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Electricity - Some Basic Principles

( Originally Published Early 1900's )

I CAME in here to hear the latter part of this program. I satisfied I myself that the other sections were all working as they should and showing due diligence. I looked in here as you began, but what I was most concerned about getting came at the end. I thought I could slip in without having to tell you about ancient days. Besides, hang it, I am not so old, and I don't think should be referred to as a compendium of ancient information.

I will tell you one story that does go back a good many days. It happened a little over thirty years ago and that lets a good many of you in. I took charge of the Detroit Edison property which was then The Edison Illuminating Company of Detroit, some thirty years ago. I was formally inducted into office on the first day of July; 1896, so, officially, I cannot yet claim thirty years' service.

That company had then ten years of existence and it was still in the hands of the original promoters. They had seen the probabilities and possibilities of growth as being very great, but no one put a measure on them; neither did any one put a time-table on them. To revert to our good friend now gone on (and therefore knowing a good deal more about it)—Dr. C. P. Steinmetz—who said that he was perfectly willing to prophesy on anything whatever, provided he was allowed to set up or fix a time-table which would allow him to move to Kingdom Come before he had to explain.

My people consulted me in 1896 as to the possibilities of the district. There were no automobiles in those days and none of those things that have made us famous in Detroit, although Henry Ford was building his first experimental motor in Station A of our company. I found him there when I took charge. -

I said to them: "I have been all over the country, from one side to the other, and I think the electrical industry is going to grow; I think the day when we have four, five, or six companies theoretically competing, and certainly spoiling business for each other, will soon be over. You have taken the cream of the business and you have given a good account of yourselves." It was one of the lucky companies. It paid 8 per cent in the first year and it has paid 8 per cent ever since. It is still existing as a subcompany, and it paid 8 per cent until it went out of the public utilities business.

I said to them, "However, at this time five years from now you must either be doing all the business in your district at half your present average rate, or you must- be looking around for somebody who will do it and to whom you can sell out at a good price."

In one sense both halves of that prophecy came true, but the decision was then made to go after the business and the instructions I asked for were given me which I am quoting to you now. I said: "You seem disposed to leave me very much to my own devices." I had an ideal board of directors. When I wanted them to come in council with me, they came. The rest of the time they told me to go ahead and run the show. That is the kind of a board of directors to have. A board of directors which feels called upon only to do the heavy faultfinding "ain't fit to live with."

The instructions were summed up by the then president—dead long ago, and there are only two of us living out of that board—when he said, "You run this business. If you want advice, come and ask for it. If we think you are heading seriously the wrong way, we will take it upon ourselves to tell you, but here are your guiding principles"—and what I am saying now I think is the only bit of valuable ancient history I can give you in this talk—"You manage the business so that the value of the property will be maintained, and that its operating condition will be maintained as well as its value."

No distinction was made, you will notice, between the book value or reproduction value. We did not think perhaps so Much in detail as we do now, and value looked like value.

My instructions were further to this effect: "If you do not maintain the value of the property and its operating condition, presently there will not be any property to operate."

Maintenance of value was put ahead of every other consideration, and operating efficiency was included therein. He said next, and this is another pretty principle, "Pay your stockholders enough to keep them contented, so they will give you what additional money you need, and pay your employes a little better than the going price, so you can pick your employes," and my esteemed president qualified that remark with, "You pay the stockholders 8 per cent; that is plenty!" But he said, "Pay the employes a little more than the going price for service," and that rule has been lived up to faithfully for those thirty years to good purpose.

"Then," he said, "when those objectives are obtained, reduce the rates, but reduce them where you will have the reaction."

That code is thirty years old, as it was given to me. It had been practiced for some ten years then. I don't want to say it is all the law and gospel of public utility finance and management, but it is about as much as you can crowd into three aphorisms, and it is, after all, considering its implications and explications, rather good, and I commend it to you.

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