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THE ARGUMENT FOR SEGREGATION. For it is no part of a gas company's contractual obligation to the Public that it employ the selling talent and undertake the cost necessary to show the advantages of coke for fuel in such manner as to create a profitable retail demand. It is no part likewise of this obligation that it sell a stove or a lamp, or pipe a house.
If then the Merchandising Operations lay no burden upon the Gas Operations, and are an activity which the company is not under any contractual obligation to furnish the Public, then it is unjust that the profits therefrom should be considered a part of the measurably insured profits of the business due to the monopolistic grant of the use of the highway. Or that they should be taken into consideration in determining the allowable return upon the investment employed in the furnishing of gas, which is alone the basis of the grant.
Still further. There is no stability to the prices at which it may be necessary to sell any of these products or appliances in competition in the open market. There is no protection to the company through its contract with the Public that it shall secure an adequate return thereon. The laws of supply, of demand and of successful competition are operative against the company in the handling of these departments to as great an extent and in all respects as severely as against the private trader. Their conduct involves none of the capital involved in the making and delivering of gas. Consequently they have no proper place as an element in fixing rates at which gas should be supplied.
Again, as condemning existing methods, when the profits accruing from the retailing of coke and the selling of other merchandise are all credited to a general Loss and Gain account and dividends are paid regardless of their source, the foundation is at once laid for possible charges of excessive return on a monopolistic investment. And still again, when a company so conducted has to apply for an extension or continuance of its powers, or face a demand for a revision of rates, it may find itself compelled to establish prices for gas in no small part based on the unsecured and unstable profits derived from these voluntary activities.
If intelligent, complete and accurate segregation has not been practiced as a matter of basic policy, it is hardly to be asked that the Public will then give much consideration to the propriety of a procedure which the Company had itself theretofore ignored.
If on the other hand, these two fundamentally different elements of a gas company's responsibility and opportunity have been honestly accounted for separately, and dividends have been paid separately as specifically derived from each source, and the respective surplus earnings have been kept apart; the burden of proof will be the other way.
So much then for the obviously immediate or direct results of Segregated Accounting.
SEGREGATION AND “SERVICE.” There is also another element of, or perhaps more correctly a collateral aspect to this subject, one of the most subtle and difficult to treat; in the determination of which Segregation may materially assist even if it may not be claimed that it will supply a solution. I refer to that rather intangible, entirely voluntary, somewhat elusive, yet very certain value rendered the consumer, at a resultant profit to the Company, that product of brains, energy, tact and general appreciation of the widest possibilities of the business and the means for the attainment thereof, that Personality which has come to be classified under the generic term ·
-SERVICE. Service, therefore, is not adequate works, mains, or meters. Service is not gas, even of good quality and sufficient pressure. Service, in other words, is not something physical, despite the fact that these adequate physical attributes are necessary elements of good Service. In a private business, under the name Goodwill, it is recognized as an intangible element of the highest value.
If then Service be a definite value rendered the consumer, and if it be a voluntarily supplied value, then the company supplying it is entitled to a return of the cost of service plus a profit on that cost, wholly regardless of a profitable return on the investment required to supply gas.
I fully grant the practical difficulties in the way of an equitable solution of a problem wherein a contractual and a voluntary
element, each bearing to the other a most intimate relationship, must be paid for by a single price measured in terms of one of the elements. And particularly so, where Custom has ignored the existence of a voluntary element, and the company, under existing methods, has no suitable accounting for showing its extent with reasonable clearness.
It being part of my purpose, however, to present the bearing of segregation on the intricacies of this problem, let me endeavor to elucidate it somewhat through the medium of an extreme comparison.
Let us assume two towns of substantially equal population, similar habits and comparative purchasing power. Let us further assume a substantially equal mileage of mains, and other physical value of plant and equipment. Let us assume that gas is made by the same process from similar materials with equal intelligence, and that in each place the consumer has always an adequate supply of a uniform and equal quality at the same price, and lastly, to give our comparison a possibly practical object, let us assume that these two towns are located in the same State and under a State Commission, that each of them is carrying its accounting in the ordinary way, one of them paying dividends of 6% and the other 12%, on actually invested capital, and the Commission is confronted with a demand that the rates be cut in the second town because of its exorbitant earnings.
Let us enquire as to what may be the difference in the conduct of these two businesses.
A PUBLIC SERVICE CORPORATION. In the first town, let us find a thoroughly capable, technical management, which, as we have before assumed, supplies an adequate quantity and proper quality of gas; but that there its conception of its business ceases. It maintains no show room, and exhibits no appliances. It has no solicitors and no trouble men. It collects its money, or cuts off its delinquents.
And if Mrs. Percival Smythe calls at the office to say that her new aluminum kettle is getting sooty, she is referred to the dealer who sold her the stove, or to a plumber; for, the gas having passed the meter, it has been supplied for a stipulated consideration, has become the property of Mrs. Smythe, and its further use or abuse is not the concern of the gas company. This, happily, is perhaps a too fantastic example, yet there are those who can remember the time when it would have been less fantastic than it is now. Mrs. Percival Smythe, mentally scoring one against the gas company, thereupon telephones Wm. Plumber. Maybe that day or the next Tom Plumber drops in, and at the expenditure of an hour going and coming, and fifteen minutes in the house, cleans out the clogged burner, that the kettle may resume its erstwhile pristine brightness. For all of which Mr. Smythe is duly rendered a charge, not only for Tom's time, but for a substantial margin of profit that accrues to Tom's employer. Now what is the cost of gas per thousand feet to Mrs. Percival Smythe ? Obviously, the price she paid the gas company, plus Wm. Plumber's bill. And so if it were a blackened mantle, a stopped tip, a leak, or any of the other hundred and one Troubles for which the gas company may not be in any wise responsible, but which are yet very real impairments of the service to the consumer, are usually classified under that most erroneous title—Complaints—and most seriously affect the consumption and the resultant profits.
A QUASSI-PUBLIC-SERVICE CORPORATION. Now what is the practice in the second company, against which lies the charge of excessive dividends. Let us find them in a large and commodious uptown office in the convenient but expensive center of the shopping district, with everything in the way of devices for utilizing gas on exhibition and sale. Let us find a branch telephone exchange presided over by a polite and intelligent operator (not cheap attributes, those !) and a sufficient force willing and able to give every need prompt, efficient and courteous attention. Moreover, we find not a house in town but receives a call at least every 90 days from a young man or a young woman whose only aim in life appears to be either to find out if there is anything the company can do for the occupants, or to get a reason why they are not using gas. Is this picture altogether a fantasy?
Yet, notwithstanding all this, Mrs. Reginald Browne finds her kettle also getting sooty and likewise her first thought for remedy is the Gas Company and she telephones the gas office. Before Mrs. Reginald Browne wants to use that kettle again, a
man has appeared at her house, the cause of the trouble is remedied, and Mr. Browne owes no bill to Wm. Plumber.
Does the assertion that the sales of gas will be two, three or four times as much in the second town as in the first, need any demonstration? And accepting the difference as a fact, why is it, and to what is it due?
It is not my purpose to enquire whether the State Commission, in passing upon this case, should say whether a progressive management supplying GAS and SERVICE should be allowed no incentive to give the Service; or whether they should be entitled to a proper profit on the working expense, the Personality, voluntarily invested in their energy, acumen and labor, and you will ask therefore what has Segregation of Accounting to do with the case.
SEGREGATION EXEMPLIFIED. Simply this. Where a single organization is carrying on, with a mixed force, two or more separate, yet intimately related, activities, it is necessary, in order to properly and completely ascertain and apportion the elements of each, that an analytical accounting of every element of cost be continuously maintained.
Take, for example, a solicitor in an ordinary company and what may be the detail comprising the sum total of his daily work. He waited on Mrs. Jones at the office to show her a stove. He must call on Rogers to get his order for next winter's coke. He must stop at Williams' house in passing, because Williams is a prospect. Maybe he is the first man at hand to fix Mrs. Browne's stove. Incidentally he took a few pick-up meter readings, explained to Jones satisfactorily why his bill was a half more than last month, and waited twenty minutes to catch Green to find out when his new house would be ready for that piping order.
Now what are you going to do with the $2.50 paid out for that day's work? Are you going to throw it into “expense” and hope the offsets will find their devious way to the other side of the account by the end of the year? Or are you going to look at it in a more analytical light? In that day's work was time employed on straight merchandising—“Ranges” and “Coke Sales,” just the same kind of solicitation to effect a sale for profit as would be put in by a hardware dealer, ditto by a coal