A CONSTRUCTIVE POLICY FOR PUBLIC SERVICE

CORPORATIONS

BY CHARLES DAY,

Of Day & Zimmermann, Philadelphia.

I am glad to have this opportunity to call your attention to the significant trend of public service activities as it appears to some of us who are engaged in the management of public utilities.

The constructive policy which I will outline is predicated upon the existence of governmental regulation. This premise must be accepted with that enthusiasm which springs from a genuine conviction that the principle of regulation is not only inherently sound but that results secured have demonstrated its practicability. Its aim, therefore, must be to meet the fundamental obligations imposed by all regulation, namely: the attainment of maximum operating efficiency and the division of the resulting benefits with the public in accordance with a prescribed plan.

Legislative enactments of many states have provided for this by requiring that charges shall be based upon actual cost plus a reasonable margin of profit. Consequently, we have entered upon a new era which has removed the utilities from the zone of private enterprise governed by competition to that of public business subject to regulation and involving the right of the public to an intimate knowledge of every detail of the corporations' activities.

As a matter of fact, there is little opposition to the principle of regulation; it is the actual results of legislative enactments and commission activities that most frequently occasion dissatisfaction and open protest. Many laws governing public service commissions are faulty and illogical; many commissioners lack the proper qualifications; many decisions have been but illogical compromises. Therefore, the public service corporations quite naturally have felt that their most vital interests were jeopardized. However, the soundness of the principle of regulation must not be questioned on account of the existence of faults in its application, although, of course, we will lose the benefits which it should afford if a constructive policy is not established which will eliminate these serious defects.

While there has been a tendency to look to the public for a remedy, through the correction of faulty laws, and to the commissioners, through a modification of their points of view, we believe that the responsibility rests squarely upon the corporations themselves. They alone can furnish those facts and statistics without which all argument is futile.

Such vexing problems as arise in connection with regulation and competition; municipally versus privately operated utilities; what constitutes equitable rates and standards of service, etc., must ultimately be removed from the field of individual opinion and debate to that in which scientific analysis and economic laws will govern. Therefore, the policy which I will outline is not concerned in the first instance with the problems themselves but rather with the establishment of those fundamental conditions which in time should create unanimity of opinion as to the proper procedure.

Fortunately, much of the admirable work which has already been done, particularly in connection with the design and utilization of equipment, exemplifies the effectiveness of certain principles upon which this constructive policy must be predicated. It is with these principles, therefore, that we are concerned primarily. We know of no better illustration of their application than the splendid economies which have been effected in the generation of electric current. The development of the modern steam turbine and electric generator has resulted primarily from a most exhaustive and painstaking study and scientific analysis of all of the technical factors involved. The mechanical, electrical and thermo-dynamic problems have received the concentrated attention of hundreds of our most competent engineers, all striving to gain greater efficiency through a more perfect embodiment of fundamental laws in the machinery of their design. Of course, if the collective data of the past had not been carefully classified and recorded and basic laws derived therefrom, there would have been no definite point of departure for still greater refinement in theory and more perfect embodiment of these laws in practice. In that event the step from the reciprocating engine to the steam turbine would still remain to be taken.

What principle, then, has all this collective work fulfilled? Briefly stated, it is the principle of scientific analysis and deduction. The ruling motive has been, on the one hand, to interpret precisely the basic scientific laws involved and, on the other, the embodiment

in the needed equipment or apparatus of features which lend themselves to the most perfect functioning of these laws to the ends desired. It must be clear that every subsequent material benefit will result only through the acquisition of more precise and voluminous data, the discovery of new laws or the refinement of existing ones, or the more complete embodiment of these laws in the facilities produced. There is no room for mere opinion with regard to these matters.

Today no layman would presume to dispute the basic principles which have governed in the design of modern power plant equipment; and yet, well within the life-time of many of our foremost engineers, the technical questions to which we refer were not only settled empirically, but were often considered to be suitable subjects for individual opinion and debate.

However, the installation of efficient equipment does not insure the economical and continuous generation of electric current. Passing from the field of the technical engineer to that of the engineermanager, we find that his contributions are only second in importance to those of the designer. These men must harvest the full benefits of which the modern steam power plant is capable. Upon first thought this may appear to be a relatively simple matter and, in fact, it was so considered in the earlier days of public service operation. Now, however, power plant employees are selected with painstaking care, every factor bearing upon their mental and physical fitness for the task being taken into consideration. Nor does the work stop when the selection has been made. The men are constantly trained in the use of the equipment, often with as much care as is expended in the training of athletes, and their retention depends entirely upon their ability to develop progressively under such a régime. Here, then, we find the principle relating to the scientific selection and progressive development of employees, a principle which has been recognized and conscientiously fulfilled for many years in certain departments of public service work.

The next step fulfills the third principle, which imposes the duty of providing ways and means of bringing together the trained power plant employees and the methods embodying the scientific laws in accordance with which the plant must be operated. This has required, among other things, the preparation of complete instructions to serve in all contingencies as a guide to the employees. In certain

plants additional compensation is paid in the form of higher wages or a bonus when the men, through the complete exercise of their skill and dexterity, fulfill the conditions as laid down.

Maximum power plant efficiency, however, is not assured through superlative service upon the part of the power plant operatives alone. Many conditions must be taken into account which originate outside the station, in connection possibly with a vast network of transmission lines, sub-stations, distribution systems and the individual installations of customers. This brings us to the fourth, last and most important principle which has contributed to the splendid efficiency attained in connection with the generation and distribution of electric current. It dictates that the burden of power plant operation rests, in the final analysis, upon the management not upon the power plant employees. We find the management taking the initiative with regard to the continuous despatching of load, issuing instructions relative to the harmonious and efficient operation of various power plants in combination and giving directions during times of stress and breakdown.

The direct results which have followed the conscientious application of the four principles in question have been:

First-Operating costs (excluding interest and depreciation) of many of our large stations have been brought down to five mills or less per kilowatt hour, depending upon local conditions, cost of fuel, etc.

Second-A degree of continuity of service has been attained in connection with properties serving large geographical territories which no one would have cared to predict a few years ago.

Third-The subject of power generation and distribution has been taken bodily out of the field of individual opinion and debate, as it is now recognized as being governed by well defined laws concerning which the expert alone has a right to an opinion.

It is not only in the field of power plant operation that these principles have been applied with the utmost success. One large public service corporation in the Northwest has already accomplished such notable economies in the cost of constructing transmission lines that they would be doubted were not records available which afford irrefutable proof. All conditions were subjected to painstaking scientific analysis; the workmen were selected with regard to their fitness for the task; definite instructions were drawn up as a basis for their activities; bonuses were paid when definite tasks were

fulfilled, and entire responsibility for the work in its most minute details was assumed by the management. Other illustrations could be cited readily but the foregoing examples will serve our present purpose.

The new policy to which we refer obligates public service corporations to apply these principles to every conceivable branch of internal activity. Maximum efficiency and economy are bound to accrue through the application of these principles to: major construction work, such as new extensions; routine construction work, such as connecting customers; maintenance work in all of its various ramifications; all operating functions, such as power generation, systematic patrol of transmission and distribution lines, periodical inspection and testing of all equipment; and all general business and administrative functions arising in this connection.

While the actual methods of applying such principles to these functions are in a sense secondary in importance, nevertheless they must provide:

For the absolute control of materials and labor through proper storekeeping and time-keeping systems;

The adoption of a comprehensive classification of income and expense; A planning department through which all activities are directed; and A cost-keeping system whereby a minute analysis will automatically and continuously check up the results of actual operation and afford a basis for further refinements.

As already stated, however, our policy not only makes high internal efficiency imperative but it also requires that convincing proofs of such results should be available to the public service commissions. It must be apparent that when these principles have been applied to every internal activity there should be no difficulty in fulfilling this requirement. Public service commissions will be in a particularly fortunate position in this regard as the accumulation of fundamental records or statistics relating to the operation of many corporations will form a sound basis for the establishment of standards which must command respect.

Now let us consider these well tried principles in connection with the equally important factors arising through our new obligations to the public resulting from governmental regulation. We have dealt with the generation of electric current; let us now consider the