speculating in the securities of public service companies, have all operated 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 indication of necessary readjustment of "fair rates" to "fair returns."
We are now ready to consider some large details of a physical valuation 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 flowing 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 investment 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 construction 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
