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scale may or may not involve some form of public supervision and control. If practicable at all, it may be voluntarily applied by any company to the peculiar conditions of its own business. But this involves an arbitrary determination of the normal rate of dividend and the normal rate of charge for service, as well as the future relation of the increase of one to the reduction of the other by the company without the consent or participation of the public or its representatives. Inasmuch as this consent and participation are essential to the establishment and permanency of the best relations between the private and public interests involved, they should, if practicable, be obtained. To secure that end, some form of public regulation and control is necessary.

The public may be represented either directly by the legislature or by the municipal authorities, or, preferably, by some kind of board or commission representing the public at large and exercising powers directly delegated by the legislature. Such a body is the Board of Gas and Electric Light Commissioners of Massachusetts, the members of which are state officials, and are wholly removed from the operation of local prejudices and conditions. They represent all the people of the commonwealth.

The fixing of the initial rate of dividend, on the one hand, and the initial schedule of charges, on the other, is, of course, a matter of great delicacy and importance. Theoretically, both should primarily depend upon the fair value of the investment. The rates charged should be sufficient, and only sufficient, to yield a fair return upon a reasonable investment for the purpose in hand, with due allowance for depreciation, contingent funds, surplus accounts, and so forth. All these matters were carefully worked out in the Massachusetts act above referred to. The capital of the Consolidated Gas Company was fixed at the aggregate amount of the capital stocks and permanent debts of the companies consolidated. That capital having been thus fixed, the rate of seven per cent was specified for dividends, with gas at 90 cents per thousand cubic feet. This dividend may be increased to eight per cent when the price of gas is reduced to 85 cents per thousand cubic feet, and so on.

The difficulty in many if not in most cases of determining, under actually existing conditions, the fair value of the lighting investments in this country, and thus the fair initial dividend and initial rates for service, is so great that fair dealing demands that the particular company involved shall have the right to assent to or reject the plan proposed in every case. The inducement to the company to adopt the system is so great that it can reasonably be trusted to assent to any conditions of its application that are not unduly hazardous or burdensome. Even under the unusual conditions obtaining in Massachusetts, where the application of the sliding scale to the gas business can probably be done with greater accuracy than elsewhere in this country, the operation of the act relating to the application of the sliding scale in Boston, above referred to, was expressly made subject to the acceptance of the company.

One great advantage of the sliding scale in its relation to public regulation and control is that it has a decided tendency to make that regulation and control in a large measure automatic. The initial rate of dividend and charge being once fixed, the future application of the principle of the sliding scale requires only an ascertainment of certain facts and figures and their relations to each other. Even the increase of capital, whether in the form of stocks, bonds or other evidences of indebtedness, which, logically, should be made dependent upon the approval of the public board or commission above suggested, will be principally dependent upon facts equally easy of ascertainment. Whether or not the company needs new capital, and, if so, to what extent, is dependent upon physical, business and financial conditions of little if any complexity.

Your committee submits the foregoing suggestions in the hope that the subject may be further pursued, not only by a committee of this association, but by the individual companies in interest, so that at the next convention of the association decided progress may be reported and more definite conclusions formulated.

Respectfully submitted,

SAMUEL INSULL, Chairman, Sub-committee

CHARLES L. EDGAR.

REPORT OF SUB-COMMITTEE ON TAXATION

AND FRANCHISES

To the Committee on Public Policy, National Electric Light Association:

FRANCHISES The public is interested in three things, which we will endeavor to state in their order of importance: (1) complete service from a geographical standpoint; (2) good service, and (3) low-priced service. Franchises should therefore be granted in such a manner as best to secure these three important considerations.

To do this effectively requires that all franchises shall be perpetual; otherwise, the company holding the franchise can not extend its service geographically when the franchise has only a few years yet to run. A limited franchise also requires a sinking fund sufficient to take care of the difference between the cost of the property and the salvage value of the property over the time of the life of the franchise, while a perpetual franchise does not require any sinking fund beyond that of ordinary depreciation.

The mistaken popular belief in the short-term, non-exclusive franchise is due to the unsound theory that thereby the same results can be obtained as by the proper public regulation of unlimited exclusive franchises. It is thought that the everpresent possibility of competition will currently reduce prices from any unduly high level, and that the necessity for periodically renewing a franchise will give the public a “big stick" and opportunity to trade, by means of which it can periodically exact at least its full deserts from the public service corporations.

The adoption of the plan of granting only short-term franchises has not worked the harm in the past that may be expected in the future. Unless the property inherently has a perpetual franchise and the question of renewal is simply one of reasonable terms, the present tendency to treat corporations harshly will compel the corporations to increase their charge for service. It has been customary to regard these short-term franchises as easily renewable, and were it not for faith on the part of the owners that these franchises could be so renewed, it would be necessary for them to collect a much heavier charge for service, as will be later pointed out.

We may state some of these salient objections to the shortterm, non-exclusive franchise as follows:

First-That competitive public-utility services of the same nature inevitable result in burdening the service and its customers with reduplicated plants, the fixed charges of which more than offset such reductions in rates as may result from competition.

Second-Limiting the term of a franchise to a comparatively short period of time-provided this limitation of franchise is not liberally construed—compels the holder thereof so to operate his enterprise that during the term of the franchise he will not only obtain from it the current necessary charges or earnings on his investment, but he will receive from the current operation of his enterprise sufficient excess earnings to take care of his capital investments and wipe these out upon the expiration of the franchise.

Third-Limited franchises, unless their renewal is purely a perfunctory matter, will curtail the credit and, of necessity, call for the installation of the cheapest equipment that can be made to render the service, and toward the expiration of the franchise this equipment will probably become so run down as to give but a poor quality of service, resulting in great public inconvenience and dissatisfaction just at the time when the corporation may be seeking a renewal of its franchise, thus producing friction between the public and the corporation, to the detriment of both.

Fourth-The constant renewing or granting of new franchises, unfortunately, in many states and municipalities brings about undesirable political conditions. The further the corporations are removed from political control, the less incentive will they have to take any part in politics.

Regulation of the corporation should be intelligently, and so far as possible automatically, planned to prevent coercion of the corporation by the public officers: also to prevent the corporation from attempting to control these public officers.

FRANCHISE TAXATION It is customary to assume that the entire difference between the physical value of the property and its total value is represented by its franchise value. This is not strictly true. A publicservice property can have a value aside from both the physical property and the franchise property, which is represented by many factors, among which are (a) operating organization; (b) development of business ; (c) advantageous supply contracts; (d) special, general and technical knowledge of the business on the part of operators and directors, and (e) good will. In other words, every business, if a successful business, has a value other than its physical assets, even though this business have no special franchise, and these same values pertain to the public-corporation business even though it have a franchise.

Another matter that we believe represents a source of common error is the belief that the public service corporation should pay a special tax for the use of the streets. We believe that such special tax represents an unfair tax on the consumer of service in favor of the non-consumer of service. The use of the streets is practically free to every one. The modern gas or electric company transports energy equivalent to thousands of tons of coal over or under the public streets without wear and tear on these streets, without maintenance expense to the city, without interference with other traffic, without noise and nuisance to the public living along the streets, and with less detrimental incumbrance to the streets than could be done in any other way. If anybody is entitled to special consideration and advantage it seems to us that the user of this' service should receive some advantage over the user of other forms of energy which require transportation in a manner that encumbers the public thoroughfares and subjects other people to interference, noise and nuisance, and also subjects the streets to unnecessary and expensive wear.

In street-railway service the same thing is true, but in a lesser degree. The taxes imposed upon quasi-public corporations are simply shifted to their consumers, as the company's ability to lessen the cost of its service is lessened to that extent, and in the case of street-railway, service, it means that the users of the cars are paying more than their fair proportion for the mainte

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