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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 or 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. IIoadley 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 loadley note, are represented by the following items: Interest on bonds (4% on $500,000).

$20,000 00 Office and petty expenses..

864 85 Engineering expenses upon power plant (15 + per cent)

2.500 00 Legal expenses

11.063 50 Expenses of mortgage and bond issue.

6,444 43 Organization expenses

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 ('ompany, which controls the Long Acre ('ompany, through the ownership of 190 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

duct upon Second avenue, extending from Forty-second street to Forty-eighth street.
The only portion now being used is from Forty-seventh to Forty-eighth streets.

The only agreement outstanding of which there is any record is an agreement
with the American and British Manufacturing Company, relating to the construc-
tion of a big power station and distribution system, for which the company asks
authority to issue securities. According to this document, the Long Acre Company
has agreed :

(1) To pay the net cost of all apparatus, materials and work provided by the American and British Company, as shown by vouchers approved by the general engineer of the Long Acre Company.

(2) To pay all the expenses of the A. & B. Co. for engineering, superintendence and employees used upon the work,

(3) To pay, in addition to the above items, 15 per cent as a clear profit to the A. & B. Co.,

(4) To make payment by the 10th of each month for the materials, labor, etc., furnished during the preceding month,

(5) To make such payments in notes providing for the public or private sale of bonds which are held as collateral,

(6) To keep upon deposit with the A. & B. Co. approximately $100,000 in bonds above the amount due at any time.

The American and British Company, under the contract :

(1) May sell the $400,000 of bonds pow in the treasury of the Long Acre
Company at 70 per cent of par value;

(2) May sell subsequent issues for “ a fair market value ;"
(3) Shall receive 5 per cent commission upon (1) and (2) ;
(4) Shall continue to own all materials, apparatus, etc., furnished until paid for;

(5) May sublet this contract in whole or in part, and the amount paid to the
subcontractor under this subcontract shall be taken as the cost upon which the
profit of 15 per cent. to be paid to the A. & B. Co. is to be computed.

If the Commission should grant the application of the company, the proceeds
from the sale of the stock and bonds would be expended according to the above
provisions.

DOES SECTION 68 APPLY?
As the Long Acre Company was not supplying current when the Public Service
Commissions Law became a statute, June 6, 1907, one of the first questions raised
by the application is whether the company should not have obtained a certificate
under section 68 of the statute. This section provides:

"No gas corporation or electrical corporation incorporated under the laws of this
or any other state shall begin construction, or exercise any right or privilege under
any franchise hereafter granted, or under any franchise heretofore granted but
not heretofore actually exercised without first having obtained the permission
and approval of the proper commission

The Long Acre Company admits that it had not begun construction prior to June 6, 1907, but claims that a certificate under this section is not necessary because the franchise under which it wishes to operate had been exercised prior to the enactment of the law

seventeen or eighteen years ago. Considerable testimony was presented in the general investigation to show that current was supplied to a number of consumers by the American Electric Illuminating Company from 1889 to 1890. It has been asserted by those opposed to the granting of the application that the Long Acre Company did not supply current at that time nor at any time, but the evidence presented seems to support the contention of the Long Acre Company.

The question resolves itself, therefore, into an interpretation of the statute. Does the law provide that a corporation shall secure a permit to begin construction as distinguished from permission to operate under a franchise? Or, applying it to the present case, does the statute require that the Long Acre Company should have secured permission to begin construction, notwithstanding the fact that another company had operated under the franchise many years ago?

In the first place, there is no question but that the Long Acre Company is an electrical corporation under the law, and that it has obtained no certificate to

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begin construction. The only ways in which the statute may be so construed as to relieve the company from this requirement are two: Either to hold that the words, “begin construction," refer to the same act as " exercise any right or privilege under a franchise

* "; or to construe the phrase “begin construction," as applicable only to such corporations as are to operate under franchises which have never been exercised.

Neither position seems to me tenable. Two distinct acts are contemplated by the statute: To begin construction, and to exercise a right under a franchise. A company might have a right under a franchise which would not involve construction, Hence, the two expressions ought not to be considered synonymous or interchangeable. This conclusion will appear the more natural when one reads the remainder of the section containing a prohibition against municipal construction and operation, except with the approval of the Commission, and also section 53 of the Act and section 59 of the Railroad Law, where the distinction between a certificate of public necessity and convenience and one permitting the exercise of a franchise is clearly drawn.

As to the second point, I can see no logical grounds for holding that the phrase, " under any franchise heretofore granted but not heretofore actually exercised," modifies “ shall begin construction." It is clear, I believe, that it is co-ordinate with “ under any franchise hereafter granted” and modifies or exercise any right or privilege."

LEGALITY OF SECURITIES. The question as to the legality of the stocks and bonds already issued arises in this way.

The company had issued no stock or bonds prior to the passage in 1905, of the law creating the Commission of Gas and Electricity although the Certificate of Incorporation of the company made provision for $50,000 of stock. One of the provisions of the act was:

' Section 12. Stock or bonds shall not be issued by any corporation hereafter incorporated which is subject to the supervision of the Commission, until the certificate of authority has been issued as required in the preceding section, and until such Commission shall further certify, in writing as to the amount of stock or bonds reasonably required for the purposes of the corporation.

Stock and bonds of such corporation shall not be issued in excess of the amount so certified. Any such corporation heretofore or hereafter incorporate shall not increase its capital stock or its bonded indebtedness without the consent in writing of such Commission, stating the amount of the authorized increase."

As the Long Acre Company was incorporated prior to the enactment of the law, the question involves an interpretation of the last sentence only. The matter has been most carefully investigated by the Counsel to the Commission, and in his opinion there is grave doubt whether the stock and bonds of the company have been legally issued, not having been approved under the act of 1905 by the Commission of Gas and Electricity. To reach the conclusion that the Commission's approval was not necessary, one is forced so to construe the statute of 1903 as to permit a company incorporated prior to the passage of the law to put an initial issue of stock and of bonds without any approval whatever. If this construction be the correct one, any such company could have evaded the law so far as its own operations were concerned by making the initial issue so large that the amount raised thereby would have sufficed for a generation. It seems clear that the Legislature did not intend to provide such a loop-hole through which a few corporations could escape the supervision which was so carefully provided for all other corporations. The most natural construction is that the Legislature intended to require all gas and electric corporations to go to the Commission for the approval of all stock and bond issues. The word “increase" is, in my opinion, intended to cover the point where a corporation had already issued stocks or bonds and to provide that stocks and bonds once issued need not be submitted to the Commission of Gas and Electricity for approval, but that all future issues whether “increases or original issues should be approved by the Commission,

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If this is the proper interpretation of the Act of 1905, there was a legal, cer. tainly a moral, duty upon the Long Acre Company to apply to the Commission of Gas and Electricity for the approval of the stock and bonds issued in 1906 and 1907. So far as I have been able to learn no other corporation has relied upon the narrow interpretation of the statute abore referred to; and there have been cases exactly similar to that of the Long Acre Company and others where approval has been asked for an initial issue. The Commission of Gas and Electricity called the attention of the Long Acre Company to the issuance of securities without its approval, and proposed that if there were any question regarding the jurisdiction of the Commission, the matter should be referred to the Attorney-General for an opinion. The Commission did this early in 1907, immediately after the Issuance of the bouds, but as the Long Acre Company would not give the information requested, no opinion was secured from the Attorney-General.

TITLE TO THE FRANCHISE. If the stock and bonds of the Long Acre Company have not been lawfully issued, and at best there is grave doubt as to their legality, two questions naturally arise: First, has the Long Acre Company a clear title to an electric lighting franchise, $550,000 in stock and bonds having been issued for the franchise; second, should the present bonds be legalized by the permission of this Commis. sion to substitute therefor securities from the new issue?

As to the former, it would seem that the title to the franchise will remain with the company until some affirmative action shall be taken successfully to divest It of the title, and no such action has yet been taken. Another question as to the validity of the title was raised by those opposing the application. It was claimed that Martin F. Minturn who cold the franchise to the Long Acre Company, did not own the franchise himself but held it as trustee for two other persons.

A claim to a one-half interest in this franchise was made at the hearing on behalf of a company claiming through one of these two persons. It appears also that there is on record in the County Clerk's office of the County of New York in Liber 13 of General Mortgages, pages 310-320, a mortgage covering this claimant's interest in this franchise, which mortgage was recorded May 24, 1905.

The Long Acre ('ompany denied all knowledge of these assertions. The subject was not completely covered by the evidence, for, in my opinion, the question of title is one to be decided by the courts and not by this Commission. I, therefore, refused to subpoena witnesses desired by those opposing the application, and I have since been informed that a suit is to be brought to test title in the courts.

It is a serious question, however, whether several millions of securities should be stamped with the approval of this Commission when a question has been raised as to the validity of the sale and as to the legality of the transfer by which the franchise came into possession of the company. Innocent purchasers of these securities naturally assume that approval by this Commission would not have been given as long as there as any doubt as to such fundamental matters and that erery precaution had been taken to leave no doubt as to the security of the issue.

CAPITALIZATION OF FRANCHISES. It is doubtful, further, whether this Commission has authority to approve an issue of securities part of which is to be issued to replace bonds of questionable legality which were originally issued in payment for a franchise. Section 69 of the Public Service Commissions La v specifically states:

“ The Commission shall have no power to authorize the capitalization of any franchise to be a corporation or to authorize the capitalization of any franchise or the right to own. operate or enjoy any franchise what. soever in excess of the amount (exclusive of any tax or annual charge) actually paid to the state or to any political subdivision thereof as the

consideration for the grant of such franchise or right." The Long Acre Company proposes to use $ 500,000 of the new bonds to replace same amount issued to private parties for the franchise. This would be in effect a capitalization of the franchise, which is forbidden by law.

There are sereral other features of the application to which attention should be called. The new issue of stock ($10,000,000 par value) is to be non-voting, preferred stock. As a result the affairs of the corporation will be controlled by the holders of a majority of the stock now outstanding. This means that the owners of 251 shares, the total number being 500, having a par value of $25,100 will control a corporation with over $60,000,000 of security. As 490 out of 500 shares are now owned by the Manhattan Transit Company and were issued without one dollar having been received in return, the Manhattan Transit Company controls the Long Acre Company, and unless it sells its interest before the money obtained from the issue of $60,000,000 of securities is invested, the management and control of this large corporation will be in the hands of another corporation which has not invested any money.

An agreement bad already been entered into before this application was made for the expenditure of the money to be raised by the sale of securities. Under this contract, with a company closely allied to the Long Acre Company and the Manhattan Transit Company, it would be possible for a large amount of "water"

to he infused into the capitalization, and in my opinion the interests of the Long Acre Company have not been adequately protected. The contracting company has also been given certain rights regarding the sale of securities which are not considered proper.

WOULD COMPETITION BE ADVANTAGEOUS ? From the above facts, it appears that up to the present moment, the Long Acre Company has never obtained, directly or indirectly, the sanction of this Commission or of its predecessor to any of its operations. Whatever it has done in the way of issuing securities and of constructing a plant has been done, we must assume, at its own risk. That the company has issued $650,000 in securities and has machinery worth about $16,000 may not be cited under such circumstances as a reason for the issuance of more securities. This point should be emphasized, for if this Commission or its predecessor had directly or indirectly in any way given its approval to any act of the company or in any way had encouraged it to begin operation, certain matters about to be considered might not be germane. But as no such approval or permission has been given directly or indirectly, there is a much broader question to be considered than has heretofore been indicated, viz., whether it would be advantageous to the city of New York, to the taxpayers and to the consumers of electric light to permit a new company to supply electricity for light, heat and power in the borough of Manhattan.

One would naturally expect in view of the disappointing experience which New York City has had in its attempt to preserve competition in the electrical field, that the applicant would have produced data to show the deficiencies of the present companies. Only four points were touched upon and these not very fully.

The applicant produced evidence to show that in certain sections of the city many buildings were not wired for electric lighting or connected with the mains, When questioned as to the method by which the Long Acre Company proposed to change this condition, the engineer of the company stated that a wiring company was to be formed whose function it would be to induce owners to install electric connections. It was stated, however, that this company would have no connection whatever with the Long Acre Company; that the Long Acre Company did not intend to do any wiring itself, and that the wiring company expected to conduct its business like any wiring concern.. As there are some 1,500 electrical contractors who are constantly canvassing for work, it does not seem likely that the addition of one company quite independent of the Long Acre Company would change the situation. Further, there is nothing in the application to guarantee that such a company would be formed if the application were granted.

Another point made was that not all the streets are supplied with mains and that the introduction of a new company

would stimulate competition in

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