ing a similar reasonable profit on the investment to be made in such improvements. A ten- or twentyyear contract with such a clause could be safely taken at a very low price.

A possible solution of this problem is city ownership of the plant, combined with operation by a contractor. I think that this plan may by and by become common. It involves too many details to permit of my discussing it at present.

The very worst handicap that a contractor may have to carry, is excessive capitalization. Here it must be noted that many municipally-owned lighting plants do not report all their capital expenditure, so that in carelessly-made comparisons of fixed charges the contractor appears to have overstated his investment in order to increase the apparent cost of operation. Any comparison must be on an identical basis for capital as well as for operating charges. And for the purpose of adjusting prices between municipality and contractor, only one basis for capital charge is acceptable, namely, the present value of the plant; in brief, a properly-made inventory. This proposition is so radical that I state the reasons for it.

CAPITAL ACCOUNT

The possible bases for a capital charge are follows: First-The face value of the securities issued by the plant. That this is an impossible base of adjustment is too well known to all electric-light men. Second-The current market value of these securities. This is impracticable, because many securities are not on the market, and because the immediate earning capacity of a plant affects the price of its securities, and because-last, but not least-some securities are

speculative rather than industrial. Third-The actual cost of the plant. This would be proper if all plants had been built at the same time and if no plant had been obliged to be rebuilt. As it is, the construction cost of two plants built, the one in 1888 and the other in 1898, the two of identical capacity and of similar type, may be to one another as two to one; the earlier plant may have cost twice what was paid for the later, solely because of the reductions in the prices of machinery and material of construction in the last ten years.

The only remaining possible base for a capital charge is the present value of the plant; and I do not think that any other can be made acceptable for the specific purpose of adjusting a price for public lighting. It does not follow that the capital account is to be readjusted to a corresponding figure. It is only requisite that the company accept as a proper profit on public-lighting business an allowance based on inventory value of the investment. It would be well for the industry, however, if all our capitalizations were brought near to present values. And one good result of revaluation would be a logical sequence -the depreciation of the investment from year to year would necessarily be admitted as a proper charge against revenue. If a profit is only to be allowed on capital sufficient to construct a plant at the comparatively low construction prices now ruling, any further decline in cost of construction must be considered an impairment of capital, to be made good before any profit can be paid. It is not to be understood that I expect an electric-lighting company to stop dividends or to reduce capital stock in order to make good in any one year an extraordinary depreciation charge, due, for instance, to the replacement in the

year of old-type machinery with new, in order to meet a public demand for a higher grade of service. Such extraordinary charges must be financed according to well-understood rules. The loss of value of the old machinery does not occur in an instant, but is a process continuing through several years. So far as it is possible, this loss of value should be anticipated by charges made in advance-in other words, by the accumulation of a renewal fund. But where this has

not been done, the charges should be distributed over a proper period with due regard to all interests involved in other words, so as to secure the greatest good for the greatest number. The principle is allimportant. The detail as to how a proper depreciation charge shall be put on the books, is a matter to be disposed of in the most convenient manner.

IN CONCLUSION

Having recited my premises, I now state my proposed policy as a recommendation, as follows:

I recommend that the association declare by resolution :

1. That a municipality may properly provide for public lighting, either by the ownership and operation of an electric-lighting plant, by the operation of a contractor under lease of a municipally-owned plant, or by contract with the owner of a private plant.

2. That the supply of electric light to private users is not properly a municipal function.

3. That the performance of public lighting under contract by a private plant in connection with the supply of electric light to private users is essentially the method of least expense.

4. That the existence of two electric-lighting plants

in the same territory is an economic error, tending to increase the cost of production, and thereby the selling price; and that the maintenance of competition is to the detriment of the public.

5. That public lighting by contract should be performed at the lowest price consistent with a reasonable profit on the value of the investment; that no electric-lighting contractor should demand more than such a profit, and that each municipality should protect the contractor in the enjoyment of his profit, and against impairment of his investment, in order that a minimum profit may become reasonable.

6. That, in order to adjust prices in the absence of competition, it is necessary that costs be ascertained and prices approved by a competent authority, acceptable to the public as well as to the contractor.

7. That, in the absence of a constituted authority competent to ascertain costs and prescribe prices, members having public-lighting contracts under consideration should endeavor to have the adjustment of the contract price undertaken by a temporary commission, or arbitration committee, who will adopt as the basis of adjustment the principles set forth in these resolutions, particularly in resolution number five.

8. That there is no essential difference in the organization of municipally-owned plants requiring a different analysis of costs from that which is proper for private enterprises, and that the publication of the costs of municipal lighting plants, properly analyzed, is beneficial to the electric-lighting industry. Further, that the similar publication of the costs of private plants is desirable, but is at present impossible because of its advantages to actual or possible competitors.

In conclusion, I desire to say that the tendency of public opinion appears to be toward some interference

by and on behalf of the public with corporations performing so-called public services. Such a tendency is a concomitant of our social progress. It is not merely a temporary surge, but is a part of a general movement. It cannot be withstood, but may be guided into proper channels. The general result of any such movement is for good; the damage which is done to individual rights is incidental, and is more often the result of needless opposition by the individual. this matter of public lighting the right of the community to interfere is so evident that it has been one of the first subjects considered, and will be one of the first disposed of; and its priority in time will establish its disposition as a precedent for the future disposition of similar questions. There is immediate

In

need for clear thinking and for well-considered speech and action-for speech telling the public that electriclight companies desire to do business according to the golden rule, and for action plainly in conformity with the speech. I believe that this association can appropriately speak for its membership, and that its members. are willing to live up to the principles which the association may enunciate.

DISCUSSION

THE PRESIDENT: I will now call upon upon Mr. Samuel Scovil, of Cleveland, for some remarks on this subject.

Mr. Scovil read his remarks as follows: Mr. President and Gentlemen:

Each of us, I think, will agree with the statement that Mr. Dow makes in closing his able paper, that there is immediate need for clear thinking, and for well-considered speech and action, in reference to