ETHICAL PRINCIPLE IN PHYSICAL VALUATION 155 



consumer turns the management of his interest in the husiness over to 

 the other party, together with the fact that when once these contributions 

 are made they can not practicably be withdrawn, establishes the right of 

 the user to fair treatment at the hands of the public utility company. 

 Still stronger appears the user's right to fair treatment when it is con- 

 sidered that he is, in the very nature of the case, the residual investor. 

 That is, under any plan to establish such rates as will provide a "fair 

 return " to the money investor, the user must hold himself ready at any 

 time to meet all demands for financial support involved in the operations 

 of the utility. The user may not provide additional money capital in the 

 early years of development, and may never indeed do so. But if such 

 becomes necessary, the user must, as will be seen, assume the burden of 

 interest charges created by the required borrowing. Mutual obligations 

 between the user and the producer follow naturally as a result of mutual 

 interests. These obligations are as binding on one as on the other. Ee- 

 sponsibility for fair treatment has in the past rested with the producer 

 exclusively, because he has occupied the position of control. Unfortu- 

 nately, the user has not been convinced by the treatment that he has 

 received that his rights have had the recognition they are entitled to. 

 The present movement has resulted, and the relative obligations of both 

 parties are now very generally understood. The investor and producer 

 must be secured in an adequate, " fair return " on his investment. The 

 investment does not necessarily include all the money spent in creating 

 the utility. It is no part of the user's duty to secure to the investor a 

 return on funds spent unwisely, unnecessarily or in any improper way. 

 For instance, construction work might have been done and paid for at 

 an exorbitant rate. It later might develop that the officials in charge 

 of construction were materially interested in the contract and had paid 

 for work at unwarrantable prices because it was to their own advantage 

 to do so. This is the simplest case. More involved ones have not in- 

 frequently occurred having essentially the same result. Such expendi- 

 tures are not wise or necessary by any means, and the user is not bound 

 to recognize them as a part of the investment on which the producer is 

 entitled to a " fair return." 



The chief right of the user is to receive efficient service at a rate as 

 low as possible consistent with the right of the investor to receive his 

 " fair return." It is the obligation of the producer to see that this ser- 

 vice is provided at a "fair rate" consistent with the conditions under 

 which the public utility is expected to operate. It is the consciousness of 

 these mutual obligations that is the basis of laws restraining public 

 service corporations. The user has seen his investment exploited for the 

 benefit, not of himself, but of the producer. The capitalization of anti- 

 cipated profits, stock dividends, unduly large underwriting fees in effect- 

 ing combinations, common "watering" of stock, manipulating and 



