| Show Massachusetts Points Way To T 0 Reach Proper Basis i For Rate Power Power Rate Making Editor The standard Standard Examiner Massachusetts has just jade his his- history history tory In the inthe the regulation of public utility rates A recent decision of the pub pub- public publIc commission of that slate lic tic utility that of f for small es iv e the first ray hope consumers of electricity The decision of the Massachusetts tS or of commission is that the amount a Invest invest- invested Invested money actually and prudently ed b by an electric light and ard power pow r company and only that amount shall I Ibe be the bests basis for fixing 1 the he rates its them They must not consumers must pay of going value re reproduction re- re reproduction reproduction b be required to pay pa on w a- a Inflated production cost m ss or any or Imaginary b alY values alues ever er m 1 has 5 The Massachusetts loL around ff t the nt slow found oun a way wa to get cumbersome cumbersome- and and uncertain estimates the built up under the and appraisals supreme united States supreme courts court's utility valuation rule It finds that by using the simple fair and understandable rule of how much money was actually and prudently invested it c can cm do o so s without infringing the courts gen gen- nh eral erl rule that under the fourteenth amendment invested In public util util- utilities must not be deprived ed d of a fair return on their Investment COMMON DIOS i SENSE METHOD 2 S. S Having adopted this common sense method of rate making the Massa Massa- Massachusetts Massachusetts commission denied the claim of the Worcester Electric com com- company company pany for a valuation of cl close to 18 SIB holding that even under the supreme court rule its valuation would be only and that under the Massachusetts laws Ian it was only which was In fact the amount of money actually and prudently invested Upon this basis I oasis I the company's maximum rate rata of 7 cen cents per per ier kilowatt hour was reduced to ta t 5 I cents 1 In spite of the steadily falling cost of production the average domestic consumer paid higher Instead of lower rates raus In 1926 The Massachusetts' Massachusetts decision de decision de- de points the way to relieve him of this extortion This Is especially Important because most public sen servIce ice commissions and notably in my own state sUte of Pennsylvania have been and andare andare andare are the mere servants of the corpora corpora- corporations corporations corporations they they- are supposed to regulate reg Here Is one commission which Is not The action of the commission is supported by Gover clover Governor Governor nor Fuller and the legislature Taken by so 50 conservative a commonwealth as Massachusetts it destroys com com- completely completely completely the contention of the electric Interests that the demand for foe proper i regulation Is a form of bolshevism The principles of proper rate- rate ratemaking ratemakIng ratemaking making which the Massachusetts commission has applied arc are not new I Measuring the fair return by the amount of money prudently Invested Is an outgrowth of the conservation movement begun under Roosevelt The federal water power act makes net Investment the basis of the fair re return re- re turn The Pennsylvania hydro elec hydroelectric law passed in 1923 while I was governor iQ does the same In every ery important point the Mass Mass- Massachusetts Massachusetts Massachusetts decision runs with the rec rec- recommendations recommendations recommendations of the Pennsylvania Giant Power suney survey whose report made in 1925 was as the result of a two year study of the whole problem TO PROTECT PUBLIC PUBLIO The Giant Power survey suney recommend recommend- recommended ed that the prudent investment rule for means of contracts between the state and the companies to be embodied in their charters thus avoiding the ex- ex rate-base rate and rates of the United States Slates supreme me court rule Unless Un- Un less the companies accept such con con- contracts contracts un 1 tracts the state could easily and properly refuse the companies the I grant of charters the right of emi emi- eminent eminent nent domain the right of local mon mon- monopoly monopoly monopoly I the use of the highways or any other rights and privileges the com corn companies panics might desire i The recommendations of the Penn- Penn PennI Pennsylvania I sylvania giant power survey and the I actions of the Massachusetts commis commission I sion slon agree as to measures necessary to protect the public and especially the small consumer These necessary measure are brief brief- briefly briefly briefly ly Rates should be b and fixed on the basis basis' of money actuary actually and actUAlly and prudently In Invested In- In Invested cost of reproduction vested ested and not on tion which would never take place going concern value or any other inflated estimates and guesses Securities should be issued only with the approval of the commission and at not less than par so as to lo tore tore- re reflect re- re fleet fairly the prudent investment The fair fait return should be meas meas- measured by its effect in keeping the stock in the open market marketa a Do little above a aprice aprice aprice price fairly reflecting the prudent in In- In vestment Consumers should be given glnn In lower rates the benefit ben of economies in vin the theart theart theart art of generating and distributing Ung electric current including Interconnection interconnection interconnection Rates for each class of consumers should be governed by the cost of serving that particular class The domestic do domestic do- do consumers consumer's rs r's share of the cost of generation and bulk transmission as opposed to distribution should not be much If 1 at all greater per kilowatt hour than the share of the big power user In other words the companies should not as at present uniformly os o the small user and frequently undercharge the big one FOR SQUARE DEAL DEAL I I i I Because of the U U. S supreme courts court's decision in the Rhode Island case the commissions commission's action can apply only to current generated entirely within the state and not Dot to current nt trans trans- transmitted transmitted from outside o But it is a great gain nevertheless What has been done in Massachusetts Massachusetts can be done in any other state Every ery state either through its legis legis- legislature legislature lature lalure or through its public service commission has entire power to get justice for lor its people in rates on cur cur- current current current rent made at home The only ques- ques question question tion lon Is whether it will use its power It t can revoke or alter the charters by which these utilities have ha been created or take from them the right of eminent domain or other special privileges if 1 they refuse to play fair fairA A digest of the opinions of the Massachusetts commissioners prepared ed by Philip P P. Wells former deputy attorney general of Pennsylvania and chairman of the giant power board is enclosed I call your our attention especially to paragraphs 10 10 13 and 18 Just now when electric utilities are merging into gigantic combinations which soon will reach from coast to coast this decision should be brought to the attention al of all who are in a position to help the people get a square deal from the electric monopolists That is my my excuse for lor writing you this letter letl r which you are free tomake to tomake tomake make use we of as you jou OU please Sincerely yours GIFFORD PINCHOT Paragraphs 10 13 and 18 to which Governor Pinchot calls attention In Inthe Inthe inthe the foregoing communication are re reprinted re- re reprinted reprinted printed herewith he 10 Same Same Reproduction Reproduction Cost Less depreciation An Unsound Rate-Base Rate In n Massachusetts In Massachusetts the establishment of reproduction value less depreciation tion lion as the rate-base rate would be Un Un- Unsound Unsound unsound sound legally historically and economically eco eco- economically It would assume reproduction tion which would not take place and a d would create a constantly varying rate base the determination of which involves long and expensive investigations n culminating In a composite guess based upon conjectures conjectures' as to the future which guess may be out of date by the time it Is attained so that the process must be repeated In periods of price Inflation it would compel the public to pay exorbitant rates and in periods of price depres depres- depression depression sion such as the next 10 years may be it would compel investors to re receive re- re receive e cei much less than a fair return It falls fails to do what the prudent In Investment In- In investment vestment rate-base rate does docs that is to tomake tomake tomake make regulation certain definite and capable of speedy application in the determination of rates Just to the public and to investors 13 Same Worcester Same Worcester Electric com corn company pany Present pany-Present Present value Y lue The prudent investment of the se security se- se curly curit holders of the Worcester Elec Elee- Electric Electric company was 4 Its plant investment value Including general equipments returned under oath to the commission was as its assessed value for local taxation gov governed gov- gov governed eme-d eme a great deal by the sworn re re- re return return turn of an officer of the company as to the value of machinery poles fixtures conduits etc ete representing the bulk of the Investment was 4 the company's actual book cost to a considerable extent built up out of earnings was the company's claimed valuation on the basis of cost was about and on the basis of reproduction tion cast co t less depreciation Including working capital cost of financing wa wa- water water ter supply rights and l privileges lIe lieges es and going value niue was Its divi divi- dividends dividends had averaged per cent of the prudent Investment and in 1926 notwithstanding remission of one half of the October bills had been 27 per percent percent percent cent thereof The market value of its stock has for some time been at least six times its par value Held that the th present value of the com com- company's company's company's pany's property properly for rate making pur pur- purposes purposes poses OSes if 1 computed according to the rulings lIngs of the supreme court of the would be chairman with Goldberg and Wells commissioners 18 Same Same Rate Rale Five Cents Fair Cents Fair Return on Property ServIng Serving ing Lighting Customers C A A reduction of the maximum rate of the Worcester Electric Light company com company pany from seven to five fI cents per kilowatt hour affecting lighting cus cus- customers lomers only will afford a II fair lair return on the portion of the company's prop prop- property erty used In serving such customers Attwill chairman and Goldberg commissioner |
