(City of Monterey vs. Coast Valleys Gas & Electric Co. decided June 30, 1914, on Rehearing, Decision of July 30, 1914).

How some of our public utilities look upon our present commissions was well illustrated by the remark of the engineer of one of our largest public utility syndicates at a public meeting of a prominent engineering society last year. He said: "I think that commissions are now regarded by the privately-owned properties much like a wild animal that has been tamed. He behaves as a domestic animal at this time, but one cannot tell when the call of the wild may cause him to turn around and bite them." The view of the matter from the public side was vigorously expressed to the speaker at one time by Governor Pingree, of Michigan. Commenting upon a sentence in the annual report just received from the state railroad commission, to the effect that they were glad to announce that their relations with the railroads had been most "friendly" the previous year, the sturdy governor burst out with a formidable expletive, and said: "They have no business to be friendly!" We may not, indeed, wish our commissions to be always on the warpath, but it is still more certain that we do not want them "tamed."

cases.

IV. Going value, reserves, and surplus earnings present big problems. Our courts, fortunately, with the exception of New Jersey, have not endorsed a going value, except where early failure to earn a reasonable return was not made up by any later earnings in excess of such a fair rate, and many courts, including the United States supreme court, have not even then admitted a going value in rate The courts that have allowed a going value equivalent to early deficits not made up by later surplus earnings, as in the case of the recent decision of the New York court of appeals, in the Kings County Lighting Company v. Wilcox, in March, 1914, have apparently failed to realize that if the company can capitalize in a rate case any deficits in earnings, it is also fair, where a surplus has, on the whole, been earned over and above a fair return, that the public should have the benefit of that surplus.

The Massachusetts Gas and Electric Light Commission contended for this in a very important gas case in Haverhill. That company claimed before the federal court last year that it could not reduce the price of gas to 80 cents as ordered by the state commission, unless it should forego profits on a portion of its property

which had been built up out of surplus earnings. The state commission frankly admitted this, but contended that the company was not entitled to a full return, and perhaps very little if any return on capital built up out of surplus earnings over and above good dividends. After months of expensive litigation the company, in the early part of this year, dismissed the case before argument, and accepted the price of 80 cents which was in controversy.

In most states, however, companies not only claim a return of 8 per cent or more on their surplus, but a similar return on the funds they have collected from the subscriber or user, to meet depreciation, even though the amount of yearly addition to the depreciation fund has been determined by the amount necessary in case no interest is earned.

If an old and well established company has poor credit, on account of watered stock and bonds, and so has had to pay a considerable discount in order to sell its securities, it asks a correspondingly higher price from the public utility to make up for its own lack of credit. If it prefers to sell 5 per cent bonds at a discount of 5 or 10 per cent instead of 5 per cent bonds at par, it still demands an 8 per cent return on the discount paid, as well as on the money secured.

It will at once be seen that the public needs, in order to meet these complex problems, not only its best legal, engineering and accounting talent, but the services of its best economists and students of public policy.

V. The apportionment of rates between various classes of electric consumers should not always be according to cost of service. Small consumers may well be asked, as in gas and water, to pay less than cost, but the limits of time set for this paper prevent the discussion of this important subject.

VI. The virtual if not legal validation of all our watered securities under the guise of state approval of new securities is another serious menace. It is possible to conceive of helpful state control and publicity with respect to new securities, but what is actually going on is startling: Many of our commissions, without any investigation at all, in some states, and in other states with no investigation worthy of the name, are giving a perfunctory approval to the issue of hundreds of millions of dollars of securities. These are at once advertised as approved by the state. They are usually thrown

into a common pot with the old stocks or bonds of the same class. Either false hopes are aroused among investors, or the danger arises that the courts will hold that a genuine class of innocent investors in watered securities has been created by state law. The courts of late years have come to ignore, as of no significance, outstanding stocks and bonds in rate cases. What they may do under these crude laws and cruder enforcement of them is problematical. One state commission has approved hundreds of millions of securities without any investigation. Another thus recently approved $26,000,000 on the first day of its life as a commission.

VII. The relation of regulation to municipal ownership. Commission regulation must be divorced from interference with the charges and administration of municipal plants, except in the requirement of publicity and uniformity of accounts. As long as cities, through proper state supervision of accounts, know what their plants are doing, they should be free to run them at a profit or loss, and with such an apportionment of rates between different classes of consumers, as local public opinion demands. The right of cities to follow Cleveland's example in establishing its own utilities must be left as free and unrestrained as throughout Ohio, and during the past year in Illinois. Sandusky, Ohio, would have waited for years to secure through a state commission what the people, through a mere threat of municipal competition, have secured this year from a private company, viz., a maximum charge of 7 cents and a secondary charge of 4 cents for electric light.

VIII. Syndicates of capital must be met with syndicates of cities. A dozen syndicates such as The United Gas Improvement Company, The American Light and Traction Company, Stone and Webster, and those controlled by Billesby, Doherty, and Insull, seem bound upon putting any amount of money into a local rate case in order, as was baldly stated three years ago in Des Moines, "to teach city councils a lesson," and to secure from commissions and courts, before it is too late, the endorsement of corporation theories with respect to going value, replacement costs, rate of return, etc.

The leading expert for privately owned gas companies, Mr. Humphreys, told the National Association of such companies, The American Gas Institute, last month: "It is up to the Institute to educate these commissions."

City attorneys, no matter how strong as lawyers in general

practice, are not in office long enough to warrant such specialization upon public utility matters as is practicable for our larger corporation attorneys. Through fellowship in the common purpose, the attorney of one utility syndicate is kept informed of the testimony taken in cases involving other syndicates. Each city, on the other hand, approaches the subject of regulation as a new proposition. With the multiplicity of commission and court decisions and public utility discussions before engineering and economic bodies, it is becoming every month more difficult for a new student of the problem to put himself abreast of developments in the short time of preparation possible to him.

The time was not entirely ripe for the movement in 1900, when it was my fortune to assist in starting the bureau of economic research, in New York City, with the help of V. Everett Macy, R. Fulton Cutting, Tom L. Johnson, W. J. Gaynor, Bird S. Coler, George H. Shibley, John R. Commons, and others, out of which organization developed, in other hands, the quite different bureau of municipal research. The time seems now at hand, for an organization such as is here proposed. If the movement is to have any permanent result, other than general education, which of course is in itself valuable, it must be kept absolutely divorced from the building up of any man or administration. To this proposition those who have called us together agree. The organization must likewise be effectively officered and strongly supported.

That such a gathering as this could be brought together without being financed by any public utility is itself evidence of the growth, during the past five years, toward a settlement of the great problems we are now considering. May we prove equal to the task of dealing with them with that disinterestedness, sanity and good sense which the times and these problems demand.

WHAT CERTAIN CITIES HAVE ACCOMPLISHED WITHOUT

STATE REGULATION

BY STILES P. JONES,

Secretary, Voters League, Minneapolis, Minnesota.

The list of cities that have achieved something worth while in the way of regulation of their utilities is a fairly long one. There is time here but for a review of the main facts of the larger successes of but a few.

Admitting that state regulating commissions have been of substantial service to communities struggling with public utility problems, the bald fact yet persists that it is in cities that have worked out their own salvation that the largest degree of success in rates and service has been achieved. Success in this field, however, cannot be wholly expressed in terms of rates and service. But I emphasize these first, for, quite humanly, they are the things in utility regulation that appeal most strongly to the public.

In those cities having the lowest rates for public utility service, it is a significant coincidence that they have been secured through the initiative and by the sole efforts of the community itself unaided by any agency of the state. In many cases the same may also be said as to the character of service rendered. And, contrary to modern theory of the proper thing in utility regulation, the results came through competition-competition forced upon the community either by the excessive rates charged by the existing company, or by unsatisfactory conditions as to service, or both. The methods may not have always been "scientific" from the standpoint of the regulation expert, perhaps sometimes of the rough and ready, or rule-of-thumb sort; but it is not with methods that we are concerned here, but results.

I would not have it understood that I regard the results as to rates and service as the only results, or even the chief results, of community control of public utilities. The greater results are seen in the educational effect upon the community and the preparation it furnishes for the time when public utilities must and will be taken over for community operation. Disinterested students of the public