industry have been private enterprises. It is private enterprise which today is making what was once an engineer's dream of "superpower" a present reality. This is pointed out, in passing, simply to eliminate the possibility of any one believing that there are two kinds of ownership of utilities, customer and municipal. Viewing these two, however, as two kinds of public ownership, there is a very decided choice. Customer ownership, a vital aid to the proper development of public service, is rapidly increasing. Municipal ownership, usually a millstone about the public neck, is obsolescent. Considering, first, customer ownership by itself, it were as well to say something of its origin and growth. It was the Pacific Gas and Electric Company that first conceived the idea of raising capital and fostering public good-will by the direct sale of junior securities to its customers. The first day of June, 1914, that company sent out a circular addressed to the employees asking them to participate in the purchase of preferred stock about to be offered to the stockholders for cash or on the instalment plan. There was a very ready response and within a month a similar offer was made to the customers of the company, and all the stock offered was quickly subscribed to. The practice has been continued from time to time ever since, and always successfully. In the year 1922, eight years after the original offering, the sales of preferred stock to customers of the Pacific Gas and Electric Company totaled more than $10,000,000. These shares were sold over the counter without any concentrated effort save local advertising, and absolutely without any sales organization. The spirit of the employees of the company had become, perhaps unconsciously, that of salesmen who felt themselves partners in the enterprises for which they were working. In this connection it is an interesting thing to know that only a few months ago the Pacific Gas and Electric Company began selling common stock to its stockholders. Although there are a few instances of this being done before on a small scale, no broad policy of this nature has heretofore been adopted. It is interesting to find the Pacific Gas and Electric Company pioneers in this new departure as they were in the first phases of customer ownership. The growth of customer ownership throughout the nation has been tremendous. The success of the Pacific Gas and Electric Company was quickly known throughout the industry and there were many quick to imitate. The National Electric Light Association has been for years keeping a record of the development of this activity, and its figures are striking. Table 19 gives a summary by years of the number of stockholders obtained and the shares of stock sold since 1914. These total 5,047,407 shares of stock, through the sale of which 652,900 stockholders have been obtained. TABLE 19 The tremendous significance of the customer ownership method today may be seen from the following figures. Authoritative estimates indicate that total construction programs of the electric power and light industry during 1923 called for an expenditure of $750,000,000. Of this amount approximately $250,000,000, or 33%, was raised through customer ownership activities. From the standpoint of the electric company, this method of financing is highly to be desired. It affords them an opportunity to obtain, at a minimum cost, a substantial portion of the capital required to keep pace with the demands of the industry. It materially strengthens their credit position. It stabilizes the market values of the securities outstanding by the best sort of distribution. Finally, the most important of all, it embodies the most practical form of true public ownership, and by creating a general good-will in the communities served, goes far to protect the utility from attacks of unprincipled politicians and agitators. Customer ownership embodies the most practical form of true public ownership. It is a growing practice throughout the country, and as such is in direct contrast with that other form of public control, ownership by municipalities. Municipal ownership is obsolescent. A total of nearly 700 municipal electric plants, for example, have been abandoned, the great majority during the last 10 years. Municipal operation is too frequently political operation. This is probably the chief objection to it and the main reason why it has not developed as successfully as private enterprise. A management subject to removal as a result of fluctuations of political feeling is necessarily handicapped, nor is the system of elections and appointments always conducive to establishing the right man in the right place. When the place in question is one requiring engineering science and executive ability, the chances of a succession of holders being of equally high caliber are materially reduced. It stands to reason that experienced engineers and business executives who have always been connected with the operation of electric or gas companies, and so forth, established with a sense of permanency, have a much broader outlook for building up successful service and perfecting that service than a probably temporary group of officials, perhaps capable enough, but thrown together by more or less fortuitous political selection. Facts bear out the case: Municipal plants have never been operated as economically as the privately owned ones. The average rate charged by all municipal plants in the United States is more than twice as high as the average rate of all companies reported by the Census. According to the Census, furthermore, the municipal plants hire 10.3% of all the electric light and power employees in the United States and buy 10.3% of all the fuels used in generating electricity, but they produce less than 4% of all the electricity sold in the country. And yet, again, the Census states, as to comparative rates of electric plants, that "The average rates received by municipal plants for their current are much higher than those charged by the other group, as is indicated by the fact that, while they sell only 4% of all current, they receive 7.9% of the income from the sale of current." Municipal ownership is no longer seriously considered a menacing factor to private enterprise in the public utility business. Not only has it proved generally unsatisfactory to the public, but the publicity incident to the great spread of customer ownership has proved so enlightening to voters that political demagogues are finding it increasingly difficult to make capital out of attacks upon public service companies. There are sporadic outbursts of municipal enthusiasm in certain sections of the country, but these have shown an increasing tendency to fall of their own weight and, we believe, will become less and less frequent. CLASSIFICATION OF VARIOUS TYPES OF PUBLIC The financial set-up of public utilities has undergone quite important changes in the last ten years, particularly in respect to the form of mortgage securing the bonded indebtedness. Prior to 1914 the majority of public utility mortgages were similar to those of an industrial corpora tion. That is, they were mortgages which covered all existing and future corporate property, and under which only a limited amount of bonds could be issued, and which required a sinking fund arranged to retire the greater part of the bonds before maturity. This application of an industrial mortgage to a public utility was, if the fundamental differences in the business of the two groups had been considered, quite absurd. The public utility requires immensely more capital investment than the industrial for the same gross sales-a ratio, as we have seen, of something like five to one. At the same time it requires that this greater investment be continually increased at a rate greater than the normal growth of the average industrial. And the most important difference of all is that on this large investment, which is only turned over once every five years, the public utility is allowed to earn only a limited return. This form of mortgage really meant that a public utility should, from its earnings, which were strictly limited, maintain and depreciate its property, pay interest on and gradually retire its bonds, and, if it did not want to lose its franchise, pay out large sums for additional facilities to satisfy the growing needs of the community served. Its regulated earnings obviously weren't enough to do this. The only solution was second, third, and fourth, up to tenth and twelfth mortgages, and nobody wanted them; but, if by any chance they could be sold, the interest would be so high that the company's unfortunate situation would be aggravated. It is an extraordinary testimony to the essential nature of public utility service that they survived at all. The obvious injustice of this form of mortgage was so apparent that considerable attention was given to righting it, by the leading men in the financial and utility fields. The result has been a kind of mortgage which is now almost universally used by public utilities. It is a mortgage covering present and future property with the issuance of bonds restricted by earnings and property additions, but unlim |