[PRCo] Railway Accounting....

[Fred Schneider]

I'm tossing this out mostly to Mark, Ken and Jerry.   The rest are  
welcome to read.

Ed Lybarger brought up the issue of depreciation yesterday and, even  
though I've looked at a lot of numbers, my background is sufficiently  
different from Ed's that I didn't look at the same numbers that  
intrigued him.   The most I have are general property book numbers  
and they don't show squat.   In 1926 the electric railways in  
Pennsylvania valued themselves at 306 million dollars and in 1950  
they believed they were worth 126 million.   Track miles had gone  
from 4414 to 1598 in that same period.   The fleet size had shrunk  
from 8,862 cars to 5,678 cars.    Hmmm.   Track miles had shrunk to  
36%, cars had dropped to 64% and total plant had dropped to 41%.   If  
only I knew the dollars in track and the dollars in cars.   To  
analyze this in a little more detail, all the little companies were  
gone ... 60 some of them had disappeared.   And some larger small  
cities too:  Erie, Wilkes-Barre, Harrisburg,  Lancaster.   What was  
left was distorted by Philadelphia and Pittsburgh, but even there we  
had But one can easily get the suspicion that the value is shrinking  
mostly because of companies going out of business and not because of  
aging and wearing out.

Furthermore, I cannot get the same numbers in 1950.   At that time we  
had streetcars running in Scranton, Reading, Allentown (and the  
Liberty Bell Route), Philadelphia, Red Arrow, P&W, Altoona,  
Johnstown, West Penn and Pittsburgh.
I have company data for the largest two firms and very exact railfan  
data for West Penn and Lehigh Valley Transit and pretty good SWAGs  
for the remainder, yet I only can come up with 3,995 cars on December  
31, 1950.  If we want to back up a year, we still don't come anywhere  
near to the 5,678 cars reported in the reports to the state  
Department of Internal Affairs.   My suspicion is that buses  
compromised the numbers.

So we dropped Track miles shrank (had shrunk?) to 36% and cars had  
dropped not to 64% but to 46% but investment only went down to 41%.   
BUT WE REALLY DIDN'T BUY THAT MANY NEW CARS.   SIXTY-TWO OUT OF EVERY  
100 CARS WERE STILL THE SAME ONES WE WERE RUNNING AND DEPRECIATING IN  
1926.   I guess it is beginning to come clear even to me.

Ed's degree was in business.   Mine was in the natural sciences.  My  
thoughts about depreciation were limited to how I could minimize my  
income taxes when running a photo lab in my basement.   I never  
looked at the double whammy of taxes and how do I keep my investment  
as high as possible at the same time in order to earn as much money  
as possible.   I simply did not think the same way that Ed did.

He said something last night on the phone ... "There are two kinds of  
accounting ... accounting and public utility accounting."   Utility  
accounting depreciates the value of the property as little as  
absolutely possible in order to keep the value of the property as  
high as possible in order to keep the rate base up and thus keep the  
fares up.   (Fares, or power bills, phone bills, gas bills, etc.)    
Ed cited the abandonment of the West Penn's line through New Stanton  
in 1939 in which they wrote off a tremendous amount of property value  
and I added "for a line that was worthless."   And that was the whole  
point, the depreciation schedules did not match the actual value of  
the property.  They were structured only for earnings.

And therefore I apparently mislead Mark and Ken and Jerry in an off- 
list e-mail yesterday in a suggestion about the amount of  
depreciation that PRC might have had at the end.    They may have  
been rigorously following the IRS guidelines that you cannot run a  
business with fully depreciated property, and therefore even the  
1200s down in Rankin probably still had a lot of value on the  
books.   Ed has looked at the PRC numbers fairly closely and I'll let  
him respond to that.......   This also suggests that no piece of rail  
ever got down to scrap value until they sold it?????

To be as blunt as possible, apparently PRC was asking PAT to pay for  
what they claimed the company was worth on the books.    And PAT was  
saying, simply, it isn't worth that much.    You have arbitrarily  
inflated its value to keep the rate base up.   And, of course, PAT  
didn't need to go through that.   They no longer needed the PUC  
permission to set rates.    I think with most of the smaller bus  
companies, there was no investment to keep up ... most of the stuff  
was junk anyway.