Los Angeles herald., 1909-03-06
FORMULATES PLANS
FOR FIXING RATES
CITY AUDITOR REPORTS ON
PUBLIC UTILITIES
Discusses Matter for Benefit OF Coun-
Gil and Urges Appointment of
Commission Next
Year

City Auditor Mushet has formulated
what he calls the rules of the game"
| for the guidance and control of the
public utility companies when they
! come before the city council next week
humbly asking mercy in the adjust
ment Of rates for the next year.
His rules" are contained in COM
munication to the city council in
which he goes into the subject of pub
| lie utilities in an exhaustive manner.
In conclusion he recommends that be-
fore the next rate fixing time comes
| around the council appoint public
utility commission, TO be composed of
an engineer, an accountant and an at
| torney. In part his communication
follows
THE question of the plant value of
7 a public utility corporation is of the
! first Importance The corporation is
entitled to a fair interest on its plant
value, and unless the rates for tho
public utility are fixed so that this fair
interest may be realized it spells ruin
to the corporation AS rule public
utility corporations sell bonds repre-
senting first mortgages on the value of
! the plant, and the interest on these
bonds must be paid from profits of OPP
Grafton. Should the corporation fail to
make the profit necessary to pay the
| bond interest the plant Will be taken
from the stockholders of the corpora
ton and ruin ensues. Most cities, APP
preciating this danger, call for action
/ on the part of their city council or
trustees looking to the adjustment of
rates so that the public utility cor
poration may not be brought to this
pass. Should the rates be fixed too
low the corporation may appeal to the
courts for relief, as low rate may
I Of and this
is not contemplated by law.
Figures Too High
UNFORTUNATELY. however, plant vail
ues are frequently stated by the cor
porations at a figure much in excess
! of true values, and effort is made to
show that the earnings and profits from
existing rates are much too low and
are not sufficient to pay fair rate OF
| interest on the investment. Modern
accounting provides complete method
! for showing true conditions, and 1t
! only remains to provide means by
which this science may be made OPP
eratiy- as between cities and the pub
! lie utility corporations operating there
! in.
1.-THE community is most vitality in
| terested in the earnings of the public
| utility corporation. The commodity
| furnished by the public utility cor
poration may need to have sliding
! scale of prices so that in some cases
| the price shall be much less than IN
! other cases.
This sliding scale, however, should
not be fixed by the corporations, but
! by the community's representatives,
who should carefully consider all of
the factors and fix rates so that the
small consumer shall not be forced to
pay unwarranted rates in order to per-
! q 81, 10 ia he favored
/ with low rates, which, If they formed
| the base of all charges made for all the
| output would cause ruin to the cor
porations in short order.
1T can be unhesitatingly stated with
out fear of contradiction that in some
cases the corporations would nave 10
close their plants down in month
were it not for the fact that they are
able by exorbtant rates to make the
common people-the small consumer
paw enough to cover all the operating
expenses. although the small consum-
ers take but small percentage or the
output. This state of affairs should be
stopped, and the only way that seems
indicated is to have the community fix
not only the maximum rate for the
small consumer, but also the minimum
rate for the large consumer.
"As if has been stated that the cor
poration is entitled to all its necessary
expenses, it is well to inquire as 10
the limitation placed upon this source
of disbursement. Proper charges are
those for maintenance both of produc-
ton and distribution on plant no
| larger than necessary to serve the COM
munity, also current repairs and the
ordinary operating expenses for produc-
tion. distribution and administration.
These expense accounts should be sub
iect to scrutiny by the community so
| that the corporation may not be con-
Quoted extravagantly. AS the coninu-
nitv should guarantee rates that yield
a fair return on value of investment,
so also should the community demand
proper and economical administration.
! The community must also protect IT..
self from wrong accounting.
Profit on Investment
1.-The question arises as to what is
to be regarded as a fair return on plant
| value. and it is one that must neces-
| sarilv be settled before the rates can