Evening journal., 1909-01-15
Friday, January Is, 1909
REGULATING UTILITIES.

n IMPORTANT in its bearing upon municipal
y regulation of public utilities is the recent
decision OF the United States Supreme Court
with regard to the Gas Trust OF New York city
In the New York case and in the case OF the
Knoxville Gas Company the court has practically
decided that when a public service corporation
has monopoly in its field or is operating its
business with litte.or no risk the public author
ities, municipal or state, can reduce its earnings
10 a six per cent. basis; four per cent as net
return on the investment with per cent. added
to prevent depreciation of the property.
The question before the Supreme Court in
volved the right of the State or municipal au-
thorities to interfere with the profits OF such
inonopolstic public service corporations, the
trust owners asserting that such interference
was confscation Of their property rights, and
against the spirit of the constitution.
The Supreme Court held otherwise.
Ii was shown that the New York Gas Com
pany had earned as high as twenty-five per cent
on the actual amount of capital invested Pub
lie service corporations, however, value their
properties largely on the basis of the monopo-
listc franchises that they control. Their history
is marked by a small beginning Of money in
vested Then the stock is watered a fictitious
.saluatieR being placed on the franchise Often
the earnings of the corporation are sufficient TO
paw fair rate of interest on even the fictitious
valuation, but sometimes this cannot be done,
and the corporations are unable to meet their
interest charges.
If, however the right of the municipality to
regulate public service corporations is firmly es-
tablished carrying with this the right to FIX
charges such properties will not be SO attrac-
tive for investment 9s they have been. Private
capital will not be so desrous of purchasing such
securities.
The effect of the Supreme Court decision is
that public service corporations must be content
with six per cent return on the real valuation
Of their properties and not on an arbitrary or fc-
ttious capitalization.
Some persons profess to see in the decision a
long step taken towards municipal ownership
of public utilities such as street railways tele-
phones. electric lighting plants and gas compan-
les. Municipal ownership has been bitterly op-
posed by stockholders in such companies be-
cause of the large profits they have received in
many instances from such investment. Owner
ship has also been concentiousy opposed, by
many persons who believe that in the present
state of civic conduct a municipality could not
operate public utilities with the same economy
and the same satisfactory service as a private
company conducts them. This, of course, is SIM
DIV question for the voters, as to whether COM
petent men are elected to municipal positions.
ION the whole, our own Water Department has
l been managed about we'll as a private COM
pany could have managed it, and the Street and
Sewer Directors of this city, have made good
showing with their street paving plant.
1t is probable, howeves that cities will be en-
couraged by the Supreme Court decision to regtt
late public service corporations more than they
have been regulated in the past. The decision is
important therefore, not only to persons inter
estcd in municipal problems but also to those
with investments in the securities of public ser
vice corporations. as it establishes the right o.
municipal control of public service corpora
tons