Some Features of Rate Fixing for Electric Public Service Properties

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For illustra- tion let us assume that in order to sell its bonds an enterprise must i)ay a return of 5% per cent on money received from the sale of bonds. This allows for some dis- count and commission on the usual 5 per cent bonds. If the proper return to stock- holders on their part of the investment (sum of items (a), (b) and (c), ) be set at 10 per cent, the average necessary return on the total investment, 75 per cent of which is rei)resented by bond money costing 5^^ per cent, and 25 per ...cent of which is money from stock which is to be allowed 10 per cent, becomes 6. 25 per cent. In making such a division in any particular case the exact financing of the utility under consideration should not be used, as it is obviously un- just to penalize a company for having a high credit, and for being able to sell bonds bear- in:^ a low rate of interest to the extent of perhaps 80 or 90 per cent of the total cost of say a particular extension. It is obvi- ously equally unfair to reward a company for having such poor credit that it may perhaps only be able to raise a quarter of its needed money from bonds and may be obliged to get from its stockholders the other three-quarters of the money needed.

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