and of its gold notes, as therein specified, and also its trust agreement to Morton Trust Company, as trustee, dated as of May 1, 1908, said mortgage and trust agreement to be in the form identified by said resolutions as seventeenth revise and seventh revise, respectively, and Whereas, pursuant to said resolutions, the said Interborough Rapid Transit Company has executed and filed with the Secretary of this Commission on April 28, 1908, duplicate originals of said mortgage and trust agreement, authorized as aforesaid, containing certain corrections and changes of form which have been heretofore submitted to and informally approved by this Commission as tending to improve and perfect said instruments, it is hereby Ordered, That the Public Service Commission for the First District does hereby approve and consent to the execution by the said petitioner, Interborough Rapid Transit Company, of its said mortgage unto Morton Trust Company, as trustee, dated as of November 1, 1907, the duplicate original of which is filed in the office of the Secretary of the Commission on this 28th day of April, 1908, and Further Ordered. That the Commission does hereby approve and consent to the execution by Interborough Rapid Transit Company of its said trust agreement unto Morton Trust Company, as trustee, dated May 1, 1908, the duplicate original of which is filed in the office of the Secretary of the Commission on this 28th day of April, 1908. In disposing of the $25,000,000 of short-term notes the Interborough incurred an expense of $1,450,000 as explained in the following letters: INTERBOROUGH RAPID TRANSIT COMPANY. NEW YORK, June 26, 1908. THEODORE P. SHONTS, Chairman. DEAR SIR. In connection with our recent $55,000,000 forty-five year mortgage, dated November 1, 1907, it became necessary, as you know, owing to the bond market conditions then prevailing, to issue $25,000,000 of short-term notes as a temporary relief measure, these notes being secured by $30,000,000 of the bonds. In carrying out this temporary expedient an expense of $1,450,000 was incurred, consisting of discounts, commissions and recording tax. This expense having been eliminated from construction expenditures under a recent ruling of the Interstate Commerce Commission, therefore it follows that it becomes a charge against income account, and while I am not advised of any definite ruling by the Commission as to how it should be treated in income account, I think it is only fair to assume that the same could be distributed over the life of the securities. Inasmuch as these short-term notes were incidental to and a part of the financing covered by the forty-five year mortgage, and are exchangeable for said mortgage bonds, the amount In question, together with any further tax or discount paid for marketing the remaining bonds should, therefore, it is believed, be distributed over the life of the 45-year mortgage. As there has been no ruling on this question by your Commission, and as it is necessary for us to close out our accounts for the month of May, I have given instructions to the Auditing Department to follow the practice herein outlined. Very truly yours. (Signed) T. P. SHONTS, Chairman. Hon. WILLIAM R. WILLCOX, Chairman, Public Service Commission for the First District, State of New York, 154 Nassau Street, New York City. INTERBOROUGH RAPID TRANSIT COMPANY, Executive Committee, THEODORE P. SHONTS, Chairman. NEW YORK, July 8, 1908. Hon. WILLIAM R. WILLCOX, Chairman, Public Service Commission, First District, 154 Nassau Street, New York City: DEAR SIR-Replying to the letter of the Secretary of your Commission, dated July 6, 1908, requesting the details of the $1.450,000 expense connected with the issue of bonds and notes of this company. Our proposition to Messrs. J. P. Morgan & Co. was to undertake the formation of a syndicate to purchase the $25,000,000 of notes at 97% of their face value and accrued interest, for which service in forming and managing the same, they were to receive a commission of 2%, which made the price 95 net, the discount and commission being $1,250,000. On April 28, 1908, we paid the recording tax upon $40,000,000 of forty-five year gold mortgage bonds, dated November 1, 1907, the same being 50 cents per $100, namely, $200,000; total, $1,450,000. Yours very truly, T. P. SHONTS, Chairman. The chairman, at the direction of the Commission, sent the following letter showing how this expense should be disposed of: NEW YORK, July 17, 1908. T P. SHONTS, Esq., Chairman Executive Committee Interborough Rapid Transit Co., 115 Broadway, New York City: DEAR SIR-Your letters of June 26 and July 8 have been considered by the Commission. The points raised therein will be covered by the system of accounts for street and electric railroads, which is now being formulated, and which will probably be adopted by the Commission in the near future. In the meantime, however, that you may be advised of the attitude of the Commission, I will say that, in view of all the facts, the Commission considers the suggestion made by you to be wise and prudent. In the opinion of the Commission, therefore, a separate account should be kept to cover the following items: Discounts and commissions upon an issue of notes of a par value of $25,000,000 Recording tax upon a par value of $40,000,000 of 45 year gold bonds, dated November 1, 1907.. Total $1,250,000 200,000 $1,450,000 A sinking fund or an amortization account should also be kept, to show the amounts paid in to the fund year by year, and the total amount to the credit of the fund at the end of each year, including payments thereto and interest paid or accrved. This fund scould be sufficient at the end of forty-five years to amount to $1,450,000, and the annual payments thereto should be sufficient, with interest thereon, to amount to this sum at the end of the period. The system of accounts for street and electric railroads subsequently adopted provides as follows: "18. Discounts upon securities not to be charged to capital accounts. Discounts upon securities and other commercial paper issued in payment for capital are to be provided for in other accounts and must in no case be charged to the capital accounts." " (928.) AMORTIZATION OF DEBT DISCOUNT AND EXPENSE. "Charge to this account at or before the close of any fiscal period that proportion of the unamortized discount and debt expense on outstanding debt which is applicable to the period. This proportion shall be determined according to a rule, the uniform application of which during the interval between the issue and the maturity of any debt will completely amortize or wipe out the discount at which such debt was issued and the debt expense connected therewith. Such amortization may at the option of the corporation be earlier effected by charging all or any portion of such discount and debt expense to the account (No. 939,) 'Other Deductions from Surplus,' immediately upon issue of the debt or thereafter." (939.) OTHER DEDUCTIONS FROM SURPLUS, "Charge to this account all deductions from surplus because of erroneous accounting in prior fiscal periods, and all other deductions from surplus not elsewhere provided for. Note. A complete analysis of this account will be required in annual reports of corporations to the Public Service Commission." Long Acre Electric Light and Power Company.-Application for authority to issue $10,000,000 of preferred stock, and $50,000,000 of bonds to be secured by a mortgage on its property. Whereas, the Public Service Commission for the First District has received the petition of the Long Acre Light and Power Company, verified the 1st day of February, 1908, praying First. That the Commission authorize the issue by said company of ten million dollars ($10,000,000) par value, of preferred stock, the said stock to be noncumulative and nonvoting, with a specified dividend rate of seven (7) per cent. Second. That the Commission authorize the issue by said company of six per cent (6%) bonds to the extent of fifty million dollars ($50,000,000) of which, Twelve million dollars ($12,000,000) are to be issued at the present time, and The remainder are to be issued as may hereafter be authorized by the Public Service Commission. Third. That the Commission authorize the execution by said company of a mortgage or pledge of all its property to secure the said bonds. Resolved, That the said petition of the said Long Acre Electric Light and Power Company be heard by and before the Public Service Commission for the First District on the 30th day of April, 1908, at 2:30 o'clock in the afternoon, and that the said company publish the following notice of the said application and of the time and place of the said hearing in the following newspapers, namely: The Evening Post and the New York Times, published in the borough of Manhattan, in the city of New York, at least three days in succession before said hearing, and file proof of such publication with the Secretary of this Commission on or before the opening of the said hearing. Notice is hereby given, that an application and petition of the Long Acre Electric Light and Power Company to the Public Service Commission for the First District, has been made, praying First. That the Commission authorize the issue by said Company of ten million dollars ($10,000,000) par value, of preferred stock, the said stock to be noncumulative and nonvoting, with a specified dividend rate of seven (7) per cent. Second. That the Commission authorize the issue by said company of six per cent (6%) bonds to the extent of fifty million dollars ($50,000,000), of which, Twelve million dollars ($12,000,000) are to be issued at the present time, and The remainder are to be issued as may hereafter be authorized by the Public Service Commission. Third. That the Commission authorize the execution by said company of a mortgage or pledge of all its property to secure the said bonds. And that said application and petition will be heard by the said Commission at its office, No. 154 Nassau street, borough of Manhattan, New York city, on April 30th, 1908, at 2:30 o'clock in the afternoon. Dated, New York, LONG ACRE ELECTRIC LIGHT AND POWER COMPANY, 1908. By Hearings were held April 20th, May 5th, 8th, 12th, 15th and 23d. [It is not desirable to introduce a competing electric company into the city of New York. The advantages of competition can be secured through the exercise of the powers of the Commission without the disadvantages. That no certificate to begin construction has been obtained by an electric company and that there is doubt of the legality of the stock and bonds already issued and of its title to the franchise claimed are grounds for denying an application for permission to issue further securities.] * See footnote, page 9. This is an application of the Long Acre Electric Light and Power Company, a corporation organized under the laws of the State of New York for authority: (1) To issue $10,000,000, par value, of preferred stock, nonvoting and noncumulative, with a specified dividend rate of seven per cent.; (2) To issue six per cent., fifty-year, gold bonds to the extent of $50,000,000 of which only $12,000,000 are to be issued at the present time; (3) To execute a mortgage of all its property, present and future, to secure these bonds. The purposes for which it is proposed to issue the stock and present issue of bonds are: (1) To retire the present issue of bonds amounting to $1,000,000; (2) To acquire real estate and to erect thereon power houses and substations; (3) To provide a system of underground mains, ducts, and service connections; (4) To pay the corporate expenses in the conduct of its business." The rules of the Commission relative to such applications have been complied with and hearings held at which those who favored and those who opposed the application were heard. In the general investigation into the affairs of the electric companies in the First District a most exhaustive inquiry was made into the history and present operations of the Long Acre Company. Upon certain points the evidence there taken was supplemented at the hearings on the application. The principal facts brought out by the record are as follows: HISTORY OF THE COMPANY, The Long Acre Electric Light and Power Company was incorporated April 24, 1903, for the purpose of manufacturing, distributing and selling electricity for light, heat and power and with such general powers as would enable it to perform other functions incidental thereto. The area of supply as defined in the original certificate of incorporation was bounded by Fifty-ninth street, Fifth avenue, Thirty-third street and the Hudson river, in the borough of Manhattan. This area was extended by amended certificate upon or about June 7, 1907, to include all of the boroughs of Manhattan and The Bronx. Until March 22, 1906, the Long Acre Company had no franchise, although it is stated that it applied at one time to the board of aldermen and was refused: but upon that date a franchise was transferred to it which had originally been granted to the American Electric Manufacturing Company by the board of aldermen on May 31, 1887, and approved by the mayor upon June 30th, of the same year. This franchise had passed through several hands. According to the record, it was assigned by the American Electric Manufacturing Company to Mr. Frederick E. Townsend under date of April 18, 1888, for one dollar and other considerations not specified in the assignment. Under date of April 19, 1889, Mr. Townsend assigned the franchise to the American Illuminating Company for one dollar and other considerations not specified. A Upon November 8, 1897, a judgment was obtained against this company. receiver was thereupon appointed and ordered by the court to sell the franchise at public auction, he having certified that this franchise was the only property belonging to the company that he could find. The franchise was sold for $100 to Martin Minturn, at public auction by the receiver upon December 4, 1897, and the report of the receiver was confirmed upon October 17, 1898. Apparently no further transfer of the franchise was made until March 21, 1906, as of which date it was assigned by Martin F. Minturn to the Long Acre Electric Light and Power Company. The franchise is very brief and authorizes the holder to erect poles and hang wires for electrical purposes, subject to supervision of certain city officials within the area of New York city at the time of the grant, viz., the borough of Manhattan and that portion of the borough of the Bronx west of the Bronx river. Nothing is said as to the duration of the grant, and the only obligations imposed upon the company are to supply and maintain, free of charge, for public lighting, one arc lamp for every fifty furnished to private consumers and also to pay the city a sum equal to one per cent per linear foot of the streets occupied. FINANCIAL CONDITION. The certificate of incorporation of the company permitted the issuance of capital stock to the extent of $50,000, but not a share had been issued prior to the purchase of the franchise in 1906. Nothing was said in the certificate as to the amount of bonds to be issued and none had been put out prior to 1906. In March of that year the franchise which stood in the name of Mr. Minturn was offered to the company, and a resolution was passed March 22, 1906, by the board of directors authorizing and directing the issue of 500 shares of capital stock of a par value of $100 per share, or $50,000 in all, and of 1,000 four per cent, fifty-year, gold bonds, of $1,000 each, payable semiannually, or $1,000,000 in all. One-half of the bonds (par value, $500,000) were ultimately delivered to certain lawyers, who were said to represent the real owners of the franchise. The stock was issued to the Manhattan Transit Company for negotiating the sale of the franchise. Not one dollar of cash has ever been paid in for the stock of the bonds. Of the remainder of the bonds, $400,000, par value, are in the treasury of the company; $100,000, par value, have been deposited with the American and British Manufacturing Company as collateral security for the execution of the contract between that company and the Long Acre Company. The financial condition of the company upon March 1, 1908, was as follows: There was issued and outstanding $550,000 of stock and bonds, par value, represented by the franchise and the franchise alone. Bonds to the amount of $100,000 had also been deposited with the American and British Company as just stated. There were also current liabilities amounting to $93,325.80, consisting of a demand note in favor of Mr. J. H. Hoadley for $59,150.80; another demand note in favor of the American and British Manufacturing Company for $16,000, and various accounts payable, amounting to $18,175. The only physical property owned by the company is carried on the books as having cost $16,000, which was paid for by the demand note of the American and British Manufacturing Company just referred to. The company claims to have had upon deposit cash amounting to $18,010.21. This is really a credit and was obtained by giving the demand note to Mr. Hoadley, above referred to. The accounts payable, amounting to $18,175, represent $17,500 for legal expenses and $675 for rent and salaries. The remain. ing obligations, being part of the Hoadley note, are represented by the following items: Interest on bonds (4% on $500,000) Office and petty expenses. Engineering expenses upon power plant (15+ per cent) Legal expenses Expenses of mortgage and bond issue. Organization expenses $20,000 00 864 85 2.500 00 11.063 50 6,444 43 267 81 $41,140 59 ASSETS AND LIABILITIES. Besides the franchise the company had no intangible property, and its physical property was limited to a few small engines, generators and other apparatus valued by the company at $16,000 and said to be worth approximately that amount by the electrical engineer of the Commission. These were located upon the premises, at East Forty-seventh street, near Second avenue, of the Manhattan Transit Company, which controls the Long Acre Company, through the ownership of 490 shares out of 500. The Long Acre Company owned no real estate or buildings, and so far as ascertained had paid no money for options upon or part interests in any other property. The plant was purchased in December, 1907, and can be connected with six buildings upon Second avenue, between Forty-seventh and Forty-eighth streets. Upon March 12, 1908, it was supplying only one customer- the Manhattan Transit Company, upon whose premises the plant was located. It has leased a through |