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terest on its present bonded debt should be authorized to issue several hundred thousand dollars of additional bonds. Applicant contended that with the completion of its line of railway at both ends, and with adequate motive power, it could convert the present deficit into a profit and meet all ixed charges, including interest on the proposed bond issue, and in support of this contention presented estimates showing the revenue which it expects to derive from freight and passenger traffic when its line has been completed as proposed.

Held: The Commission is unable to say from the evidence whether or not applicant will be able to earn the revenue which it anticipates. In this case, as in all other cases involving the development of the State, in which there is a reasonable doubt, the doubt should be resolved in favor of the utility. The Commission can see to it that the money derived from the sale of the securities goes into the property, but it cannot say whether or not the enterprise will succeed and will be able to pay the hoped for interest on bonds or dividends on stock.

Application granted, authority being given applicant to expend not to exceed $72,000 for extending the railroad to Stockton Channel and $25,000 for purchasing a steam locomotive and a motor car and for such purposes (1) to issue and sell at not less than 80, first mortgage bonds in the face amount of $121,000; (2) or alternative therewith to pledge sufficient of its first mortgage bonds, at not to exceed two to one, to secure $97,000, or so much thereof as may not be secured from a sale of the bonds in the amount authorized to be sold; (3) or, alternative with, the foregoing authorizations to issue and sell at not less than 80, collateral bonds in the amount of $30,000 secured by first mortgage bonds in ratio of not to exceed one and one half to one. Also authority given (4) to issue and sell at not less than 80, additional first mortgage bonds in the face amount of $224,000, the proceeds thereof to be used for improvements on applicant's line from Stockton to Bellota, exclusive of the steam locomotive and motor car, and for extensions of applicant's railway from Bellota to Jenny Lind. The aforesaid issues conditioned upon the prior submission of satisfactory evidence showing that a binding contract or contracts for the sale of the first mortgage bonds have been made.

This is an application for an order of this Commission authorizing the issue of bonds and the use for other purposes of the proceeds of bonds heretofore authorized, as will hereinafter appear in greater detail.

Applicant was incorporated under the laws of California on October 28, 1908, for the purpose of constructing a railroad of standard gauge, to be operated by electricity or other

motive power from the city of Stockton easterly and northeasterly to the town of Jenny Lind, in in Calaveras county, a distance of some 30 miles. Applicant's line of railroad has now been completed along a portion of the route proposed from a point within the city of Stockton to Bellota, situated about 18 miles northeast of Stockton, and is being operated from Stockton to Fine, a distance of some 15.2 miles. For further information concerning applicant's general condition, see this Commission's opinion and supplemental opinion in Application No. 51, which opinion and supplemental opinion, in so far as applicable, are made a part of this opinion.

Applicant's authorized capital stock consists of 6,000 shares of the par value of $100 each, whereof 2,639 shares have been issued. From the sale of this stock applicant has received $183,900 in cash and the agreement with The United Investment Company, hereinafter referred to. Applicant has issued its trust deed, dated April 1, 1911, to the Mercantile Trust Company of San Francisco, to secure the issue of thirty (30) year 6 per cent. bonds totaling $500,000. Of the bonds so authorized, first mortgage bonds of the face value of $116,000 have now been issued as follows:

Bonds sold and delivered ....
Bonds pledged as collateral to secure promissory
notes of $27,000

..$ 47,000 00

54,000 00

Bonds pledged to secure payment of collateral trust
bonds of $10,000

15,000 00

TOTAL

$116,000 00

Applicant has also issued 100 collateral gold bonds of the denomination of $100 each under trust agreement with Mercantile Trust Company of San Francisco, providing for the issue of 500 such bonds, dated April 1, 1911, and due April 1, 1941, with interest at the rate of 6 per cent. per annum. Applicant has therefore now outstanding first mortgage bonds of the face value of $116,000 and collateral bonds of the face value of $10,000, making a total of $126,000. Applicant also owes some $12,000 on current bills and other unsecured indebtedness.

Applicant attached to its petition, as exhibit "B," a statement of expenditures for road and equipment as of October 31, 1912, totaling $314,448.71. This amount, however, includes an item of $66,660.85, of which amount $60,000 consists of capital stock issued by applicant to The United Investment Company, the owner, of all its capital stock except 9 shares, in return for the agreement of the investment company to issue its own stock at varying prices, ranging from 125 per cent. of par upwards in exchange for such bonds of applicant as the purchasers thereof might, from time to time, desire to exchange for such stock. This agreement was supposed to render applicant's bonds more salable. As a matter of fact, this contract is of little or no value to applicant for the reason that few of applicant's bondholders would care to exchange their bonds for stock in the investment company. This Commission's engineering department has reported to the Commission that the original cost of that portion of applicant's property which is being operated is some $213,059.13, that the cost of reproducing the physical property is some $213,267.46 and that the present value of the physical property is some $199,717.83. The figures just given apply only to the operated portion of applicant's line of railway and only to the physical property. While the Commission has not as yet formally passed upon the question of the value of applicant's line of railway, the figures herein given have some bearing on that question and are given for what they may be worth in the present application.

Applicant now also asks for an order of this Commission as follows:

(a) Authorizing the issue of first mortgage bonds of the face value of $378,800 for the purposes hereinafter specified;

(b) Authorizing the issue of collateral bonds of the face value of $30,000 for the purposes hereinafter specified;

(c) Authorizing the use of any or all of the first mortgage bonds as collateral security for funds to be borrowed on short term loans for the purposes hereinafter specified at the ratio of $2.00 par value of bonds for $1.00 of funds borrowed;

(d) Authorizing the application to the purposes of this application of the funds derived from the bonds authorized by this Commission's order in Application No. 51 and not necessary for the purposes specified in said order.

In support of its petition, applicant has presented an estimate of moneys necessary for the completion of its line of railway and for the purchase of a motor car and a steam locomotive, as shown on page 5 of the petition, totaling $303,040. This item includes $30,000 for legal expenses and interest during construction, clearly an excessive amount.

It appeared at the hearing that applicant desires money principally for three purposes: (a) to complete its line of railway from the end of its present track in Stockton to Stockton Channel and ship's side, a distance of some 2.11 miles; (b) to make improvements in its line of railway as now constructed between Stockton and Bellota, and to purchase a steam locomotive and a motor car; and (c) to extend its line of railway from Bellota to the proposed terminus at Jenny Lind, a distance of some 10.9 miles.

Applicant has a valuable franchise in the city of Stockton, authorizing the extension of its line of railway through and along the streets of Stockton to Stockton Channel. Applicant must construct this portion of its line of railway during the next few months or lose its franchise. The evidence shows that when this track to ship's side has been completed, applicant will be able to handle a much larger percentage of the produce of the territory which it traverses than is the case at present. Because of applicant's inability hitherto to deliver its freight at ship's side, and also because of its poor and unreliable service, due to inadequate and unreliable motive power, the farmers living along the line of applicant's railway have preferred, where possible, to haul this produce in wagons into Stockton. Applicant desires now to remove both of these causes of its failure to do a larger business. In addition to completing its line of railway to the water front, applicant desires also to improve its present line, principally by the purchase of a steam locomotive and a motor car and the providing of adequate depot facilities, station buildings and terminal grounds.

Applicant desires, further, to complete its line of railway to Jenny Lind, near which place are located beds of gravel from which applicant expects to derive a considerable

revenue.

Mr. R. A. Thompson, this Commission's chief engineer, has prepared the following estimates of the cost of the three main extensions or improvements which applicant has in view :

ESTIMATE OF COST TO CONSTRUCT AS PER SPECIFICATIONS FILED.

1. END OF PREsent Track in STOCKTON TO STOCKTON CHANNEL, 2.11 MILES. Grading 26 blocks at $105

Trestles

Ties, 5,942 at 61 cents

Rails, 199 tons, 60 pounds, at $39..

Railroad crossings, 21, at $214

Fastenings

Tracklaying, etc.

$2,730 00

35,100 00

3,624 62

7,761 00