New-York tribune., 1918-07-21
Money Return on
Utility Stocks
ShouldBeKeptUp
Decline of Purchasing Power of
Dollar Sufficient Hardship
on Shareholders

Investors in public utilities corpora
tions have been hard hit by the war.
Rising costs of material and labor, to-
gether with fixed prices for service,
have been driving the return on such
investments TO the vanishing point in
many instances. The necessity of
keeping mp public service institutions
at high plane of efficiency challenges
serious consideration OF means Of aid
ing them.
In order to attract new and neces-
sary capital the utilities will have to
yield a fair return. John Bauer, of
Princeton University, gives q very
lucid answer to. the query. What is
fair return in war time? in an article
in recent number of "The Electric
Railway journal"
What is reasonable return?" Mr..
Bauer asks. This question was a baf-
n4ng che before the war and ID par
ticularly so now. A return cannot
fairly be shut off even on stock invest
ment, nor can il well be adjusted to
the shifting purchasing power of
money.
Many improvements must be made
during the war, IN many instances be-
cause of the war. Then how can the
funds be obtained if sufficient return
is not allowed for the purpose? This,
of course, is in addition to the general
point that in any event past invest
ment for public service should be
treated Justly. While the consumers
should be protected, the security hold
ers are also bearing the Increased cost
of living and war taxes and should re-
ceive due consideration from the pub
lie service commissions.
Fair Return Is Necessary
''Is it not the sensible view that the
investors shall be treated according TO
the same general standards as before
the war, receiving fair return on the
fair value of the property, with the
standards of fairness practically an
changed? They would then get the
same money return, but would sacri-
flee considerable real income because
of the decline in the purchasing power
Of money. They would thus incur
sufficiently high burden due to the war
No other penalty should be reasonably
imposed but no ground for relief can
be urged. The following special points,
however. should receive consideration:
81. The general basis of valuation
should not be changed from the stand
ards before the war. The unit prices
used in an appraisal certainly should
not reflect the present abnormal con-
ditions. While new investment will
have to be made at present high prices.
that can be specially provided for by
adding the actual new cost TO the rate
base.
"2. On new investment the rate of
return allowed must be based on mar
I ket conditions. If additions must be
made, and il new capital will cost
per cent or more, the rate must be paid
and the consumers must bear the cost.
But this high rate should not be applied
10 old investment, made when interest
rates were lower and the requirements
of the investors were less.
S3 A distinction should be made be-
tween companies that have been max
ing excessive returns in recent years
and those that have been operating or
a narrow margin or have not been MAX
7 ing a fair return. In the latter eases
adjustment in rates to meet increasing
costs should be promptly made.
81. When rate increases are allowed
because of emergency the facts should
be clearly set forth, and due caution
should be given that when conditions
again permit a reduction in rates viii
be ordered. Commissions ought to keep
unusually close track of operating and
financial conditions; they should be
ready to permit Increases in rates
promptly if they are needed, but they
should be equally prepared to order re-
duetions when they are again fairly
justified.
Valuation a Simple Task
All this leads to question slightly
touched upon before the proper vaiua-
tion procedure in war time. No diff
Guilty arises in this connection il the
company has bsen under fairly active
commission control. In such a case the
investment has probably been definitely
fixed as of some past date, so that the
problem of determining fair return is
| merely TO add The property installed
since the appraisal and subtract the
Withdrawals This work and statisti.
cal analysis of the financial facts with
a moderately competent force would noI
require more than two or three weeks
Tor the establishment of fair rates"