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of the maximum efficiency of operation and thus give to users the service they require at the least possible cost to them and at the same time allow such fair and commensurate returns upon the capital required that it can be readily provided, to the end that the companies shall conduct their business in the most progressive and enterprising manner.
Your committee is of the opinion that the National Electric Light Association should take the position that it is in favor of a proper system of regulation by properly-constituted authorities, provided that hand in hand with the regulation shall go proper and adequate protection for the capital investment in these corporations. This means that the regulating authority, wherever it is vested, shall be vested in such a body that the individuals comprising it shall be assured of a fixed tenure of position, so as to be free from dictation from any political source as well as from the pressure of any local sentiment, which might prevent them from dealing with all interests concerned with justice.
If commissions be constituted they should receive their appointment directly from state authorities, and the terms of the members thereof should be for lengthy and fixed periods of time, their tenure of office expiring at different dates.
Each law giving power of regulation should contain within itself a clearly-stated rule by which the reasonableness of the regulation shall be determined. Such a rule enacted in the law will go very far toward removing all causes of difference of opinion between public-utility corporations and state commissions, as both parties will be equally capable of determining for themselves whether or not their own act as a corporation, or their own order as a commission, will stand the test of reasonableness by the application of the rule. Beyond this, should the two parties be unable to agree and appeal to the courts, the decision of the courts would necessarily be rendered according to the law, and thus the legal rule for determining the reasonableness of an act would receive judicial construction that would be acknowledged to be final and binding upon both parties. It is as necessary that laws giving powers to such commissions shall define and regulate their actions as it is that they shall define and regulate the action of public-utility corporations. Evils that in the past may have resulted from permitting public-utility corporations to be the sole judges of the reasonableness of their own acts will result from creating state commissions to carry into effect a state policy of public regulation and making such a commission the sole judge of the reasonableness of its own acts.
The duties required of any commission in properly regulating and supervising the operation of public-utility companies are such that a knowledge of the conditions that the public-utility companies have to meet is absolutely necessary. Individuals who find themselves suddenly intrusted with power should not proceed to exercise it rashly or hastily, or according to some preconceived notion. They should first familiarize themselves with the business that they are empowered to regulate.
There is a community of interest between the public served and the corporation serving it. The regulating body's goal should be to see that happy medium as to prices charged and return upon capital arrived at which will result in maximum benefits in the way of services.
Your committee believes that it should be impressed upon the officials controlling public-utility corporations that the public will is that these companies shall exist, not primarily to make dividends upon certain investments of capital, but as the most efficient means of supplying the public's needs. Every effort should be made to have the public fully understand and appreciate the fact that, in order to secure the maximum benefits from any corporation that it authorizes to furnish it with a service it needs, it must permit this corporation to receive an ample return upon the investment, which return upon its investment must be commensurate with the risk assumed, and that the risk assumed in the electric light and power business has in it most of the elements of a manufacturing risk.
We desire specifically to point out that all the burden of expense imposed by special regulations and special taxes upon the public-utility company are additional burdens thrown upon its service and paid for by its consumers. The interest of the consumer in our industry is directly and primarily in the price at which we furnish adequate service, and such special taxes must necessarily impose upon the consumer an unjust proportion of the burden of taxation.
First—That the National Electric Light Association should favor properly-constituted general supervision and regulation of the electric light industry.
Second-That if state commissions be constituted they should be appointed in that manner which will give them the greatest freedom from local and political influences, to the end that their rulings shall be without bias.
Third- That state commissions should be clothed with ample powers to control the granting of franchises, to protect users of service against unreasonable charges or improper discriminations, to enforce a uniform system of accounting and to provide for publicity. If the state provides for publicity on the one hand, on the other hand it should safeguard investments. Regulation and publicity would be a grievous wrong unless accompanied by protection.
In the conferring of these powers, great care should be taken. Regulation in and of itself necessarily introduces a factor of resistance to the adoption of new methods and to progress generally. Hence in the interest of lower costs, and consequent lower charges to users of service, the functions of the commissions should be confined within strictly regulative lines.
Respect fully submitted,
SAMUEL Scovil, Chairman, Sub-committee
JOSEPH B. McCall.
REPORT OF SUB-COMMITTEE ON THE LONDON SLIDING SCALE AS APPLIED TO
To the Committee on Public Policy, National Electric Light Asso
The theory of the sliding scale is that it will substitute a sort of partnership or co-operative relation between the corporations and their customers in place of the present antagonism growing out of the desire of the public to secure both reductions in rates and limitations in dividends without reference to the effect of either upon the other. The objection to high or exorbitant dividends rests, presumably, upon the proposition that they necessarily involve high or exorbitant rates. If this relation between the two can be changed, presumably the antagonism referred to can be eliminated. If every increase of return upon investment is accompanied with a corresponding reduction in rates, no legitimate objection to such increase remains. The so-cailed London sliding scale aims to secure these results. In its application to the gas business of England it has met with a large measure of success in that respect.
In its application to gas supply it is a simple matter. Siarting with a fixed normal rate of return upon capital and fixed normal rate of charge for the service rendered, dividends are allowed to increase in a fixed ratio to the reduction in rates.
A very interesting application of this theory, and the only one that has thus far been made in this country, is in the case of the gas company in the city of Boston. By an act of the legislature of Massachusetts, approved May 26, 1906, the matter was elaborately dealt with. A so-called standard price of 90 cents per thousand cubic feet and a so-called standard rate of dividends of seven per cent were fixed. The rate of dividend may be increased at the rate of one per cent for each reduction of five cents per thousand cubic feet. At the end of ten years the State Board of Gas and Electric Light Commissioners may, upon request, lower or raise the standard price per thousand cubic feet to such extent as may justly be required by changes in · conditions affecting the general cost of the manufacture or dis
tribution of gas. The act contains further provisions, of a more or less elaborate character, incidental to the main purpose of the act, which need not be mentioned in this outline discussion of the subject.
When, however, it is sought to apply the theory of the sliding scale to the much more complicated supply of electric service, difficult questions arise: Shall the increase of dividends be made to depend upon the reduction of the average rate or of the maximum rate charged for service? Shall the reduction relate to the entire service, or can it properly be applied, either in different ways or in different amounts or at different times, to different classes of electric service? While these are matters of detail, they are matters of essential detail, and must be worked out with accuracy, in order that the use of the sliding scale may be practicable in the business of electric supply. If they can be so worked out, there is little reason to doubt that the relation of the companies to their customers and the public will be very much improved, with distinct advantages to both.
Your committee is not prepared to recommend definitely any particular scheme or method for the application of the theory of the sliding scale as applied to the supply of electricity. It feels that such a recommendation should be postponed until after the matter has had full consideration and discussion. Your committee is, however, prepared to urge the very serious consideration of the application of this attractive theory to the business of the various companies in interest as soon as a safe and satisfactory working basis for it can be established. Its advantages to the companies, to their customers and to the public are altogether too great to be lost if it is practicable to secure them.
Aside from the insurance of fair and increasing returns on capital, dependent only upon increasing efficiency of service and reduction of rates, it may well be suggested that the sliding scale removes the principal arguments for municipal ownership that now exist, except, of course, those advanced by believers in public instead of private ownership without reference to financial considerations. Indeed, the public secures all the advantages of, with none of the financial risks or economic and political disadvantages inseparable from, public ownership.
The application and practice of the theory of the sliding