Senator ROBSION. Well, I would like to inquire what is there about it that would make utility stock sell at six times the par value? Mr. LAMBERT. You will have the opportunity of asking the utility man that.

Senator ROBSION. It must be very good stock and must pay well. The CHAIRMAN. What is supposed to be the market value now? Is it quoted on the market?

Mr. LAMBERT. Yes; it is quoted. I have seen it quoted at about $120 or $130.

The CHAIRMAN. It has almost doubled within the last two years, from $75 or $80?

Mr. LAMBERT. In 1928 it was $75 or $80, or something like that. I think $125 was the basis the stockholders were offered to sell for. The CHAIRMAN. On what basis is the very great increase in market value justified, such as we have seen here in the last two years? Are they expecting to increase rates so that they can pay a dividend on that increased value?

Mr. LAMBERT. No; as I understand, the object is to try to decrease rates.

Senator BLAINE. Has there been an increase in the earnings to justify the increase in the price of the stock?

Mr. LAMBERT. Well, of course, the earnings have moved up from time to time. Except originally, in the very early days, this stock has never been sold at anything like the $20 par. As I said, I think before you came in Senator, this company was organized in 1848 and followed along the same par-value system.

Senator ROBSION. Did they increase the stock since 1848?

Mr. LAMBERT. They have increased the stock at different periods since 1848 up to 1896. In 1896 they reached 130,000 shares and it has stood there ever since.

Senator ROBSION. Well, one of the purposes of this merger is to issue other stock, or to increase the stock, is it?

Mr. LAMBERT. Oh, no. The purpose of this merger is to take the Georgetown company into the Washington company, but the bill also provides that as any necessity may be shown to exist for the enlargement of existing facilities or putting in capital for the purpose of meeting the requirements of the consumer or the people they shall be allowed to issue stock commensurate therewith, provided it be approved by the Public Utilities Commission as a proper extension. Senator BLAINE. That is, for the extension of the distribution system and additions, betterments, improvements, and other corporate purposes?

Mr. LAMBERT. Yes.

Senator BLAINE. What would be the other corporate purposes? Mr. LAMBERT. The other corporate purposes would be capital purposes.

Senator ROBSION. That is a rather wide open permit, is it not, to increase the stock? That languge would permit the increase of stock under almost any circumstances.

Mr. LAMBERT. No; it would not increase any stock unless the money was obtained first that went into capital account, and that would have to be vised by the Government's Public Utilities Commission as to whether it was a proper thing for which to provide.

Senator BLAINE. I suppose what has happened in this case, as in most utility cases, is that the capital stock has increased by reason. of the fact the community has constantly grown; that the company has developed to meet that advancement in growth and the public has paid a rate for the purposes that has permitted this expansion to be made, and, therefore, increased the value of the stock.

Mr. LAMBERT. Yes.

Senator BLAINE. In other words, the public has contributed sufficient income.

Mr. LAMBERT. No; you put earnings into the company.

Senator BLAINE. But the public has contributed.

Senator ROBSION. The public has paid.

Senator BLAINE. It has paid for the extension, and the stockholders are the beneficiaries of that.

Mr. LAMBERT. No; the company has had to borrow considerable

money.

Senator BLAINE. And the public paid that.

Mr. LAMBERT. Many extensions do not pay until after they run for some time.

Senator ROBSION. The company must be in awfully good shape, and it must earn splendid dividends, or the stocks would not go from

$20 to $130 a share.

Senator BLAINE. That is the way they get the enhancement in the value, by the public actually paying for the extensions. As its extensions developed the earnings developed, and therefore the stock is enhanced in value, but the public has really put in that value and not the stockholders.

Senator ROBSION. Absolutely. They do not get any money except what they get from the public.

Mr. LAMBERT. Well, we are meeting a situation here and now to know how to proceed in the future.

Senator BLAINE. I was outlining what appeared to me to be the usual situation.

Mr. LAMBERT. I understand what is in your mind.

Senator ROBSION. Before we leave that, what is the stock of this Washington Gas Light Co. worth?

Mr. LAMBERT. That is what I have been talking about.

Senator ROBSION. I thought that was the Georgetown company. Mr. LAMBERT. The Georgetown company is not on the market at all.

The CHAIRMAN. I think there have been two companies, Senator Robsion, as I understand it, but they have really been owned by one interest.

Senator ROBSION. Does the 130,000 shares represent both companies?

Mr. LAMBERT. One hundred and thirty thousand shares represents the capital stock of the Washington Gas Light Co. There is $150,000 of stock in the Georgetown company, as I understand, and that is all owned by the Washington company.

The CHAIRMAN. What dividends have you been paying?

Mr. LAMBERT. You are asking for the Washington company dividends?

The CHAIRMAN. Yes; the Washington company.

Mr. LAMBERT. Eighteen per cent on $20 par.

The CHAIRMAN. When it had a market value of about $75, that would be a return of about how much?

Mr. LAMBERT. About 6 per cent.

The CHAIRMAN. The interesting thing to me is this-how are you going to pay dividends on a market value of $125 or $130 without an increase in rates. I am wondering.

Mr. LAMBERT. I want you to ask Mr. Burroughs that when he takes the stand.

Senator ROBSION. What is interesting to me, too, is by what procedure is a rate of service to be charged the public that would earn a dividend of 18 per cent net. Of course, that is the thing that enhances the stock.

Mr. LAMBERT. But you must remember that is 18 per cent on par. Senator ROBSION. I understand it is 18 per cent on par, but if the consumers had been charged such a rate as to pay a reasonable dividend through the years back, let us say, 6 per cent, your stock never would have advanced to $130. These rates that produce these very large dividends enhance the market value of the stock. I am wondering under what law you were authorized to fix a rate to the public that would justify a net dividend of 18 per cent.

Mr. LAMBERT. That is water passed over the dam long ago. Senator ROBSION. That rate was fixed many years ago when your property was not worth nearly as much as it is now.

Mr. LAMBERT. It was in its initial stage.

The CHAIRMAN. But it seems to have jumped very rapidly here in the last two years.

Mr. LAMBERT. It jumped because there was a demand that did not exist heretofore.

The CHAIRMAN. It is hard to understand what would justify the enormous increase of market value unless it was the expectation of getting a good dividend on that increased market value. I think what we are interested in learning here is whether this new group can come in here, reorganize the company and jump up the rates.

Mr. LAMBERT. That is what you are going to hear, and that is what you are going to learn is not the case, if I am not very much mistaken.

I wanted to give my attention to the legal details. The practical end is with the practical engineers.

Senator BLAINE. What astounds me is that a large part of the city of Washington is lighted by an ancient system of gas lighting. Mr. LAMBERT. I do not think you are right.

Senator BLAINE. Principally in the so-called poorer sections of the city. You go up about Twenty-second and Twenty-third Street and over here in this direction, and you will find those quarters lighted by dim gas lights, and yet we have a modern electric lighting system in the city.

Mr. LAMBERT. That is not the fault of the gas company.

Senator BLAINE. I said it was an astounding thing to me. I did not put it to you to explain.

Mr. LAMBERT. I can understand that.

Senator ROBSION. I guess these people in these different sections would like to have a brighter light if we insisted on electric lights. instead of gas lights.

Mr. LAMBERT. Of course, the great consumption of gas is not in the lights.

Senator BLAINE. I was just wondering why the whole city was not electrically lighted. Has the gas company an exclusive franchise? Mr. LAMBERT. Oh, no; the gas company is doing comparatively little of the street lighting.

Senator BLAINE. The District commissioners could take all the gas lights off the streets and put in electric lights.

Mr. LAMBERT. If Congress would appropriate the money to enable them to do it.

Senator BLAINE. Yes.

Mr. LAMBERT. As I understand it, digressing a little, I think the Government now gets a 70-cent gas rate under legislation, which is operated at a loss by the company.

Senator BLAINE. You mean the Government?

Mr. LAMBERT. Yes. Now, in reference to the merger bill and the amendment, Senator, is there anything else, as you go along in that bill, that you want to ask about.

Seator BLAINE. I wanted to inquire if this section 2 on page 3 providing for the issuing of additional stock, is a power that now rests in the Public Utilities Commission under the present law.

Mr. LAMBERT. It does not. There ought to be some arrangement for it to rest there, but the only way the gas company has of getting any money now for its capital account is to issue bonds.

Senator BLAINE. I see. This is a new power?

Mr. LAMBERT. And we want to get away from the bond issue if we can and raise our money by what is the usual way of raising it, either by common or preferred stock, but the company can do nothing whatsoever either by way of consummating the merger or by way of issuing a dollar's worth of stock until Congress's arm, its agent, the Public Utilities Commission, has pursued its investigation and decided that it is a fair or a just thing to allow to be done, under this bill. Senator ROBSION. Is there not a minority group of stockholders in the Washington company?

Mr. LAMBERT. There are minority stockholders in the Washington company, the difference between 108,000 plus and 130,000 shares of stock held by the public around generally.

Senator ROвSION. What is there in this bill that protects them? I see that you say that the commission is likewise authorized to permit the Washington company to change all its shares of stock now authorized, issued, or outstanding to the same number of shares of stock of no par value.

Mr. LAMBERT. They have the same protection the other stockholders have, to have their meeting before the commission can do anything and decide to request it to be done and ask for the commission's permission.

Senator ROвSION. Under this bill, then, whatever action is taken by the majority stockholders, the minority must submit to, whether destroyed or not.

Mr. LAMBERT. No; I do not agree with you in that addenda, "destroyed or not," because the majority and minority stocks have the same interest under this bill.

Senator ROBSION. Sometimes, you know, folks get hold of the majority of stock and it is to their interest to make it unpleasant for the other folks, so that they will sell out.

Mr. LAMBERT. Fortunately those are rare occasions.

Senator ROBSION. I am wondering whether under this bill that can happen. I do not say it might happen, but we want to protect them. Mr. LAMBERT. No; it won't happen, because the commission can not authorize the merger unless it is assumed to be fair and just to all stockholders and to the people as well, in the opinion of the officers of the Government whom Congress has designated to act in matters of this kind.

You have additional safeguards beyond those you have over the ordinary corporation, because what you speak of is the ordinary corporation which has no control over it by any commission.

We also have a provision here that this company in connection with any plan of procedure relative to that which we have been discussing, and other matters, shall come under the provisions of the code which you have passed here as a fair provision for handling corporations in the District of Columbia, and they must hold their meetings. It has to be such, a legal action as is provided shall be had by a corporation organized in the District of Columbia.

Senator BLAINE. Of course, a majority of the stockholders now could meet and sell the property at such a price as they chose.

Mr. LAMBERT. I do not see that there is anything to prevent any corporation from doing that.

Senator ROBSION. Well, Mr. Lambert, you say some folks came here and began buying up stock. I assume from this group of bankers, or bankers' trust, the suggestion came for this legislation, did it not? Mr. LAMBERT. This legislation?

Senator ROвSION. Yes.

Mr. LAMBERT. You mean from the people who have purchased it? Senator ROBSION. Yes.

Mr. LAMBERT. They asked that they be allowed to merge those two companies.

Senator ROBSION. That is this legislation.

Mr. LAMBERT. Oh, yes. They requested this legislation. There is no doubt about that. They think it would be greatly to the interest of the holders of stock and the public as well, and have their reasons for it.

Senator ROBSION. Do you know whether or not they bought this stock with the idea that this merger or this legislation would be proposed and adopted?

Mr. LAMBERT. Oh, no, I do not know anything about that.

Senator ROBSION. What effect do you think this merger will have on their stock?

Mr. LAMBERT. I do not think this merger will have any effect on their stock. It is going to enable them to create economies; it is going to enable them to carry through the development projects they have in mind.

Senator ROBSION. I do not understand that. I do not understand how this would enable them to carry through projects, because they now control both companies.