Evening Star Newspaper, October 4, 1932, Page 6

0TS SMITH URGES POMEREEULATON Forpm. ' Speaker Declares Gaps Should Be Bridged *.in-Present Set-up, | ——— A call for better vegulation of the power industry, to safeguard the publio and, the ipcustry itself, was sounded last night by George Otis 8mith, chair- man of the Federal Power Commission, in an midrr.ss in the National Radie Forum,” drranged by The Star and broadeast over the coast-to-coast net- work of the National Broadcasting Co. Discussing “America’s Power Prob- lems,” Dr. Smith said that the ad- vances mace by the power industry in the past.quarter of a century “may well be credited in large part to the influ- ence of pegulation.” Should Bridge GaPs. The need now, he said, is to bridge the gaps that exist in the regulatery set-up, He pointed out that in eight States, most of which are in the Mississippi Valley, there is no regulation of power utilities. Only half of all the States have statutory authority over the issue of power company securities, the speak- er continued, while in interstate trans- missian there is no control, the Federal Government, which alone has the right to step in, not having come into this field. Holding companies also must be brought_under control, Dr. Smfth said, adding that no one “guestions that the investing puklic would welcome some restraining influence over the issue of securities by holding companies; ex- perience has demonswated that a wide end dangerous gap exists there.” Text of Address. The’text of Dr. Smith's address fol- ows : “My' interest in the engineering and economics of the power industry is not a matter of recent origin. It began nearly 47 years ago, for in January, 1886, I wrote up for the local newspaper the new electric light plant in my home town. Some of you may need to be re- minded that 1886 was an early date in the history of the electric power and light business. I was then somewhat young myself, but this business of making and selling electricity was truly an infant industry, for the first central station electric lighting plant had been built in New York City only four years earlier. While the business of supplying electrie current to all users began 50 years ago, at the end of September, 1882, “all users” meant just 59 customers with 4 Jamps on the line. . The present-day power problems in our cohntry are primarily not those of discovering sources of energy or of in- venting methods. We have potential water-power sites whose aggregate ca- pacity is several times that of the sites ‘we have developed and our fuel supplies of coal, oil and gas are so distributed &8s to make steam power available where water power may be lacking—in fact steam is a lively competitor even in the States that are best favored with the ‘water-power sites. “‘Our power problems are rather those consequent upon full utilization of those energy ces. Already we Americans are usingenergy on a magnificent scale, a scalg possible nowhere else in the world. Our ‘problem, therefore, is the economde and social problem of so using our power supply as to promote the general welfare. “Power is labor's best friend. This abundance of mechanical energy with which to strengthen the arm of human Jabor has made American industrial supremacy ‘a fact and it is this suffi- ciency in power that makes America's future seeure. —As never before, it is a commonpiace off American life that elec~ trically-dgiven. motors are the tireless helpers of men and women in perform- ing theiryiaily tasks. This conservation of huma‘:nerxy may have introduced a new proflem jnto our social economy, but no one réally wishes to stop the wheels by which civilization moves for- s command of energy is the m re of advance; but to this truth we must;add that society's control of such an indispensable service as this we call powep is the criterion of ade- quate government. It iy rank nonsense to talk or even think of divorcing busi- ness and govegnment. The two have lived together “these many years and their separation would be the height of absurdity; the weight of evidence points the other way, for today an even closer union is demanded by economic condi- tions—not less regulation of the power business but better regulation in the public interest. Years of Freedom. “In the last 25 years we find that the industry has grown to fully 12 times its size in 1907, whether measured by toal plant investment, gross revenues, or population served. It is only in this later period that public regulation has had much influence and it is against this background of engineering progress and corporate growth we must measure the developmsnt of public service com- ions. — Truey there has been some lag, but where or Whenvin human affairs has not political actlon lagged far be- hind scientific diseovery, mec! 1 in- vention and lng‘um-m ‘activity? It scems to be a habit of human nature to let private enterprises develop consider- able strength before seek! effective means of protecting the public against any unwise use of that initiative. At any rate, the power utility was given gome years of freedom from interference by public authorities. This respite for the infant industry may have possessed some beneficial elements, yet the fact remains that thereby the infant public commissions started under a D. n with this delayed start, public regulation showed a steady and consist- ent growth. The beginning made by the pioneer agencies in Massachusetts, New York, Wisconsin and California were made the model for other States in this new line of governmental activity. Principles have worked out in practice and a fairly complete system has been set up for public control over rates, services and security issues. Whoever examines the record of these 25 years and sees therein only failure and incom- petence and even suspects widespread graft needs to have his civic perspective corrected and his faith in his fellow citizens renewed by wider contacts and broader outlooks. As an observer of Siate commissicns during this period, sympathetic with their efforts because terested in the purpose of their ac- tivity, I believe that their success has been notable. Considering the newness of the problem and the too frequent lack of public support at all adequate to the rapidly increasing complexity of the task, I assert that State regulation has not broken down. In thus com- mending the record of the State com- missions I speak advisedly, because from experience, when I say that regulation in practice is far from being as simple | as regulation in theary. This marked difference comes from the need under the law—whether a State or a Federal statul doing justice to all the par- ties in intérest. Natural sym| with either side or prejudice either side cannot lessen the obligation ta rec- ognize legal rights and to preserve equi- ties. The task assigned to a public servant is not as easy or simple as the self-appointed task of a common seeld. Federal Regulation Appears. “During the later half of this 25- year period Federal regulation came into the picture, The several bills pro- posing some measure of water-power control by the Federal Government were before the committees of Congress for half a dozen ril““ Ig: more bolm;o the Federa] water-power act was as I sat with these it as & par- over GEORGE OYIS SMITH. —Star Staff Photo. conservative authorities on constitu- tional law was simply a victory in re- | ag to a growing popular belief in | e public need of control of a public utility that had begun to take on a na- tional stature. Since 1920 the Federal Power Commission has administered this law, the fourfold purpose of which is improvement of navigation, develop- ment of water power, beneficial use of public lands valuable for power and the regulation, in the public interest, of projects under PFederal license. “It was the marvelous expansion ef the power industry that forced the en- actment of the Federal law and the neral nmnzthenln% ';1 many of the tate regulatory statutes. new and better laws have in no wise stunted the growth of the power cor- porations. Indeed, the notable progress in improvement of service and redue- tion of rates may well be credited in large part to the influence of regula- tion—that is, the constructive help given by public commissions in_protect- | they power stations and of the trans- ing the industry from itself. I believe I can fairly describe the present status of the power business as resultant or compromise ween the driving force of private initiative and the guiding force of public regulation. Undoubtedly, society is better served in that neither force has wholly controlled either the directicn or the rate of de- velopment. “In the power situation of today there | are conditions that call for some re. vamping of the regulatory laws. The guiding principle in new or amendatory legislation need be only that of bridg- ing the gaps in regulation—a legisla- tive policy of perfecting public control. These gaps exist, for eight States, most of them in the Mississippi Valley, are even now without any regulation af the power utilities. And only half of the States have statutory authority over the issue of power company securities. “A broader gap in regulation comes from the increasing amount of inter- state movement of electricity, which, however, when expressed in percentage of the country’s total, seems small, be- &h&s than 15 per cent last year. Yet country-wide average does not tell the whole story., for two States, Dela- ware and Mssissippi, import 95 and 80 per cent, respectively, of the power they use. and on the other hand, Vermont and New Mexico export 63 and 58 cent of the power they generate. This interstate transmission of electricity on such a wholesale scale can be brought under regulation only by action .o!uihe Under the United States n regulate interstate commerce in electric energy. A Federal agency must ogcupy this fleld simply because no other can; 1; is Federal regulation or no regula- on.. Holding Companies. “Still another gap relates to holding companies. Obviously. to make com- plete the supervision of the operating | And these | light business; I find that it hel to | Finds g:‘cnu“y a | wires—and 2 billions of the customer’s ) fore congressional committees 18 years 0. “Since then I have noticed that the possibility of overlapping jurisdiction and duplicated action is sometimes viewed with alarm by power company officials, but as yet the public has not voiced any loud complaint that it is overprotected; better same overlap than any gap; better overprotection than underprotection. The editor of a technical journal recently asserted that the basic unit in power engineering is the dollar—the unit of measurement that we all understand fairly well, And fn my own efforts to comprehend the economics of the electric power and distinguish in that business two of dollars—the investor's dollar and the customer's dollar. To have a gen- eral idea of the size of this industey you need keep in mind enly two ap- oXimate figures: there are 13 billions f the investor's dollar—the value Qf mission and distribution systems that cover our country with a network of dollar—the annual revenue from this far-flung capital investment. “Leaving now those billions—which | |few. if any. of us can fully compre- | | hend—let us think in terms of the| single dollar, on which the average | gross annual return is less than 16| cents, so that, taking one year with| other, a customer's dollar of new | usiness means about six of the in- vestor's dollars must be found as new capital. Need of More Dollars, “It is this continuing need of more dollars from investors that makes the industry’s credit standing with the pub- lic a matter of vital conoern. L 03 the industry simply has grow, and plainly the interest rate demanded by the investor directly af- fects the cost of electricity to the con- sumer. So it follows that the financial health of a power company is a matter | of large public interest, and thus de- serves to be carefully looked after by | Fegulatory agencies. | “Now, where does the investor's dol- | lar go? Taking the last five years, 1| | find that 19 cents of every new dollar | went into building steam plants, 9 cents | for building hydro plants, 14’; cents for additional substations, 16's cents for new transmission lines, 36 cents for extending the distribution systemi and 11 cents for miscellaneous items. .. ¥ou will note that only a little over.ane- Quarter of the whole construction ex- penditure in these five years was for ' generating stations—indeed, less than | was spent alone for the distribution | lines needed to reach new customers. “As 1 review the rapid growth of the power and light business and the great improvement in the quality of service | rendered, it is this striking record of | material achievement that has won my admiration through the years. I have| been in touch with the engineers and | ble S be 44 cent.;rid. as interest on bonds and divides ':n mn.“utu&xv '1::- come represent some of - ment, it follows that the rate ‘of re- turn is &:nmnn .fi'wr cex‘:fi-ne;; comes T cents; N e taxes of ':fi kinds, which require. loa, cents, but this esti- mate does A de and other 0 which are absolutely essential for safeguarding not only the invester's dollar but the eustomer’s service. “From this study of where the cus- tomer’s dollar goes 1 can discover no outstanding unity for radical "'h'lf” in r\mnlnlh th:uhumem realize, ver, that pure! wer 0(] the dollar spent for electricity f-“tnum every year, , A8 & somewhat ~ related fact the lnn‘r householder, even in these diffeult times, is using more and more current | | in his home each month. “What electricity costs to generate and distribute is a subject for engl- anal neering ; what the consumer is asked to pay is the starting point for political and popular discussion. The forgotten phase of the whole matter lies in the questions, ‘What is electricity worth to those of us who use it in our homes? Are we getting value received when we pay our monthly bills?* Cost of Substitutes. “The bzst approach to determine the value of the current we buy is to con- sider the cost of substitutes, and the final measure of the true ‘v;;lue of energy is man's own energy, man- hourr“ Following this lLne of thought, we ask, ‘What is the replacement vaiue of the electricity we use in our home in terms of man power?’ To be practical rather than academic, let me take a recent electric bill of my own and trans- late the kilowatt-houis en that bill into ' § man hours: I find that 1 had the equivalent of more than 33 strong- armed servants working for me 8 hours a day each—that i3, the three shifts of the 24 hours more than 10 men in all. And for the electric energy from the power house I paid $6.31, which would figure out 2 cents and 1 mill a day for the man-power represented. Thus the replacement value of the elec- tric current in terms of human labor, at present-day wages, is at least & hun- dredfold what we actually pay the local electric light and power company. “However, this statement of equiv. lent man power is far from being the whole of the truth. There are times| every week when the probable load put on the electric wires entering my home is something like 820 watts instcad of the actual average cf 253 watts shown by the meter. This larger demand for current comes when the electric wash- er, the refrigerator, the vacuum clean- er, and some of the lights are in use the same time. On Monday morn- ing, then, the equivalent man power re- quired by the power and light demands of my household would be 10 men on that particular shift, iously, few American homes could afford to have any such force of men at work or in regerve to furnish motive power for all these modern con- veniences. The plain fact is that the energy that comes frcm the power sta- tion into our homes to drive the house- hold machinery and to light every room at will does not displace men labor. Unemplcyment does not result from this lavish use of the energy derived from mineral fuels or water power; if we were suddenly cut off from this cheap supply from the power house and could not substitute gas for elec- tricity in some of its wcnder-worl functions, we would not replace it witl man-driven _ machines. ‘We simply could net afford the service and would without. g0 ¥ As consumers of electric current, you and I may well feel grateful to the power industry for what 50 years has seen accomplished, for what Kilowatt hours mean translated into the modern conveniences of the home, for what we get fcr a dollar when we buy electric energy. Amd st industrial power rates the spread between cost of electric en- ergy and cost of human laber is far greater—therein lies the reason that utilities that serve the public, measures | executives who have contributed the in. | the world's highest wages can be earned must be taken to regulate these large holding companies. would welcome some restraining influ- ence over the issue of securities by holding companies; experience has dem- onstrated that a wide and dangerous gap exists there. "A‘ .vencr ;guldh: high official of a prominent holding compa! asked me why all this puhlf eom“rg about holding companies and their con- trol over subsidiary companies: what was the public interest involved? The answer was that the public didn't like to see the utility cow milked to death; that to justify itself with the public the holding company must not endanger the health of the operating company. 1 regret to add that the figure of speech I then used proved to be an unhappy one; several of the cows in that par- ic herd are now 2t the point of death. And a large number of small investors have lost therehy their sav- ings. Speaking in my individual capac- ity, I believe that interstate transmis- and holding comj , then, are the d‘\‘i&(’ mx;sdd:h ing attention. e present widespread Tecognition of the need should speed up the tive machinery. The need is not a new one nor is its recognition al- together a recent incident; President Hoover hl.’sfi (ollln' times in four years urged specifically upon Congress legis- lation for the Federal regulation of in- terstate transmission of power, and the Federal Power Commission appointed by President Hoover began more than a year ago a study of holding companies— a study already resulting in an un- equivocal recommendation to the Cen- gress that public control of these com- panies is absolutely essential i the public interest and that adequate reg- ulation would include supervision of nllle }uus of securities to the investing c. “This policy of filling gaps n involve commuuom}ng:munm”g-ng Federal. is this proposal a new one; like many others, I am no new convert to this ides of complete control, for I urged it be- Sturtevant Blowers FOR BURNING BUCKWHEAT COAL Will Cut Your Ceal Rill 46% hoth Completely installed roam and boiler ther- cay FRIES, BEALL & SHA INC.. 1964 734 10th St. N.W. plete with bulbs, fix- tures, etc. Liberal Time Payments % MUDDIMAN ;. 911 G St. Nat'l 0140-2622 turdays 1:00 P.M. Moreover, no one | now questions that the investing public | 1 | you investors number only twe or three | ventive genius, financial daring and ef fective management necessary to crea 8 new major industry. Yet while we can frankly assert that in this industry private initiative has glorfously suc- ceeded in its conquest of material forces, we must no less frankly admit that the same industry ts a sad record of inglorious failure at many points 'hznm human relations enter as the determin- ing factor. To put it politely, the power industry has manifestly heen weak in its psycho! and sociology. The los- ing fight of public utilities against regulation has continued for a quarter of a century. Why do the power inter- ests occupy one trench after another in their retreat? They are only furnish- ing added excuse, if not indeed some reason, for continued attacks agaimst private ownership. “However, the business may look bet- ter to us after we analyze what the consumer gets for his dollar. Hvea though ownership of the power and light business is so broagdly distributed in this country that it has been called the “most practical socialism en earth,” million, while more than 20,600,000 of us householders are regular oustomers of the power companies, The cus- tomer's dollar, then, the dollar that pays our monthly light bill, is the one that we are all interested in. Average Bill $2.79. “The country over, the consumption of electric current in the average home is now 50 kilowatt hours a month, end the average bill is $2.79. At the aver- age rate, the customer’s dollar now | buys nearly 18 kilowatt-hours, whereas | by the skilled workmen who guide the millions of machines employed in Amer- ican industry. “The electricity I buy now costs only about a quarter as much as that sold Mr. Executive Route %2 New York pear Sir: ravelling caa: the Taft. ive wel LY omically! TAFT NEW YORK ——— 7th Avenue at 50th St., AdjuiningRemy's BING & BING MANAGEMENT Good 1 sizes. 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