Accounting in Public Service Regulation

• Date: 01 May 1914
• Published date: 01 May 1914
• Author: Frank W. Stevens
• DOI: 10.1177/000271621405300112
• Subject Matter: Articles

128

ACCOUNTING

IN

PUBLIC

SERVICE

REGULATION

BY

FRANK

W.

STEVENS,

Chairman

of

Valuation

Committees,

New

York

Central

Lines,

New

York.

In

the

practical

working

of

commissions

charged

with

regulating

the

operations

of

corporations

engaged

in

selling

service

to

the

public,

commonly

known

as

public

service

corporations,

scientific

accounting

is

indispensable,

and

is

the

substantial

foundation

upon

which

the

whole

structure

of

regulation

must

be

based.

This

fundamental

truth

is

not

thoroughly

appreciated

by

either

the

public

or

the

cor-

porations

interested,

but

a

careful

analysis

of

the

practical

working

of

regulation

will

demonstrate

the

undeniable

correctness

of

the

assertion.

Public

service

regulation

as

it

now

exists

in

the

large

part

of

the

states

covers

the

three

great

subjects

of

capitalization,

rates

and

service.

The

term

capitalization

embraces

the

authorization

by

the

commission

to

issue

stocks,

bonds,

or

other

long

time

securities

for

the

purpose

of

obtaining

money

for

proper

capital

purposes.

In

case

the

application

is

for

leave

to

issue

such

securities

for

the

purpose

of

obtaining

money

for

construction

yet

to

be

performed,

the

amount

required

is

necessarily

the

subject

of

estimate.

No

method

can

be

devised

for

determining

in

advance

the

precise

cost

of

any

physical

work.

The

amount

authorized

by

the

commission,

therefore,

is

necessarily

approximate

only

to

the

real

cost;

it

may

be

greater

or

less

than

such

cost.

The

important

point

in

this

class

of

applications

is

to

know,

when

the

work

is

performed,

how

much

has

been

really

expended

thereon

and

whether

such

expenditures

have

been

made

in

a

proper

manner.

If

the

cost

proves

to

be

greater

than

the

estimate,

additional

funds

must

be

supplied

and

if

the

cost

proves

less

than

the

estimate,

it

then

becomes

necessary

to

determine

what

use

or

appli-

cation

should

be

made

of

the

excess

amount.

In

this

class

of

appli-

cations

nothing

is

easier

than

for

the

corporation

if

it

be

so

minded

to

obtain

authorization

to

procure

money

for

one

purpose

and,

when

so

procured,

to

use

the

money

for

other

purposes

than

those

specified

in

the

authorization.

Not

all

corporations

would

be

guilty

of

this

conduct,

but

some

have

been

and

doubtless

others

will

be.

This