Jack-straws;

              Bulletin HASKINS & SELLS 91
Not Altogether Clear
IN reviewing the decision of the United
States Supreme Court, under date of
January 6, 1930, in the case of United Rail­ways
and Electric Company of Baltimore
v. West, Chairman, et al (Public Service
Commission of Maryland), one cannot help
but be somewhat amused at an admission
of uncertainty expressed in the decision of
the Maryland Court of Appeals, from
which decision the case went up, on ap­peal,
to the United States Supreme Court.
The admission is found in the following
quotation:
"Counsel for the commission suggests
that to restore value would be to 'require
the financing of additions to plant, to the
extent of the excess of replacement over
original cost of property replaced, by the
public, which would in turn have to pay
a return on the capital thus required.' The
meaning of that suggestion is not altogether
clear, but if it is that the company is en­titled
to the return of anything less than
the value of its property it cannot be sus­tained.
Money deducted from earnings to
replace equipment which has become worn
out or obsolete, by other equipment of the
same character and the same value, adds
nothing to the company's resources, but
merely keeps them at the same level."
The argument of counsel for the Commis­sion
is one of the best reasons yet advanced
for replacement costs. If it is granted that
the amount invested in five units of prop­erty
on the basis of original cost will pur­chase
but four units when the time to
replace arrives, and the utility will at that
time still require five units for efficient
service, let the corporation then borrow,
or increase its own capital investment
accordingly. There can be no objection
during the next depreciation cycle, under
the original cost theory, which then will be
applicable, to recovering the additional
amount invested from recipients of service
in that cycle. Ergo, why not extract, in
advance, from the present generation,
what it is estimated will be required
sometime in the future?
The decision of the Supreme Court of the
United States is interesting, but long. The
essence of the decision, from an accounting
point of view, is found in the following:
"In determining adequate rates for a