APPLICATIONS FOR AUTHORITY TO ISSUE STOCKS, BONDS, ETC., BEFORE THE COMMISSION IN 1917

AUTHORIZATION OF TRANSFER OF STOCK

The Public Service Commissions Law contains provisions against the combination of public utility companies through holding corporations but it permits such combination to be accomplished by public service corporations with the consent of the Commission. In 1917 there was one application for the Commission's consent to the acquisition of capital stock of another utility. The New York Railways Company applied for and obtained permission to acquire all of the capital stock of the Bleecker Street & Fulton Ferry Railroad Company already leased for a long term of years to the New York Railways Company (Case 2194).

PRINCIPAL CASES OF 1917

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Interborough Rapid Transit Company (Cases 2182 and 2218). On March 20, 1913, the day following the execution of the Dual System Contracts, the Commission authorized the Interborough Rapid Transit Company to execute a new refunding and general mortgage securing a total bond issue of $300,000,000 and to issue thereunder bonds of a face value of $160,957,000. this amount, approximately $53,000,000 was for refunding the company's outstanding bonds and notes, $79,000,000 for the construction and equipment of new City-owned subways and $29,000,000 for elevated extensions and improvements. The cost of the work, however, outran the estimates and in February, 1917, the company filed an application for authority to issue $16,436,000 of additional bonds to complete the elevated lines and a few months later filed another application for authority to issue $25,483,772 additional bonds for subway equipment. No additional bonds were contemplated for subway construction as the City under the contract with the company assumed all obligations to finance construction expenditures in excess of the stipulated contribution from the company ($58,000,000, including an allowance of $3,000,000 for the nearly completed Steinway tunnel).

The Commission was reluctant to approve the issue of fiftyyear bonds for the portion of the expenditures that represented the cost of replacing existing property but felt bound by the terms of the contracts which in the case of the elevated improvements

provided for the inclusion in the investment of the entire cost of construction, with certain qualifications as to the Manhattan power-plant improvements and changes. As to these latter the order of the Commission required the company to keep a separate record of replacements and write them off the balance sheet as their amortization was completed through the operation of a one per cent sinking fund. Such replacements were estimated to cost $2,000,000 out of total cash expenditures amounting to $5,391,000.

The Commission's examination of the proposed expenditures for subway equipment resulted in a reduction of some $430,000 in the amount of bonds applied for.

Both authorizations were made on the basis of a selling price of 9311⁄2 per cent, but none of the bonds had been sold by the company up to the close of the year.

The accompanying table summarizes the purposes of the issue of all the bonds thus far authorized, amounting in the aggregate to $200,446,000.

INTERBOROUGH RAPID TRANSIT COMPANY FIRST AND REFUNDING MORTGAGE BONDS (1) Authorized by Public Service Commission, March 20, 1913 (Case 1614)

(2) Authorized May 25, 1917, as amended July 27, 1917 (Case 2182)

Dry Dock, East Broadway and Battery Railroad Company (Case 1715).— Under date of July 31, 1913, the Dry Dock, East Broadway and Battery Railroad Company made application to the Commission for leave to execute a refunding mortgage and deed of trust to the Central Trust Company of New York as trustee for $4,300,000 and to issue thereunder about $560,000 Series B bonds and $2,240,000 Series C bonds for the purpose of paying certain debts and obligations and terminating the receivership to which the company had been subjected since February, 1908.

Volume I of the 1914 Annual Report (pages 322-326) gives a résumé of the important features of the application. The case was closed January 23, 1914, but on February 20, 1914, was reopened to allow the company to submit further evidence. By an order entered on April 28, 1914, and confirmed, after a rehearing, by an order adopted December 11, 1914, the Commission denied the application on three grounds: (1) that the obligations to be refunded were not proved to have been issued for capital purposes; (2) that the company's capitalization would be in excess of the value of the property, and (3) that the interest on the proposed refunding issues could probably not be earned. Then the company obtained a writ of certiorari for the judicial review of the decision. In certiorari proceedings the Appellate Division of the Supreme Court of the First Department sustained the

Commission's action in a decision handed down May 7, 1915, holding that, while the Commission was wrong in applying the test of the actual value of the company's property and its earning capacity as the measure of the new securities to be issued, it was right in refusing the issues without proof that they represented actual investments for the company's capital account and that the Commission is the judge of "the quality and value of that proof."

On August 3, 1915, a petition was filed for a rehearing. After further hearings the Commission entered an order on May 11, 1916, denying the application with leave to file another application for an issue of $1,828,385 as representing expenditures not. chargeable to income account. An amended order was entered on May 25, 1916, to permit an application of $2,030,000 because of records discovered which would, according to the applicant, justify the increased issue. An amended petition was filed July 31, 1916, for an issue of $528,500 par value of Series B bonds and of $1,501,500 par value of Series C bonds, but on June 8, 1917, an order was adopted confirming the determination of May 11, 1916, and authorizing the issue of $528,000 par value of Series B bonds and $1,300,200 par value of Series C bonds.

Among other provisions of the principal order of June 8, 1917, the company is required to endorse in red ink on each bond issued that the authorization was not based on a valuation by the Commission of the properties of the company or on any satisfactory proof to the Commission that the interest charges can be earned. An inventory of the fixed capital of the company as of January 1, 1918, shall be filed with the Commission together with the ledger values, classified in accordance with the Uniform System of Accounts prescribed by the Commission. In the opinion, Commissioner Hayward pointed out that the Commission had "resolved in the applicant's favor serious doubts as to the sufficiency of the probative quality and the value of the evidence adduced as to the proper capitalizability of all the items for which the obligations proposed to be refunded were originally issued. In approving the amount indicated, the Commission is of the opinion that the wholesome rule laid down by the Appellate Division to govern refunding cases leaves important questions of