156 TEE POPULAR SCIENCE MONTHLY 



speculating in the securities of public service companies, have all oper- 

 ated in most cases to the disadvantage of the user, the co-investor in the 

 concern. Legal relief has been the obvious remedy sought, and if it has 

 seemed arbitrary, such a condition is only natural as a kind of reaction 

 against the formerly very loose check set upon the conduct of the 

 producer. 



It is generally agreed now that a common ground of adjustment has 

 been reached, and that by making a physical valuation of the property of 

 the producer, it will be possible to fix the " fair rate " that is consistent 

 with a " fair return " to the producer under the conditions of operation 

 required of the public utility under consideration. 



The details of physical valuation are involved and numerous. Much 

 discussion has taken place, and it continues from week to week in the 

 press and in the courts. Very excellent authorities are at difference 

 with each other on essential points. The difficulty appears to reside in 

 the fact that a common basis in principle cognizant of the interests of 

 the public and of the producer can not be found by those attempting to 

 establish the methods of physical valuation. The first point that must be 

 understood is that a public utility property shall no longer be speculative 

 in character. This is the obvious result of the recognized obligation on 

 the part of the public — the user — to assure the producer a " fair return '* 

 on his investment. 



The returns on the public service utility investment are, under the 

 plan proposed, to be made fair and equitable by establishing such a rate 

 for the service that the " fair return " will be reasonably assured. This 

 removes the utilities stock from the speculative class. Further, if there 

 remains a speculative element in the utilities stock, it would be an indi- 

 cation of necessary readjustment of " fair rates " to " fair returns." 



We are now ready to consider some large details of a physical valua- 

 ■tion which are illumined by the principle outlined above; namely, that 

 the user has a right in the properties of the public service utilities ; that 

 this right rests on the investment of certain valuable contributions 

 necessary to the operation of the utilities ; that fiowing from these rights 

 is an obligation that the investor shall be assured a " fair return " on his 

 investment. 



If records were complete, the ideal method of arriving at the invest- 

 ment of the investor of funds would be at hand. In some cases it will 

 doubtless be found that such records are complete. Where they are not, 

 the obvious course is to reproduce the actual conditions under which con- 

 struction was advanced, and estimate the original cost of the properties. 

 There is little difference of opinion that cost of surveys, preliminary 

 studies and investigations, and underwriting and promotion charges 

 which are wise, necessary and reasonable, should be allowed. What shall 

 determine reasonableness in this case is open to debate, but we have 



