The following course on public utilities and transporation regulation was co-taught by William Leonard Crum, professor of statistics in the department of economics, William J. Cunningham, professor of railroad operations and transportation at the Graduate School of Business, and Clyde Orval Ruggles, professor of public utility management at the Graduate School of Business.
Cunningham was a member of the original faculty of the Harvard Business School, having gone from working in railroad management and administration to teaching railroad operations. He had an honorary A.M. degree from Harvard in 1921 but apparently never possessed another formal academic credential (other than an honorary D.Sc. awarded him upon his 1946 retirement by the Clarkson College of Technology).
The only part of the course syllabus in the Harvard Archives’ course folder was for the portion taught by Professor Ruggles, transcribed below.
Looking for other biographical information about William J. Cunningham, I just discovered that there is a folder with course material at Harvard Business School’s Baker Library: Baker Library Special Collections, Harvard Business School, Harvard University William J. Cunningham papers Series II. Teaching Records, 1920-1941 Economics 163, 1940-1941.
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Course Announcement
Economics 163. Economics of Public Utilities (including Transportation). Mon., Wed., at 4, and a third hour at the pleasure of the instructors. Professors Crum, Cunningham, and Ruggles.
This course deals with the economic problems of the Public Utility industries including railways. Attention is given to rates and rate structures, valuation, the issue and regulation of securities, utility managements, the relation of the commissions to the courts, and public ownership of utility enterprises.
Source: Division of History, Government, and Economics containing an Announcement for 1940-41. Official Register of Harvard University, Vol. XXXVII No. 51 (August 15, 1940), p. 62.
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Course Enrollment
[Economics] 163. Professors Crum, Cunningham and Ruggles. — Economics of Public Utilities (including Transportation).
Total 18: 9 Graduates, 7 Seniors, 2 Radcliffe.
Source: Harvard University. Report of the President of Harvard College, 1940-41, p. 60.
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READINGS FOR ECONOMICS 163
[Note: only for the Ruggles’ portion of the course]
Unless otherwise indicated, all references marked with the asterisk are required.
March 17
Legal and Economic Criteria Regarding the Public Utility Concept.
Read three of the following marked with the asterisk:
*Clay, C. M. Regulation of Public Utilities (1932). Part I, pp. 3-130.
*Jones & Bigham. Principles of Public Utilities (1931). Chapter II, “Characteristics of Public Utilities,” pp. 62-101.
*Wilson, Herring and Eutsler. Public Utility Industries. Chapter I, “The Characteristics of Public Utilities,” pp. 1-25.
Glaeser, Outlines of Public Utility Economics (1927). Chapter I, “Nature and Scope of Public Utility Economics,” pp. 1-22.
*Thompson and Smith, Public Utility Economics (1941). Chapter IV, “What Is a Public Utility?” pp. 56-74; Chapter V, “Economic Characteristics of Public Utilities,” pp. 75-98.
March 19
Competition, Load Factor, Output, and Economic Conditions as Affecting Rate Making.
*Behling, B.N. Competition and Monopoly in Public Utility Industries (University of Illinois Press, 1938). A Ph.D. thesis, p. 175.
*Bernstein, E.M. Public Utility Rate Making and the Price Level (1937). Chapter IX, “Rate Making in Prosperity and Depression,” pp. 105-119.
*Clark, J.M. Studies in the Economics of Overhead Costs (1923). Chapter XVI, “Public Utilities,” pp. 318-334.
Eisenmenger, H.E. Central Station Rates in Theory and Practice (1921). Appendix II, Explanation of the Terms “Load Curve” and “Load Factor” (For the Non-technical Reader), pp. 260-266.
Hardy, C. O. Recent Growth of the Electric Light and Power Industry. The Brookings Institution, Pamphlet Series Vol. I, No. 1, April, 1929, p. 60.
March 24
Rate Structures; Reasonableness of Rates; Theory of Rate Making in the TVA Act.
*Nash, L.R. Rate Structures (1933). Chapter II, “Rate Classifications and Forms,” pp. 11-29; Chapter IX, “Promotional Rates,” pp. 152-197; and Chapter XIII, “Economic Factors in Rate Making,” pp. 296-330.
*Jones and Bigham. Op. Cit. Chapters VII and VIII, “Rate Structures,” pp. 288-386.
*Bauer. Effective Regulation of Public Utilities (1925). Chapter XI, “Rate Schedules,” pp. 275-301.
Barker, H. Public Utility Rates (1917). Chapter III, “Various Bases for Rates,” pp. 10-17.
Bryant and Hermann. Elements of Utility Rate Determination (1940).
Eisenmenger, H.E. Op. Cit. Section II, “The Price of Electric Service,“ pp. 62-102.
March 26
Discrimination in Rate Making; Service and Minimum Charges.
*Havilik, H.F. Service Charges in Gas and Electric Rates (1938). A Ph.D. thesis, Columbia University, p. 234.
*Kennedy, W.F. The Objective Rate Plan (1937, Columbia University Press), p. 83.
Nichols, E. Public Utility Service and Discrimination (1928). Chapter XXVII, “Discrimination in Rates Generally,” pp. 856-901; Chapter XXVIII, “Rate Discrimination in Favor of Particular Classes,” pp. 902-934; Chapter XIX, “Rate Discrimination in Favor of Public Welfare, Educational, and Social Organizations,” pp. 935-949; Chapter XXX, “Rate Discrimination in Favor of Contract Holders of Equipment,” pp. 950-966; Chapter XXXI, “Rate Discrimination in Favor of Large Consumers and Industrial and Commercial Enterprises,” pp. 967-975.
Batson. The Price Policies of German Public Utility Undertakings (1933). Chapter IX, “Electricity-Supply Charges,” pp. 143-182; Chapter XII, “Conclusion,” pp. 213-216.
April 7
The Geographical Unit for Rate Making; Municipal, Statewide, and Regional Uniformity in Rates.
*Decision of Wisconsin Supreme Court in Eau Claire v. Railroad Commission. Public Utility Reports (P.U.R.) 1922 D666.
*Georgia and Alabama Commissions Install Uniform Electric Rates. Public Utility Fortnightly, Vol. IV, pp. 773-774 (1929).
*Decision of the Pennsylvania Superior Court in Borough of Ambridge v. Pennsylvania Commission, 31 P.U.R. (N.S.) 50. (1939).
*Annual Report, Secretary of the Interior, 1938, p. 84 (Bonneville Rates).
*Commissioner Maltbie’s (New York) Criticism of Implications in Federal Power Commission’s Data on Public Utility Rates. Electrical World, January 14, 1939, p. 112.
*Statement of Chairman of Tennessee Rural Electrification Authority. Public Utility Fortnightly, Vol. XXV, p. 631 (May 9, 1940).
*Bonbright, J.C. Price Policy and Price Behavior. Papers and Proceedings of American Economic Association, Vol. XXX, No. 5, February, 1941, pp. 379-389.
April 9
The Rate Base; Theories in (a) Federal Water Power Act, 1920; (b) Transportation Act of 1920.
*Bonbright, J. C. Valuation of Property (1937). Vol. II, Chapter XXX, “Valuation for Rate Making Purposes: Economic Theory versus Legal Doctrine,” pp. 1078-1110; Chapter XXXI, “Valuation for Rate Making Purposes: Methods of Appraisal; Non-utility Price Fixing,” pp. 1111-1165.
*Bauer, John. Op. Cit. Chapter IV, “Valuation Primarily a Legislative Responsibility,” pp. 47-60; Chapter V, “Court Decisions on Valuation” pp. 61-103; Chapter IX, “Systematic Maintenance of the Rate Base,” pp. 228-252.
Hartman, H.H. Fair Value (1920). Chapter IV, “The Theory of Valuation,” pp. 77-93.
*Glaeser. Op. Cit. Chapter XIV, “The Movement for Physical Valuation,” pp. 311-338.
*Clark. Social Control of Business (2d ed., 1939). Chapter XX, “Fair Value and Fair Return — The Legal Doctrine,” pp. 303-319; Chapter XXI, “Fair Earnings and Fair Value from the Economic Standpoint — Two Phases of One Fact,” pp. 320-336.
Tendency of Supreme Court decisions to favor reproduction cost less depreciation. Indicated in Q.J.E. XVII (1912-1913), pp. 27 and 616.
Graham, W.J. Public Utility Valuation; Reproduction Cost as a Basis for Depreciation and Rate-Base Determination. Studies in Business Administration, University of Chicago (1934), Vol. IV, No. 3, p. 95.
Barnes, I.R. “Shall Going Value Be Included in the Rate Base?” Journal of Land and Public Utility Economics, November, 1940, pp. 430-437.
April 14
Rate of Return; Capital Structure; Control of Investment and Issue of Securities.
*Bernstein. Op. Cit. Chapter VIII, “The Fair Rate of Return,” pp. 91-104.
*Smith, N.L. The Fair Rate of Return in Public Utility Regulation (1932). Chapter I, “Regulation, Valuation and the Rate of Return,” pp. 1-48; Chapter II, “Elements of the Fair Return,” pp. 49-79.
*Thompson and Smith. Op. Cit. Chapter XVII, “Fair Rate of Return,” pp. 349-361.
*Waterman, M.H. Financial Policies of Public Utility Holding Companies, Michigan Business Studies, Vol. V (1932), Chapter 4, “Trading on the Equity,” pp. 78-99.
*Jones and Bigham. Op. Cit. Chapter XI, “Regulation of Securities,” pp. 495-547.
Report of the Public Utilities Division, Securities and Exchange Commission, on “The Problem of Maintaining Arm’s Length Bargaining and Competitive Conditions in the Sale and Distribution of Securities of Registered Public Utility Holding Companies and Their Subsidiaries” (December, 1940), p. 46. (Comprehensive Appendices A to F inclusive.)
April 16
Sliding Scale and other “Automatic” Devices for Controlling Rates and Rate of Return; Rate of Return and Efficiency in Management.
*Bussing, Irwin. Public Utility Regulation and the So-Called Sliding Scale. Columbia University Press, 1936, p. 174. (A Ph.D. thesis)
*Clark. Social Control of Business (2d ed., 1939). Chapter XXII, “Regulation, Service, and Efficiency,” pp. 337-349.
Morgan, C.S. Regulation and Management of Public Utilities (1923). Chapter V, “Methods at Present Used to Promote Efficiency in the Management of Public Utilities,” pp. 144-233.
April 21
The Holding Company; Corporate Simplification and Physical Integration under the Public Utility Holding Company Act.
*Bonbright and Means. The Holding Company (1932). Chapter V, “The Public Utility Holding Company — Organization of the Major Systems,” pp. 90-148; Supplement to Chapter VI, “Advantages and Disadvantages of Different Types of Utility Integration,” pp. 188-199.
*Lillienthal, D.E. “The Regulation of the Holding Company.” 29 Columbia Law Review 404-440 (April, 1929).
*Wright, Warren. “Tests of Reasonableness for Charges of Services from Holding Company to Subsidiary.” Journal of Land and Public Utility Economics, Vol. 6 (November 1930), pp. 417-423.
Waterman, M.H. Op. Cit. Chapter 3, “Parent Company versus Subsidiary Company Financing,” pp. 45-77.
National Association of Railroad and Utilities Commissioners. Proceedings of Fortieth Annual Convention, 1928. “Report of the Committee on Capitalization and Intercorporate Relations,” pp. 504-511.
April 23
Regulatory Policies and Efficiency and Inefficiency in Management.
*Morgan, C.S. Op. Cit. Chapters I-III, pp. 1-117, and Chapter VII, pp. 307-346.
*Lyon, Abramson, and Associates. Government and Economic Life (1940). Chapter XXI, Sec. I, “The Rationale of Regulation,” pp. 618-625; Sec. II, “The Structure and Process of Regulation,” pp. 626-671; Sec. III, “The Substantive Problems of Regulation,” pp. 672-728.
Bauer, John. Op. Cit. Chapter XIII, “Effect upon Service and Efficiency of Operation,” pp. 328-349.
Fainsod, Merle. “Regulation and Efficiency in Management.” Yale Law Review, May, 1940, pp. 1190-1211.
April 28
National Power Policy; Public Ownership and the Government Corporation.
Voskuil, W.H. The Economics of Water Power Development (1928). Chapters I-III, pp. 1-43.
*Bird, F.L. The Management of Small Municipal Lighting Plants (1932). Chapters II-III, pp. 9-53, and Chapters VIII-IX, pp. 106-139.
Hodge, C.L. The Tennessee Valley Authority (1938). Chapter II, pp. 29-49; Chapter VIII, 201-248.
Mason, E.S. The Street Railway in Massachusetts (1932). Chapters 8 and 9, pp. 163-192.
Dimock, M.E. British Public Utilities and National Development (1933). Chapter I, “The Setting,” pp. 19-62; Chapter VI, “National Electricity Planning,” pp. 195-227; Chapter VII, “Electrical Progress and the National Economy,” pp. 228-262.
McDiarmid, John. Government Corporations and Federal Funds (1936). Chapters I and II, pp. 1-50; Chapter IX, “Conclusions,” pp. 209-232.
*Taussig. Principles of Economics. Vol. II, Chapter 66, pp. 472-489.
*Lyon, Abramson, and Associates. Op. Cit. Vol. II, Chapter XXI, Sec. IV, “Public Ownership and Operation,” pp. 369-377.
*Clark, J.M. Social Control of Business. Chapter XXIV, “Public Control versus Public Operation,” pp. 369-377.
Abrams, E.R. Power in Transition (1940). Chapter II, “National Power Policies and Activities,” pp. 20-41; Chapter IX, “Threats of Public Power Projects and National Power Policies,” pp. 297-306.
*Bonbright, J.C. Public Utilities and the National Power Policies. (Public lectures at Columbia University, 1940), p. 82.
April 30
Legislative, Judicial, and Administrative Regulation.
*Jones and Bigham. Op. Cit. Chapter III, pp. 102-156, and Chapter IV, pp. 157-190.
*Glaeser. Op. Cit. Chapter VII, “The Common Law Basis of Public Utility Regulation,” pp. 156-180; Chapter VII, “The Constitutional Basis of Public Utility Regulation,” pp. 181-194; and Chapter XXXIII, “General Summary and Forecast of the Development of Regulation,” pp. 733-754.
*Mosher and Crawford. Public Utility Regulation (1933). Chapter IV, “Judicial Review of Commission Determination,” pp. 41-53.
*Clay. Op. Cit. Part III, “Conclusion,” pp. 273-297.
*Fainsod, Merle. “Some Reflections on the Nature of the Regulatory Process.” Chapter X, pp. 297-323, in Public Policy, a Yearbook of the Graduate School of Public Administration, Harvard University (1940), edited by Friedrich, C.J. and Mason, E.S.
Landis, James M. “Crucial Issues in Administrative Law: The Walter-Logan Bill.” Harvard Law Review, May, 1940, pp. 1077-1103.
*National Association of Railroad and Utilities Commissioners, Report of the Committee on Progress in Public Utility Regulation. Utility Regulation and National Defense, December, 1940. Section IV, “Critical Utility Regulatory Problems,” pp. 125-147.
Herring, E.P. Federal Commissioners, A Study of Their Careers and Qualifications. Harvard University Press, 1936, pp. 1-104.
Parsons, R.H. Early Days of the Power Industry (English), 1940. Chapter XI, “Legislation Affecting the Electrical Industry,” pp. 184-200.
Pegrum, D.F. “The Public Corporation as a Regulatory Device.” Journal of Land and Public Utility Economics, August, 1940, pp. 335-343.
Smith, N.L. “The Outlook in Regulation,” Journal of Land and Public Utility Economics, November, 1940, pp. 386-392, and February, 1941, pp. 48-53.
Source: Harvard University Archives. Syllabi, course outlines and reading lists in Economics, 1895-2003. Box 2, Folder “Economics, 1940-41”.
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HARVARD UNIVERSITY
ECONOMICS 163
FINAL EXAMINATION
June 1941.
(Answer 6 questions, selecting 3 from Part 1 and 3 from Part 2. Use a separate blue book for each part.)
PART I—TRANSPORTATION
I
In his discussion of the cost of transportation Healy draws a distinction between “joint costs” and “common costs.” Give illustrations which for each of the two groups will make the distinction clear and discuss the bearing of such costs (whether designated as joint or common) on the determination of commodity rates.
II
The commodities clause of the Interstate Commerce Act has since 1908 prohibited a railroad from transporting commodities which it produced or in which it had any direct or indirect interest. That prohibition was continued in the 1940 revision of the Act but it has not been made applicable to common or contract carriers by highway, water or pipe line.
(a) What was the purpose of the prohibition when first applied to railroads in 1908?
(b) Does public interest now require the continuation of the prohibition?
(c) If continued for railroads should it be made applicable also to other carriers, especially common carrier pipe lines?
III
The Transportation Act of 1940 provides for the establishment of a transportation board which, among other things, would investigate and report on “the relative economy and fitness” of the several carriers for transportation service “or any particular classes or descriptions thereof.” Discuss this section of the Act from the following viewpoints:
(a) The need for the creation of such a board
(b) The criteria for the determination of relative fitness
(c) The problems of greatest difficulty in reaching conclusions as to how “there may be provided a national transportation system adequate to meet the needs of the commerce of the United States, of the postal service and of the national defense.”
IV
The present rule of rate making (Section 15a of the 1940 Transportation Act) applying to common carriers by rail, highway, water and pipe line is:
“In the exercise of its power to prescribe just and reasonable rates the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed;to the need, in the public interest, of adequate and efficient railway transportation service at the lowest cost consistent with the furnishing of such service; and to the need of revenues sufficient to enable the carriers, under honest, economical, and efficient management, to provide such service.”
(a) What was the main reason for departing from the principle of the 1920 Act requiring the Commission to set rates so as to yield, for the railroads collectively, a fair return on value?
(b) Why did the railroads object to the inclusion, in first place, of the factor of “effect of rates on the movement of traffic”?
(c) The present law differs from the 1933 law only by the addition of the words “by the carrier or carriers for which the rates are prescribed” (italicized above). What is the significance of the added words?
V
From the viewpoint of a sound financial structure of a railroad discuss the significance of:
(a) The ratio of funded debt to total capitalization
(b) Provision for sinking funds on mortgage bonds
(c) Provision for a stated sum annually, or a percentage of operating revenues, for routine capital improvements, such provision to take precedence in claim on net income over interest charges on income bonds and dividends on stock.
PART 2—PUBLIC UTILITY ECONOMICS
VI
Explain the economic significance of a peak demand upon (a) an electric power utility, (b) a gas utility, (c) a local transit utility, and (d) a telephone utility.
VII
Explain the basis upon which utility service should or should not be extended that may not initially cover (a) the utility’s increment costs and (b) in addition to increment costs, some return upon an approved base.
VIII
Distinguish between (a) minimum and (b) service charges for public utility service and explain which type of rate you prefer.
IX
Discuss the economic significance of such modes of rate making as employ (a) such “escalator” devices as fuel clauses and (b) the so-called “sliding scale,” which relates rates to the utility’s rate of return.
X
What is the purpose of a depreciation charge? Of the following methods of determining annual depreciation, explain which you prefer and why: (a) a percentage of gross revenue, and (b) a percentage of depreciable property.
XI
Explain the difference in the theory of valuation of public utility property in (a) the Transportation Act of 1920 and (b) the Federal Water Power Act of 1920. Indicate which of the theories you approve and why.
Source: Harvard University Archives. Harvard University. Final examinations 1853-2001.Box 5. Faculty of Arts and Sciences. Papers Printed for Final Examinations—History, History of Religions,…, Government, Economics,…, Military Science, Naval Science. June 1941.
Image Sources: Crum from the Harvard Class Album 1941, Cunningham and Ruggles from the Harvard Business School Yearbook, 1946-47 and 1937-38, respectively.