Electric Public Utilities Co. v. Public Service Commission

Adkins, J., delivered the opinion of the Court. This appeal is from a decree of Circuit Court Ho. 2 of Baltimore City, approving an order of the Public Service Commission refusing to grant permission to the appellant, the Electric Public Utilities Company, to purchase the capi ⁴⁴⁷ tal stocks of the Home Electric Light Company of Lonaconing, the Emmittsburg Electric Company, the Antietam Electric Light & Power Company, and the Midland Electric Light Company, four Maryland corporations, and to pledge said stocks, together with other stocks owned by applicants, under a trust agreement between tbe applicant and the Guaranty Trust Company of New York, to secure $4,000,-000 of collateral gold bonds to be issued thereunder. The applicant made application under section 394 of article 23 of the Code which provides: “Ho gas corporation or electrical corporation shall transfer or lease its franchise, works or system, or any part of such franchise, works or system to any other person or corporation or contract for the operation of its works and system, without the written consent of the commission. The permission and approval of the commission to the exercise of a franchise under this sub-title, or to the assignment, transfer or lease of a franchise under this section shall not be construed to revive or validate any lapsed or invalid franchise or to enlarge or add to the powers and privileges contained in the grant of any franchise or to waive any forfeiture.

Ho such corporation shall directly or indirectly acquire the stock or bonds of any other corporation incorporated for or engaged in, the same or similar business, or proposing to operate or operating under a franchise from the same or any other municipality, unless authorized to do so by the commission. Save where stock shall be transferred or held for the purpose of collateral security only with the consent of the commission, no stock corporation of any description, domestic or foreign, other than a gas or electrical corporation, shall purchase or acquire, take or hold, more than ten per centum of the total capital stock issued by any gas corporation or electrical corporation organized or existing under and by virtue of the laws of this state. Hothing herein contained shall be construed to prevent the holding of stock heretofore lawfully acquired. Every contract, assignment, transfer, agreement for transfer of any ⁴⁴⁸ stock by or through any person or corporation to any corporation in violation of any provision of this subtitle, shall be void and of no effect, and no such transfer or assignment shall be made upon the books of any gas corporation or electrical corporation, or shall be recognized as effective for any purpose.” The applicant is a holding company incorporated under the laws of Delaware on February 7th, 1927, and authorized, among other things, to acquire and hold shares of stock of corporations engaged in the electric business.

By its original charter, filed as an exhibit; it was authorized to issue one thousand shares of capital stock of- no par value; of which at the time of the application ten shares had been subscribed for but not issued. There must have been an amended charter, not filed or mentioned in the testimony, because it appears from the testimony and the bond circular that it was authorized to issue twenty thousand shares of seven dollar dividend preferred stock no par value, and two hundred thousand shares of common stock no par value. It. owns practically all the common stock of the Electric Public Service Company, the Louisiana Utilities & Ice, Inc., and the Wooster Electric Company, of which the Electric Public Service Company is also a holding company, owning practically all the stock of nine subsidiary companies, operating-in Ohio-, Oklahoma, Kansas and Colorado, variously in street railways, light and power, natural gas and gas wells, and transmission lines. The Louisiana Utilities & Ice, Inc., operated ice properties in Mississippi, Florida and Texas.

The Wooster Electric Company is an operating electric utility in Ohio. The stocks of all these companies were appraised by the syndicate of bankers, who agreed to underwrite the bond issue, at $7,219,353. The market value of the stock of the four Maryland companies was estimated by Stanley & Bissell, Inc., the head of the syndicate; at not less than $468,000, as per its letter to the commission. The capital stock of the Maryland com ⁴⁴⁹ panies authorized and outstanding, and the par value per share, are as follows: The Home Electric Company, authorized 2000 shares, outstanding 555 shares, par value $25 each.

The Emmitsburg Electric Company, authorized 3000 shares, outstanding 1500 shares, par value $10 each. Antietam Electric Light & Power Company, authorized 180 shares, outstanding 115 shares, par value $100 each. The Midland Electric Light Company, authorized 500 shares, outstanding 500 shares, par value $10 each. The total par value of the outstanding shares is $45,375.

These companies furnish small towns and surrounding country with light and power. Two of them are close enough together to he worked as a unit; the other two are separated from each other and the others by a number of miles. Only the Antietam Company generates any part of its power requirements. This company obtains its power in part from a hydro-electric plant on Antietam, Creek.

The balance of its requirements and the entire power requirements of the other three companies are purchased from the Potomac Edison Company. The report of Barrow, Wade, Guthrie & Co., accountants and auditors, shows for the four companies for 1926 net earnings available for interest, depreciation, and federal income taxes, $48,829.32, and, deducting from this interest, depreciation, and federal income tax, the audit shows net profit for ,,the year of $31,621.98. And it shows the financial position of the combined companies as of December 31, 1926: “Assets...............................$588,437.98 Debts, bonds.................$50,000.00 Current and accrued liabilities.. 29,684.79 ----- 79,684.79” “The plant and property account” in the audit of assets “is included at the total value of the property and business of the combined companies, as estimated by Messrs. D'ay & Zimmerman, Inc.” Thomas O’Hara, at the time of the contract of sale, was the owner of practically all the stock of the four Maryland ⁴⁵⁰ corporations, and he had also owned a number of other companies, but decided to retire from the business, and had disposed of all sueh interests except his stock in these companies, and was therefore desirous of disposing of them also-.

Before making the contract he employed Day & Zimmerman, Inc., engineers, of Philadelphia, to examine and appraise the properties. Harvey It. Martz, manager of their investigations and reports department, testified that they make investigations of public utility and industrial properties for all purposes ; that they cover the whole economic field of the public utility industry. They estimated the reproduction costs of the combined properties to be $346,602, which sum includes $20,000 for working capital, and seven per cent, cost of financing.

They estimated the value of the properties and business as of February 1st, 1927, to be substantially $500,000. The report filed is voluminous, minute and in great detail. On this report appellant, through its agents, agreed to pay for the stocks of said companies $468,000 and to assume the outstanding bonded indebtedness of $50,000. As against this H. Carl Wolf, chief engineer of the commission, the making of whose inventory, he says, was “perforce somewhat hasty,” testified that his estimate of reproduction cost, including $13,340 for working capital, less depreciation of $46,305, was $221,700.

And adding $20,840 for “going value,” he arrived at $242,540, which “in my estimation is the very outside value of the property.” He was depending, however, for details, upon a valuation made by William F. Strouse, the valuation engineer of the commission. Mr. Strouse in his testimony admitted that he was handicapped by shortness' of time allowed. He said he made his appraisal “in such detail as a man could make on four properties in four days.” The explanation offered for the small capitalization of these companies was that the properties had been in the hands of people who had put back into them the earnings which had not been represented by a proper increase in stock. Applicant offered testimony tending to show that improvements in the plants were necessary; that the present owner was indisposed to make them; that applicant had ready com ⁴⁵¹ maud of money and would malee such improvements; that better service would be given and the use of electricity increased by active and vigorous management, and by salesmanship and facilities which were at the command of applicant.

The manager testified that applicant had paid cash for all the properties it had bought; that it was not buying for speculation with a view to selling again; that its important officials had been in the electrical business for' many years and desired to continue in it. There were a number of protests by customers of the Maryland companies against permitting them to be sold to applicant. These protests were based on the price to be paid, which protestants thought was excessive, and that it would be reflected in increased costs to them. The Potomac Edison Company was also a protestan!.

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