Southwest Washington labor press. [volume] (Hoquiam, Wash.) 19??-19??, 1924-10-10

department Is able TO ascertain very
closely the actual and prudent invest.
ment in the property and facilities Of
the utility devoted to the public serv-
ice. This actual investment, OF a fig
ure close to II, is adopted by the de-
pertinent as q rate base.
The rate base is not in any way eff
fected by the amount of stocks and
bonds. Instances can be cited where
stocks and bonds have greatly ex-
ceeded the rate base finally fixed. On
the other hand, it is sometimes found
that the rate base exceeds the stocks
and bonds. In valuation of the cleo
trio utility at Wenatehee the then out
standing stocks and bonds amounted
to $1,478,612. The rate base was
fixed at $7S0,OOO. In a small tele-
phone utility port Angeles) the
stocks and bonds amounted to $31,-
900 while the rate base was fixed at
$4,000.
The term used by accountants for
flair return" is gross income. Gross
income is the amount that is left af-
ter deducting operating expenses,
taxes and depreciation from revenues.
In a rate case the amount of the de-
ductible items is determined by the
department after its investigation,
and it is not necessarily the same as
claimed by the utility.
If the gross income should amount
to more than per cent on the rate
base then the rates are in line to be
reduced. If the rate of return is less
than 8 per cent the department care
fully examines into the conditions
that affect the utility before allowing
rates to be increased. In the Wen
atchee case above referred to, the
gross income amounted to 4,749,
and the commission found this to be
fair and reasonable return. The
interest requirement was $51, 76O
which would leave only $12,989 out of
which to pay dividends on $620,800
par value of stock. Yet the commits
sion refused to grant an increase of
rates. The company passed through
a receivership and its property was
finally sold to another company.
It is thus seen from the above that
if the utility should be so burdened
with debt that it takes all of its
gross income to pay interest, leaving
nothing for dividends, then the stock
holders are out of luck unless they
can get higher rates. But if the gross
income amounts to a fair return on
the actual value of the plant then
their plea for higher rates is futile.
The assertion by Mr.. Bone that the
stockholders can claim not only divi-
dends on. the par value of their stock
but also a dividend on the par value
of outstanding bonds owned by 9TH
ers is thus shown to be an untrue
statement and cannot possibly occur
under the existing law. Other state
ments in his article to the same eff
feet are likewise untrue.
1t cannot be too often reiterated
that the debt of a public utility COM
pany under government regulation
have nothing whatever to do with
rates. On the other hand, it is the
actual value of the property dvoted
to the public service-the physical as
sets-that has an influence on rates.
1t must be apparent from the forego-
ing explanation that if the utility is
financed contrary to well established
economic principles the only ones
who are "gouged" are the stockhold-
ers and bond holders.
Not only has Mr.. Bone made mis-
statements in the article in question,
but he and other proponents of mi
tiative No. 81 have made many loose
and inaccurate statements. AS an
example, in Mr.. Bones speech in Alb
erdeen recently he said that it had