Third and more important than either one of those, the car-riding public and the public of Washington as a whole will very greatly benefit by reason of the fact that a unified operation of the transportation systems in the future is going to stimulate and accelerate the beautification and development of the city and of its surrounding territory. I do not believe it can be denied that in the past the development has been hampered to a certain extent by the fact that there were conflicting interests here in the transportation field. Of course, for any one who has been in the transportation field of Washington as long as I have and has been so intimately connected. with this situation, it is hard to realize that there is any argument. about the matter at all. The reasons for unifying these properties are so perfectly obvious that it is hard, really, to find proper arguments for it. But I do not believe anybody disagrees with me in the statement that the public as a whole will very greatly benefit by unified system of transportation here, and that the greatest benefit will be the benefit to the taxpayers, to the property holder of Washington, who is interested in the development, to see it grow, because if it grows his property values are going to increase, and the actual burden of $240,000 to $300,000 per year is a very small price to pay, in my opinion, for the benefits which will accrue by having the work of the Park and Planning Commission and of any other organization or individual bureau or any one else who is concerned with the development of the Capital of the Nation. That, I think, is the principal point in this whole business-the principal advantage from the public point of view, and it has not been, I think, sufficiently emphasized either before the commission or before this committee. That covers the advantages to the public-I am not speaking of the open advantages, the transfer between car lines, because it stands to reason that a merger of these lines would mean unification of the fares as well as unification of the facilities, and I think it is admitted that the service as a whole would be much better-it would be bound to be better with one company than with a number of companies, as well as more efficient. The plan does not provide for any change in the present basis of fare, either for school children or for transfers between busses and cars, because of the belief that Congress when it passed the public utility act in 1913 intended for once and all to put upon that commission the burden of regulating in detail the operation of all of the public utilities in Washington; and we believe that anything put in this legislation which would hamper the Public Utilities Commission present of future in their proper regulation of these properties, would be decidedly opposed to the public interest. Congress has the power to do it; they have the power to repeal the public utilities act, if they consider it desirable but I do not believe they do consider it desirable. I think that they are agreed, although some criticism has been made of utility regulation by a commission in the District as well as throughout the country, that as whole utility regulations by commissions has been successful and it has been successful in Washington and that Congress will so consider it. Take this merger agreement itself: It directly follows the law that was laid down by Congress. The companies agreed on a certain plan of merger, which involves the organization of a new company, which, as well as through its stock, purchased the transpor tation properties of the three existing companies the properties in the two cases and the stock and bonds in the other case. Those two arrangements are definitely provided for in the merger writing. That arrangement has been approved by the two public utilities commissions, and provision is made for the incorporation of the new company as provided in the law under the District Code, and Congress is asked to pass a joint resolution approving the merger bill. So that the merger act of 1925 has been followed right down the line. There are in addition to that certain modifications of existing law which are asked: The repeal of the crossing police which, as has been stated in this committee is universally considered should be repealed; a change in the paving assessment and, if the committee so desires-though it is not included in the resolution-a provision empowering the Public Utilities Commission to make lower rates to school children. The CHAIRMAN. Mr. Hanna, this agreement provides that the Washington company, which means under the terms of the unification agreement, the Washington Railway & Electric Co., will cause the Potomac Electric Power Co., subject to the approval of the Public Utilities Commission, to enter into a power arrangement with the new company on terms which will create a situation such that the net cost of power to the new company shall not exceed the present aggregate cost of power to the Capital company and the Washington company, and the new company will take over all existing contracts of the Washington company for the sale of power to other railway companies. This entire agreement is conditioned on such approval of said commission. Mr. Clayton makes the point that this Potomac Electric Power Co. may pass into other hands, and that the present Washington company, as is referred to in this agreement, will be powerless to compel the carrying out of a contract which will in its aggregate not exceed the present cost to the Capital company and the Washington company. Mr. HANNA. It may be that such a possible contingency may have been the cause of that clause being put in there. The Potomac Electric Power Co. now belongs to or is controlled by the Washington Railway & Electric Co. It will still be controlled by that company at the time this merger is effected; if it is not, the terms of the agreement can not be carried out. The provision there is that the Washington Railway & Electric Co., which is a party to the agreement, obligates itself to cause the Potomac Electric Power Co. to enter into this agreement with the transit company, and that that contract shall be for the life of the franchise of the company which lives the longest or shortest. The CHAIRMAN. Mr. Clagett calls my attention to the fact that I was reading from the old agreement, and that you have a further provision in this new agreement, providing that the said power contract between the Potomac Electric Power Co. and the new company shall run for the life of whichever of the franchises of these two companies expires first? Mr. HANNA. Yes, sir. The CHAIRMAN. And that the new company shall take over all existing contracts of the Washington company for the sale of power to the other companies. Mr. HANNA. The whole intent of it is, as I stated, that the new company would get all of the benefits-the new company and the car riders-under the agreement get all the benefits which they now have. The CHAIRMAN. You regard that aggregate cost as a very favorable cost as compared with the cost of other companies? Mr. HANNA. Oh, very favorable; yes, sir. The cost of power for the Capital Traction Co. itself on car-mile basis is very much less than the average expense of similar companies throughout the country-considerably less; and the net cost of the Washington Railway & Electric Co. is vastly less; that is, when you take into consideration the profits on the sale of power to these other companies it is almost nothing. The CHAIRMAN. I was not here this morning, so you will excuse me if I ask something that you answered this morning. It has been repeatedly stated before the committee here that the directors of your company-either the stockholders or directors-had instructed you to apply for an increase over the present rate of fare? Mr. HANNA. Yes, sir; I made that statement and it was repeated. The directors of the Capital Traction Co. instructed me to apply for an increase in the rate of fare, I think it was last September. After receiving that instruction, they authorized me-which is a little better word, as it was done at my request-I found out that Mr. Wilson had been laying a plan for bringing about a merger of these companies. Of course, merger negotiations had been carried on in the past over a considerable period of time, and quite extensively with the North American and the Capital Traction Co. two years ago. We decided that before making this application we would consult with the North American about it, and advised them of our plans. I went to New York and talked with Mr. Gould, and he advised me Mr. Wilson was here and hoped to bring about a merger of the companies, and suggested that I talk to Mr. Wilson. I came back, and while it was not the first time I had met him, it was the first time I had talked with Mr. Wilson-and found that he had hopes of bringing the thing about; and we decided not to apply for an increased fare pending these negotiations, for two reasons: In the first place, we were still hopeful that conditions would improve if the merger went through so that an increased fare would not be necessary; and, secondly, we did not know whether an application for increased fare at that time would hurt or help the negotiations from any point of view. We are honestly anxious to bring about a merger and honestly anxious to keep the fares as low as we possibly can. I think I can make that statement because of the fact that we have gone along several years without making such an application when conditions certainly warranted it. I will state further that we have announced publicly and privately that we will make an application for increased fare if this agreement is not approved at the present time, as we can not wait any longer. The CHAIRMAN. What are your earnings now, Mr. Hanna, on the value of your property? Mr. HANNA. We earned 3.8 per cent on the value of our property in the year 1927, and the actual earnings the first four months of this year are considerably less than that. The CHAIRMAN. What did you earn on your stock? Mr. HANNA. We earned slightly under 6 per cent on our stock last. We earned $707,000, while $720,000 represents 6 per cent. year. The CHAIRMAN. The stock was selling above par? Mr. HANNA. The stock was selling above par; yes, sir. Mr. HANNA. I think it was about 109 yesterday; it has been varying between 8 and 10 the last few weeks. I think it fair to state that the present market value is justified entirely apart from the merger, because of the potential earnings of the company, and that a reasonable increase in the rate of fare would put us back where we were earning over 7 per cent. The CHAIRMAN. Did you prepare this table, Colonel Brand [exhibiting document]? Mr. BRAND. Yes, sir. The CHAIRMAN. I think as Mr. BRAND. I prepared that because of some questions asked by Judge Gilbert, but did not put it in the record. The CHAIRMAN. There has been a great deal of testimony here in reference to the question of valuation, Mr. Hanna. Colonel Brand prepared for Judge Gilbert, so he informs me, this table which I have before me, which shows the common stock of your company outstanding to be $12,000,000; that on April 30 it had a market value of 109,. making the total market value $13,080,000; that your first five bonds, which have a par value of $5,606,000, were selling April 30 at 10334, making the total market value of your bonds as of April 30, $5,816,225; total value of your outstanding stocks and securities as of April 30 on the market, $18,896,225. Is that approximately correct? Mr. HANNA. Yes, sir; I put some figures in this morning that practically check out. I took the stock at 110 and the bonds at par,. but it amounts to about the same thing; it is about $19,000,000, the market value of our securities at the present time. The CHAIRMAN. You might put this entire statement in the record. It shows the outstanding bonds and stock of the three companiesthe Capital Traction Co., the Washington Railway & Electric Co., and the Potomac Electric Power Co., and the market value as of April 30, the common stock of the Railway & Electric Co. being quoted at 400 and preferred stock at 102; it shows an aggregate market value as of April 30 of $87,606,783. Mr. BRAND. This statement was prepared by me on the bid prices as of April 30. The reason for including the Potomac Electric Power Co. is that the ownership of that property is represented in the common stock of the Washington Railway & Electric Co. The bid price included for the Washington Railway & Electric Co. is 400; the last sale at the time this statement was prepared was 450. At 450 over $3,000,000 would have to be added to this total, making in excess of $90,000,000. The present rate base of the Potomac Electric Power Co. is approximately $40,000,000 and the rate base being requested by the Traction Co. is $50,000,000 or a total of $90,000,000. (The tabulation referred to is as follows:) Securities of companies actually outstanding in hands of public as of January 1, 1928, and their market value at bid prices as of April 30, 1928 Mr. COMBS, Jr. There is no way, Colonel, is there, of segregating the assets of the Washington Railway & Electric Co. so that you can arrive at a fair valuation of their stock irrespective of the value of the Potomac property? Mr. BRAND. There may be some way, but it would require quite a little study. Mr. COMBS, Jr. It would be guesswork to a certain extent? Mr. BRAND. It would be guesswork to some extent; yes, sir. The CHAIRMAN. Mr. Gibson, do you wish to ask Mr. Hanna some questions? Mr. GIBSON. I was not here during the first part of Mr. Hanna's testimony. There are only a few questions I want to ask. Mr. Hanna has made a pretty fair witness, a good witness for his company, at least, and has almost made me believe that these organizations were charitable institutions rather than public service corporations. Mr. HANNA. We are not that, Colonel, but we do believe that our interests can only be furthered if we look after the interests of the public. Mr. GIBSON. You said you were going to make an application for a raise in rates for the Capital Traction Co. if Congress did not accept this agreement at this session? Mr. HANNA. Yes, sir. Mr. GIBSON. Your unification agreement provides that Congress shall have until June, 1929, does it not? Mr. HANNA. Yes; but there is another provision in there, Colonel, that was put in there at my direct request. There is a provision in paragraph 11 [reading]: The said rate base shall remain in effect for a period of 10 years, and thereafter until a revaluation is made. Upon the rate base established as aforesaid the new company shall be entitled to earn a reasonable rate of return: Provided, |