has worked so well during the war period that its more general adoption is recommended. It is heartbreaking and financially fatal to the companies to have their credit ruined by having to wait twelve months for action on such a simple matter.

Generally speaking, Commission regulation during the past few years has been more and more thorough and judicial and we believe has given greater satisfaction to both the people and the companies. The decisions of the Commissions, like the decision of courts, are now being regularly published, and form a part of the usual law library. Commissioners are now studying the decisions of the Commissions of other States and the decisions of the courts and the decisions of the Commissioners

are gradually becoming more uniform and judicial as the subject of regulation is better understood. It is a pleasure to record the fact that several leading authorities on regulation are in attendance at this convention and, as public officials, are delivering messages in behalf of the public to this great gathering of representatives of the electrical industry. It is unnecessary to state that we shall continue to heed carefully the advice and counsel of those who supervise the guiding of the ship of public utility progress.

Unfortunately, a few States still have laws providing for City or so-called "Home Rule" regulation. This is unsound because practically every electric system has already grown beyond the jurisdiction of the municipal authorities, who ought to recognize the economic facts as they exist. As these power lines reach out and become a part of the State-wide interconnected power system only the State can be equipped with the information and can afford the expense of the technical personnel competent to deal with the situation. Under the economic conditions of today it is difficult to find a case where any city official can honestly favor "Home Rule" regulation as against State regulation if he is correctly informed of the economic facts. Much of the agitation in favor of so-called "Home Rule" regulation is instigated by self-seeking politicians and sensational newspapers who, for purely selfish ends, play upon the ignorance and prejudice of the uninformed. They entirely disregard economics. To compare the effectiveness of the antiquated system of local generation of electricity and "Home Rule" regulation on the one hand to modern district or State-wide generation and regulation on the other hand-economically-is like comparing the old English town crier system of disseminating news with our great newspaper system of today. The occasion for "Home Rule" regulation is wholly political-it is a splendid incubator for ward politics in which the real merits of the case are lost sight of. Results have shown that such regulation results in higher cost of service and restricted growth of the community's industries. It is merely a question of time when the people everywhere will understand this and then all regulation is bound to be State-wide.

What has been said concerning "Home Rule" regulation applies generally to municipally owned

plants. The people have almost universally come to realize that they can be served more efficiently and at lower cost by a regulated electric central station system than by a publicly owned and operated plant, and when an experiment in public ownership is tried in the electric light and power field it is usually the work of muckrakers or theorists who for the time being have succeeded in misleading the people with false economic theories.

Indeterminate Grants

The indeterminate permit for public utilities is now being demanded by those who are in favor of State regulation. A careful consideration of this by your Committee to a large extent sustains this public point of view. The short-term franchise has been the cause of a great deal of trouble and misunderstanding. It is based on the false theory that a light and power company must discontinue its business at the end of a fixed period of years, or else apply for the right to do business for another period. That an operating utility with dependent customers could cease operation at the end of some arbitrarily fixed period is, of course, unthinkable. The uncertainty of a renewal application simply means insufficient and poor service during the closing years of the fixed period, for no money could then be raised for extensions or improvements. The fixed period franchise has been demonstrated by experience to be wasteful and expensive to the public. Consequently, leading thinkers have decided that public utilities under regulation should be given the right to do business for an indefinite term of years during good behavior, and in this tirely adequate service to the public. way provide for a continuous, economical and en

At first the public utilities looked on this new thought with suspicion and were of the opinion that it would be impossible to finance or sell securities based on indeterminate franchises to a widely scattered body of investors. However, this fear on the part of the public utility officials seems to be without real foundation and it becomes our duty to bow to the will of public opinion in this progressive thought.

National Co-operation

During the past year the National Association of Railway and Utilities Commissioners through its President invited the Executive Manager of your Association and representatives of the Public Policy Committee appointed by the President of your Association to meet the National Commission's body in open session, so that there could be brought about a better understanding between the public, the public utility and the regulating bodies. That meeting was held in Washington, D. C., in November, 1920, and it is certain that the frank discussion and the co-operative endeavor of the National Electric Light Association and of the National Association of Railway and Utilities Commissioners has been helpful to both the regulatory bodies and the electric light and power companies

and of vast importance to the consuming public. For some time it has been recognized that a Uniform Classification of Accounts which would be national, rather than the multiplicity of accounting systems found in the various States of the Union, would be of great benefit to the public and a great saving in time and money to the public utility and the commissions. A committee from your Association has been at work in co-operation with a committee from the National Association of Railway and Utilities Commissioners and a committee from the American Gas Association, and as a result, a Uniform Classification of Accounts has been adopted by the Public Utilities Commissioners Association, and when amended to contain several recommendations which the Public Policy Committee of the National Electric Light Association has offered to the temporary classification adopted by the Commissioners, we will have before us for the first time an intelligent system which will apply throughout the United States. Great credit for this work is due to the Committee from the National Association of Railway and Utilities Commissioners, to the Committee from the American Gas Association and to the Accounting Section of the National Electric Light Association.

It is the opinion of your Committee that this Classification of Accounts should be applied with equal force to the few municipally owned public utilities and the regulated and privately owned public utilities. The entire consuming public is entitled to receive and in this way will obtain an exhibit of the true financial results of the operations of the public utility that serves it.

Co-operation Within the Industry

It is a pleasure for this Committee to call attention to the fact that there are very few misunderstandings existing between the various important branches of the electrical industry. In the opinion of your Committee, the participants in this great. industry should move forward in absolute harmony, for in this way they will bring to our great public that service which means not only more efficient industrial development, but greater convenience and happiness in the home, both in the city and on the farm. It is only by universal co-operation along true economic lines that the benefits of modern electric service can be given to our millions of village and rural population.

Every branch of our great industry is now responding enthusiastically to the call of national electrical progress. The electrical manufacturer is now taking an active part in the National Electric Light Association organization and his counsel and advice have been very helpful. This effective cooperation by the manufacturers is appreciated by your Committee, and we are sure by every member of this Association

Inductive Interference

One of the great problems which has confronted the electric light and power industry deals with that mysterious question of inductive interference, which is constantly before the telephone and the electrical

power companies. Recognizing the great importance of this subject to the consuming public and the electric light and power company and telephone company, your Public Policy Committee appointed representatives from the National Electric Light Association to meet with representatives from the American Telephone and Telegraph Company for the purpose of discussing a plan of action and national policy between these two great branches of the industry. The first conference resulted in appointing a permanent joint committee and sub-committee not only for the purpose of advising and counseling with the Inductive Interference Committee of the Technical National Section, N.E.L.A., but also the engineering staff of the American Telephone & Telegraph Company and its subsidiary companies. Arising out of the engineering features is the very important question "who pays the bill" to eliminate inductive interference-the consumers of the light and power company or the patrons of the telephone company, or both? With State machinery and national counsel, it is the opinion of your Committee that this perplexing problem will be fully and definitely answered in the interests of the public served by the telephone and the electric light and power utilities.

Joint Committee Meetings

Realizing that there were many questions which Committee, counseling with the executive officers of were common to all public utilities, the Public Policy the National Electric Light Association, suggested the appointment of a sub-committee of this Committee to meet with similar committees from the American Gas Association and the American Electric Railway Association, so that there might be complete harmony and economical action in prepublic utilities and the people's interest in the utilisenting properly to the people the position of the ties' problems. The President of the National Electric Light Association appointed this sub-committee from the Public Policy Committee, and the American Electric Railway Association and the American. Gas Association appointed similar committees.

Several meetings of the Joint Committee have been held and three important subjects have already been taken up for consideration, to wit: Taxation, Fuel and Public Information. The joint Tax Committee has appeared before the Finance Committees of Congress, presenting the position of the public utilities and will continue fully to present the position of the public utilities on this subject. The Joint Fuel Committee is preparing for the Fall and Winter deliveries of coal. Representatives of the three Associations have been actively engaged in fostering the organization of state committees on public utility information.

Investment Bankers Association of America

During the present administrative year, representatives of the Investment Bankers Association of America, organizing a special committee on public utilities, have conferred and co-operated with representatives of your Association on the financial needs and requirements of the electric light and power companies and other public

utilities. A representative of the National Electric light Association was invited to appear before the Board of Governors of the Investment Bankers Association, and the public utility question received careful and earnest consideration at the National Convention of the Investment Bankers Association held subsequent to the date of the last report of the Committee. As a result of these conferences, resolutions were adopted by the Investment Bankers Association, calling for further co-operation between the investment bankers and the owners and operators of public utilities "in laying before the public full information respecting the vital importance of prompt and continuing expansion of all kinds of utility service, and in encouraging such utility regulation as will provide sound credit as the basis for financing to the end that the investing public may provide the necessary funds by investment in sound public utility securities." The Board of Governors of the Investment Bankers Association also adopted a resolution favoring state as opposed to municipal regulation of public utilities. At one meeting of your Public Policy Committee prominent investment bankers, manufacturers, business men, representatives of business papers and representatives of other national associations attended a round table discussion of public utility conditions. Public Relations

This subject looms greater than ever before. Information to the public from every electric light and power company is essential. Your Committee enthusiastically approves the program of the past year adopted by the National officers, the Public Relations National Section, and the executive officers in disseminating honest and intelligent public information, both locally and through the National Electric Light Association publications. The program of the electrical manufacturers which is sending out good-will messages to the public in behalf of the electric light and power companies is already creating national favorable comment. State Committees on Public Utility Information are rendering great service and we respectfully call the attention of the entire industry to the need of continued publicity pertaining to the business of the public utility, for in our opinion the public will respond to honest statements of fact. The contractor-dealer and the electrical jobber are playing an important part in this national program, while the business papers of the industry are entitled to great credit for the generous use of their publications and for the messages they have delivered, both in their own papers and through the popular magazines and press of the country.

In this matter of public information the employes of member companies are an important factor. They constitute the personal touch between the consumers and the utility, and to a large extent by their actions. is the utility known.

This report would be incomplete without a word. of deep appreciation for the great mass of employes who not only gave redoubled efforts during the war period under particularly trying circumstances, but

have also undertaken to study, understand, and last, but not least, help the consuming public to understand the company's business and problems.

Finance

The last few years have more and more demonstrated the fact that speaking generally not more than 60 per cent or at the outside 70 per cent of the money needed for public utility development can be obtained from the proceeds of the sales of mortgage bonds. It is being generally realized at last that the investor is unwilling to buy a bond with a fixed and comparatively low yield except upon the basis that what he gives up in yield he must receive by way of security. This security can only be obtained by the borrowing company putting up the margin just as borrowers on their individual notes at the banks are required to put up a margin of collateral. This margin in practice cannot be obtained except by the sale of securities junior to the bonds-commonly referred to as junior finance.

Non-par Value Stocks

Until recently State laws required that stocks must contain on their face a statement of their par value. Also many States prohibited the sale of securities by utilities at less than par. These laws constituted a serious obstacle in the way of necessary financing, particularly in the case of junior securities. This has resulted in a general movement to bring about the passage in every State of sensible laws permitting the issue of non-par value stocks-both preferred and common-and requiring dividend rates, preferences in liquidation and the redemption price to be stated in dollars rather than in percents of par as in the old laws.

Under the old system of par value stocks the idea apparently was to use nominal capitalization, i. e. par value, as a fixed standard to measure and therefore always keep equal

1. The actual cash that has gone into the

2.

property.

The physical value of the property.

3. The market value of the securities. These are three entirely separate and distinct things, each dissimilar and to a considerable extent not affected by the other. Physical value is changing all the time, depending upon construction costs. Market values are constantly changing from various causes some of which have no relation to the value or the earning power of the property. Par values, moreover, can never be a true measure of the actual cash capital which has gone into the property unless as a miracle all the securities happen to be sold to net par, which does not happen. It would be about as easy to bring about these theoretical conditions as to make water run up hill or ride three horses together in three different directions at once. It cannot be done. About the only argument made as to why stock should be sold at $100 per share is because $100 per share is marked on the face of the certificate and it is argued that this is or is intended to be a representation as to its value, but the query:

"Why does the law require the stock to carry representation as to value?" remains unanswered.

In order to get the sense of our members on this matter a questionnaire was sent out to the chairman of each geographical section asking that a referendum be taken. The result was a unanimous vote in favor of non-par value stocks to be sold for what they will bring per share, the shares to be merely muniments of title evidencing an aliquot part of the property owned by the holder of the shares certificate and a pro rata participation in earnings, the proceeds of the shares appearing upon the balance sheet in lieu of the customary aggregate par value of outstanding stock.

This is an exceedingly simple and common-sense plan. Members of your Committee have worked hard to bring about the passage of sensible non-par value laws in some of the States and these efforts were, generally speaking, successful. The greatest trouble was caused by the fact that New York State in enacting the first non-par value law a few years ago inserted provisions which were complicated and in some respects unworkable in practice and-putting it mildly-foolish; and besides, such law did not provide for the issuance of non-par value preferred stock and prohibited public service corporations from making use of the act. Many of the early acts were copied from this defective New York legislation. We are happy to say that members of your Committee, in co-operating with other interested parties, this year succeeded in getting the New York non-par value law amended so as to make it fairly satisfactory and so as to permit among other things the issuance of non-par value preferred stocks and the use of the law by public service corporations. Similar amendments were made this year to the non-par value law in the State of Maine which law was originally copied from the New York law. Generally speaking, the earlier laws were unduly restrictive and in some respects failed to distinguish clearly between shares and capital-two entirely different things.

Largely due to the efforts of your Committee, a considerable number of additional States this year passed non-par value laws, the total of all the States having non-par value laws now being 22 in number. A majority of the recent non-par value laws follow more or less closely the Pennsylvania non-par value law which was the first of all the really sensible non-par value laws. We venture to prophesy that reasonable non-par value laws will soon be in effect in practically every State in the Union and in many foreign countries.

Open Mortgages

The tendency now is to create bond mortgages with rigid provisions insuring proper maintenance and replacements to offset wear and tear and depreciation, but instead of the mortgage being the oldtime unworkable, dangerous and practically closed mortgage, it now provides, as a rule, for the issue of bonds unlimited in amount but with carefully safeguarded restrictions and in series with flexibility as to the interest rate, maturity date, call price, de

nominations, sinking fund or improvement fund, if any, these points being fixed by the Board of Directors for any series at the time of the creation of such series. Ample protection to the bondholders is provided by the requirements as to upkeep of the property and by the restrictions and qualifications as to conditions under which bonds of any series can be certified by the trustee and issued. This is both a safe and practical plan of finance and much to the interest of the public as well as the company and has come to stay.

The market for meritorious and well seasoned electric light and power bonds is active and fairly good, but the necessary competition with high return bond issues of industrial concerns and foreign governments and also United States Treasury certificates and other tax exempt Federal government securities as well as with State and municipal issues of many sorts which at present are free from Federal tax, makes it necessary to sell our bonds on a high yield basis, if at all, thus making bond financing at this time expensive.

Any well-seasoned and good power and light bond of the larger companies can today be readily sold. Nearly all the power and light companies, however, are choked in their financing program. This is due to the fact that today there is practically no market at all for any material amount of junior securities with which to provide the necessary equity margin to be added to the cash proceeds of bond sales in order to raise the entire 100 per cent cash required for new construction. It is unlikely that there will be much general market for, junior securities at rates which our companies can afford to pay until money rates generally so decline that investors can no longer buy good bonds on the return basis of 7 per cent to 10 per cent. Money rates are slowly lowering and the time is bound to come when we can again sell junior securities to the bankers and not until that time will it be economically practicable to finance large construction programs.

There are a few exceptions to this very general statement. A few of the older companies are able to sell junior securities in amply large volume to furnish the equity money to go hand in hand with the bond money for their construction program. Some of these companies are selling common stocks on close to an 8 per cent basis. Today there are many companies selling their preferred stock in relatively small amounts to their customers. amount of cash produced in the aggregate in this way by the industry is large but with very few exceptions is wholly inadequate to furnish sufficient equity money or margin to go with the proceeds of bonds to make up the total cash required for their much desired construction programs.

The

The plan of selling local company stocks to customers is coming into very general use and the results are so beneficial to the companies that your Committee commends its adoption wherever the financial set-up and the credit position of the company makes these securities unquestionably safe. So far the customers' sale plan has resulted in a splendid distribution, i. e., an investment aver

aging in many situations as low as from $300 to $500 per customer stockholder. One of the good results of this plan in addition to the financial benefits is that it brings the consumers and the company into closer relationship and understanding and thereby makes the path of progress easier because most of the troubles and difficulties that arise are born of misunderstanding.

Water Power

For over fifteen years the nation has been confronted with the problem of how best to conserve the vast water powers of the country which are running to waste. Every Congress essayed the task and tried to enact legislation which would unshackle the water powers on the public domain and in the navigable streams and encourage their development; but to no avail. Finally when the continued wast

age threatened to become a public scandal, a bill placing all of the water powers of the country under the control of a commission made up of three cabinet members was proposed, and since the last convention of this Association has been enacted into law. This has greatly simplified legal procedure and laid the foundation for a program of vast construction work in the interests of national development and true conservation. Already applications are on file with the commission in Washington calling for the development of approximately 14,000,000 horsepower and permits have been granted and it is reported that work has been started by old and well-established companies on hydroelectric projects ultimately involving perhaps a million and a half horsepower.

While water power development is a matter which directly concerns the electrical industry, it is also a question of great national importance. The growth of our Western States, particularly those on the Pacific Coast, is largely bound up with the continued development of the water powers within their borders, because those States possess no coal deposits of any consequence and the known supply of oil is rapidly diminishing. Therefore that section has to rely more and more on hydro-electric development. The Southern, Middle Atlantic, New England and middle Northwestern States also possess extensive water powers and in the interest of economy, reliability and conservation these should be developed for public and private needs. Many of these water powers are upon navigable streams and their development will greatly benefit water route transportation.

Neither the water power act itself nor the rules and regulations adopted by the Federal Power Commission to carry out the terms of the act are ideal. The act is in a large measure based upon

HG BRADLEE NF BRADY

JOHN A BRITTON

RH BALLARD

the wholly fallacious theory that hydro-electric enterprises, even though regulated by the people, are immensely profitable; it is further based upon the foolish idea of limited tenures for water powers. The hydro-electric industry is as permanent as the stars and it is unthinkable that when once a water power is built it will ever cease to operate.

The limited term and the amortization clauses and the provision of the act giving preferences to municipalities are all basicly unsound. The only effect of these economically unsound provisions of the act is to retard development in a measure and to increase the cost of service to the consumers. They protect neither the Government nor anyone else. They serve no good purpose whatever.

The original rules and regulations hastily adopted by the previous National administration in its closing days were not at all satisfactory or workable. The Water Power Development Committee of your Association asked the new Federal Power Commission for a hearing to consider the business aspects granted this request and has shown your Associaof these rules and regulations. The Commission tion every courtesy and has indicated its desire to possible water power development and to have the be helpful in bringing about speedily the greatest economic lines. This hearing resulted in a material powers built in the public interest along the best improvement in the rules and regulations. There are still, however, a few things which it is vitally necessary to change to facilitate the economical financing of these enterprises.

Institutions of Learning

Probably every member of this Association has noted with regret that in recent years so many of our young men come out of colleges and universities imbued with socialistic tendencies. Whether this is due to neglect in their education or to the teachings of wrong-minded people it is not for us to say, but it is nationally important that all these young men should start their business life with correct information and ideas as to the mutual duties and responsibilities of the public service corporations and the people. To this end we recommend that this Association, separately or perhaps preferably in co-operation with other national associations of public service corporations, immediately put into effect through lectures or otherwise a comprehensive plan for effectively getting before the students -and perhaps the professors as well-of our universities and colleges correct information and a correct understanding as to public service with private ownership. private ownership. We believe this work is particularly important in connection with the law schools.