Nature Of Regulation

The states also have realized the wisdom of cultivating capital rather than discouraging it from entering upon projects designed to serve the public convenience. Public service commissions have been created to deal intelligently with this problem. These commissions are vested with the power to allow the corporations under their control to increase their capital as well as to refuse the privilege when it appears that the necessity for more capital does not really exist It is also within the power of these boards to refuse franchises when, in their opinion, a rival corporation, instead of benefiting a community, adds only a burden. While, of course, this system of control has some disadvantages, the general good they have thus far accomplished outweighs the drawbacks. At least it shows a desire on the part of the states to take the public utility corporations out of politics, which is at the bottom of most of the friction between corporations and communities.

Safety In Public Utility Bonds

However, it cannot be denied that, for some years, the public service corporations have as a class made such an excellent showing as consistent revenue producers, that they have become popular with the investment public. The panic of 1907 and the year of depression which followed gave them an excellent opportunity to demonstrate their stability. A great many of the companies turned this hard corner with increased earnings, whereas the earnings of corporations operating in other fields showed a sharp falling off.

There is a logical explanation for this. It must be borne in mind that the public can save little on light, heat, or power. It must ride to and from business. What is lost by a smaller average consumption is far more than made up by the increased demands of a growing population. Statistics prove that. The competition from automobile and so-called "jitney" traffic has recently made itself felt on the earnings of certain street railway companies. The future of this kind of competition is still problematical, but the experience thus far shows that other methods of transportation may some day make themselves felt in a serious manner.

Then, also, well-managed gas, heat, and electric light corporations have carried on a campaign of education, showing their patrons how their service may be used in other directions, thus increasing their patronage. Electric ranges and gas stoves have proved splendid drummers for business. The use of electricity for advertising has also been a source of considerably increased revenues. Electric power plants, as well as plants generating power from water, have made a permanent place for themselves wholly by the economy they have introduced in the cost of power.

All these factors are worthy of consideration so far as they explain the influences behind these corporations working for their success. As they are in a business of providing actual necessities, they are indispensable to a community. The investor, therefore, is assured that the business has, at least, solid ground as its foundation.

When electricity was first discovered, it raised the fear that the end of gas as a source of light had been reached, but this apprehension has proved unfounded. More gas is consumed today than ever before and the consumption is likely to continue to increase. While interurban electric roads have done a large business and are aggressive competitors of the steam roads, it is nevertheless a fact, as is shown by their increased gross revenues reported to the Interstate Commerce Commission, that the railroads are doing a larger business than ever before. The hydro-electric power plants have by no means cut into the output of the coal mines. In fact, our constant growth in population can be relied upon to use all the new means available for creating power, light, transportation, and heat.

Concentration And Integration

In smaller cities frequently the same company controls the gas and electric light plants and the street railway system. This integration and combination prevents competition and makes possible development along safe and sane business lines.

Another point worthy of comment in this connection is the tendency towards concentration of management of public service corporations into holding companies, which operate the public utilities in more than one city. A number of such corporations have been organized and as a general rule have been successful. At least one of these companies controlling a large number of subsidiary companies operating in cities has earned exceptional profits for its shareholders.

These holding companies, unlike their namesakes operating in the railroad and industrial field, are virtually immune from the restrictions placed by the Sherman law over all interstate commerce, or business transacted between different states. Their business is all concentrated in the communities which their plants supply. Only when they control electric roads crossing two states are they subject to the law Congress enacted to control trusts from restraining free competition.

As it is compulsory in nearly all states for public service corporations to publish detailed statements of earnings, the purchasers of these securities have little difficulty in determining the investment opportunities and speculative possibilities in their bonds and shares.

The truth is that there is more compulsory publicity with this class of corporations than with any other. The reason is that the public, by whose will they exist, have more than an ordinary interest in their behavior and success.

Public Service Corporation Bonds. Test Questions

1. What is a public service corporation?

2. What inventions have made possible the extensive public utility services of today?

3. Describe the development of electric interurban transportation.

4. What three main factors should be considered in judging public utility investments?

5. Explain why the stability of public service corporation bonds is generally unaffected by panics.

6. Explain the tendency toward concentration and integration in the public utility business.

7. To what degree is publicity enforced in the public utility field? What value is this to the investor in such bonds?