I SHOULD LIKE TO DISCUSS two phases of the electric utility business, not because they are the most important, but because I think possibly they are two phases that have not received the attention they deserve. My two principal points of discussion will be (1) the effect of the new economic climate on the per cent return in the power business, and (2) how to design a sales program in order to bring about a greater utilization of the investment. The electric utility industry has about doubled its sales in the past ten years. Yet, the per cent return on total investment today is less than it was then. This fact in itself is evidence that we need to examine both the pricing and sales policies. Many companies are now preparing fiveyear programs with revised rates and sales plans that will change this down trend to an up trend in per cent return. Possibly the most significant characteristic of the power industry up until about ten years ago was this: The average cost of making a unit of electricity constantly declined with increased production from about 1902 to about 1945. That significant characteristic, of course, had an important bearing on the pricing policy of electric utility companies. It enabled them to reduce rate schedules constantly, but, more important for our discussion today, that factor had a bearing on the rate design which, as you know, in most instances brings about an automatic decrease in average rate for all increased use. That is to say, the price you pay in your home for electricity today automatically goes down with increased use of service. Despite that fact, we are experiencing in our economic climate a gradual rise in unit prices, and yet in most instances we have not reflected that change in the over-all economy, in the slope of our rate schedules. Consequently, it seems advisable for electric utilities not only to consider raising rates to produce additional revenues for the current year but also to consider a change in the style of rates or in the slope of the rates. Except as we do so, we may have to apply periodically for rate increases as long as inflationary conditions continue. A brief review of a few indexes will illustrate the point. I am going to deal now with a number of unit costs, not total costs but unit costs so as to adjust for volume both in revenue and kilowatt-hour sales. That is the popular and so-called handy index of the unit prices of steam generating units (Figure 1). I show that to illustrate the point that these unit costs constantly rise and seldom go back down. The chart illustrates the index from 1911 through 1954. The greatest drop amounted to only about 10%. Notice that, in 1954, the unit costs were almost double what they were just ten years ago. Many people are of the opinion that these unit costs go up and down, but it appears that there has been a continued rise and a sharp one since 1945. It appears that this may continue upward for some time. The few declines have been slight. One of the principal factors in pricing the commodity of electricity is the so-called power pool investment (Figure 2). That is the investment in power plants and transmission system. That constitutes something a little better than half of the total investment in the power business. From 1940 to date, the chart shows the actual money, new money, invested in the power pool in the power industry. The black line shows the average investment per customer. Now, normally up until about 1940 or 1945, that average investment per customer was going down as we obtained greater saturation in customers. I assume that from 1954 through 1960, on that basis, the investment costs might level off, that the inflation might stop. I do not think it will, but let us assume that it will. Even so, the average investment cost per customer will keep on rising as we have a higher percentage of plants in high-priced equipment. Figure 3 shows the same principle for the distribution investment per customer. The chart shows the actual investment by years in the power industry, and the black line shows the average investment per customer rising, from 1946 through 1954. If we level off in inflation that average investment cost per customer will keep on rising, despite the fact that we are getting higher density of customers. Possibly the most important factor in pricing is the total investment per kilowatt (not per kilowatt-hour). Up until about 1946 this average investment cost was declining, which might be expected as we build larger plants and interconnected systems. However, since 1946 the average investment cost has been rising.