dealer. There was some "Gratuitous Expense," vide, Mrs. Reginald Browne. There was some "Development," or work put in to assure future extension of the business, vide, the Williams call, and waiting for Green about his prospective job of house piping. There was some straight "Meter Reading," a detail of Distribution Expense. There was some plain gas expense, vide, adjusting the high bill.

And in contradistinction to the diversified activities of the general utility man thus described, we will find our way through varying degrees of divided effort to, let us say, a stoker, against whose work there is but one division month after month.

Now, to segregate with honesty and accuracy, every minute of every man on the force must be accounted for. It sounds like a big proposition, in reality, it is a simple matter of detail, and why should it not be segregated? If you are paying a man 25c an hour, ten minutes time is worth a trifle less than 5c. Your $100 book-keeper may spend all day hunting for a one cent error in his trial balance. Why should you disregard ten minutes of time?

AND A POSSIBLE RESULT.

But passing that, wherein will Segregation help you with your Commission and your fight?

First, if my theory be correct, your merchandising profits of all sorts are eliminated from consideration. So you will by Segregation, eliminate from the sphere of proper public regulation a not inconsiderable proportion of your legitimate dividends.

Second, if, under suitable titles, your segregated accounting comprehensively provides for the details of the voluntary expense comprising the cost of fixing Mrs. Browne's stove; the rent of the well appointed office in an expensive locality; the extra salary to a manager possessing more ability than mere competence; and other proper elements of the expense involved in the effort to give perfect Service, will you not then be in position to take the ground that these voluntary expenditures are not a part of your contract for the use of the highway, that they are your own voluntary private efforts in service to the public, for the good of the public, and for your own resultant additional profit, and that you are properly entitled to a return, both upon the investment necessary to make and supply gas, and upon the voluntary expenditure that produces this extra profit?

DISCUSSION.

B. C. Cobb, New York City:

This subject is so broad and so big as to render it impossible to give it proper consideration without going into endless detail, for which I have not had the time. There is no question but what Mr. Lloyd's ideas and expressions are certainly fit subjects for deep and careful thought, and the matters brought out by him can not be hastily put aside.

There can be no possible fault found with proper segregation of accounts. Most companies already are doing it to a greater or lesser extent. And without so doing, how can a proper understanding of the business be had?

It is perhaps fundamentally correct that a gas company should regard its business, as confined to generating and distributing its product-gas of satisfactory quality, to the consumers' meters. The exigencies of the case have, however, led companies to go nuch further than this. It is perhaps not strictly the function of a gas company to enter into the appliance business and sell stoves, ranges, gas fixtures, etc., and it perhaps is not the function of a gas company to treat its by-products and work them up into all sorts of marketable products. Local situations and conditions have, I think, in most instances governed the policy of a company in these respects. Personally, I am inclined to believe that if a company can have the appliance business properly taken care of and pushed by outside dealers it should let this line of business alone, and I am satisfied that if a company conducts this line of business and shows any profit that such profit should not be treated as something which should go to reduce the cost of gas production.

I am not so sure about the residual department of our business and have not concluded in my own mind how far we should go in this respect. We have them as a by-product, and it perhaps may be argued that a company should obtain every dollar available from their sale no matter how much the work and detail involved. I do not think it is the function of a company to work up its tar into all sorts of chemicals, but to say that it should sell its entire coke production at wholesale and perhaps decrease its income to some extent, is a question. The segregation

of residual accounting from gas accounting is certainly an important matter, and to know what we are actually doing with our residuals, they should be properly charged with the expense of handling then.

Companies have gone so far in the past few years in giving service to the customer and in order to obtain new business that it is difficult to draw a line and say what things we ought and what things we ought not to do. It may be necessary in one town in working up the business to run free services to a customer's house; in another town where conditions are different, such procedure might be an unnecessary investment.

If companies are to be limited in the rate of return on the investment, we must give careful thought as to what the investment is that the worth of the property may be properly known. It is certainly true that two companies receiving the same price and having approximately the same output, and approximately the same costs as to coal, labor and other supplies, may have a very much different cost of gas per thousand feet produced. Acknowledging this to be a fact, what is the explanation? My answer would be, MANAGEMENT AND EXECUTIVE ABILITY IN THE OPERATION OF THE COMPANY'S AFFAIRS. It would be hardly fair or right to say with these two companies, assuming that both are capitalized at the same amount, that the company showing the better results should be penalized to the extent of being allowed only the same return on its capital as the other company. There must be an element of worth in a going business, in management and organization, which, if a company is not allowed to realize upon in the shape of increased dividends, it should be allowed to capitalize.

As I said before, the subject is so broad, so big and so involved that I think I had beter stop and give others a chance.

Chas. S. Ritter, Detroit:

Mr. Lloyd's paper, on "Segregation of Gas and Commercial Accounting," is so well prepared and he has evidently given the subject so much thought, that I hesitate about offering any criticism.

I have for a long time contended that the profits obtained from residuals should not be deducted from the cost of gas manufacture. I had never come to any conclusion however (as Mr. Lloyd seems to have done) as to just what method we should adopt in crediting our generating account with the residuals produced. As Mr. Lloyd contends, the credits will fluctuate owing to the state of the market and the activity of the merchandising department in pushing the sale of residuals. This condition will, however, not be entirely overcome by selling to the "Merchandising" department at so-called "wholesale prices," as these prices are also subject to fluctuation.

It is very probable that the best practical method of carrying out Mr. Lloyd's principles will not be discovered until several have been tried. I can think of no better than the one he suggests, although I am not entirely satisfied with it.

The other points in his paper, such as the influence of the "cost" of gas on the public mind and on Commissions, and crediting the merchandising department of the selling organization with its efforts to get profitable returns on the residuals, are very well taken.

There is certainly no logical reason for deducting from the cost of generation the profits made on residuals. The public at large is not interested in nor entitled to the profits obtained on purely commercial products sold in competition in the open market. This fact is especially important to companies threatened with regulation by commission or operating under sliding scale franchise similar to that of the Boston companies.

J. C. Sloan, Port Huron:

The subject is one I have heretofore not given much thought, as keeping down the dividends on the gas company's stock has been the least of my troubles. I agree with Mr. Lloyd, that the profits derived from sale of merchandise should not affect or be used in any way when regulating the selling price of gas; but I do not agree that a gas company is entitled to charge to its operating expense for complaint work an amount greater than actual cost, in order to credit some special account a profit from such work.

Regarding separating the profits derived from selling and handling of by-products from the profit of selling gas, I question if such accounting would receive the approval of such a commission as referred to in Mr. Lloyd's paper. I am of the opinion that they would take the view that "Pigs is Pigs" and that they would bunch the accounts.

Having recently passed through the trials of obtaining a renewal of our gas franchise with the city, I am most impressed with the importance of the gas company's books not showing a greater earning than the law allows, but I believe there are safer and better methods of doing this than some suggested by Mr. Lloyd. For instance, if a proper amount from the earnings were charged to a "Depreciation, Obsolescent and Inadequacy Account," and if the Betterment account was not used quite so frequently, there are few gas companies in Michigan that would have to worry about excessive dividends.

Heretofore most gas companies have sold merchandise at slightly above cost in order to increase their gas sales, but I am thinking that in the years to come, it will be necessary to sell merchandise at a good profit in order to help pay dividends on gas stock. The man who said to his son, "My boy, get money. Get it honestly, if you can, but get it" rather expresses my views as regards obtaining money used to pay dividends. Not that I would, as manager of a gas company, resort to any dishonest means, but I wouldn't feel badly if it was necessary to dip into the profits from the sale of merchandise in order to pay a ten per cent. dividend on my company's stock.

Burton R. Laraway, Jackson:

Mr. Lloyd's paper is very interesting and contains suggestions for a line of thought that may profitably be followed by most of us, as we are vitaly interested in the gas rate problem at this time.

I am inclined to think that a mere segregation of accounts of one corporation would not be recognized by a commission to the extent of considering its business as two or more separate undertakings. This, however, might be avoided by the organization of a separate corporation which would conduct all merchandising business.