[PRCo] Re: Sharpsburg sells power facilities
Dwight Long
dwightlong at verizon.net
Fri Sep 3 12:03:40 EDT 2010
Ed
Nothing in what you surmise seems at odds with impressions I have of WP, which always seemed to be a prudently and conservatively-run company.
There was an alternative to continuing to pay bond interest, and that was the one WP took with WTC--let the bonds go into default. That would, of course, have ultimately resulted in a receivership and reorganization of Railways. The WTC case shows that WP was not reluctant to take this drastic step, which could have meant losing all their investment in the transport side of the business, where that avenue appeared to them to produce the better financial results from an overall corporate perspective.
What WP, as many transit companies (including St. Louis Public Service, an NCL-controlled company) did, was effectively to "run the (transport) business for cash" for as long as cash flow covered operating expenses, taxes and interest. In this mode, depreciation becomes just a tax-offset item and not a real expense. The business, after the onset of hard roads, could not make enough money to exist on a long-term basis with provision for replacement of the equipment, so no need to set aside any funds for same!
I recall your saying that on a cash basis, Railways was positive until around 1950?? By then they could read the trend lines and the abandonment petitions started.
It would be interesting also to have been a "fly on the wall" in WP strategy sessions around that time. Did they really think that operating motor buses in lieu of trams was going to be a profitable line of business in which they wanted to be long term, or was this just "window dressing" to grease the skids for their complete exit from the transit business? The buses didn't cost all that much (for a company of WP's financial capability), they could readily be sold on the transit market later (and were), and WP could then say to the regulators "Look, we tried to preserve transit for our patrons, but it is a hopeless cause and you must let us out of this obligation." I suspect the latter. When the main line abandonment came in 1952, there was no offer to replace the cars with buses (there may have been with the original 1951 petition, but if so, it was removed by the time the cars actually came off).
Although most tram enthusiasts view NCL as an instrument of the Devil himself, in actuality, this is the same way they operated their properties--as prudent business people would. It is highly unlikely that they would ever have re-invested in tram cars, but as long as they had them and could operate them on a cash-positive basis, they were quite happy to do so. I use St. Louis as an example of this because I have personal knowledge of their philosophy there, but the results in, say, Baltimore and Los Angeles support the proposition that they adhered to the same theory.
And, closer to home, C.D. Palmer and Clyde Ligo ran PRC on the same basis. But, like NCL, they did not have a power business to muddy the accounting waters. They were (or until the last years, in the case of PRC) pure transport plays, most if not all of which had been "de-watered" by bankruptcy reorganization.
While as you say it may not be possible to do a recasting of WP's financial structure at this late date, if one could, it would be interesting to see how close Railways was to the NCL or PRC model and how much bond interest they did have to pay on bonds whose face value was in excess of the true value of the transport assets that Railways owned. You may well be right that it was not much, given the much earlier time of the corporate reorganization and its circumstances. However, there must have been quite a few obsolete powerhouses--or at least their sunk cost--acquired with all those underliers! Was all of that passed up to Power? That's the sort of thing that would be interesting to explore.
Arcane but fascinating stuff about which most enthusiasts never think. You are one of the few that has a grasp of the subject!
Dwight
----- Original Message -----
From: Edward H. Lybarger
To: pittsburgh-railways at dementia.org
Sent: Friday, 03 September, 2010 10:00
Subject: [PRCo] Re: Sharpsburg sells power facilities
I don't think we have any way of learning this, Dwight. The bonds were
issued in 1910 and matured in 1960.
I would not be surprised to find a lot less water in this company, if only
because they did not have the huge amounts of obsolete property (such as
horsecar and cable car infrastructure and franchise payoffs) to hide. And
because the Coke Region was a rapidly growing area with good times forecast
as far as the eye could see (they couldn't see the automobile yet), West
Penn did not have to sell bonds at a huge discount like C. L. Magee's
companies did. The railway stock was held by the parent, whose stock was
also strong, so no shenanigans were really needed.
In 1916, nothing had changed...all the companies were strong. It was after
1920 that Railways couldn't pay all the freight once rider numbers began to
decline. Railways got Power stock in 1916 because they had owned a lot of
little electric companies, purchased when they were the strong sibling in
the family and Power was just getting started. The value of the capital
investment depreciated significantly after the Depression hit, but they were
obligated to pay the indebtedness anyway. The company's way of doing this
most effectively was to stay in business and get as much revenue as possible
from the customers and taking the normal depreciation expense, using the
Power dividends to make up the shortfall. What was left over was passed
through to the parent as Railways dividends. This was all much cheaper than
writing off the whole Railways investment in, say, 1932.
-----Original Message-----
From: pittsburgh-railways-bounce at lists.dementia.org
[mailto:pittsburgh-railways-bounce at lists.dementia.org] On Behalf Of Dwight
Long
Sent: Friday, September 03, 2010 3:22 AM
To: pittsburgh-railways at dementia.org
Subject: [PRCo] Re: Sharpsburg sells power facilities
Ed
I did know that--but only because you had told me a while back!
I would be very interested to know what was the relationship between the
face value of the bonds of which you speak and the true value of the railway
properties in 1920, or even at the time said bonds were issued.
WP may have been an exception, but there quite often was a very, very large
amount of "water" in the bonds--let alone the stock.
It was also not uncommon, when separation of railway and power facilities
into separate corporate entities occurred, for the railway company to be
lumbered with a lot of sunk (and by that time largely useless) capital
investment which in today's world might be apportioned much more, or even
wholly, to the power enterprise. Again, I do not know if that were the case
with WP, but it would be interesting to find out.
Dwight
----- Original Message -----
From: Edward H. Lybarger
To: pittsburgh-railways at dementia.org
Sent: Thursday, 02 September, 2010 19:46
Subject: [PRCo] Re: Sharpsburg sells power facilities
And you probably didn't know that Sam Insull was president of the West
Penn
empire in the mid-teens. After the railways' parent company emerged from
bankruptcy proceedings, largely on the strength of the railway earnings
(bet
you didn't know that, either), he served as president for a relatively
short
time. His is the signature all over the document formalizing the 1916
reorganizations of Railways and Power (in which Railways was granted the
large block of Power stock that kept them alive well beyond 1920, when
they
last earned their bond interest); we have a copy of same in the PTM
Library.
Ed
_____
From: Fred Schneider [mailto:fwschneider at comcast.net]
Sent: Thursday, September 02, 2010 7:11 PM
To: Pittsburgh-Railways at Dementia.Org; Matthew R Barry; Ed Lybarger
Subject: Sharpsburg sells power facilities
Why the _______ is this item important? Well, most power companies were
derivatives of the railway industry. You couldn't find customers for
your
streetcars but they were able to find people who wanted light bulbs in
their
homes. The only major electric railway property in Pennsylvania that was
not connected to a power subsidiary? Philadelphia Rapid Transit.
Pittsburgh Railways, Duquesne Light and Equitable Gas and San Francisco's
Market Street Railway were one and the same company. West Penn Railways,
Wheeling Traction, Monongahela West Penn Public Service, Potomac Edison,
Hagerstown & Frederick Railway and the Chambersburg, Greencastle and
Wayneboro Electric Railway were all under common ownership. In the east,
Pennsylvania Power and Light, UGI, Conestoga Traction, Lehigh Valley
Transit, Williamsport Passenger Railways, Jersey Shore Electric St. Ry.;
Lykens and Williams Valley Ry., Valley Railways (Cumberland County), and,
briefly, Lancaster, Ephrata and Lebanon St. Ry. were the same alphabet
soup.
And were not Altoona and Logan Valley and Penn Elec related at one time?
There is absolutely no coincidence that today's Metropolitan Edison and
the
former Reading Traction and Light / Reading Street Railway have the same
foot print. But why is Met Ed in York? Well, when Sam Insull's
Middlewest Utilities went broke in 1939, Met Ed bought the power
facilities.
You didn't know that York Railways was related to CSS&SB, CA&E, CNS&M and
the Indiana Railroad? Well it was.
You may also remember that Harold Cox once described the paint on Reading
streetcars at "red and gray in disarray." Why was it so similar to
Southern Penn and Delaware Electric Power Company and Trenton? You got
it.
At one time they were same company. And Trenton NJ was also in that
stew.
Now does it make sense to include the power company history?
By the way, in the attached file, the indents match the newspaper. But I
got tired of feeding you paragraphs with one sentence because journalists
write for people with a fourth grade education. I combined sentences
with
a similar topic to make reading easier on the printed version below.
(Dave: one of the guys on the Pittsburgh list started scanning the
on-line
files of the Supress ... prompted me to do some of the same. fws)
http://news.google.com/newspapers?id=vMEbAAAAIBAJ
<http://news.google.com/newspapers?id=vMEbAAAAIBAJ&sjid=Ck8EAAAAIBAJ&pg=7496
%2C2115371> &sjid=Ck8EAAAAIBAJ&pg=7496%2C2115371
Pittsburgh Press, Thursday August 22, 1963, page 3 (digital) or page 5
(print)
Sharpsburg Votes to Sell Power System
Council Okays Duquesne Light's $500,000 Offer
By ROGER W. STUART
Sharpsburg Borough Council has voted 6-to-1 to sell its light and power
system to the Duquesne Light Co. for $500,000.
Borough officials say customers will plug into the same company's
circuit
at a "substantial savings" if the Public Utility Commission (PUC) approves
of the sale.
Council President Michael Urso said last night he expects PUC action
in
30 to 90 days.
Duquesne Light will purchase only the service rights to Sharpsburg's
2000 residential, commercial and industrial light and power users. The
borough will retain possession of its power plant, which has been in
operation since 1939, and the land it is on.
Voting to sell to Duquesne Light were President Urso and Councilmen
Dom
DeBonis, Joseph Green, Charles Morelli, John Susi and Oresti Panza.
William Neff was the lone dissenter. Mayor Chester Zygello has not yet
signed the town ordinances paving the way for the sale, but he has not
indicated he will veto them. If he should, however, council wil have to
go
through the formality of passing the measures again But Mr. Urso said
that
would cause no problem because he necessary two-third vote to override a
veto was received the firs time.
The "battle of the power plant" hit a fever pitch four years ago when
council voted for $1,500,000 conversion of the plant from coal to a diesel
operation. But the conversion never took place. It was blocked in the
courts until last March when a planel of judges rejected the prolonged
legal
battle by a group of borough taxpayers to halt it. By that time, the
complexion of council had changed and that body no longer favored the
switch.
At one time, the borough's high rates were blamed for driving at east
one industry out of the borough and preventing another one from
establishing
there. Sam DeFazio, chairman of Taxpayer's league hopes the sale of
service rights, will help entice industry back into the borough. He
pointed out as did Mr. Urso, that the borough's plant and approximately 5
acres of accompanying land is now prime industrial property.
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