railway company to contract for the construction of its railway either at a stated price for a specified amount of work or all of the work; or to contract to have specified portions or all of the work done at cost to the contractor plus a specified allowance for the contractor's profit. From an examination of the original and modified plans of the applicant, I am of the impression that this railway can be well built and equipped for initial operation for a sum not to exceed $750,000.00. The applicant itself has estimated $768,310.46, which includes a contractor's profit of 12 per cent above the cost of all the elements entering into the construction of the line, including rails and ties. It may, of course, be necessary to make some adjustment of this estimate of $750,000.00 if the contractor takes a large portion of his compensation in the form of stock and bonds of the applicant. I believe it would serve no useful purpose to lay down in this opinion the estimates and figures by which this sum of $750,000.00 was determined. Instead, I suggest that the engineers of the applicant consult with the engineering department of this Commission. In this way, little difficulty should be encountered in reaching a working figure as a proper estimate of the cost of this road with a segregation of the items entering therein. Accordingly, it would appear to be better policy for the applicant to enter into a contract to have its line of railway constructed at a cost not to exceed $750,000.00, or such other figure as may be later approved by this Commission; or in lieu of such a contract, for the applicant to enter into an agreement to have its whole line of railway constructed at cost to the contractor plus a proper allowance for contractor's profit. It will be necessary, therefore, to revise the contract as submitted to this Commission. We will pass over the proposed sale of this stock for cash to a consideration of the proposal of applicant to issue 1,000 shares of stock at the par value of $100.00 per share to J. M. Neeland for his promotion services. Applicant has submitted as an exhibit a special memorandum descriptive of the services rendered by Mr. Neeland. The applicant has stated that Mr. Neeland, after an extensive experience in the organization of railroad enterprises both in this country, Mexico and Central America, had become interested in the project herein under consideration. It is stated that Mr. Neeland and Mr. A. E. Warmington have given their entire time and attention to this project for the past year; that Mr. Willis Morrison has also devoted practically all of his time and attention to this matter since January 1, 1915, and that for the past year Mr. C. H. Beggs, formerly connected with the "Frisco System as vice-president and general manager," has devoted the major part of his time extensively thereto. It is stated that it is intended. to issue this promotion stock to Mr. Neeland, but it is contemplated "by those who have been actively engaged with Mr. Neeland in this matter and other projects, that they would be compensated in some way for the time and money that they have put into projects suggested by him, either by payment in money or stock.' It is also represented that Mr. Neeland has obtained the subscriptions to the stock of the company and has interested financiers in the enterprise. It is further stated that such promotion stock as may be issued to Mr. Neeland and by him to his assistants 'will not be sold but is to be held as an investment.' "' I believe this project must be considered on its particular merits, as it does not come under the ordinary category of public utility enterprises. Here is an endeavor to construct a railroad for a distance of forty-three miles into an undeveloped territory described largely as desert country, now very sparsely settled. It is a territory that does. not yield gently to the hand of man, but requires pioneering, exploring and development with unusual hazards and risks. There must, therefore, be the lure of unusual profits. I feel also that it is proper to take into consideration the benefit to the community of this State as a whole which will accrue through the construction of this railroad. It is trite to say that California is a land of vast possibilities awaiting development. Here is an extreme case in point, where men have banded together to open up a whole section of this State-a principality in itself, long isolated and forbidding in its inaccessibility, difficulties and hazards. I recommend that Mr. Neeland and his associates be allowed $75,000.00 par value of this stock, and this stock should be issued when the projectors have brought their enterprise to a successful conclusion by the completion of their track for the entire distance contemplated. It may be assumed, therefore, I believe, that this enterprise can be financed for a sum not to exceed $750,000.00 and the issue of stock for promotion services in an amount not to exceed $75,000.00 par value. If we assume the applicant's basis of issue, the result will be as follows: $350,000 first mortgage bonds at 80 150,000 par value of stock to the contractor at 70 purchasers 75,000 par value of stock for promotion services. $1,110,000 $280,000 00 300,000 00 105,000 00 94,500 00 $779,500 00 This will provide for an issue of $750,000.00 of bonds, $360,000.00 par value of stock, or 3,600 shares of the par value of $100.00 per share. I am greatly impressed by the possibilities of the Palo Verde Valley and I believe that the enterprise herein under consideration should be given every encouragement by the State consistent with the obligations of the State to its citizens generally. It will obviously not be advisable at this time in this proceeding to fix a minimum price at which the stock and bonds may be sold. It has been the belief of the Commission that discounts should not exceed 20 per cent. Until the final form of contract has been determined, it will not be possible to pass upon this feature of the application, but the attention of the applicant is directed to the desirability of limiting discounts to the amount herein stated. This may be accomplished by an increase in the interest rate on the bonds or by other adjustments which will accomplish the same purpose. It will only be possible in this proceeding for the Commission to issue a preliminary order, as it will be necessary for the applicant to submit additional data and estimates upon which the Commission may base its final finding. It shall be my recommendation, however, that the Commission hold in mind the particularly desirable features of this proposed project, the unusual circumstances of the undertaking, and make its findings in accordance with the conditions here found. Public interest requires, however, that this enterprise be not only well built, but that it be constructed at no greater cost than is actually necessary to the undertaking and for a substantial reward to the proponents for a successful endeavor. It will be wise, and the applicant has already recognized this fact, to make provision for a suspension of interest during the first two or three years after the road has been completed. It appears also that there is a certainty to some extent, and a likelihood to a greater extent, that bonuses may be paid to this company by settlers and land companies now in the Palo Verde Valley and by others who will profit therefrom through their holdings adjacent to the proposed route. As the applicant's line will connect with the Atchison, Topeka and Santa Fe Railway at Blythe Junction, the road here contemplated will afford an outlet to the world. In its original estimate, the applicant had figured a cost of $50,000.00 for its right of way. At the hearing upon this application, the Commissioner suggested that this right of way should be donated by those who benefit through the construction of the line and suggested that if necessary such donation should be made a prerequisite to an authorization for the issue of stock and bonds herein applied for. The applicant expressed the view that it would be possible in consideration of the Commissioner's expression to obtain this right of way without cost. I believe it proper that all such savings as can be made should be made not only for the benefit of this railway but also for the people and public generally whom it will serve. It is only proper, therefore, that such bonuses as may be payable in any way in connection with the construction of this railway should be for the benefit of the railroad company. It is manifestly only proper that these bonuses should accrue to the railway and should be used either to assist in defraying the cost of construction or in meeting the interest payments on the bonds during the first years of operation. If the arrangement now contemplated has anticipated another use of the bonus moneys, the matter may be placed before the Commission and given consideration in connection with a proper promotion allowance that should be made. I shall recommend that the order in this matter provide that a statement of all bonus payments heretofore made, or hereafter to be made in any way in connection with this enterprise, be filed with this. Commission. A preliminary order may be issued in this matter at this time, but a final order can be issued only after the applicant shall have submitted the further information and data essential to a definite determination of all of the issues herein involved. The proposal of first mortgage bonds to be followed by an issue of second mortgage bonds is certainly not the best financial plan that could have been presented. It is not one which this Commission would ordinarily favor. However, the applicant has represented that it will be able to carry forward its project under this dual form of bond issue more readily than otherwise. It is the plan that the contractor taking the first mortgage bonds will be enabled to borrow on this collateral, until such time as the second mortgage bonds can be made saleable. It would have been preferable, in my opinion, either to have held the issue to a single mortgage bond, or to have provided for a short term issue of the dual series of bonds so that they might be refunded into a single issue. These are issues which I leave with the applicant, but I recommend for the purpose of this preliminary order that the application be granted, leaving a determination of the detailed considerations to the final order. Accordingly I submit the following form of order: ORDER. California Southern Railroad Company having made application to this Commission for authority to issue stock and bonds, as specified in the foregoing opinion, for the purpose of constructing a standard gauge railway a distance of forty-three miles from Blythe Junction on the line of the Atchison, Topeka and Santa Fe Railway Company to Blythe in Riverside County, and a hearing having been held and it appearing that the purposes for which applicant proposes to issue said stock and bonds are not in whole or in part reasonably chargeable to operating expenses or to income, It is hereby ordered that California Southern Railroad Company be granted authority, and it is hereby granted authority, to issue $350,000.00 face value of its first mortgage 6 per cent bonds; $400,000.00 face value of its second mortgage 6 per cent bonds and $285,000.00 face value of its stock, being 2,850 shares of said stock of the par value of $100.00 per share. The stock and bonds hereby authorized to be issued shall be issued to net the applicant not less than such sums as shall hereafter be determined by supplemental order to be issued by this Commission. It is further ordered that California Southern Railroad Company be granted authority, and it is hereby granted authority, to issue to J. M. Neeland 750 shares of its capital stock of the par value of $100.00 per share for the purpose of paying said Neeland for promotion services for himself and associates in organizing, promoting and constructing said line of railway of California Southern Railroad Company, as heretofore described, from Blythe Junction to Blythe in Riverside County, said stock to be issued to said Neeland after said railroad shall have been completed and a supplemental order approving such issue shall have been made by this Commission. It is further ordered that none of the stock and bonds herein authorized to be issued shall be issued until the applicant shall have filed with this Commission a statement of its plan to meet interest during the first two or three years after the completion of said railway; a copy of its contract for the construction of said railway and copies of all subcontracts for the construction of said railway; and until this Commission shall have issued a supplemental order stating in detail the purposes for which the stock and bonds herein authorized shall be used, approving the contracts and subcontracts for the construction of the fine, approving the deeds of trust under which the applicant proposes to issue its bonds and approving such other matters in connection with the application as the Commission may deem pertinent. It is further ordered that the authority herein given is given only on condition that the applicant shall file with this Commission a statement of all of the bonuses and grants heretofore paid or to be paid in any way in cash or any other form to any person or corporation in connection with the construction of the railway herein under consideration; and on condition further that such bonuses or grants, unless otherwise authorized by this Commission, shall be made payable or assigned to the applicant herein, and that moneys or other considerations received in connection with said bonuses or grants shall be held by the applicant and no disposition made thereof until such disposition |