AUGUSTA AND KNOXVILLE RAILROAD COMPANY. E. F. VERDERY, President. AUGUSTA AND KNOXVILLE R. R. Co., AUGUSTA, GA., July 28th, 1883. To the Honorable the Railroad Commissioners of South Carolina, Columbia, S. C. GENTLEMEN: In response to your circular of the 28th ult., the management of this company respectfully ask the following increase or additional percentages on Standard Tariff issued by your Commission, to wit: Thirty per cent. additional on Classes 1, 2, 3, 4, 5 and 6 and Classes A, B, E, G and H. Twenty-five per cent. on Classes C, D, F, J, K, L, M, N, O, P and R, and that the company be allowed four cents per mile for passengers. The Commission is doubtless aware of the fact that the road is comparatively a new one, running through an undeveloped section of country, and with much work yet to be done to complete its road bed. With these additional percentages the reductions on the tariff now being worked by the company would be considerable. The road, though built for about ten thousand dollars per mile and operated the past year for less than any road of similar length in this section, did not earn its fixed charges by $14,000. It is not connected with any of the larger systems of roads by traffic arrangements or otherwise, and therefore dependent chiefly for earnings on its local business. Respectfully submitted on behalf of management by E. F. VERDERY, President. CHARLESTON AND SAVANNAH RAILWAY COMPANY. ARGUMENT IN BEHALF OF THE CHARLESTON AND SAVANNAH RAILWAY COMPANY SUBMITTED TO THE RAILROAD COMMISSIONERS OF THE STATE OF SOUTH CAROLINA IN COMPLIANCE WITH THEIR CIRCULAR NO. 1, JUNE 28TH, 1883. The Charleston and Savannah Railway Company, incorporated 8th June, 1880, purchased the property of the Savannah and Charleston Railroad Company at judicial sale. The new company was formed under an agreement between the holders of the several issues of mortgage bonds that were liens upon the property. The relative priority of these liens had been for years in litigation, the property was lapsing into decay, and the railroad had become a bye-word of reproach to travelers whose necessities compelled them to use it. Under these circumstances the bondholders agreed that the property should be sold, and the proceeds alone remain in the registry of the Court for distribution at the end of what promised to be almost interminable litigation. To meet the views of claimants who had some faith in the future value of the property, a purchasing Committee, composed of representatives of the several classes of bondholders, was authorized to bid for it when offered for sale. On the 7th of June, 1880, the property was sold and the Committee purchased it for the benefit of such holders of the several classes of bonds as would contribute rateably to the purchasing fund. As the relative priority of these several liens was still in litigation, the purchasing agreement provided for these priorities (as ultimately determined by the Courts) to be represented in the new company by two classes of income bonds. So long as the title to the property was undetermined, it was only by an agreement of this elastic character that the property could be withdrawn from the control of the Courts and placed under a management competent to its restoration and maintenance as a public highway. The agreement under which the bondholders purchased the property authorized an issue of $600,000 seven per cent. bonds, the proceeds to be applied, first, to the payment of the purchase money and the legal expenses, and the remainder to the reconstruction of the road. Up to December 1st, 1882, $400,000 of these bonds had been sold at par, and negotiations were in progress to dispose of the remainder at the same price, the proceeds to be devoted to the reduction of the floating debt incurred in the work of restoration. In the meantime, the relative priorities of the mortgage liens had been established and their respective amounts determined by judicial decree. The obligations of the new company thus incurred are as follows: The pecuniary obligations of the company may be restated in this way: First. That to preserve its corporate existence the company is bound annually to pay to the holders of its first mortgage bonds the sum of $42,000. And afterwards it is but the barest justice to the long-suffering mortgage creditors of the old bankrupt companies, who, under the purchasing agreement, have restored the property to public usefulness, that they should be permitted to earn six per cent. upon the cost of the property to them, as established by judicial decree. It would therefore seem that the freight and passenger tariffs of the company could not be considered as unreasonably high until they had yielded an annual net revenue considerably in excess of the annual charges upon the property, as heretofore stated. What has been the experience of the company? Take the earnings and expenses for the year 1882 as an example: So, at the end of the year 1882 the company was not only without any returns upon the capital invested, but was actually nearly $70,000 further behind than at the beginning of the year. The outcome of the enterprise thus far has not been encouraging to those who have invested in it. They have entirely renewed the rotten bridging and crossties; they have relaid the road with steel rails; they have built commodious freight and passenger buildings at every station; they have replaced the temporary bridge over the Savannah River by a substantial structure of wrought iron resting upon masonry piers, costing them over $100,000, and they naturally expected some reward for their labors. Their reward for the year 1882 was a deficit of nearly $70,000. The local management of the property anticipated a better result from the operations of the current year. It was believed that the improved condition of the road and equipment had re-established public confidence; traffic agreements had been made with connecting railroad companies, and, from the consequent increase of business, it was confidently expected that the company's net revenue for 1883 would be sufficient to meet the year's interest on its first mortgage bonds. At the time that this expectation was held out to the owners of the property the power to fix the freight and passenger tariffs rested with the management; it now rests with the State Railroad Commissioners. With this transfer of power has likewise been transferred the responsi bility to the stockholders of the company that the tariffs as fixed by the Commission shall furnish a revenue adequate to a just and reasonable return upon the investment. Under this aspect of our case, and with this view of the responsibility of the State Railroad Commission to our stockholders, we respectfully submit our application for an advance upon the Standard Tariffs established by the Commission. The local management of the property has been substantially unchanged for many years, and the tariffs which it has established have been the result of long experience under conditions which do not exist upon any other railroad in the State. The Charleston and Savannah Railway has for its termini the two largest South Atlantic seaports. Both ports have steamship connections with the markets of the world, and, therefore, the local business of the company is not, like that of the South Carolina and the Northeastern Railroad Companies, principally to and from Charleston all along its line. Its business is measurably done from both ends toward the middle of the road, and its freight traffic is principally for short distances. For instance: In January, 1883, the revenue from freights shipped from Charlestou to all local stations was $2,291.34. Of this amount 77 per cent., or $1,781.64, was from shipments not further than Yemassee, the middle point on the road. Again, in May, 1883, the total revenue on freight from Charleston to all local stations was $3,171.56, of which 78 per cent., or $2,468.09, was from shipments not further than Yemassee. The time allowed for the preparation of this argument has not been. sufficient for an elaborate analysis of each month's business. We have,. therefore, taken January and May, as fairly representing the average of the year. From these analyses we find that at least 77 per cent. of the local shipments from Charleston are not hauled for a greater distance than sixty miles, and it is accordingly the rates for this and for shorter distances that will have the most material effect upon the company's revenues. To ascertain exactly what effect the proposed Standard Tariff will have, we have carefully gone over the freight shipments made in January and May, 1883, from Charleston to Yemassee and intermediate stations, and have recalculated the earnings if shipped under the proposed tariff. The result was as follows: The proposed Standard Tariff will, therefore, effect an average reduction of from 30 to 35 per cent. upon all shipments from Charleston to Yemassee and intermediate stations. As has already been shown, this business furnishes over 77 per cent. of the total revenue derived from local shipments from Charleston. With a deficit of nearly $70,000 as the result of last year's operations, the management would view with alarm the establishment of a freight tariff that would effect a reduction of 35 per cent. in its gross freight revenue from Charleston to local stations. As the figures used in these calculations have been obtained from the actual business transactions of the company, the conclusions as stated do not admit of doubt. It might be urged that a decrease in rates would stimulate the business affected by them and consequently increase the company's revenues. Where this argument is valid, the effect upon the net as well as upon the gross revenues must be considered. For instance: If a railroad company's gross earnings were.... The net revenue would be ...... ..$100,000 66,000 $34,000 A reduction of 30 per cent. in the gross revenue would amount to $30,000. As this reduction in gross revenue would not effect a reduction of expenditures, it follows that the result would be to reduce the net revenue from $34,000 to $4,000, or that a reduction of 30 per cent. in gross revenue would mean a reduction of over 88 per cent. in net revenue, and this fact should be considered in applying a freight tariff to the business of this company which will certainly result in a reduction of 35 per cent. in the gross revenue from that class of business. We |