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 construction 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 now 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 some 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

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.

A

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. 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 incorporated 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 1905 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.

If this is the proper interpretation of the Act of 1905, there was a legal, certainly 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 above 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 bonds, 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 Commission 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 sold 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 Company 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 was any doubt as to such fundamental matters and that every 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 Law 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 whatsoever 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 amount issued to private parties for the franchise. This would be in effect a capitalization of the franchise, which is forbidden by law.

same

There are several 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 had 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 be 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

this direction. There are at present about 456 miles of streets in the borough of Manhattan, of which 393 are "built up." Of this number 321 are supplied with electric service, and with the exception of last year about 50 miles of street mains have been added each year for four years. The two companies now in the field claim to make connections upon liberal terms and as yet the Commission has received no complaints in this direction. The companies have been given to understand that if a complaint should be made, the Commission would expect them to provide service connections wherever reasonably necessary.

The applicant also urged that the Long Acre Company intended to introduce a lamp of much higher efficiency than the carbon filament lamp now in general use. Upon inquiry it developed that the proposed lamp is not yet in commercial use and has not become available outside of the laboratory. Indeed, there is still a question whether it will ever be so perfected as to be generally acceptable. But as the Long Acre Company admits that it does not intend to supply these lamps free, that it does not own or control the patent, and that it has no rights which any other company might not secure, it would be perfectly possible for the present companies to put the same lamp into use. The existence of such a lamp and the possibility that the Long Acre Company might use it do not, in my opinion, constitute a strong argument. This Commission has power to compel the existing companies to provide any lamp of higher efficiency than those in use, which is a more effective means than mere competition. The companies have recently agreed to supply the most efficient lamps now upon the market.

Another argument related to the price at which current would be supplied. The engineer of the company stated that they expected to supply current at eight cents per K. W. II. without lamp renewals, which is fully one cent below what the Manhattan companies are now charging. There is, however, nothing in the franchise to guarantee that a larger sum will never be asked, and the statement must be taken as merely an expression of intention. Further, if eight or nine cents for current only is a reasonable charge and one which a company can afford to maintain, this Commission has power to fix that rate as the proper charge.

COMPETITION ONLY TEMPORARY.

Reference was frequently made in the testimony to the indirect benefits which would come from the introduction of competition through the stimulus thereby provided to induce each company to give the best service at the lowest price in order to keep its present consumers and to obtain others. Undoubtedly this is one of the advantages of competition in any field, but the question at once arises, how long would there continue to be competition in case the Long Acre Company were authorized to issue its securities? In reply to questions upon this point, the representatives of the company admitted that there was no known method whereby combination in one form or another could be prevented-nothing to prevent the same interests from securing control of the Long Acre Company that now control the Edison and the United companies. Under the Public Service Commissions Law a franchise cannot now be transferred without the approval of this Commission, and one company cannot hold the stock of another company without similar approval; but there is nothing to prevent, and there is apparently no legal way of preventing, the stockholders of one company from purchasing stock in another and thus bringing the two companies under one control, virtually, although upon the surface they may be independent and competitors. It there were some way by which the independence of the Long Acre Company could be guaranteed and competition preserved, something might be said in favor of the introduction of a new company, but as a matter of fact the situation is such as to make combination most easy. As the new stock ($10,000,000) is to be non-voting, this $60,000,000 corporation may be controlled by 251 shares of stock ($25,100.) As 490 shares out of the 500 are owned by the Manhattan Transit Company, a transfer of this controlling interest would be the simplest thing possible.

The whole electric history of New York city points the futility of competition. In the early years of the industry numerous companies were organized. From