterday, is that the bus company pays no 4 per cent tax on its gross receipts; it pays no taxes except the hacker's license, real estate taxes, and personal tax. Consequently, if it is not merged, it still further escapes that tax which is paid by the two street-car companies, not only on gross receipts but on receipts from busses operated by them, and that would be a considerable item amounting to between $16,000 and $20,000 a year. That, to my mind, is an additional reason why they do not merge the bus company at the present time. I want to add that, and then I also want to add to my statement

Mr. REID. Will you permit an interruption right there? Could it not be put under that same agreement?

Mr. CLAYTON. Oh, yes, they could be, but they are not; and this bill you have before you does not provide for it. The silence of that

Mr. REID. You understand, I just wanted to get your idea on that.

Mr. CLAYTON. I call attention to it as one of the reasons why, in my judgment, for what it is worth, the bus company does not merge. The other matter I want to refer to is of far more importance, as I see it, the conflict between the substantive law and the unification agreement. I read from the unification agreement:. "Summary of plan and letter to Public Utilities Commission of Harley P. Wilson," who we know as the author of the plan, under date of Washington, D. C., February 10, 1928. That letter from Mr. Wilson is a letter addressed to the Hon. John W. Childress, Public Utilities Commission, Washington, D. C. It is a lengthy letter explaining the unification agreement in detail.

This pamphlet also contains a statement headed "What the street railway and bus unification plan provides," which is a summary of the plan.

On page 14 of this pamphlet there is a heading at the top of the page "Capitalization," which reads as follows: [Reading]:

The capitalization of the new company will be based upon the agreed rate base of $50,000,000 plus the approximately $2,400,000 provided as above by the present companies for track changes and working capital, or a total capitalization

of bonds and stocks of approximately $52,400,000. The capitalization will be as follows:

Funded debt..

I presume that is bonds, of course.

Unfunded debt___.

$18, 108, 000

$550,000

That, I presume, refers to the indebtedness taken over of the bus company.

Stocks:

120,000 shares of 7 per cent cumulative preferred stock, series Α.

217,420 shares (approximately) of common stock..

Total capitalization...

The present capitalization, including both the bonds and stocks of the two railway companies, excluding bus company, is $45,108,000— showing an overissue of stocks and bonds of approximately $7,000,000. Mr. REID. You are going to return, are you?

Mr. CLAYTON. Oh, yes.

Mr. REID. All right.

The CHAIRMAN. Now, Mr. Fleharty.

TESTIMONY OF RALPH B. FLEHARTY, PEOPLE'S COUNSEL TO THE PUBLIC UTILITIES COMMISSION

Mr. FLEHARTY. If the committee please, I prepared a rather brief statement which in a general way outlines the position I have in mind in this matter, and I would like to have the privilege of making that statement and then subject myself to questions, if that is agreeable to the chairman and the committee.

The office of the people's counsel of the Public Utilities Commission of the District of Columbia was created by act of Congress approved December 15, 1926, and by the terms of that act it was provided that the people's counsel should represent and appear for the people of the District of Columbia at all hearings of the Public Utilities Commission and in all judicial proceedings involving the interests of users of the products of or service furnished by utilities under the jurisdiction of the commission. Other duties which are not important for the purpose of this hearing were also imposed upon the office.

As a resident of the District of Columbia for approximately 30 years I have, of course, been familiar with the general demand for a merger of the transportation companies of the District of Columbia and have understood that the public was extremely anxious that such a merger be consummated. And it was with an attitude of mind brought about by that general demand that I approached the questions involved by the submission of the unification agreement between the transportation companies. Immediately upon the unification agreement being received by the Public Utilities Commission I caused printed copies to be forwarded to all citizens' associations, along with a letter in which I asked for comments either in writing or by interview and invited the cooperation of everyone who wished to participate in presenting the case from the standpoint of the public in general.

Subsequently I was afforded an opportunity to speak over the radio, and in that talk I pointed out the salient features of the merger agreement and suggested that I would be glad to hear from the public as to their opinions pro and con.

As a result of either or both of these communications I received. numerous letters from civic organizations and individuals. I will not take time to summarize those letters, except to say that a small minority of them favored the merger agreement as submitted, and others, while favoring merger generally, pointed out specific objections to the proposed agreement. Of the objections, it is safe to say that in the main they were directed to the fixed rate base of $50,000,000 and the 7 per cent return provided for in the agreement. The letters were introduced in evidence and made part of the record. in the hearings before the commission. I do not know that they were copied into the record, but they were attached as exhibits.

Personally I considered the question of merger, first, from the standpoint that it was apparently generally desired, and, second, that it was something that the people could not demand as a matter of right, but that the agreement of the companies concerned was an essential element thereto. In other words, everything that the public desired could not reasonably be expected, because the agreement of the companies is a condition precedent to any merger agreement. It has been argued by some that a compulsory merger would be constitutional, but I have never been able to bring my mind to such a conclusion, except as to a merger brought about by public ownership, including compensation to the companies for their properties. I believe that it is generally conceded that public ownership is not desirable in the District of Columbia.

At the hearings before the commission I took the position that a fixed rate base and a fixed rate of return were not desirable. I took this position as an advocate asking for the extreme demands of my clients but with faint hope of obtaining all I asked. In the meantime I made an investigation into the probable fair value of the combined companies. As has been stated here, we had the value of the Capital Traction Co. as fixed by the final decision of the Court of Appeals of the District of Columbia. We also had the value of the Washington Railway & Electric Co. as well as that of the Capital Traction Co. fixed by the Public Utilities Commission of the District of Columbia as of June 30, 1919.

In arriving at the values of the respective companies as of June 30, 1919, the commission found the reproduction cost as of 1914 and added thereto the book cost of net additions and betterments. The 1914 fair value of the Capital Traction Co. as found by the commission was $13,560,863 and that of the Washington Railway & Electric Co. and its subsidiaries was $14,822,194; or, as of 1914 on the commission's figures, the Washington Railway & Electric Co. was fairly worth $1,261,331 more than the Capital Traction Co. However, the commission's method of arriving at the 1919 valuations was declared by the court of appeals in the Capital Traction Co. case to be erroneous. By applying the same reproduction figures as used in the Capital Traction Co. case to the Washington Railway & Electric Co. 1914 valuation as found by the commission, and thus bringing up to a 1925 reproduction valuation, the difference in value of the two companies would be approximately $4,000,000. So, as a general

it

proposition, it would seem to be fairly well established that the Washington Railway & Electric Co. in 1919 was, on the basis of the decree in the Capital Traction Co. case, worth several millions of dollars more than the Capital Traction Co.; and an examination of the records of the Public Utilities Commission shows that that difference in value has been maintained. These valuations had only to do with the properties within the District of Columbia. On this broad basis the properties of the combined companies appeared to be fairly worth a figure several million dollars in excess of $50,000,000. I conferred with Mr. Bachman, former chief accountant of the Public Utilities Commission, and we went over statements submitted by the Washington Railway & Electric Co. claiming value in excess of $30,000,000. I asked him whether such statement was substantially correct if it were conceded that the method of valuation as fixed by the decision of the court of appeals in the Capital Traction Co. case was correct; and he agreed that in round figures such a result would be arrived at.

I also conferred with Major Covell, likewise with Colonel Brand, and went over with him how he arrived at the figures in the Capital Traction Co. case and brought it up to date and in conference with him he also agreed that the valuation on that basis would be in excess by several million dollars of $50,000,000.

I reached the conclusion during the progress of the hearings that if a valuation of these properties had been had and if the commission had fixed a value of $50,000,000 for rate-making purposes, such a valuation would have been declared by the courts to be insufficient and confiscatory. Therefore, during the hearings I did not take the position that a valuation of $50,000,000 was excessive, but contented myself with the position that a fixed value of any amount was undesirable and attempted to persuade not only the commission but the heads of the traction companies that an agreement should be entered into which contained no fixed rate base.

I was even more positive in my position that a fixed rate return of 7 per cent should not be included in the agreement, and this has been eliminated from the agreement as it comes to you.

After the hearings had been concluded conferences were had at which members of the commission, heads and attorneys of the traction companies, and I were present. From these conferences it was perfectly apparent that the companies would not enter into an agreement which did not contain a provision for a fixed rate base of $50,000,000, and as a result the proposition was finally made that a base of $50,000,000 for a period of 10 years would be included, such rate base, however, not to be evidence of fair value in any subsequent valuation of the properties.

Having in mind the attitude of the public toward merger and the rights of the companies with respect thereto, as heretofore stated, I decided to support the amended merger agreement, containing a $50,000,000 rate base for a period of 10 years, believing that a merger was not obtainable under other circumstances. I feel that by the elimination of the 7 per cent rate of return the commission will maintian complete control of the situation at all times during the period of 10 years, as application for fare increases will be dependent upon service rendered and a mere application for an increase in fare will not mean the granting of such application as would have been