question is not merely one of accounting, but is a question of fundamental economics.

HAROLD ALMERT, Chicago: I am very glad, indeed, to hear that this very fundamental question is being taken up. It is one that I have been hammering on for a number of years and one in which I have been interested to search for the cause. I think it is clear that the cause is due to the fact that the earliest regulation of public utilities came from the courts, and the earliest cases that came before the courts were the sale of water companies whose franchises had expired, and the municipalities wanted to take these concerns over and engage in that business. In that case they were buying a used property, and they naturally considered the cost or cost of reproduction less depreciation. Unfortunately, the first rate case that came up for consideration also came before the courts, and the courts, having no particular information or having made no particular study of the problem, took the same basis for a rate case that they took for the sale case, and we have inherited that error, and it has been with us ever since.

Now, when the Commissions were created to represent the state legislatures they were formed of men without any knowledge of this business; it is a notable fact that they were selected. from almost every line of endeavor except public utilities. When States realized that the practice of medicine had to be regulated and that there were quack doctors practicing illegally in the State, the legislature would call upon the medical profession for a committee to investigate the subject and would select a license board from among the medical profession. The same way in all other lines of endeavor, men who were familiar with the business or profession concerned were appointed to deal with the questions relative to that profession or business; but when it came to the matter of the regulation of public utilities they made it a point to select men from every other walk of life except the public utilities. The result is that, even if these men were good and able men, they were certainly not efficient men in handling these problems, and as a result of going into an entirely new business of which they knew nothing, they leaned upon the courts as their best support and thereby have followed and perpetuated the original error made by the courts.

I make it a point in every case, before every court and commission, to make a declaration before the close of the case to the effect that, in a property which has been reasonably well conceived-excluding such cases, if any, as the erection of a power plant five hundred or six hundred miles from a market, because under such circumstances such a project could not be successful from a financial point, but where ordinary judgment has been used in the conception and construction of a property-investors are entitled to have their principal conserved and a fair return on the investment during the entire time their money is devoted to the public use. And where the earnings have been only sufficient to pay operating expenses, taxes and a fair return on the capital invested, I maintain that the accrued depreciation should be added to the cost, or the cost of reproducing new, as a basis of value on which to determine rates. If earnings have been sufficient to pay all operating expenses, taxes and a fair return, and depreciation, then the cost, or cost new or cost to reproduce new, is a basis for value, but if the earnings have been sufficient to pay all operating expenses, taxes, fair return and a depreciation, but the money earned for depreciation is used for other purposes to the detriment of the property so that it does not give 100 per cent service, then, and then only, do I believe it is proper to make a deduction for depreciation, and then in an amount necessary to put the part of the property affected into 100 per cent service condition. In the average property that has been well maintained, a street railway company or a lighting company, which is in from 80 to 85 per cent physical condition, must be 100 per cent service condition, and no deduction should be made for depreciation. I am very glad to see that the central station companies are at last awake to the situation, and are fighting for it, because if this error is continued it will certainly make a deduction of 20 per cent of the investment of all public utilities in the country, which is pure confiscation of that much investment, whether done intentionally or unintentionally.

CHAIRMAN MCDOUGALL: If we get started on depreciation, I am afraid we will occupy the time of the convention for the

whole afternoon, and I think, with your permission we will pass on.

I will now call on Mr. H. C. Schlegel, of the New York Edison Company, Chairman of the Committee on Customers' Records and Billing Methods, to present the report of that Committee.

REPORT OF COMMITTEE ON CUSTOMERS' RECORDS

AND BILLING METHODS

Under date of February 5, 1919, the Chairman of the Committee on Customers' Records and Billing Methods was advised by Chairman Jones, of the Accounting Section, of the National Executive Committee's decision that all standing committees of the Association should resume active work along pre-war lines, as nearly as practical under existing conditions.

In compliance therewith, a meeting of your Committee was held February 19th and 20th.

It was realized by the members of the Committee that the time allotted was too short to attempt to circularize member companies for information and data upon which to base a report, in continuation of the reports submitted by this Committee in previous years.

Your Committee was therefore compelled to restrict itself to the following subjects:

1-Labor Problem

2-Modern Ledger Forms
3-Modern Billing Methods

4-Bi-Monthly and Quarterly Billing

LABOR PROBLEMS

The providing and maintaining of an efficient organization, necessary to the office work of accounting, reading of meters, rendering of bills to customers for service and collection thereof, has been one of the most difficult problems during the past year.

The supply of material available to replace those of our young men who entered the country's service, or those who secured positions elsewhere at a higher wage, was limited and inexperienced. This naturally resulted in lower efficiency, unsatisfactory and inefficient work, and serious complaints from cus

tomers.

Data which your Committee has been able to obtain in the limited time at its disposal indicate that complaints from customers upon bills rendered for service have increased materially.

Manuscript of this report received April second.

To illustrate the seriousness of this situation and its effect upon complaints, the following tabulation is given: Ratio of number of complaints received during the past year

to the average number of customers... Per cent of increase in complaints for the four winter months of this year compared with previous year.... 70%. Per cent of increase in number of customers for same period

7.3%

5%

Proportion of complaints which upon investigation were found to be unjustified.....

75%

Of the 25 per cent of complaints which were justified, an analysis of the causes of the complaints is as follows:

21%

4%

100%

Errors due to use of Demand or two-rate system

of charging...

Errors due to incorrect or defective meters....

It is quite probable that the proportion of unjustified complaints reported above 75 per cent is much higher for the winter months than for the remainder of the year, and this figure, if worked out for the entire year, would probably be somewhat lower.

As the cost of handling these complaints is a considerable item, and the effect upon the customers and upon the public is of very much greater importance, and further, as there are undoubtedly a great many additional errors on which the customers make no complaints, it will be appreciated that a very serious effort should be made by all to analyze, study, and reduce the causes for complaints. It is a matter of good service to have the meters read correctly, and to render a correct bill, and it is of the utmost importance that this service should return as quickly as possible to the pre-war standard, or better.

The large turn-over in meter reading, billing, and bookkeeping forces, which all companies have experienced is the principal cause of the difficulties and errors which resulted in increased complaints.