MASTER NEGATIVE NO. 95-82430 COPYRIGHT STATEMENT The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted materials including foreign works under certain conditions. In addition, the United States extends protection to foreign works by means of various international conventions, bilateral agreements, and proclamations. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or reproduction is not to be "used for any purpose other than private study, scholarship, or research. If a user makes a request for, or ater uses, a photocopy or reproduction for purposes in excess of "fair use," that user may be liable for copyright infringement. The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Saint Louis (iVIo.) Title Report of St. Louis Public Service Commission to... Place: St. Louis Date: 1911 COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD ffSSovr Sa2 St. Louis. Public service commission. Report of St. Louis Public service commission to the Municipal assembly of St. Louis on rates for electric light and power. St. Louis, Mo. rNixon-Jones printinir CO.] 1911. 81, 39, 32, 21 p. incl. tables, diagrs. fold, chart. 23J*-. J. L. Hornsby, chairman. Appendices : a. History of the companies preceding the Union electric light & power co. no. 2.— b. and c. Analysis of rate calculations for electric light and power. Rate calculations for electric light and power (Reports by James E. Allison, commissioner and chief engineer) ^ IJSlectric lighting— Rates. 2. Electric power— Rates. 3. Electric in- dOstries— St. Louis. i. Hornsby, Joseph L. ii. Allison, James E. Library of Congress n (351)1, TK25.S2A3 1911 11-9083 *S?MI MASTER NEGATIVE « RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE: 3f5 r^fY\ REDUCTION RATIO: DATE FILMED: '2>|:u^)q'S TRACKING # : A/6A^ ^3^^y llx IMAGE PLACEMENT: lA ® IB IIB INITIALS: W-\aI FILMED BY PRESERVATION RESOURCES, BETHLEHEM. PA. BIBLIOGRAPHIC IRREGULARITIES MAIN ENTRY: St. Louis rMo.) Report of St. Louis Public Service Bibliographic Irregularities in the Original Document: List all volumes and pages affected; include name of institution if filming borrowed text. Page(s) missing/not available: yolume(s) missing/not available: Illegible and/or damaged page(s):_ Page(s) or volume(s) misnumbered Bound out of sequence: X Page(s) or volume(s) filmed from copy borrowed from: Cleveland Public Library pages 16-24 and 28 - 32 of Appendix B Other: . TRACKING#: MSH03667 FILMED IN WHOLE OR PART FROM COPY BORROWED FROM: CLEVELAND PUBLIC LIBRARY A^' ^. J\/. s>/' ■9 %f^ > O a m -n O O O CO nPO CJI 3 3 > CD o m CD O OQ ^ o o X < N X o- v> A^' ^A ^4^ ^, .'^'^ 'V? ^. .-.^ <^, ^. o o 3 3 > o 3 3 o o 3 3 O ^rPI^|ip|?|^|-|- 1^ 111 1^ ill^ IIIIIK O 00 g to K3 00 ro 1.0 mm 1.5 mm 2.0 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghi|klmnopqrstuvwxyz 1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 t<^ ►X^ !S V << ^ i A ^^ & To ^o H

m o > C CO X T3 ^ xOoo m o m V. ^^%. f^ f^ '^ 4^ ^ :> « «. « * <^ ■^ Ul o 3 3 3 3 a- k ABCDE cdfffgh) »-Z: 3x 3x 3 CI 2C n ^ °^ ft ^' ^2 S^ ^2 «i ^ 5c ^3 5? crx OJ^ 8 -^^ .ii;> k * I . t » t »» ."'* V tit** •* ^ WA • I-* t * * •*■»* i » * , » J l*~S, • » • "1 • I • ■• « ' • • • « • • « • • • * * • « w • • tt • - • : • • • • • • • • • • • • .* • 4 •» nixon-junes printing co. SAINT LOUIS MISSOURI 11 « » ^ ? f J >^^ 1> i Summary of Conclusions and Recommendations. Maximum rate, nine and one-half cents per kilowatt hour. Minimum bill, for consumers paying maximum rate, fifty cents per month. Minimum bill for all other consumers, one dollar per month. Guarantees abolished except in cases necessitating special investment. Depreciation charge, hwe per cent per annum. Net return above depreciation charge on property in the service of general consumers, eight per cent per annum. Earning value of property in service of general consumers $13,441,360 Earning value of property in service of United Railways Co 2,693,033 Total Earning Value $16,134,393 Within a few days of the printing of this report, the Com- pany has submitted a statement of additions to property, from ^he date of the Commission's inventory, to January 1st, 1911. Making the additions according to this statement to figure before depreciation in Table XXVIII, the result is: Total value as of January 1, 1911, (unde- preciated for condition) $17,857,078 f i f I > REPORT OF St* Louis Public Service Commission TO THE MUNICIPAL ASSEMBLY OF ST. LOUIS ON RATES FOR ELECTRIC LIGHT AND POWER St. Louis, Mo., February 17th, 1911. To the Municipal Assembly of the City of St. Louis : The Public Service Commission respectfully reports that in compliance with the duties imposed on it by ordinance "to make investigations into all facts and matters tending to show the just and reasonable rates charged for the services of all per- sons, firms and corporations mentioned in the ordinance, and to report to the Municipal Assembly its findings, together with rec- ommendation of what, in its opinion constitutes a reasonable rate of charge for such service in the City of St. Louis," it has made such investigation with reference to the rates for electric lighting, heating and power, and herewith submits the fol- lowing as the result of its investigation: The business of furnishing electric light and power in the City of St. Louis is carried on by the Union Electric Light and < 6 Report. Power Company, which for the time being has a practical monopoly, for while the franchises under which it operates give it no legal monopoly, the only others who supply electric current to the public are the Laclede Gas Light Co., the Cupples Station Light, Heat & Power Co., and the West End Light, & Power Co. The Union Electric Light and Power Company has at present a capacity of 65,200 K. W. and its output to bus in the year 1910 was approximately 140,000,000 K. W. H. The Laclede Gas Light Co., is the only one of the other com- panies which can claim to have any distribution system, and it, since the destruction of its plant by fire some years since, acquires by purchase from the Union Electric Light and Power Co., all the electric current which it furnishes to its customers, amounting in the year 1910, in the aggregate to approximately 6,000,000 K. W. H. It has, however, at present a new plant in course of construction. The Cupples Station Light, Heat and Power Co., furnishes electric current only to the Cupples Station block and immediate vicinity; its output in the year 1910 being approximately 500,000 K. W. H. The West End Light & Power Co., with a plant located in the residence sec- tion of the city, of comparatively small capacity, recently com- menced operation, and has as yet a very limited distribution system. The Commission therefore, is of the opinion that a consideration and determination of a just and reasonable rate to be charged by the Union Electric Light and Power Com- pany, would be a proper basis for establishing rates generally, for electric light and power in the city. The Union Electric Light and Power Company (No. 2) was incorporated on September 9, 1903, under the General Laws of the State of Missouri, for the purpose of manufacturing, dis- tributing, and vending light, heat and power within and with- out the City of St. Louis. The Company was formed by a consolidation of the Union Electric Light and Power Company (No. 1), of St. Louis, with the Missouri Edison Electric Light and Power Company, of St. Louis, corporations of the state of Missouri, operating at the date of consolidation under ordinances of the City of St. Louis, and claims to hold rights, privileges and franchises owned by the two consolidated companies aforesaid and acquired by them from predecessor companies, as follows: \ ■ Brush Electric Association. . Excelsior Electric Company (Guernsey & Scudder Elec- tric Light Co.) St. Louis Western Electric Light Co. (F. L. Johnson) St. Louis Thomson-Hous- ton Electric Light Co., sub- sequently United Electric Co Municipal Electric Lighting & Power Co. (St. Louis Illuminating Co.) Edison Illuminating Co. of St. Louis Do. Permit under Missouri Electric Light & Power Co St. Louis Electric Light & Power Co. (St. Louis Elec- tric Power Co.) Do. Permit under Electric Light, Power & Conduit Co. — Permit under Report. Under Ordinance. 12723 Acceptance Filed. April 5, 1884 12723 12723 12723 12723 12723 June 23, 1885 March 4, 1887 April 3, 1884 July 17, 1889 12723 18680 Oct. 31, 1892 12723 Feb. 4, 1889 12723 18680 18680 Bond Filed. April 5, 1884 June 23, 1885 Mar. 17, 1887 April 12, 1884 Aug. 30, 1889 July 1, 1885 Nov. 2, 1892 Feb. 28, 1889 July 18, 1888 All of the foregoing franchises having been acquired by the Missouri Edison Electric Co., by purchase or by merger, direct- ly or indirectly, from said companies. And through Union Electric Light and Power Co. (No. 1) franchise rights of tne following companies : Imperial Electric Light, Heat and Power Co. (No. 1) . . . Imperial Electric Light, Heat and Power Co. (No. 2) . . . Permit under Citizens Electric Lighting and Power Co Seckner Contracting Co Carondelet Electric Light & Power Co Vo Stock Ownership of Na- tional Subway Co As amended by And by direct purchase by the Union Electric Light and Power Co. No. 2, the franchise rights of the Edison Electric Illuminating Co. of Carondelet acquired in the purchase in 1907 of the property of the Laclede Power Co. Ordinance 12723 was accepted by the companies named as holding permits thereunder, prior to its amendment by Ordi- nance 16894 approved October 26, 1892, except the Edison Il- luminating Company of St. Louis, which filed its acceptance of Ordinance 12723 after its amendment by Ordinance 16894. ••••••••••••* 18680 12723 19892 Oct. 7, 1892 Oct. 8, 1892 12723 14798 Feb. 10, 1891 Mar. 18, 1891 15953 i '^: 8 Report. Report. 9 All the Companies named herein as operating under Ordin- ance No. 18680 (Keyes Ordinance) have taken out permits under said ordinance. There does not appear on record any special or direct grant by city ordinance of any franchise or right to any of the Com- panies heretofore named, the franchise rights possessed by them being obtained by virtue of the general ordinances refer- red to, and of the permits granted them by the Board of Public Improvements under the terms of such ordinances. The history of the Union Electric Light and Power Company and the Companies whose rights and franchises it claims to hold, is the history of the introduction and installation of elec- tricity as a means of furnishing light, heat and power to the inhabitants of St. Louis. An interesting historical sketch and illustrative chart of these predecessor Companies was furnished to the Commission by the Union Electric Light and Power Co., as part of the report of its expert accountants, and is printed herewith as Appendix A. Owing to the somewhat peculiar character of the Public Ser- vice Commissions under the laws of the State in that they do not make their investigations at the special demand or upon complaint of any citizen against any particular branch of pub- lic service or corporation, it devolves upon the Commissions to obtain for themselves all the facts necessary to be had in the in- vestigations undertaken by them. The Commission feels that it is due to the Union Electric Light and Power Company, however, to state that it has co-op- erated with the Commission in every way in the present investi- gation, not only affording the Commission access to its books and papers and giving the Commission all the information at its command, and presenting much testimony at the public hearings held for this purpose, but further by having had a complete financial history of the present Company and its pre- decessors prepared by well known expert accountants. All of this has greatly facilitated the work of the Commission and ma- terially lessened the expense of this investigation. VALUATION. The justice of public regulation of the service and charges of public utilities Companies, especially in cities, is based upon the assumption that there is always an obligation expressed or < implied, that in return for the use of the streets and other privileges, the owners of public utilities are bound to furnish good service at reasonable prices, and that reasonable prices mean prices which will yield no more than a reasonable return on the money properly invested in the service of the public. In seeking to determine then, what service can justly be de- manded of a public utility, and what prices should be charged for that service, it must first be decided upon what amount of invested capital it is right that the Company should earn re- turns. It is evident that the determination of the value of the in- vestment to be earned on, which we will call the Earning Value, is of grave importance in arriving at just measures of regulation, and great care must be exercised in determining the items to be included in it, in selecting the methods of valua- tion and in applying these methods to the facts and data avail- able in the case under consideration. It is evident that the Earning Value cannot be measured by the face value of the bonds and capital stock issued by the Company, for the issue of securities by public service corpora- tions has frequently been known to bear but small relation to the real amount of capital actually invested in the business, and to assume such a measure of value without investigation, would be a failure of duty on the part of a Public Service Commission. Neither can the true Earning Value be measured by the market value of the securities, for this market value is gener- ally based largely upon the earning power of the plant, and the earning power in turn is based in great part upon the charges which the Company is able to make to the consumer. The charges to the consumer may be excessive and the Company may be earning exorbitant profit, or the reverse may be the case and the Company may be losing money. The fact is that the justice or injustice of the charges to the consumer is the principal object of investigation, and if it is admitted at the start that a valuation based upon the unrestrict- ed Earning Power of the plant is to be taken, then there is noth- ing to regulate, and there can be no such thing as unjust charges for public service. If accounts were always accurately, intelligently and prop- erly kept; if the property were always charged off when de- stroyed or worn out; if accurate entries were always made of T f 10 Eeport. new property bought ; if correct charges were always made for depreciation; if proper distinction were always made between tangible and intangible property, and if records and vouchers were never lost or destroyed, then it would be possible to de- termine the value of a property from an accountant's report; but unfortunately this is seldom if ever the case, and even where the books are admirably accurate as a record of the value of the property, they can only be proven to be so by care- ful checking with a detailed inventory and appraisal of the tan- gible property together with a conservative estimate or determi- nation of allowable value for intangible property. Before setting forth the methods adopted and the results ar- rived at by the Commission in determining the Earning Value of the property of the Union Electric Light and Power Com- pany, it may be best to analyze the Earning Value claimed by the Company as the proper basis upon which to fix the fair return. These values have been presented to the Commission in two separate statements and the claims of each one based upon separate and distinct theories. EARNING VALUE AS PRESENTED BY THE COMPANY. Continuous Property Theory. The first presentation by the Company of claims for value of the investment to be earned on is set forth in detail in the re- port of the Company's accountants, and as presented to the Commission, it fills two rather bulky volumes and is much too voluminous to be printed in full in this report. The Company accountant's report shows a figure for the cost of the property built up in accordance with their own plan of adjustment and selection of the accounts of the Union Electric Light and Power Company and predecessor or former Companies engaged in the business in St. Louis, and extends over a period of twenty years, beginning in 1889, and assumes that the present property, and in effect that the present Com- pany, is a continuous entity almost from the beginning of the electric light and power business in St. Louis. The summary of the conclusions of the report is given in Table I. showing the cost of the property as arrived at by their methods. t , t ( ^ < 03 < o w H pq 1-^ CO « § Eh m ■gSoo CD C"^ ^ C i-H « Q .i'O goo E-" X i-Ss o 1-4 Q Q < < m H tA Q H tH CO < D < < m < CO u U T-l u U .2 '^ 09 o Report. g o 3 C4 t - 00 o US i lO °& \a ^ 00 ® ^ 1-t 1-1 s ■<* 1-1 eo ■«* Ol OS »-t J-t o S8 »-t OS 1-1 §8 OS IS 00 M- 1-4 OS 00 OS ^. §2 CO <» CO 1-t o 00 00 00 OS 00 £S OS 00 «» o CO 00 00 s OS o I-l eo o u -ft 4) u -I 00 OS oso oeo ^ 00 OS cg4 PS O H •J n i-i o < >4 ■<-> C) « S I - >» 75 a .A 3 O *i « ft ^ X •-• .2§ u 03 S « •SWp y S3 ■ i-i &■•-> O B 08' •- C 0), ft*"Mi 03 oSUh^ .2 tio £ c o ft 04J S ci u oi * ^ ^1 o bo c '■3 .e bo ^^ . O u a iJ ■'-' ft ft u e eo 1-1 00 ^ s ft . a; R c3 "^ CQ « CU O Bi CM H ■J CQ o 5 Oi bo C3 s 11 Q I .a X H bt ..2 t^ S ft ft 2 i •g S ** 'E § ft 4J 43 X I I ' JL. I— ' ,2 I-" c HJ ft ^ eo u a> 43 g m . 3S S3 th ^ c eS ft g §0 OS Q si CO h O a I " «H ft O X 4J « « o u h H H O 55 «« s bo iH C eo •» I ftft B ft ki O a h >.« 00 QQ •*« TS <; <4 -a « /-^ ^ ® ft ri N ft X ^^ X 9 » ^ H < o o :z; S H ^5 O O o o o o Q ^ n Q Oh o Q Eh So CO < Q Pi O H Ph g H l-H O H Q H < 1-3 O S3 Eh S » H Eh CQ Investment at end of year. M oe T»<(MTtiC0ClT-(t-«0«D0S00oe0«0i-lli5 00500tHlOTt*OSOO-«t-05?D U5 eo « 00 r-t « O <0 t-^00 O lO o t-- o «o tH fO -^ ec ■^ "^ U3 lo r c^r eo T-( 1-1 ft r-l i-< C1(M Additional Investment during year. oc -O'X) OOSlfflM^T-lrHrHIMOSt^'^OOCO ci-t «D05eoooo«ooirooocsocoiM eor-icoociecooecoioot- mco •• 03 (b)3,366 1,851 4,972 667 Deficiency in return added to Investment. 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The calculations resulting in these tables, as in Table I., are based upon assumptions of cost as selected from the books or other records of old Companies and the present Company, and upon the Continuous Property Theory. The theory as it is interpreted by the Company's account- ants, is that from its beginning, a Company is entitled to earn and distribute in interest or dividends, a certain percentage upon its investment over ^nd above all charges, including a proper amount for depreciation. If in any year it earns and distributes more than this al- lowed percentage, then the surplus is to be deducted from the capital invested. If in any year it earns and distributes less than this al- lowed percentage, then the deficit is to be capitalized. The Commission has given much care and study to the con- sideration of this accountants' report, and the more study given to it the less does it appear a safe or reasonable guide to a value upon which the Company should be allowed to earn returns. The report in part is founded upon items taken from the books of extinct Companies whose methods of accounting may or may not have been accurate. Some of the items are not taken from books of account, but are built up from figures found in records of stockholders' meetings, and some of the items treated in the report on the same basis as cash transactions are the result of stock and bond operations in which the assigned value of the securities traded in may or may not represent real values. In a number of instances, according to the report, where rival Companies have been acquired, prices have been paid €or them which in the judgment of the Commission, were in excess of their real value as measured by their investment in the actual service of the public. The Commission does not wish to be understood as taking the ground that all the items presented in the accountants' re- port are considered as unavailable in establishing the true cost of the property. In fact a great number of the items are un- doubtedly accurate, especially in the period covered by the exis- tence of the present Company, but the necessarily problemati- cal basis of some of the items obtained from the books and ^ f Report. 19 other records of the older Companies render them unavailable for the present purpose and hence destroy the value of the re- sults of calculation based upon them. In rejecting these figures the Commission wishes to state most emphatically that it intends no reflection upon the sin- cerity of the Company's accountants, or upon the Company in presenting them. The presentation has been made with the utmost candor, and a great part of the reasons for rejecting the results can be gathered from the report itself. In addition to being unable to accept the figures as a whole, as presented in the accountants' report, the Commission is un- able to accept the theory upon which their use is based. It does not appear just or even practicable to include in a calculation designed to arrive at an Earning Value of the prop- erty at present in the service of the public, the operations of practically all the various Companies engaged in the electric lighting and power business of St. Louis, from its beginning nearly a quarter of a century ago. In regard to the Continuous Property Theory as applied to the figures in Tables II., III., IV., V. and VI, in which the de- ficit below a fair return on the assumed investment for each year is added to the capital to be earned on and the surplus, if any, is deducted, the Commission believes that while such a cal- culation may be valuable for obtaining certain data for measur- ing the cost of establishing a new business, yet, even assum- ing the correctness of the basic figures, the theory cannot justly be applied in the manner shown here without very im- portant modification and limitations. The Commission believes that as a public service question, the period during which a deficit should be allowed to be cap- italized as cost of establishing a business should be limited to a reasonable time at the beginning of a new business, and it must also be assumed that there was a reasonable demand for the utility when built, and that the property was well managed during the period of deficit. It is evident that if such limitations to the theorv are not considered, a utility might be established long before there could possibly be a demand to justify the investment, or might be built where ruinous competition is sure to take place, and that the results of such bad judgment, and of possibly long 20 Report. periods of bad management not easily detected, might ulti- mately be placed as a perpetual burden upon the consumers. In short, the application of the Continuous Property Theory in its purity and without limitation would amount to a guarantee of the investment by the public, in which case of course, all risk to the investor being in the end eliminated, the return al- lowable would logically be reduced to a figure somewhat ap- proaching the ordinary return on municipal securities. The reverse application of the theory (i. e. supposing the util- ity to have made a surplus over reasonable return), might, if applied to a company which had been very successful in the past, result in a complete confiscation of the property. This of course, is merely an academic point, as the courts would not allow a reduction of value on account of former profits, but it serves to illustrate the fact that the application of the Contin- uous Property Theory without limitations might easily place an unjustifiable burden upon the consumer through the losses of the business, but there would be small chance of his being bene- fited should the business have proven very successful. This Continuous Property Theory was presented in the early part of last year about the time the Commission had finished its inventory and tentative appraisal of the physical property of the Company. Since that time the Company's engineers have been engaged in checking the Commission's appraisal and in preparing a presentation of their case based upon an entirely different theory from that of a Continuous Property. TPIEORY OF COST OF REPRODUCTION NEW. As presented by the Company, the theory of the Cost of Re- production New means that the value upon which it should be permitted to earn a fair return should be the estimated cost of reproducing at the present time, the property as it now exists. At first sight this may appear reasonable, provided the esti- mates are reasonable. In fact the theory is probably as good as many of the various theories advanced for arriving at an esti- mate of Earning Value, but there are so many and various elements and conditions to be considered in the valuation of a large public service property that a strict adherence to any set theory is likely to produce results which are manifestly un- reasonable and unjust. I i f Report. 21 Table VII. sets forth the Company's estimate of the Earning Value of its property according to the theory of Cost of Repro- duction New. Some of the items entering into this Table are based upon costs as produced under conditions existing in the actual construction of the present property, while other items are based upon purely hypothetical conditions of reproduction. The theory of this presentation of Earning Value is rejected by the Commission on the ground that it disregards the actual conditions under which the property was produced, and sets up a purely hypothetical case which is not analogous to the one under consideration. As to the amounts of the items appearing in Table VII., some of them appear reasonable and correspond closely to the figures obtained by the Commission. Others appear unreason- able in amount and vary greatly from the corresponding fig- ures of the Commission. Irrespective of the amounts assigned to them, the elements of value as enumerated in Table VII correspond in the main to the elements which in the opinion of the Commission should enter into the valuation of the property, but there are among them several elements carrying large assignments of value which do not appear to the Commission to be properly allowable. All the elements and figures entering into Table VII will be taken up and treated in detail later in the report, where they can be compared with the corresponding items as allowed by the Commission. Before doing this, however, it becomes neces- sary to set forth the methods by which the Commission has made its valuation of the Company's physical property, and also to show in some detail the complete results of this valua- tion work. zn CO s H O Oh ^ o H _] H H S 5>^ on ^^ r W >H >H b 23;: §§ O H CO O U H i « m CNl CO 00 U3 10 COM •^00 (MCO O Oi eoO « C(1h 03 N (O o> 0) o bo pi > be QS •1-1 r^ ® 5 o > Q ^- U3 O 00 <0 be a» CO 00 V CS M05U3 «D C<5 ■* «0 ^ OSOit>-eO * 0000 O ev5U5LO(^«D-*T-ICO'^'*'i-lr-ie«OOOOSOO»Tt<0000 •^ci5t-U3C5«DlOl>»lOr-tNO»«C>li5t-0>eC t^TlO 10 tH NrH OS oTiH NiH «0 la OJ OC^l IfS N f CO ooeo«o«oeo«OLO«ot>»oo«cr-t'Tj» - c c "3 bo 0) US I cd (1> 0) n bo 'PcStJCC C u" eg O O on u «o5o^--2S O t- Clj' XJ 03 (D 5 5 o 09 03 d cd n C n ■^— ' G w*j bo oj d (U H o m^ 25 ® " " o t; 3 .t: o 3 ,D^«wWc3-t->W(jj ^ fc- *-! 0) C O cJ 5 S'2 CO Gf9 bo DO C 3 C -M o C cd / 09 ojoh" c "O pc; UJ^ PQCUPliMoqmcc S?25-2S|§^ll^|o3 Qp^S<{:z;S»5hHfeS -; eS o (M 09 o ^- OQ M m o3 cd >Q o '9 oxm bo d^-AX^t C O P< Ch a9-«-» CO u f eo eo 09 o a> 1-1 ■<-> O^ 3: O ft 03 n bo 03 O •o 03 0) 01 09 01 C 3O ^^ ft" bo 3 o o3 (O C t, C m 00 00 •^ 00 Oi 00 •"aJ" ©o th 00 O) n< t-iM OJOOCO eo-* M C ^ 05 J, 3^ O 05 •« 'W «5'SW ^ C bo O Q^ C 09 09 ® O c 03 K. ^10 wt-co •CO V. 3 0) 00 a> -*-> ::: c ft cS 09 -^ 3 frt D* C3 O) o3 OQ 4) C ft «^J3'0 C bo HH d *- 09' 03 m (M 1 N in eg «9- 0) -t-> d. m n o» o> bo bo. 09 0) 01— < .0 o o » Cbt«g o c a)£ 09 aj.S M. •::•:: 3 rQ SO 0) -25 ? « be; i2o CO 3 0) c X-M O >— ftW « cs J3 o"0 ^ Real Estate Table. Value Fixed by Description of Companies' Real Estate. Appraisers. 1. Lot in City Block 227, fronting 448' on Lewis St., 226' on Biddle St., 312' on Ashley St. and 540' on Mis- sissippi River $2,657,720.00 2. Lot in City Block 226, fronting 240' on Lewis St. between Ashley and O'Fallon Sts 240,000.00 3. Lot in City Block 900, fronting 269' on Locust St. by 155' on Twentieth Street 190,000.00 4. Lot in City Block 95, fronting 28' 7%" on Fourth St. by 135' in depth, between Morgan St. and Lucas Ave. 14,000.00 5. Lot in City Block 84, fronting 33' 7" on Fourth St. by a depth of 152' 8", between Walnut and Market Sts.. 17,000.00 6. Lot in City Block 3753, Morgan St., 145' west of Vandeventer, 95'x 155'%" 9,500.00 7. Lot in City Block 50, Gratiot St. be- • tween Second and Third Sts., 48'2''x 128'5i^" 5,000.00 8. Lot in City Blocks 456 and 2286, Gra- tiot St., 210' west of Eighteenth St., 280'x210' 170,000.00 9. Lot in City Block 272, St. Charles 36'4" west of Ninth St., 91'8y2"x 96'x9^", ninety-six year lease, dat- ed May 31, 1900. Annual rental, $3,750. Value of leasehold 33,500 . 00 10. Lot in City Block 272, southeast cor- ner Tenth and St. Charles Sts., 142'6"x85', ninety-nine year lease, dated June 8, 1897. Annual rental, $5,500. Value of leasehold 102,500.00 11. Lot in City Block 164, St. Charles St., 103'2yo" west of Seventh St., 41'4"x69'4", ninety-nine year lease, dated March 1, 1906. Average an- nual rental, $2,500. Value of lease- hold 10,000.00 Value Fixed Commissions' Appraisers. $ 375,000.00 45,000.00 112,000.00 19,600.00 16,500.00 6,175.00 4,800.00 55,000.00 10,000.00 45,000.00 5.000.00 Total $3,449,220.00 $ 694,075.00 36 Eeport. The lots in city blocks 227 and 226, the first on Lewis between Ashley and Biddle Streets, and on which is situated the main generating plant of the Company referred to herein as the Ashley Street plant, and the second on Lewis Street between Ashley and O'Fallon Streets, on which is located the plant acquired from the Laclede Power Co. in 1907, referred to as the Lewis Street plant, are of such character as to make it very dif- ficult to fix their value with definiteness. The former fronts directly on the Mississippi River giving it the advantage of a water front, valuable not only by reason of opportunity for re- ceiving coal and other supplies by river, but also because it en- ables the Company to obtain an unlimited supply of water directly from the river without other cost than that of pumping, and thus avoiding the payment of water rates to the city. The other lot, while being separated from the river by the wharf, has also the privilege of obtaining water directly from the river. These two lots have then this special value in addition to the value common to other property in the vicinity not hav- ing these special advantages. As evidence of the difficulty of de- termining the value of these two properties is the wide dis- parity in the value placed on them by the experts of the Com- pany and by the experts of the Commission. As to the other parcels of land,. while in some cases there is considerable dif- ference in the estimates of the two sets of experts, such differ- ences are not nearly so great proportionately as in these two instances. In partial explanation of this wide difference of opinion in the case of the Ashley Street lot especially, it may be said, that the opinion of the experts of the Company was avowedly based on the value of this land for the special uses of this company, con- sidering the enormous quantity of w^ater used by it for con- densing purposes and which it is enabled to draw directly from the river, being far in excess of the amount which it would use were the supply not unlimited and free, and the further con- sideration by the experts, of prices which it is claimed have been paid for land in this vicinity for use for freight houses and switch tracks. But in the opinion of the Commission neither of these considerations should control the determina- tion of the value of the land. The value of a tract of land is, generally speaking, what it is worth in the market, what it can 4 ] 4 r Report. 37 be sold for, and the special value which it may have to any one person or corporation cannot be taken as determining its actual value, nor can the prices paid by railroads for land be taken as a fair criterion of the value of land in the vicinity, for it is gen- erally recognized that such corporations frequently pay many times more than the real value of land rather than suffer the uncertainties and delays incident to condemnation proceed- ings. This value created by a demand on the part of the rail- road is really only temporary, enduring only so long as the railroad is in the market for land in that vicinity, and this temporarily added value, which is in a sense fictitious, disap- pears as suddenly as it appears as soon as the needs of the rail- road in the vicinity have been satisfied, saving of course such added value as the land may retain by reason of its location in the immediate vicinity of the railroad. In view of the rea- sons on which the experts of the Company based their esti- mate of the value of these two tracts of land, the Commission is of the opinion that these estimates so based cannot be safely used in determining such value. And the Commission has therefore in this instance relied more on the opinion of the real estate experts engaged by it, whose opinions are based on the views as herein expressed as to what constitutes the proper basis for determining real estate values. The Commission feels fortified in its conclusion in this case by the fact that this Ashley Street lot was purchased in 1901 by the Citizens Electric Light and Power Co., one of the predecessor Companies of the pres- ent Company, for $100,000, cash, and $147,000 in stock of the Citizens Electric Light Co., which stock was at the time of verv uncertain value, and the further fact that this lot is at present assessed for taxation purposes at $62,500. The value of the Ashley Street lot is placed by the Com- pany's experts at $20 per square foot, or almost $6,000 per front foot, and by the Commission's experts at approximate v $2.80 per square foot, or approximately $850 per front foot. If this lot is as valuable as estimated by the Company's experts, it would then be a serious question whether, as is suggested by the Supreme Court of the United States in the decision above referred to, it would not be unjust to the public to permit a reasonable return upon such enormous increase in value. In the opinion of the Commission a fair value for the Ashley 38 Report. Street lot is $3.00 per square foot or in round numbers $400,000. We are of the opinion that the Lewis Street lot is worth $70,000, the Locust Street lot $122,000, the Eighteenth and Gratiot Street lot $100,000, and as to the other lots we consider the values of the Commission's experts fair, and we adopt them as such. This gives an aggregate value to the real estate in our opinion, of an amount approximating so nearly to $800,000, that we fix that figure as the total value of the real estate. Cost of Construction. Item 2-IL, Table VIIL Item S-IL, Table VIL TABLE IX. SUMMARY OF ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1 Ashlev St Plant $ 5,131.378.71 654,309.38 677,854.97 202,959.63 209,020.90 290.555.68 230,016.41 28,832.75 1,413,368.97 2,870,150.18 878,293.80 % 5,315,667.00 683,074.00 704,597.00 211,884.00 217,680.00 382,002.00 243,143.00 41,538.00 1,545,205.41 3,013,789.61 932,066.00 3.59% 2 Tjpwis St Plant 4.39% 3. Substation No. 3 & 10th St... 4 Substation No. 1 3.95% 4.39% fi Snh«?tntion No 2 4.14% 6. Sta. A & B, Substation No. 4 7 Substation No 5 31.48% 5.76% S Substation No. 7 44.06% Q Ovprbpacl SvstGITl 9.33% 10 T^ndprsrround Svstem 5.005% 11. Misc. Physical Properties 6.12% Total $12,586,7j41.3_8 $13,290,646.02* 5.51% 1 •Discrepancy between this total and Company's total. Cost of Con- struction" as shown in Table VII, is due to a mistake in addition by Company, in summing up the items in the Underground System Table XIX. Table IX shows the summary of the cost of the construction of the plant, as estimated by the Public Service Commission (figures in column marked P. S. C.) and the Company's engi- neers (figures in column marked Company) arranged accord- ing to the principal divisions of the physical property. The per cent, of difference between the two estimates is shown in the last column. As stated before, the Public Service Commission's estimate of construction cost was based upon a detailed inventory, and the final figures arrived at by a system of allowances, while the i a <■ A r J ■'^, •-* } Report. 39 Company's engineers, with the exception of the overhead and underground system, based their work in great part upon a re- search into the books and vouchers of the Company. In mak- ing up their figures from the books and vouchers, there could not help but occur many instances where it was a matter of ex- tremely close judgment as to whether or not an item should go into the cost of the present existing property, or should be charged to operation or depreciation. Taking this feature into consideration, and also taking into consideration those details where there was an absolute disagreement with the Commission as to priced to be applied, the results of the two appraisals of the physical property can be said to almost check one with the other. TABLE X. ASHLEY ST. PLANT. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference, 1. Buildings & Improvements 2. Boilers 3. Steam Piping 4. Auxiliary 5. Engines 6. Electrical Machinery 7. Switchboards 8. Storage Batteries 9. Station Tools Total $2,100,105.26 713,801.90 280,655.49 574,801.89 699,717.84 498,137.40 232,959.30 19,339.63 11,860.00 $5,131,378.71 $5,315,667.00 3.59% Table X shows the appraisal of the Ashley Street Plant, giv- ing details as divided among the different classes of equipment. This and the following Tables, except those for the underground and overhead equipment, do not show comparison in detail with the figures of the Company's engineers because the dif- ferent methods used by the Commission and the Company in dividing the inventory into sub-heads prevents such a compar- ison. The principal point of difference between the Company and the Commission in this appraisal was in the cost of piping, the Company's engineers claiming some $98,000 more for this item than the Commission could allow. i^ \'\ n \ 40 Report. Report. 41 TABLE XI. LEWIS ST. PLANT. p. S. C. ESTIMATE OF CONSTRUCTION COST. 4 P. s. c. Estimated Cost. Company's Estimated Cost. Difference. 1. Buildings & Improvements 2. Boilers 3. Steam Piping 4. Auxiliaries 5. Engines 6. Electrical Machinery 7. Switchboards 8. Old Tunnels Total $184,720.91 75,492.70 73,735.05 97,766.34 92,104.82 95,501.24 25,173.62 9,814.70 $654,309.38 $683,074.00 4.39% TABLE XIL SUBSTATION NO. 1. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1. Buildings & Improvements... 9 "Rlertriral Machinerv $ 37,229.11 52,600.17 29,579.28 83,551.07 3. Switchboards 4 Storaere Batteries Total $202,959.63 $211,884.00 4.39% TABLE XIIL SUBSTATION NO. 2. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1, Buildings & Improvements... 2 Electrical Machinerv $ 45,109.02 52,009.12 28,446.91 83,455.85 3. Switchboards 4. Storasre Batteries Total $209,020.90 $217,680.00 4.14% TABLE XIV. SUBSTATION NO. 3 & 10th ST. P. STATION. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1. Buildings & Improvements. 2. Boilers 3. Steam Piping 4. Auxiliaries 5. Engines 6. Electrical Machinery 7. Switchboards 8. Storage Batteries 9. Station Tools ^. 10. Series Arc Apparatus Total ; 99,559.87 59,372.25 45,940.81 27,270.70 58,248.75 165,721.88 100,206.43 69,629.40 6,773.40 45,131.48 $677,854.97 $704,597.00 3.95% Note. — Building and Steam Piping include tunnels and pipe lines to Century Building, Board of Education Building, etc. In Table XI, XII, XIII and XIV, the difference in estimates of a more or less general nature and not of great per cent. TABLE XV. STATION A, SUBSTATION NO. 4 & STATION B. p. S. C. ESTIMATE OF CONSTRUCTION COST. Station A & Substation No. 4. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Buildings & Improvements. Boilers (Dismantled) Steam Piping (Dis.) Auxiliaries (Dis.) Engines (Dis.) Electrical Machinery Switchboards Electrical Machinery (Dis.) Station B. Buildings & Improvements Auxiliaries (Dis.) Engines (Dis.) Electrical Machinery (Dis.) Switchboards Station Tools Total 56,589.91 4,992.00 552.00 71.25 6,937.50 42,603.75 49,618.43 8,681.00 98,256.27 3,358.15 8,668.75 8,668.75 1,045.00 512.92 $290,555.68 $382,002.00 31.48% I 42 Report. Report. 43 TABLE XVI. SUBSTATION NO. 7. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1. Electrical Machinery 2. Switchboards 3. Storage Batteries — Total $10,152.45 16,898.25 1,782.05 $28,832.75 $41,538.00 44.06% In Tables XV and XVI there appear differences in apprais- al of 31.48 per cent, and 44.06 per cent, respectively, which are accounted for by the fact that in these plants there is a large amount of dismantled and discarded equipment, which being no longer in the service and simply awaiting sale as scrap or second-hand material, the Commission has valued it as such. The Company's engineers have carried out their appraisal of this material at its estimated original cost. TABLE XVII. SUBSTATION NO. 5. P, S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference 1. Buildings & Improvements... 2 Electrical Machinery $ 57,359.94 82,020.75 90.635.72 3. Switchboards Total $230,016.41 $243,143.00 5.76% In the appraisal represented by Table XVII, the principal point of difference between the Commission and the Company was the cost of the building, which includes beside the sub« station equipment, a garage and living apartments rented tc tenants. The building costs were carefully reviewed, but the Commis- sion did not feel justified in allowing the high costs claimed by the Company which were taken from the books and may be accounted for by costs of alterations. \ \ i TABLE XVIII. OVERHEAD SYSTEM. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company's Estimated Cost. Difference. 1. VSTood Poles 2. Cross Arms 3. Iron Poles 4. Guy Wires 5. Weather Proof Wire 6. Service Taps (without wire) 7. Lighting Arresters 8. Primary Pole Switches 9. Primary Fuses 10. Wright Demand Meters 11. Special Supports 12. Alley Lamps & Brackets 13. Ground Plates 14. Ground Pipes 15. Three-Light Iron Poles 16. One-Light Iron Poles 17. Feeder Tap Delmar Substa.. Subtotal General Contingency 5% Total 254,498.14 87,458.25 53,176.80 32,480.00 786,554.40 79,852.40 14,780.00 6,380.00 1,030.00 5,413.50 351.00 4,529.80 5,340.00 3,719.00 7,165.46 2,804.34 532.50 254,498.14 87,458.25 58,070.28 37,237.38 882,208.30 100,638.75 14,780.00 6,380.00 1,030.00 5,413.50 351.00 4,529.80 5.340.00 3,719.00 7,165.46 2,804.34 1,346,065.69 67,303.28 $1,413,368.97 1,471,624.20 73,581.21 $1,545,205.41 9.33% TABLE XIX. UNDERGROUND SYSTEM. p. S. C. ESTIMATE OF CONSTRUCTION COST. P. S. C. Estimated Cost. Company s Estimated Cost. Difference. 1. Main Cables 2. High Tension Cables 3. Lateral Cables 4. Edison Tube 5. Lateral Conduits 6. Manholes & Service Boxes.. 7. Extra Depth Manholes 8. City of St. Louis Joint 9. Main Conduit Joint 10. Cement Lined Conduits 11. Iron Pipe Conduits 12. Clay Conduits 13. Monolithic Conduits 14. Sewer Connections.* 15. Bonds to Railway Tracks... 16. Union Portion Feeders 20, 23,24 17. National Subway % General Contingency 5% Total 834,595.00 496,528.30 97,498.95 69,268.90 135,177.90 203,949.36 2,315.25 26,985.95 229,893.77 37,081.58 92,810.32 381,047.30 2,180.80 4,650.00 4,900.00 114,592.98 916 500 101 85 135 213 2 27 229 37 92 375 2 4 4 23 117 ,931.51 ,410.74 ,844.20 ,291.54 ,047.26 ,641.18 ,415.25 ,909.44 ,025.21 ,081.58 ,487.66 ,878.62 ,180.80 ,650.00 ,900.00 ,457.97 ,122.86 2,733,476.36 136,673.82 $2,870,150.18 2,870,275.82 143,513.79 3,013.789.61 5.005% V Y 44 Report. Eeport. 45 Tables XVIII and XIX present the estimates of the overhead and underground systems respectively, and as in these esti- mates the Company's engineers followed the same method as the Commission has throughout the appraisal, i. e. working from a detailed inventory, the different items are able to be compared. As it was possible here to compare and check inventories and prices, one with the other, the engineers of both parties were able to bring several of the items to an absolute agreement. In some items the Company adopting the Commission's figures, and in some the Commission adopting the Company's. The principal differences in these two tables resolve themselves into clear cut differences of opinion. The principal difference in the overhead estimates arose in the items of weatherproof wire and service taps. The Commis- sion considered the Company's claims for percentage allowance for sag, wastage, contingencies, etc., on the item of weather- proof wire, too large to be allowed, and the quantity of wire was also affected by the fact that the Commission could not accept the Company's records as to the number of service taps in exis- tence. These records extended back over some eighteen years, and that very little care had been exercised in charging off the taps was evidenced by the fact that they showed 50 per cent, more taps than there could possibly be customers for. The principal item of disagreement in the underground sys- tem (Table XIX) was the charges for training, wastage, and drawing in on the main cables. The Company's estimates on these items being higher than the Commission felt justified in allowing. The item of 5 per cent, general contingency allowance on both the overhead and underground w^as agreed upon by the en- gineers of the Commission and of the Company, but this item does not represent all of the contingency allowance made, as most of the items in the Table contain some special percentages for contingency. 48 Report. TABLE XXII. INTEREST DURING CONSTRUCTION ON CONSTRUCTION OF ASHLEY ST. POWER HOUSE EQUIPMENT. MEAN TIME. « Item. Amount. Time. Rate of Int. Int. Comp'd Annually. Boilers (Edgemoore) $364,481 349,320 280,655 574,801 699,717 498,137 232,959 19,339 6 mos, 1 yr. 11/^ yr. 1 yr. 1% yr. 1% yr, 1'^ yr. 6 mos. 6% $ 10,934 20,959 25,764 Boilers (Springfield) Steam Piping Auxiliaries Engines 34,488 Electrical Machinery ..'.'.' 64,234 45,729 21,386 580 Switchboards Storage Batteries * . ' Station Tools Total $224,074 1 In Table XXII is shown the interest during the period of con- struction as computed by the Commission on the equipment of the Ashley Street plant. In this table practically the same methods are pursued as in Table XXI. The interest during con- struction on such expenditures as engineering, insurance, taxes, etc., are computed for the Ashley Street plant on the same basis as in the two preceding tables, but are carried into the totals in another table. In computing the interest during construction, on the plants and equipment other than that of Ashley Street, the Commis- sion had no such detailed and reliable data as was available for Tables XXI and XXII and for this work was compelled to use an estimated time in which it would be reasonable to suppose that the actual investment in such property would lie idle be- fore coming into use. i 4 ( . \ ^ ^ A yk Report. ^g TABLE XXIII. INTEREST DURING CONSTRUCTION ON CONSTRUCTION OF PHYSICAL PROPERTIES. MEAN TIME OF CONSTRUCTION. Property. Amount. Mean Time. Rate of Int. Interest. Ashley St. Building $216,686 224,074 19,629 Ashley St. Equipment i Lewis St. Plant Substation No. 3 & 10th St. P. Sta. Building & Equipment $ 654,309.38 625,950.09 45,131.48 202,959.63 209,020.90 6 mos. 6 mos. 3 mos. 6 mos. 6 mos. 6% 6% 6% 6% 6% Series Arc Apparatus 18,779 (No Int. on Station Tools.) Substation No, 1 677 Substation No. 2 6,089 Substation No. 4 ',[ 6,271 Building and Equipment (No Int. on dismantled equipment.) Stable, Station B. Building & Switchboard (No Int. on dismantled equipment.) Building 212 Gratiot St Substation No. 5 148,812.09 99,301.27 3,766.00 230,016.41 6 mos. 6 mos. 6 mos. 6 mos. 6% 6% 6% 6% '4,464 2,979 113 Substation No. 7 6,900 Underground System. Cables, Edison Tube, Bonding & Contingencies, Laterals ex- cluded 1,475,556.81 1,150,282.68 1,173,864.42 4 mos. 9 mos. 4 mos. 6% 6% 6% Conduit System, Conduits, Man- holes, etc., excluding pipe lat- erals 29,511 Overhead System, excluding serv- ice taps 51,763 23,477 On Engineering. Ashley St 611,412 21,514 8,533 1,712 15,927 37,835 28,847 Other than Ashley St On Taxes Ashley St i • ■••••• On Real Estate. Ashley St 100,000 314,240 1 5% yrs. 1% yrs. 6% 6% Other than Ashley St .' Total ; $725,780 1 t Table XXIII shows the summary of interest during the period of construction, as determineci by the Commission, for the whole property, except as allowed in Item I., Table VIII. For the information of the layman it might be well to explain that in the column headed ''mean time," the figures do not represent the time estimated by the Commission as necessary to build and bring into operation these particular items, but it represents the "mean time" over which the ex- penditures were spread until operation began. This "mean I 50 Report. time" is assumed to be one-half of the actual period of con- struction, and the Commission's estimate of the time required to construct and bring into operation can be obtained by multiply- ing each item of time by two except real estate. As a very marked illustration of the difference in results caused by adopting the Commission's method of considering actual conditions instead of the hypothetical conditions assumed by the Company, we would call attention to the item of interest during construction on real estate. Under the assumed condi- tions as used under the theory of Cost of Reproduction New, the present value of the real estate as estimated by the Company was taken as a basis, and to this was added compound interest Jor a number of years to come. It is evident that if such a method of valuation were allowed, the present consumer would be re- quired to pay now not merely on a high present value, but even on a still higher future value. The wide difiFerence between the Company's and the Com- mission's figures on this item is due to the Commission's be- lief that in dealing with interest during construction the Com- pany is wrong in theory, that its assumptions are not in ac- cordance with the real facts in the case, and that the results ar- rived at are unreasonable. Taxes and Insurance During Construction. Item 5-77., Table VIII. Item 7-77., Table VII. As an element of value this item is entirely legitimate, and the only question is as to the reasonableness of the amount claimed. By going to the tax records of the city the Commission finds during the years of construction of the Ashley Street plant the assessed value of this property (real estate and buildings) was as shown in Table XXIV. \ > A y ^'4 \ f 4 1 t W ^ Report. 51 TABLE XXIV. TAXES ON ASHLEY ST. PLANT DURING CONSTRUCTION. JULY 1ST, 1906, assumed MEAN DATE OF COMPLETION. Year Assessed Value. Tax Rate. Amount of Taxes. 1902 1903 1904 1905 1906 $ 62,720 62,720 242,720 362,720 462,720 Total 1.95 2.15 2.19 2.19 2.10 $1,223.04 1,348.48 5,315.57 7,943.57 9,717.12 $25,547.78 Not being able to ascertain the assessed values of the other pieces of property during the year of their construction, the Commission has allowed the taxes as of the year 1909. The item is small so the variation from what was actually paid is of no importance. TABLE XXV. TAXES ON REAL ESTATE OTHER THAN ASHLEY ST. PLANT. FOR ONE YEAR ONLY. Location. City Block Assessed Value. Taxes. Lewis St. Plant Substa. No. 3 & 10th St. P. Sta Substation No. 1 Substation No, 2 Substation No. 4 Stable, Station B Building 212 Gratiot St Substation No. 5 Substation No. 7 Total 226 272 95 84 900 2,286 50 3,753 164 $14,400.00 62,550.00 10,640.00 13,440.00 62,780.00 21,000.00 1,690.00 2,850.00 20,400.00 $ 319.68 1,388.61 236.21 298.37 1,392.72 466.20 37.52 63.27 452.88 $4,655.46 In the matter of fire and liability insurance during construc- tion, the Commission has made such estimates as were pos- sible, based on the available data and believes that the allow- ances in this item are ample to cover the actual expenditures. r' I III 52 Report. Working Capital. Item III, Table VIII. Item S'lL, Table VII. In this item the Company has not presented full details, but as the figures correspond very closely to those of the Commis- sion's, it is to be supposed that their methods were similar. Edison License Agreement. Item 9-77., Table VII. Among the assets claimed by the Company is an item of $200,000 the value claimed by it for a contract between the General Electric Co., of New York, and the Edison Illuminating Co. of St. Louis, dated November 10, 1892, whereby the Gen- eral Electric Co., in consideration of $500,000 of stock and $300,000 bonds of the Edison Co., granted that Company one of the predecessors of the present Company, the right to the exclusive use in the City of St. Louis and adjacent territory, of apparatus manufactured by the licensor, under letters patent held by it, and also the right to purchase such patented appar- atus as it might need, at prices as low as that made by the licensor to its other licensees. It appears that the principal patents which this contract licensed the Edison Co. to use have expired, and it is admitted that what value this contract had on account of the license to use such patents is now gone. It also appears that the apparatus now manufactured by the General Electric Co., is, in the main, sold in competition with goods of similar character, manufactured by others. It is claimed that it is, and has always been, the practice of the General Electric Co. to give a special discount to its licensees on all material bought by such licensees, the amount of which discount is fixed by the General Electric Co., and the Union <\^ r*4 %\ ^ € Report. 53 Electric Light and Power Co., as assignee of the rights under that contract has had and still has the benefit of this discount, which amounts in the aggregate to several thousand dollars each year. And the Company now claims that the privilege of receiving these discounts is a right derived under this con- tract, and gives the contract a value of $200,000. The one clause in the contract under which it is or can be claimed that these licensee discounts are a legal right under this contract, is as follows: "The Licensor hereby covenants to sell to the Licensee from time to time, for cash, or on such terms as may be agreed upon, such apparatus as at the time may regularly be made by or for the Licensor, and may be needed by the Licensee for its use in said territory for central station lighting, at the lowest current prices of the Licensor to its other Lic-ensees under this form of contract and license for similar apparatus purchased in like quantities.^' This language, in the opinion of the Commis- sion, gives the licensee no right whatever to any discount. In- deed it seems to us to do no more than to protect this licensee against discrimination in favor of other licensees of the Gen- eral Electric Co. If the Union Co. has a right to receive dis- counts from the General Electric Co., it is not by reason of the Edison licensee contract, and we therefore can see no sub- stantial pecuniary value in this contract. KiNLOCii Pole-Right Agreement. Item IV., Table VIII. Item 10-11. , Table VII. This item represents a written agreement between the Citi- zens Electric Light Company, and the Kinloch Telephone Com- pany, by virtue of which the Union Electric Light and Power Company as holder of the rights of the Citizens Electric Light Co. has the right to string its wires free of rental on any of the poles of the Kinloch Company, so long as they do not interfere with its business or operations. At the date of the investigation the Union Company had on the poles of the Kinloch Company, cross-arms, half cross-arms, 54 Report. K it transformers and iron pipe laterals, for which if rent were charged at the usual prices it w^ould pay as follows : TABLE XXVI. 9103 Cross-arms @$ .60 = $5,461.80 per year 269 Half " @ .40 = 107.60 " 2 Transformers @ 1.20 = 2.40 9 Iron Pipe laterals @ 1.00 = 9.00 Total rental, $5,580.80 Capitalizing this rental which is saved by the Kinloch Pole agreement, at 8 per cent., the rate of return hereinafter al- lowed, we arrive at a value of $69,760.00. This is the value to the Union Company on the basis of the present occupancy of the poles, but as the agreement gives them the right to extend this free use of the poles to all the poles of the Kinloch Com- pany, the Commission has made a further allowance of value up to $80,000. Cost of Establishing the Business. Item v., Table VIII. During the first few years of nearly all large enterprises there is generally a period of loss due to the business not be- ing yet established. These initial losses are so much a matter to be taken into account that thev amount almost to the same thing as a predetermined expense, even in enterprises established with the best judgment and foresight. They are in fact a part of the legitimate investment, and in attempting to arrive at the fair Earning Value of a public service property a reasonable allowance for these initial losses should in justice be taken into account as legitimate costs of establishing the business and should be admitted into the Earning Value as a part of the in- vestment. It must not be taken as granted, however, that there is not a reasonable limit to which these initial losses must be confined in admitting them to Earning Value. An exorbitant figure in the cost of establishing a business might very w^ell be caused by faulty accounting or from causes which should not work to the prejudice of the consumers. The Commission considers that it is dealing exclusively with the affairs of the present Company, and is not called upon to 1> »' a\ \ > « V Report. 55 take into account the affairs of former or predecessor companies any further than is necessary in determining the value of the present existing property. Yet, that amount of the cost of estab- lishing the business of the former Companies, by which the present Company and the present consumers are being benefit- ed, is a justly allowable element in the present Earning Value of' the property. Unfortunately, there is no very accurate method of determining this figure, and on account of the very unreliable sources of the items in the earlier history of the pre- decessor Companies, which are in many cases influenced bj stock and bond transactions and speculative financiering, the Commission is forced to make simply a general estimate or al- lowance in the present value for the cost of establishing the business of the former Companies. This allowance is based on a very careful study and review of all the data available, and a careful consideration of all the circumstances and conditions known to the Commission. The investment in new plant by the present Company came into operation as an earning power at an approximate mean date of July 1st, 1906. Up to that date, so far as the present valua- tion is concerned, there can be said to have been no loss on the new investment, for it was earning the 6 per cent, compound interest, which as Interest during Period of Construction has been added to the capital to be earned on, and it is considered that on this new plant there should be no charges for the depre- ciation fund before the date of its completion. It appears that the period for determining the Cost of Estab- lishing the Business on the investment in new plant should be- gin as of July 1st, 1906, and a careful study of the operations since that date convinces the Commission that any allowable deficit has been cared for in the allowance hereinafter made. In considering this item of Cost of Establishing the Business, we must recognize that this case differs from the ordinary case, in that the present Union Electric Light and Power Company at the time of its organization took over a going business previ- ously carried on by its predecessor Companies, the Union Elec- tric Light and Power Co. No. 1 and the Missouri Edison Elec- tric Co., and that later, in 1907, it acquired by purchase all the property and the business of the Laclede Power Company, and in consequence did not incur the expenses usually incident to the establishment of its business by a new Company. It is lil ti 1^1 56 Report. proper, however, that in determining the Cost of Establishing the Business of the present Company, allowance should be made for the Cost of Establishing the Business which the present Company acquired from these other Companies. The Commission considers that an allowance of $1,000,000 is ample to cover all costs of Establishing the Business, so far as they enter into the present Earning Value of this property. Miscellaneous Suggested Elements of Value. As a note to its presentation of a value in Table VII, the Com- pany makes some suggestions as to possible additional elements of value. The suggestions can be treated briefly in order: (a) Going Value. This element in valuations for rate making purposes is iden- tical with Cost of Establishing the Business. It has been dis- cussed under that head in this report and allowance made for it in Item V., Table VIII. (b) Profits of Promotion. This item has been dealt with under the head of ''Organiza- tion'^ or "Development;'*' see pages 31 and 32. (c) Discount of Bonds. The Company claims that the discount on the bonds issued by it, as well as the discount on the bonds issued by predecessor Companies and constituting a lien on property acquired by it, is a just item of permanent capitalization. The Company, on its books, seems to make a distinction in this connection between the bonds issued to obtain money for construction purposes and bonds disposed of to refund existing indebtedness. As to the former it treats the discount as part of the cost of construction to be capitalized in the same manner as the actual investment in construction, whereas, as to the latter it charges the same as an item of deferred indebtedness. The Company's expert accountants, however, insist that all this discount is properly chargeable to cost of construction, and the Company asks that the discount on all the bonds, irrespective of the purpose for which the proceeds were used, be recognized by the Commission as part of its capital invested. ^> ih V Report. 57 We do not see that any principle can be invoked which will justify the distinction suggested by the books of the Company, nor do we believe that discount on bonds in any case should be treated as part of the capital invested. The sale of bonds at a discount has the result in all cases simply of increasing the rate of interest paid for the money; the lower the rate of interest borne by the bonds the greater the discount will be, and vice versa. We fail to see why the purposes for which the money is bor- rowed should determine or affect the mode in which the cost of the money or any part therof should be treated. The cost of money to the Company should, of course, be recognized in the rate which the Company is allowed to earn on its investment, provided of course, that the necessity for discounting the bonds is not occasioned by the Company's credit having been impaired by improper financial management. We are aware that it has been quite customary for corpora- tions to capitalize bond discount, and that there is very respect- able authority for such course, but the reasons given in justifi- cation do not convince us of its correctness, and we are fortified in our position by the fact that the Interstate Commerce Com- mission has not long since adopted the principle which we have announced. If bond discount is permitted to be capitalized it would in many cases require but three or four issues of renewal bonds before at least half of the bonded debt would represent nothing but discount. The discount should, in our opinion, be treated as interest to be paid out of the fair rate of return allowed on the Earning Value of the property. (d) Franchise Value. The Commission, in determining the property on which the Company is entitled to earn a return, has not taken into consid- eration its franchise rights, for the reason that in our opinion the Company is not entitled to earn a return on such franchises. The value of a franchise is, after all, determined in the final esti- mate by the amount which the Company is enabled to earn under it, and if by reason of legislative regulation and limi- tation of such return, the Company may only earn a reason- able return on its investment, the franchise would seem to have no substantial value. This view is recognized by the Supreme > I Oh Q CO I— t H O dn o > ? H^ g PQ « o O o O > m A* O o Q O o Eh o Q « O H o Q o Eh s o O a Q a o Eh di o o 0) cS " 03 H 03 I Report. V 00 u» o C9 »o-CgO TJ< (M 05 «D ITS OOOUSCOIM OS «oir5co OS O) rH t-OJ-*CO eo os-'r (M CO t-iHOO 1-1 Cq«0 (MM tH eg 00 A t-Tfoeo M oooeo M" t- eo in Tt< r-tirso4 OOt-OlO 00 OXMrH tHCOiHoi iH rHr^ t Report. 61 00 lO « 00 o 0(> CO id CO «o CO I \ oeo'^30U3oocac'*©t-cgeo t»eOOOiHTjost-oo«o»-io-<* 00 o» 00 m 00 00 i-tlOOSgi-t 00 lOrH m O I Tj< o r-t eo o ooseocgoo cgt-ot-05 i-f tH 00 eo U5 t- iH CO eo 00 ost^oseooo in 00 00 00 00 t-ioeoeooo oo oo-MtH O eo eg •v eo ■vcg eg OS 00 om m OS OS eg OS 00 00 00 oomm OS OS OS OS t— eg oeo ost- b-Ot-O • • ■ • • CO 00 ■<»< CO eg t-iH t-T-H eo 00 1- eo eg eg egrHcgoo o oot>eot- OS cgos'^ • a ■ OSiH r-t la oseo CO CO OS OS eg osia in o OS OS 00 00 00 OS 00 in 00 OS OS OS eo OS ri OS OS o-i 00 o -^ 00 00 oo CO O rH •* CO eo O t- iftTHomt- t- t-osoio o 00 e^ »n o iH eo in CO eo T-t •<*< eo eo 00 t- »h os eo oo o-^oso-^ OS ooegoTr-T OeO-^OOt- OS OS CO iH iH iHcoeocgin eo -^cg eg rH o in -f eg Tfego oo ost-oeo 00 egeot- co 00 eo i-T eo r-t in O cgin eo ■* CM OS eo eo O t- TJ< t» t- iH Tj< in cot- eg 00 t" t— ^ OS tH eo Tt< o t-lH in i-H 00 in in OS OS eg OS o eo in to eg 93 00 00 in in 00 CO eg o eg t-egt-cgooT-iTfeoinin oooinooinr-(inT» CQini-i eo t". 1-1 00 OS CO in eg t- o 00 in in O OS OS OS cgTt<«o«o ©osino osoort- OS m cseot-eo eo '^ «D 00 1-< 00 CO ^^ ^* mcfiOOOOoooo t^mi-i©mooeoeo©©m oocgoot— t-oo'*'os'**'^m oscg©©ooi-teoeooscO'* mt-'>»'t-'*eg©co,P'it>os mcooscgegt-egco eo t- 1-^ ososmt--oom©t-o>eot- osm'*cgmeo©e>ieo iH di K CO < OQ 2-0 3o 5 3 c 3 Cj O fcH O O «? O OS 03 i-t be ft® be C en !r5 *- (V o i- , . 03 rt O d ^ ^ * ^ ^ ^ -- t*/ >-/ . 03 O JN .^ :=:::cd> m lH© 1*1 -^ meg 00 CO T}» u 0) C! ,/ "^ o 0> •« J- C ^ o 03 0) o 0) 03 3 ■»-> ftu . ft 01 w ,, ? c *- m bo© 3 •« tn ■•■' ti ti O ^ OJ 01 .^-•-'i^ ■M o o O I— I H eg O o Eh 02 rn- 02 o3 ctf m 01 3^^ O EH o ":: JSdq •"I — ' _c CO PQWajo2 'a ■ PQEoiM si o Eh c O Eh m ^5^ « 5^ Q -S 12; O o I o Oh W Q o o Q < o o H I— I > O t— t Pu, O O •-3 o H >— I Q O E-t C/3 H o CO n !z; o o Q o o ■<-> O u p. w Q o s 0) a; c (1) cS H CO eo © 00 eo «9 CO US CO t- «o ta o o in ^ ' o CO •lO o \a •xj- • • • e^i ■* .00 U3 o» .CO 00 00 .«o •^ •^ •© t- •t~ O) «o to 00 io©e<3 t-ON COO) 00 eoOM CO t- i-H TJ" eg CO rH CO •^ N CO iH 00 CD ■^ © t>- t- U5N 05t>eOOOi-iC C « eo ^ oS Ml t, cQ u^ "ii IS O O m PQ QQ ZT C ^3 o O -tJ ■^ o Eh "O — — -M <-< Ji 33c;i:^ fQ ;j 3 »-i ^ I? rj 03 OQ u 9 a ""• jm "it PQHgq o O 1— I H <^ Eh CQ PQ « C o 03 QQ ft 0] U OQ 09 OQ fH dm +j * 2 o OJ3 © Eh *^ > o Sec 02 cn (^ O rH d Q M PQ I ©©© o lOCOf ©©© © r-t©© • • • ©lO-* © 1-1 ©00 loooeo © OSIO © COTj'rH © oocMco lOrH'^fi © t-< O c (V ft oj £ ftc^ iJ to C <;^§eh H o 09 o bo o3 I "C ■M m Q c o o bo C c o -o C Eh&h o 1^ !f Si ( : ^ 64 Report. Table XXVII shows the details of the depreciation for present condition on the plants of the Company as determined by the Commission. Any depreciation for present condition is necessarily based almost entirely upon the opinion of the individual making the estimate, and having this in mind the Commission has endeav- ored to make the figures so conservative that they cannot reason- ably be objected to. TABLE XXVIII. ESTIMATED EARNING VALUE OF TOTAL PRESENT PROPERTY. I. Organization — 1. Expense of Organization 2. Interest on Organization Expense II. Construction — ■ 1. Present Value of Real Estate 2. Cost of Construction 3. Cost of Engineering 4. Interest on Construction Expenditure.... 5. Taxes and Insurance during Construction III. Working Capital IV. Kinloch Pole Contract V. Allowance for Cost of Establishing Business.. Deduct Depreciation for Present Condition Total Earning Value I 125,500 3^944 800,000 12.586,741 629,3.37 725,78a 130,203 865,520 80,000 1,000,000 $16,976,025 841,632 $16,134,393 Table XXVIII shows the present Earning Value of the whole property of the Company as determined by the Commission. SEGREGATION OF VALUE IN THE SERVICE OF THE UNITED RAILWAYS. In trying to determine the amount of Earning Value upon which the public should pay a fair return, the Commission is, in the case of the Union Electric Light and Power Company, confronted by a difficult problem, in that approximately half of the kilowatt hours of electricity sold by the Company is sold not to the general public but to one large customer, name- ly, the United Railways Company. As the United Railways Company uses none of the distribu- tion equipment of the Union Company, it becomes necessary in order to calculate the proportion of the fair return to be borne by the Railways Company and by the general consumers, Report. 65 i\ r to segregate that portion of the investment demanded for the use of the Railways from the property as a whole. It has been argued by the Company that inasmuch as the in- creased volume of business resulting from their contract with the Railways Company enables the cost of generating electricity to be considerably reduced, this portion of the business is of great advantage to the general consumer and should not be made to bear its full proportion of the Investment Charge. As a matter of fact the advantage is mutual. The cost of genera- tion to the general consumer would, it is true, be greater with- out the business of the Railways, but on the other hand the cost to the Railways would be greater without the general con- sumer. Still more pertinent is the fact that the cost of genera- tion is in reality a minor item in electric rates, by far the greater cost being in the Investment Charges. The cost of gen- erating electricity by the Union Electric Light and Power Company is less than one-half cent per kilowatt hour, and even if the railway business were to assume all of the generating cost, the consumers rate would only be reduced one-half cent or less, while the assumption of the Investment Charges of the railway load by the general consumer would amount to much more than this. A further and very important consideration taken into ac- count in deciding this point is the fact that at the time the origi- nal contract for this railway business was entered into, both companies were controlled by the same owners as they are today. This Commission believes and wishes to establish as a precedent that under such circumstances it is especially to be insisted upon that transactions between public service corporations should be very carefully reviewed by the regulating officials. The conclusion in this case cannot be avoided that unless the railway contract is made to bear its proper amount of In vestment Charges the result would be a serious discrimination against the general consumer. c> --xr ^c—j- X - % - r^ ^r^-- ■-» 64 Report. Table XXVII shows the details of the depreciation for present condition on the plants of the Company as determined by the Commission. Any depreciation for present condition is necessarily based almost entirely upon the opinion of the individual making the estimate, and having this in mind the Commission has endeav- ored to make the figures so conservative that they cannot reason- ably be objected to. TABLE XXVIIL ESTIMATED EARNING VALUE OF TOTAL PRESENT PROPERTY. I. Orgranization — 1. Expense of Org^anization 2. Interest on Organization Expense II. Construction — 1. Present Value of Real Estate 2. Cost of Construction 3. Cost of Engineering 4. Interest on Construction Expenditure.... 5. Taxes and Insurance during Construction IIL Working Capital IV. Kinloch Pole Contract V. Allowance for Cost of Establishing Business.. • Deduct Depreciation for Present Condition Total Earning Value I 125,500 3^944 800,000 12.586,741 629,337 725,780 130,203 865,520 80,000 1.000,000 $16,976,025 841,632 $16,134,393 Table XXVIII shows the present Earning Value of the whole property of the Company as determined by the Commission. SEGREGATION OF VALUE IN THE SERVICE OF THE UNITED RAILWAYS. In trying to determine the amount of Earning Value upon which the public should pay a fair return, the Commission is, in the case of the Union Electric Light and Power Company, confronted by a difficult problem, in that approximately half of the kilowatt hours of electricity sold by the Company is sold not to the general public but to one large customer, name- ly, the United Railways Company. As the United Railways Company uses none of the distribu- tion equipment of the Union Company, it becomes necessary in order to calculate the proportion of the fair return to be borne by the Railways Company and by the general consumers, r i \ > Report. 65 to segregate that portion of the invest meiit deiii^tKdkxl IVir iIm use of the Railways from the property as a whofe. It has been argued by the Company that insismuoh a^ iW in- creased volume of business? resulting fmiu their contr*rt witli the Railways Company enables the eotst of g^nemlin^ eKvirieily to be considerably reduced, this portion of the bosiue??? is *nf great advantage to the general consumer and shi>uM ut»* lie made to bear its full proportion ef the Investment Char^\ As a matter of fact the advantage is mutual. The e^>c k t V ir Repori. 71 penses of 15 per cent. Now suppose that the directors neglect depreciation and declare dividends, or pay out in bond interest the full 15 per cent made over operating expenses; after a few years— say ten, the plant will be found to have become worn, inadequate and obsolete, and there will be no fund in the pos- session of the Company for re-equipment. If the assumption of the 5 per cent, yearly depreciation is correct, and the period has been ten years, it will be found that $500,000.00 is needed to replace the property in its original state of efficiency. The Company then proceeds to issue new securities to obtain this needed half million dollars. The capital as shown on the books, is now $1,500,000, but the real value of the equipment in the service of the public is only the original $1,000,000. Nevethertheless, the consumer is called upon to pay rates which will yield returns on the full $1,500,000. The investor, how- ever, has received one-half of his original capital back, in the way of the 5 per cent, in the dividends, which should have gone to the depreciation fund. The foregoing illustration shows the very great importance of the city's having the power to control the depreciation fund. It is essential to the interests of both the Company and the con- sumer that an ample fund be provided, but having once paid it in the rates, the consumer might be deprived of its benefits by the mishandling of the fund by the Company. It is evident that without proper control of this fund the consumer might not only pay for it once in the rates but also have it capitalized against him in the end. The depreciation fund should be deposited in some bank or trust company designated by the City Comptroller, and while it would be perfectly proper that portions of it should be loaned to the Company for extensions, it should in all its uses be under the control of officials whose duty it is to safeguard the interests of the consumers. Unfortunately, under the enabling act which gives the city the power to fix reasonable rates for public service, there is no power given to control the depreciation fund. Until such power is conferred upon it, the city must rely upon the investigating power of the Commission to keep close watch upon the use of the fund. In case of its misuse, such measures might be taken by the municipal assembly as may seem best. In the proposed ordinance which is submitted with this report, the Commission has endeavored to provide what protection to the depreciation fund seems possible under the existing laws. 72 Report. Report. 73 t X X X O •J o I— I P o »— t 00 Ok CO 00 00 rH (M 00 ec • Ok to at r-tO»OOCCO«C«OCCOOCO • ••••■•••<■ C0«D00e«3O-©TH00 o«oeoo(Mooost-©ii5eo OL30oooasiflTHco-*oot- MecMt-^tct-^ooMto ■^MC^Ir-teOiMr-teOi-l %4 s 0,0 %^ vrt -^W 'nJO vfO vflO vflO v^ eihe5heJheJhe«^^her^ el^ c^c0«ococccoo;oooiaco to 1^ soosiHosoit^t-ooocoo CT-l«DO • •••■■••*■• IOrH©lOiH(MOCt-'«»'OSO oot-iooecookOONoo T-tif5U3©ooi>as«o©o© ©C<3C»eOP3CgiOlOt-r-l ©lOTt<r-(l>-00©i-(iH ©©©©©©©M©© ©©©©©© ©»H©© ©©©©©eo©iLO©© O0ia©©©OSO0iflr-(O0 OSt-W©00i-t-•••••• lOt-l©U3i-lt-i3»0>© ©oo(Mus©ccoocou3ec«o »-(TfM«C00lflTHr-IO»eC00 © -"S^ OS © •^ i-T 00 00 eg <34 iH ©«C'»roct»egt-(3scor-iTH r-ieocoegiOTt-rH eo Tjl' •* to N eo «c" iH Mwcococecoooe^i »H©U5'*t-U3'*Oi© ©c^jt-t- o © la «o eg os ec eg •<*< cg05t-ooi-it-i-imrH I>'<*-i-( t-Tft-t-t-eoiOiHoo "<*• u5 eo t^ © T-T ifs la ^ oot-t^osco«eo»cg Eh a, OS M 03 o 09 ft® o - w cJ o c > ©laosioegegocot-coo) cgrHeo©osTHCDU3©eoo> iHeoo»odco©eo'*04oo«e oscgcgTft-t-lOt-©T-lT»«rH T-TeocgT-ieoGri-rt-^eo rn ■sXO nM vSO -v^ vJO vJO nJOnJO cgw«0co«o;ooou3;o«o > I— uoiH©iftooeo«D©©eg oocgooc-t-oooi«OT»i-^oo O»t^©©00rH-*i-liHlO-<*i in>T»eg©ooeorHiHT» «c 00 eg «o «o 04 U3 Tfi eg m liti eg 00 «o ih ^ ©©©©©©fO©eo ©©©©©© t»©ot- io©©©©eg'«i"oc3ooo» eg©iO'^egeoeg-*'*ioo ©©©egos©©T» rH eg t^ t-mi-i©ioooeoco©©io oocgoot~t-ooosrri-tiu3 o»eg©©ooiHeo«DoseO'^ ust--^t--*egco©egt-o> iocooJcgcgt>-eoeg«DC-t- 05 OS tn t>^ 00 10 1> o cs^ CO t^T OS la T»< eg m CO eg © to rH y 000000© 10 CO CO CO • • • • '^ceegcg T»<©00r-1 t-eo©«o CO eg CO civooka l-Ht-f t- l-ll-lt'© os©osco eg©cg'* eg CO ©eg t- OS CO eg eo' v ^„ 03 dj.:; r^::: oj x bc^ « 3 o a> 3 c;ii ^ ■M O h oj o<3; bc53 O w 4> 02 o3 ■<-> O Eh o iz; o Eh PQ P 02 03 03 OS 00t>-CD-<»" rHcgcota • • • • cgt-cgt- ©«>©© oseg©co CO eg CO C4U>ooia (M eg 00 10 Oi-i cgoo CS^OQ © ©© eoio i-t©©i-i toosiflcg TT Tf egt- ©co© ©CO© ©CO 10 ©rH© ©•^eo CO CO iH eg iMrH in ©iH OSOO OS OS CO m ©© Tf-v osegegrHt>^i-ieooo OOOSint- CO00©rH tft osin osco © CO cc^ CO 00 egos Gil's <^ •" t< "^ be PQHa2M o3 O Eh P3 < Eh 02 o Z Z c < ui PQ P 02 Eh 02 o Z .c . 3 bo 02 o oJ"^ 0.0 OB 3 ^02 rTT! « " * 2 bo c P. Qi uu - »*( — w^ CJ CJ •" CM 03 1) — « w< r; 032-- OS X bco oii 03 •t-i 02 > 74 il O < o Q n o I— I H < o H Qi 04 Q Report. Report. 75 u o a a o Pi Q CO © oo 00 CO t- e« # • eoeo t-eo U o D o Eh OQ u oi • ■ 00 0) knoo ©t- ■ • tot- t-eq 04 UOkAlO Tf C o « ».#■ to © o CO t- ■ vH o (M CO US 00 CO id la us CO us 00 us us ©«eK© ©toco 00 ecus iHOSCO to 04 > C4 CO CO CO o CO CO y ©o© oo© ©us-»»< t-©00 (M^O» TJ /5 H P J H-t t3 » bfi •^ OQ 0^3 woo OrH ©US oc-* OO"* 05t- US 04 USO] i-Oe«S ^o ©o> OiiS COO-1 • «t r-iM u?t- ©eo •» at iHrH O © © useo 1H© ©us oow t>^04 ©t- ■«»< eo 09 OQ cd o O bll ;-■ CO 04 US W* © CD ■<*• © us us IM tH t-'^oc©usoou:usr-< © cDUs'os'^ect-cC'^t- © O4O0Wr-IU5e^©O1© © t-u5oo©CD-^i-i©© irs occo © t-OlNOJiH 04 I-I04 ^^ ;f! us 0000COCO00©U3©lM CO 00'"r-l©o6r-IU:t— -^ eo oci-''*r-"it--eo'»'r- us ci oooTt O O z < H U OQ m m OS C o bo 0) 0) C^ 3 O art • g • c CJ • fc^ • 05 5 • o • (S+j K«w 02 m*^ c LjmSHa2ti-.-«c fiOCOJCCO o fc- -tf 03 "St ce 5-tf I "C ■M 5 c o OQ 0) U c O) bo a f^ ■*-> a o S-dg ^ C O i23 5£ 03 -t-» o 76 Report. Table XXX shows in detail a careful estimate of the probable annual amount required for a proper depreciation fund for the property of the Company as of the date of the inventory. The total amount, $552,487, is 4.39 per cent, of the estimated construction cost of the plant. But as the result of an inade- quate depreciation fund is disastrous both to the Company and the consumer, and as there will undoubtedly be additions to the plant before a readjustment of the rates can take place, it is be- lieved by the Commission that a safe amount to use in calculat- ing the rates should be 5 per cent of the construction cost or $629,337. To arrive at the portion, of this charge to be borne by the Railways load and the portion to be borne by the general con- sumer, we find by comparing items from Table XXX that the Ashley Street Station is responsible for 43 per cent, of the total estimated Depreciation Charge. From Table XXIX we see that the Railways load is responsible for 45 per cent, of the In- vestment Charge on that station. Combining these two per- centages we find that the Railways load is responsible for 19.35 per cent, of the total allowed Depreciation Charge of $629,337, or $121,777. Deducting this there is left an annual Depre- ciation Charge of $507,560 to be included in the income to be derived from the general consumer. INCOME FROM GENERAL CONSUMERS. The income which will bring a fair return on the value of the property in the service of the general consumers is arrived at as shown in Table XXXI. TABLE XXXI INCOME FROM GENERAIi CONSUMERS 1. 8% on Earning Value in Service of General Consumer, see Table XXIX 2. Depreciation Charge 3. Operating Expense, less cost of Generating Railways Load 4. Taxes, less Proportion for Railways Load Total $1,075,309 507,560 864,423 193,240 $2,640,532 l^ N' Y V V Vi / V Report. 77 The total shown in this Table gives the amount which the general consumers as a whole should pay to the Company to bring a net return of 8 per cent, on the property in their ser- vice. But in calculating the amount upon which the rates are to be based, the usual discount of 5 per cent for prompt pay- ment should be taken into consideration. Making this calcula- tion we find that the total annual amount upon which the rates for the general consumer should be estimated to be $2,779,507. RATES. The investigations of the Commission have demonstrated that in the aggregate the Company is not receiving an exorbitant or unreasonable return from the current sold to the general con- sumer. In fact the amount of revenue received frotn the gen- eral consumer in 1909 corresponds very closely to the amount determined by the Commission as the just and fair return on the Earning Value of the property devoted to this service. The Commission finds, however, that while the aggregate return from the general consumer is reasonable, the rates as at present established are not just as between the consumers themselves. The maximum rate of 12 cents as now in use is, in the opin- ion of the Commission, too high and discriminates against the moderate sized consumer, while many of the large consumers are receiving a rate lower than can be justified. It is not im- plied that the Company has been designedly imposing an un- just system of rates upon its consumers. The rates are prob- ably as just as in most large cities, but this fact does not, as argued by the Company, establish the equity of the system and of the present charges. The investigation of electric rates by public officials for the purpose of preventing undue discrimi- nation between the consumers, is a comparatively recent ques- tion, and heretofore there have been few exhaustive investiga- tions for that purpose in cities where the business is comparable in size or complexity to that of St. Louis. The present rate schedule of the Union Electric Light and Power Company appears to the Commission to be a codification of the results of the pressure of different commercial forces upon the rates of the past. There is undoubtedly a natural tendency 78 Report. in all large enterprises dealing with numbers of consumers of greatly varying sizes, to load up the moderate sized consumers with a greater portion of the charges than is justified by the act- ual cost to serve them. This natural commercial. tendency has been allowed to work with considerable effect upon the evolution of the rates of the Company and the results are fully evident to the Commission in the present schedule and system. The working of this commercial tendency to load the moder- ate sized consumer may not perhaps be open to criticism from the commercial standpoint, but a public service corporation owes the duty of not only exacting no more than a fair aggregate return but also of maintaining so far as possible just rates as between its several consumers. One of the serious faults which the Commission finds with the present methods of the Company is the system of guarantees in the consumers' contract. From data worked out in great detail by the Commission, it appears that large numbers of users of electricity have, by reason of the guarantees in the contract, been paying rates far in excess of the maximum of 12 cents. This is partly due to ignorance of what they are paying per K. W. H. on the part of these consumers, and partly due to the method of adjusting contracts on the basis of Connected Load. 1% is due, however, to the present management of the Company to say, that it has already taken notice of such results from its contracts and is voluntarily taking steps to correct the evil to the extent of advising consumers as to the best contract under its present system to fit the individual case. In certain exceptional cases, however, where the Company is required to make extraordinary investment solely on account of an individual consumer, it appears just to require either a guarantee of consumption or a lump sum payment sufficient to protect the Company against loss. It has been the aim of the Commission to provide for these exceptions in the accompany- ing ordinance, and also in view of the considerable readjust- ment required in the rates by reason of abolishing the guar- antee, to allow a sufficient time from the passage of the ordi- nance in which to make such readjustment. The Commission is convinced that no palliative measures can meet the conditions of this situation. It believes that, as a general rule, a guarantee to use a specific quantity of current /. V Report. 79 is not only inconsistent with the character of a public utility, but that even if the guarantee works to the advantage of the consumer making it, it is, on account of the resulting discrim- inatory price, to the direct disadvantage of those consumers not able to make a guarantee. Another serious fault with the present rate schedules, is the basing of charges and discounts on the Connected Load of the consumer. By Connected Load is meant the possible demand which a customer might make on the plant should he turn on at one time all of the lamps, motors or apparatus which he has connected to the wires of the Company. There are only two theories under which Connected Load can possibly become a fac- tor in a consumer's rates, both of which the Commission believes to be fallacious. One is that it is a measure of the consumers' Peak Responsibility, or share in causing the investment. This phase of the question is fully considered in Appendix B. The other theory, or rather phase of the former theory, is known as the "ready to serve" theory, which assumes that the Company must stand ready to serve the consumer with a certain calcu- lated fraction of his Connected Load, and that therefore regard- less of whether the consumer's actual demand on the investment is in proportion to his Connected Load or not he must pay Investment Charges in proportion to it. Upon analysis, this theory, as does the first one, works back to the question of taking Connected Load as a measure of the cause of invest- ment, and in that light is considered in Appendix B. The investigations of the Commission show that the use of Connected Load as a factor in rate making works especial in- justice where applied to residence consumers, but that while as a factor it is theoretically incorrect, actual conditions in the power and business light classes render its use not so harmful as might be expected. In order therefore, to minimize as far as possible the confusion of a readjustment period, the Com- mission does not recommend that the Company be required at the present time to drop this factor from its rate system as applied to other classes than residence consumers. Aside from the fact that Connected Load is an unreliable and useless factor in the calculation of rates, it is an extremely un- desirable element in a consumer's contract or bill. The aver- age consumer does not understand Connected Load, and there- / 'Y 80 Repokt. Report. 81 [ ■ : fore feeling mystified and helpless in dealing with his expendi- ture, is prone to become resentful and suspicious whenever the bill seems larger than in his opinion it should be. If it is possible to make it so, the consumer is entitled to a contract or bill from a public service corporation which is simple and direct and leaves him with a clear understanding of his trans- action. The theories for rate making as adopted by this Commis- sion, are set forth in Appendix C. The Commission is convinced of the correctness of these theories, and they are admitted to be correct in principle by the Com- pany's experts, who, however, while endorsing the theories, doubt the existence at the present time of sufficient data for establishing a complete system of rates. The Commission considers the data at hand as sufficient to safely determine the maximum rate which should be allowed to be charged, and this is all it wishes to establish for the present at least. By the establishment only of a correct maximum charge, discrimi- nation against the small and moderate user of electricity will be prevented, and at the same time the Company will be al- lowed to readjust its rates under the new conditions with as little interference as possible. The Commission doubts the wisdom of establishing by law a minutely detailed system of rates for electric light and power, however full and reliable the data for calculation may be; the factors entering into a rate calculation are constantly varying and unless the law leaves room for considerable flexibility in the adjustment of the rates from time to time, there is grave danger of its becoming disadvantageous both to the consumer and to the Company. The figure adopted by the Commission as the just maximum rate in the present case is nine and one-half cents per kilowatt hour, and is the calculated just rate for the residence class. The calculations for this class show the just rate to be the high- est class rate in the entire business, and by taking it as the maximum, discrimination is prevented and correct charges established for over half of the consumers of electricity in St. Louis. In fixing upon a true rate the Commission is of the opinion- that more exact justice between the consumers might be ar- rived at by assessing a flat customers' charge (see Appendices V B and C) per month to each consumer, and making a cor- responding reduction in the K. W. H. charge, but this method, while correct in principle, has proven so extremely unpopular wherever tried, that it has been thought best to absorb the cus- tomers' charge in the rate. As the calculation of the maximum rate takes into account the full amount of the customers' charge, the present custom of requiring a minimum bill of one dollar per month should not be allowed to continue where the consumer pays the max- imum rate, but in order to protect the consumer and the Com- pany against the possible addition of large numbers of cus- tomers who might require connection simply for occasional use paying the maximum rate. In all other cases a minimum bill of fifty cents per month should be required of the consumers of the' ^>urrent, the Commission believes that a minimum bill of one dollar is considered just. As the result of its investigation, the Commission submits a draft of ordinance in which are embodied its conclusions and recommendations. Respectfully submitted, Joseph L. Hornsby, Chairman, James A. Waterworth, James E. Allison, Chief Engineer, COMMISSIONERS. V EXHIBIT 1 l-A UNION ELECTRIC LIGHT & POWER CO, CHART OF OOMPANIE8 WHICH PRECEDED THE UNION COMPANY PROPER, ON THE ONE HAND, OR THE MISSOURI EDISON CO., ON THE OTHER, UP TO THE TIME OF THE MERCER IN SEPTEMBER-1003. BRUSH ELECTRIC ASSN Inc. 1881 Capital Stock $250,000 ST. LOUIS ILLUMINATING CO. Inc. 1885 Capital Stock $100,000 LACLEDE POWER CO. Inc. 1891 Capital Stock 11.000.000 EDISON ILLUMINATING CO OF CARONDELKl' Inc. 1895 • #■ f > MISSOURI ELEC. LIGHT & POWER CO. Inc. 1888 CapiUl Stock $600,000 1889.-l8tMt8:e. Bonds ,$540,000 1891.-2nd " " $600,000 CITIZENS ELEC. LIGHTING & POWER CO. Inc. 1891 Original Cap. Stock, $750,000 1898, Increased to $2.000 JXK) IMPERIAL ELECTRIC LIGHT, HEAT A POWER CO. No. 1 Inc. 1896 Capital Stock 52.000 1897. Increased to $20O.W)O CONSOUDATEDELEC. CO, Inc. 18!)9 Cap. Stock $10,000 r CITY LIGHTING CO Inc. 1900 Cap. Stock $600,000 Bonds $600.000 Feb. 1902 IMPERIAL ELECTRIC LIGHT, HEAT & POWER CO. Inc. 1899 No. 2 Cap. Stock $l.r)00.000 1900. Bonds IsBued $1,000.000 May-1902 EXCELSIOR ELEC. CO. Inc. 1885 Capital Stock $13,000 ST. LOUIS WESTERN ELECTRIC UG«T CO Inc. 1887 Capital Stock $60,000 a> CO 1888 METROPOLITAN ELEC. CO. Inc. 1888 Capital Stock $100.000 1888 lt88 1888 I UNITED ELECTRIC CO. Inc. 1883 as St. Louis Thompson- Houston Elec Light Co. 1884, Changed to St. Louis Thompson Elec. Co, 1889. Changed to United Elec. Co. Original Cap. Stock. $25,000 Increased from time to time to $500.000 I T ST. LOUIS ELEC. LIGHT & POWER CO. Inc. 1888 Capital Stock $8,000 1896 Increased to $450,000 ST. LOUIS ILLUMINATING CO. (Enlarged) 1889, Cap. Stock increased to $500,000 1883, Bonds issued $500,000 1890 MUNICIPAL ELEC. UGHT & POWER CO. Inc. 1889 Original Cap. Stock $750,000 Original Bonds $750,000 Feb. 1, 1890, Cap. Stock Increased to $1,500,000 Feb. 1, 1890, Bonds Increased to $l,500,0f^ a. 00 1893 EDISON ILI.UMINATING CO. OF ST. LOUIS Inc. 1892 Original Cap. Stock, $5,000 1893 Increased to $3,500,000 And there af t^r to $4,000,000 1893 Bonds authorized, $3,000,000 Increased to $4,000,000 1897 I MISSOURI EDISON ELEC. CO. Inc. 1897 Capital Stock $4,000,000 Bonds, $4,000,000 X UNION ELEC. LIGHT & POWER CO. Inc. 1902 No. 1 Capital Stock $10,000,000 Bonds $10,000,000 1903 ELEC. LIGHT, POWER & CONDUIT CO. Inc. 1896 Capital Stock $50,000 1898 1907 UNION ELECTRIC LIGHT & POWER CO. NO. 2. Inc. Sept. 1903 Capital Stock, $10,000,000 Capital Stock, Increased Dec, 1907 to $18,000,000 Bonds of Union No. 1 $10,000, 000 P-80NO. TI4B V, I H y Y > V APPENDIX A HISTORY OF THE COMPANIES PRECEDING The Union Electric Light & Power Co. No. 2 REPORT TO The Union Electric Light & Power Co. BY Price, Waterhouse & Co., Chartered Accountanta •; Appendix A PART I. UNION ELECTRIC LIGHT & POWER CO. SYNOPSIS OF HISTORY OF THE UNION COMPANY NO. 1 GROUP OF COMPANIES. IMPERIAL ELECTRIC LIGHT, HEAT AND POWER COMPANY NO. 1 AND NO. 2 ; CONSOLIDATED ELECTRIC COMPANY. The first Company of this name was organized on December 3, 1896, with a capital stock of $2,000.00 and for the usual term of fifty years. At the first meeting of the directors held on December 3, 1896, the President w^as directed to file the acceptance by the Company of the terms of the then recently adopted City Ordinance No. 18680, which would perhaps indi- cate that the Company was brought into existence by the pas- sage of this Ordinance. This was the so-called '^Keyes" Ordi- nance authorizing the construction and operation of under- ground conduits for electrical conductors within a certain dis- trict which practically coincided with the downtown or business portion of the city. At a meeting on June 8, 1897, the directors approved the lease for ninety-nine years from Daniel Catlin and wife of the ground at the southeast corner of Tenth and St. Charles St. on which was erected and now stands the plant of the Imperial Company. In July, 1897, the capital stock was increased to $200,000.00. The construction of the plant does not appear to have been actively pushed until some time in 1898 or 1899. About that time a syndicate secured an option on the stock from the former owners, and on December 16, 1899, the Consolidated Electric Company was organized, with a capital stock of $10,000.00, which issued its temporary certificates for notes ag- gregating $1,000,000.00 for the' purchase of the property and assets of the Imperial Company. On receipt by the Imperial 1 ( K 4 AppendixA 3 Company of the aforesaid notes, they were, by resolution of the directors, on December 23, 1899, distributed as to approximately $400,000.00 to the syndicate to reimburse them for their assumption and payment of the indebtedness of the Company and as to the balance of $600,000.00 to the stockholders. Thereupon a formal agreement of consolidation was entered into between the two companies, providing for the merger of the Imperial Company (the old Company) and the Consolidated Electric Company as the Imperial Electric Light, Heat and Power Company (the new Company or Imperial No. 2). The agreement provided that all indebtedness of the two corpor- ations or either of them was to be assumed and paid by the consolidated Imperial Company after the consolidation, and that the temporary certificates for the notes issued by the Con- solidated Electric Company, amounting to $1,000,000.00, were to be assumed by the Consolidated Imperial Company, and notes or mortgage bonds were to be issued therefor and the temporary receipts called in and cancelled. The Imperial Electric Light, Heat and Power Company (the new Company) was formed on January 3, 1900, with a capital stock of $1,500,000.00 and at a special meeting of stock- holders held March 10, 1900, an issue of $1,500,000.00 5% mortgage bonds was duly authorized, of which $1,000,000.00 were issued in accordance with that authority. The bonds thus issued were used to take up the notes of the consolidated Company, and the syndicate accounts show that the bonds were subscribed at 95 and the proceeds applied by the Syndicate to the following purposes : Purchase of stock of old Company $400,000.00 E. J. Bruckman Option 100,000.00 Indebtedness, interest, etc. 267,549.41 Purchase of stock of Consolidated Electric Com- pany 10,000.00 Paid over to Imperial Electric Light, Heat & Power Company (the new Company) to reimburse the Company for construction expenditures 149,713.19 Sundry expenses (less interest on deposits) 22,737.40 Total $950,000.00 4 AppendixA The books of the new company were thereupon opened up on the basis of carrying forward thereto the book balances of the property and asset accounts of the old Company of an aggregate value of $672,887.04, to which there was then added the further amount of $327,112.96 required to offset the $1,000,000.00 of bonds issued. At the same time, the $1,500,- 000.00 of capital stock issued was debited per contra to Fran- chises, Licenses, etc. The amount of $327,112.96 was first charged to a general plant account and was then transferred (along with certain liabilities of $9,240.52 disclosed subse- quently) to — Discount on bonds $ 50,000.00 Good-will Account 286,353.48 $336,353.48 The Good-will item being made up as follows : Premium paid by the Syndicate on the purchase of the shares of the old Company $200,000.00 Paid for Bruckman Option 100,000.00 Paid for Consolidated Electric Stock 10,000.00 Expenses 22,737.40 Sundry Liabilities 9,240.52 $341,977.92 Less : — Book Surplus $47,401.10 Sundry Credits 8,223.34 $ 55,624.44 Good-will as above $286,353.48 At a meeting of directors on May 7, 1900, it was decided to enter into an agreement for securing control of the city light- ing contract between the City of St. Louis and the Seckner Contracting Company. This was effected by a certain four- party agreement of the same date between (1) the Imperial Light Company, (2) the Seckner Contracting Company, (3) the City Lighting Company and (4) John G. Brown and George Mayer (who owned or controlled the capital stocks of the Seckner and the City Lighting Companies), the substance I y K AppendixA 5 of which was that in consideration of Brown and Mayer caus- ing the capital stocks of the Seckner and the City Companies to be transferred to nominees of the Imperial Company, the latter company undertook to see that the t^rms of the Lighting contract were properly carried out and that the revenues there- from were applied to the payment of the bonds of the City Company as required in the agreement under which the bonds were issued. The Imperial Company further agreed to indem- nify Brown and Mayer on account of a counter-bond furnished to the National Surety Company against its bond running to the City of St. Louis. In short. Brown and Mayer being de- sirous of withdrawing from under the responsibilities of the contract with the city, the Imperial Company offered to take their place. At a meeting of Directors held on February 13, 1902, it was voted to take over the assets of the City Lighting Company. At a meeting of the stockholders on May 16, 1902, the con- solidation with the Citizens Electric Lighting and Power Com- pany was approved. It may be as well to here explain that the accounts of the Imperial, City and Citizens Companies were not, however, com- bined at the exact date of the respective consolidations and that it was not until December 31, 1902, that they were all brought together on the books of the Union Electric Light & Power Company or Union No. 1. Trial balance sheets of the three companies as of December 31, 1902, are hereto annexed. (See Exhibits II-C and II-H) . The then position of the Imperial Company therein may be summarized thus : Capital Stock issued for Franchises $1,500,000.00 Licenses and contracts 1,000,000.00 Bonds : — Surplus to December 31, 1901. .$114,383.52 Profits — January 1 to May 20, 1902 49,155.67 Profits — May 20 to December 31, 1902 92,464.50 256,003.69 Advanced by Union Company Con- struction Department 73,776.38 f) r 6 Appendix A Expended or otherwise accounted for thus: — Construction $676,030.53 Betterments ■ 85,618.58 $761,649.11 Discount on Bonds 50,000.00 Development, etc 37,860.08 Good-will 286,353.48 Due from Seckner Co 11,890.39 Due from City Lighting Com- pany (or Seckner Co.) 60,776.52 Net Current Assets 121,250.49 Franchises, Licenses, etc 1,500,000.00 $2,829,780.07 $2,829,780.07 SECKNER CONTRACTING COMPANY. The Seckner Company was originally organized in March, 1893, under the laws of Illinois for the purpose of carrying on a general contracting business, the capital stock being $10,- 000.00. The capital stock was increased to $25,000.00 in 1898. In 1900 John G. Brown and George Mayer, being then the principal stockholders of the Company, the Company tendered for and was successful in securing the City Lighting contract from the City of St. Louis for a term of ten years, from Sep- tember 1, 1900, and the purposes for which the Company was formed were thereupon enlarged to enable it *'to construct, keep, purchase, lease or acquire waterworks, gas or electrical systems and operate the same, and to make contracts with municipalities and individuals for water, light, heat and power, etc., etc." The Company having no lighting plant of its own, and being desirous of co^istructing one and of issuing bonds for the purpose of providing for such construction was, as an Illinois corporation, not in a position to issue bonds which would be valid as against the local creditors, and the City Lighting Com- pany w^as formed to construct the plant or finance the construc- I > AppendixA 7 tion thereof. An agreement was entered into between the two Companies, under date of April 6, 1900, by the terms of which the City Lighting Company agreed to deliver at its plant con- tinuously throughout the period from September 1, 1900, to September 1, 1910, all electrical current needed by the Seckner Company to perform its contract with the City and to supply commercial and domestic light and power — the Seckner Com- pany to pay therefor the minimum price of $3,000.00 per month; but in the event that more than 300,000 K. W. H. were furnished, the price was to be l%c per K. W. H. for the excess over 300,000 K. W. H. The City Lighting Company was to advance as needed, not exceeding in the aggregate $400,- 000.00 on engineers' certificates showing the value of work done and only to the extent of 85% of such value, which ad- vances were to be repaid at the rate of $40,000.00 per annum. The Seckner Company transferred 250 shares of its capital stock as collateral to the agreement. At this stage and about the time the Imperial Company arranged to take over the con- tract, it was resolved to turn over to Brown and Mayer all the assets, property and good-will of the corporation, excepting the right and benefit of the corporation in the contract with the City of St. Louis, dated, March 23, 1900, or under the ordinance au- thorizing, the said contract, or under the contract with the City Lighting Company, dated April 6, 1900 — the consideration for the transfer to Brown and Mayer being their agreement to fully indemnify the Company on account of all liabilities of the Company incurred under or arising out of any transaction prior to the date upon which the nominees of the Imperial Company assumed the management of the Company. The effect of this transaction w^as to leave the Company with the sole asset of the contract on the one side and its capital stock of $25,000.00 as its only liability on the other, and the present books were opened on this basis, no mention being made therein of the assets or liabilities turned over to Brown and Mayer in which the new owners had, of course, no interest. In May, 1900, and in accordance with appropriate resolu- tions of both Companies, a further agreement was executed between the Seckner and the City Companies to the effect that (the agreement of April 6, 1900, not having contemplated the building of a sufficient plant for the full development of com- mercial light and power) the Seckner Company agreed to pay r 8 Appendix A Appendix A 9 the City Company 85% of all the gross receipts from its com- mercial business in St. Louis, while the City Company was to furnish the necessary current; and the Seckner Company fur- ther agreed to build a plant in accordance with specifications attached to the contract, while the City Company was to cause to be delivered to the order of the Seckner Company all the capital stock of the City Company and to pay the Seckner Com- pany the further sum of $100,000.00 in cash. The stock was delivered in accordance with this agreement and was thereupon distributed by the Seckner Company to its stockholders (the Imperial Company or its nominees) which thus came into possession of the capital stock of both com- panies. The $100,000.00 in cash was paid over to the Seckner Com- pany, as above provided, and other funds were advanced from time to time, which were, however, repaid by the Seckner Com- pany. It would appear, however, that the advances under both contracts never amounted to the $400,000.00 provided to be advanced under the original contract of April 6, 1900. In- stead, each Company would seem to have advanced the funds required for central station equipment, or overhead or under- ground lines as the occasion arose. It later appearing to be to the mutual interest of each Company to quit claim to the other, all right, title and interest to the properties respectively belonging to their respective systems, transfers were made and the books adjusted on the basis that the one Company, the City Lighting Company, acquired ownership of the central station equipment, and the other, the Seckner Company, the distribu- tion system, in accordance with what we understand was the OT-iginal intention. The result was that the Seckner Company was left in the iinancial position indicated in the Trial Balance sheet of Decem- ber 31, 1902 (Exhibit II-F), the figures whereof may be sum- marized thus: Advanced by the City Lighting Co $221,561.78 Advanced by the Imperial Company 11,890.39 Profits 88,037.59 $321,489.76 y K > 1/ Which was invested in plant, or is otherwise accounted for thus: Plant $276,965.57 Organization 848.49 Development 17,518.54 $295,332.60 Current Assets (net) 26,157.16 $321,489.76 Since then, the accounts of the Seckner Company have been kept on the basis of charging the City of St. Louis for current supplied under the contract, and of crediting the Union Com- pany with the full amount so charged to the city as represent- ing the cost of the current to the Union Company; in other words, the Seckner Company continues in its corporate capacity to supply the current to the city but purchases the current from the Union Company and turns over the amount collected to the Union Company in payment for the purchase. This will ex- plain why the Trial Balance sheet as of December 31, 1908, is practically identical with the corresponding statement at December 31, 1902. CITY LIGHTING COMPANY. This Company was incorporated on April 5, 1900, with the object of building, or providing by means of a bond issue the necessary funds for building a plant and supplying current to the Seckner Contracting Company. The capital stock was placed at $600,000.00, which was issued to the incorporators, who were the stockholders of the Seckner Company. This was charged per contra to Franchises, Licenses, etc., making with the $25,000.00 of capital stock of the Seckner Company, simi- larly charged in the books of that Company, a total nominal value of $625,000.00 placed on the contract in the books of the two Companies. The two Companies were, of course, practically one and the same; the reason for forming the sep- arate Lighting Company being merely a legal one, and in order to meet the objection which arose to the issue of bonds by the Seckner Company as a foreign corporation. 10 Appendix A Appendix A 11 In pursuance of the plan of organization, the City Lighting Company issued its 5% bonds and executed a deed of trust to the Northern Trust Company, Trustee, of Chicago, to secure the payment of the bonds. As further security an assignment was made to the Trustee of the contract with the Seckner Com- pany, dated April 6, 1900, to which reference has already been made and the capital stock of the Seckner Company was also pledged as further security. The bonds were purchased by one T. B. Potter, in Chicago, at a price of 721/2, producing $435,- 000.00. In the contract between T. B. Potter and John H Brown and George Mayer, relating to the sale of these bonds* and dated May 17, 1900, was a stipulation to the effect that out of the difference between 721/2, the cash paid by Potter, and 9o, the estimated price of the bonds to the City Lighting Company, he was to settle with Brown and Mayer for all their claims against the Seckner Company and the City Lighting Company released by them, and he was also to pay or provide for any claims against the Seckner Company or City Lighting Company, or their assets or respective stocks (other than the issue of bonds, the contract of April 6, 1900 and a certain con- tract for the purchase of Heine boilers) , which might be dis- covered prior to the final settlement between Potter and the City Lighting Company, providing said claims arose from transactions prior to the date of the contract. In conformity with this agreement, entries were made in the books charging $30,000.00 to discount on bonds and $135,000.00 to an account entitled ^Turchase of Interest in City Lighting Contract.'^ How much of the latter amount was paid in discharge of liabilities incurred by Brown and Mayer for the benefit of the City Light- ing Company, does not appear from the records. In our remarks on the Seckner Company, reference has already been made to the second contract between the City Lighting Company and the Seckner Company in May, 1900. At a meeting of the stockholders held February 14, 1902, the transfer of the plant and properties of the Company to' the Imperial Electric Light, Heat and Power Company was ap- proved, subject to the Mortgage and Deed of Trust of April 6, 1900, to the Northern Trust Company, Trustee. A Trial Balance sheet setting forth the position of the Com- pany at December 31, 1902, at which date the transfer of the \ V V / accounts was effected, will be found in Exhibit II-C. The fol- lowing is a summary of the figures therein: Bonds Issued $600,000.00 Less — Installment repaid 48,000.00 $552,000.00 Advanced by Imperial Company 60,776.52 $612,776.52 Which was expended or is otherwise accounted for thus : Advanced Seckner Company $221,561.78 Expended on Plant 133,551.39 Development 8,409.99 Interest in City Lighting Contract 135,000.00 Discount on Bonds 27,600.00 Deficit— February 14, 1902 30,039.25 Deficit^February 14 to December 31, 1902 20,646.76 Sundry Assets (net) 35,967.35 $612,776.52 CITIZENS ELECTRIC LIGHTING AND POWER COMPANY. This Company was originally formed in 1891, by Charles Sutter and associates, wdth a capital stock of $750,000.00, of which $740,000.00 was issued to Sutter in consideration of the transfer by him to the Company, of certain contracts he had entered into, together with licenses for the use of electrical apparatus, the balance of $10,000.00 of stock being issued to his associates in payment for their services m the organization of the Company. Though formed in 1891, the Company re- mained inactive until 1897-1898, when the capital stock was increased to $2,000,000.00 The increase was authorized at a special stockholders' meeting on January 28, 1898, and an issue of $2,000,000.00 of bonds was authorized at the same time. Under date of November 14, 1897, a proposition was sub- mitted by Philip Stock, in which he undertook to construct and complete the conduit or subway system of the Company and to secure the right to string the Citizen Company's wires for electric lighting and power purposes on the poles of the Kinloch r 12 API'EJ^DIX A Telephone Company, in consideration of the issue to him of $950,000.00 of the capital stock of the Citizens Company, and $525,000.00 of the proposed issue of $2,000,000.00 bonds. This work was carried out by Philip Stock and a contract was secured from the Kinloch Telephone Company in accordance with his proposal, and there was accordingly issued to him the $950,000.00 of capital stock to which he was entitled, and though it was voted that the bonds of $525,000.00 should also be issued to him, this was not done so far as we are aware, and in fact it does not appear from the books that the Company ever issued any bonds at all. The balance of the capital stock ($300,000.00) was disposed of for the following purposes, namely: $100,000.00 was sold for cash to provide funds for the purchase of a site for the power plant, being the site of the present Ashley Street plant and the site formerly occupied by the St. Louis Ele- vator Company $100,000.00 •$147,540.00 was issued for the purchase of the site in addition to the cash paid of $100,000.00 as above stated 147,540.00 $247,540.00 ■$52,460.00 was paid to Philip Stock to reimburse him for amount theretofore paid by him on behalf of the Company in respect of — Interest $21,894.07 Taxes and Other Expenses 30,565.93 52,460.00 $300,000.00 As to the expenditures paid out of the stock of $950,000.00 issued to Philip Stock or out of the proceeds thereof, particulars of these expenditures were not passed through the books of the Company, and it has not been practicable to obtain any definite information from this source. It was, however, brought out in the testimony in the suit brought by Morgan Jones and other stockholders who did not assent to the merger of Sep- tember 11, 1903, that $320,000.00 of stock was turned over to the Kinloch Telephone Company for the license or right to string wires on the poles of that Company, and that a further amount of $200,000.00 in addition was expended in the con- < y \,' Appendix A 13 struction of conduits, and we have accepted these figures for the purpose of the present report. The total property expendi- tures of the Citizens Company may, therefore, be summarized thus: Cost of Real Estate purchased as a site for the Ashley Street Plant : Paid in Cash $100,000.00 Paid in Stock 147,540.00 $247,540.00 Stock issued in payment of — Interest $21,894.07 Expenses 30,565.93 52,460.00 Expended for Conduits 200,000.00 Expended for Kinloch Pole Con- tract 320,000.00 $820,000.00 Leaving for Franchises, Licenses, etc. — Stock issued to the original in- corporators 750,000.00 Balance of stock issued to Philip Stock or Citizens syndicate. ... 430,000.00 $1,180,000.00 $2,000,000.00 At a special meeting of the stockholders held on May 16, 1902, it was resolved to consolidate with the Imperial Electric Light, Heat & Power Company, the name of the consolidated corporation to be the Union Electric Light & Power Company. Trial Balance sheet of the Citizens Company is hereto ap- pended (Exhibit II-H), showing the position at December 31, 1902, at which time the separate accounts of the Citizens Com- pany were discontinued, being then and from that time on, combined with those of the Union Company. UNION ELECTKIC LIGHT & POWER COMPANY (UNION COMPANY NO. 1). The Union Company was accordingly formed to consolidate the Imperial and Citizens Companies, in accordance with the > 14 Appendix A articles of consolidation agreed upon between them, and it came into existence on May 20, 1902, as shown by the Certificate of Consolidation issued by the Secretary of State for Missouri as of that date. The plan of consolidation and syndicate agreement dated May 17, 1902, provided for an issue of $10,000,000.00 capital stock, of which $2,000,000.00 was to be Preferred and $8,000,- 000.00 Common Stock, and it provided further for an issue of $10,000,000.00 5% First Mortgage thirty-year Gold Bonds and for the disposition of the stock and bonds in the following manner : Stock : The entire capital stock was to be issued in consideration of the transfer of the properties of the two Companies, subject to the underlying bonds of the Imperial Company ($1,000,000.00) and of the City Lighting Company ($552,000.00). Bonds : The bonds of $4,000,000.00 were to be sold to the syndicate at the price of 97%, the syndicate to also receive in consider- ation of the purchase certificates of an equal amount of stock of the consolidated Company. This sale of $4,000,000.00 of bonds was intended to provide for the purchase of the under- lying bonds above mentioned and for the cash requirements in connection with the plans for the construction and equipment of the new generating station and for the development of the distribution systems of the consolidated Company, involving an estimated expenditure during the years of 1902-1903, of $2,300,000.00. The balance, $6,000,000.00 of bonds was to be reserved in the Treasury for future requirements. The bonds were sold and the $10,000,000.00 of stock was issued in accordance with the plan and agreement, and in pursuance of what we would understand to have been the inten- tion at the beginning, capital stock of $3,300,000.00 was re- turned to the Treasury by the Imperial and Citizens interests, making the cost of $6,700,000.00 to the new Company for the properties of the two Companies. This cost was, however, still further reduced by reason of the reduction in capitaliza- tion at the time of the merger with the Missouri-Edison in JSeptember, 1903, when the outstanding stock of $6,700,000.00 # y V y Appendix A 25 was surrendered in exchange for $4,350,000.00 of stock of the new Union Company (or Union Company No. 2), this being the proportion of the capital stock issued under the plan of the merger to the stockholders of the Union Company No. 1, and which with the stock of $1,500,000.00 provided to be issued for the acquisition of the shares of the Missouri-Edison, made up the total of $5,850,000.00 to be issued at the formation of the present Union Company, as is set forth in the report. The outstanding bonds of $552,000.00 of the City Lighting Company, were retired in due course, together with $846,000.00 of the outstanding bonds of the Imperial' Electric Light, Heat and Power Company, the cash being deposited with the Trustees for the retirement of the remainder of the Imperial bonds of $154,000.00. Up to the time of the merger of September, 1903, the Union Company had expended $2,289,538.98 for new construction, principally in connection with the Ashley Street plant, and in addition it expended $106,472.52 on the Imperial Plant. The financial position of the Union Company No. 1 at the date of the merger, or to be more exact, at December 31, 1903, at which date the accounts were consolidated for the purpose of the merger, may therefore be summarized thus: Capital Stock * $10,000,000.00 Capital in Treasury $ 3,300.000.00 Cost of Property 10,237,147.02 Bonds Union Company 4,000,000.00 Bonds Imperial Company ' 154 000.00 $13,537,147.02 $14,154,000.00 Profit and Loss Surplus ' 72 522 80 Bond Redemption Fund 154,000.00 Seckner Contracting Company: Contract Account $ 90,043.65 Loan Account 30,737. 75 Construction Account 100,000.00 Service Account 12,670.77 $233,452. 17 $13,691,147.02 $14,226,522.80 representing: Advances for Construction 207,295.01 Net Current Assets 26 157. 16 Net Current Assets 301 ,923. 61 Q, J . ,, $14,226,522.80 $14,226,522.80 fit. Louis, Mo„ November 15, 1909. 16 A P P E N I) I X A PART II. UNION ELECTRIC LIGHT AND POWER COMPANY. SYNOPSIS OF HISTORY OF MISSOURI-EDISON GROUP OF COMPANIES. The Missouri-Edison Company was formed in October, 1897,. and was a reorganization of the Edison Illuminating Company, and of the Missouri Electric Light & Power Company, of which the Edison Illuminating Company owned or controlled all the capital stock. The Edison Illuminating Company had been incorporated in October, 1892, for the purpose of combining in one ownership the separate interests of the Missouri Electric Light & Power and Municipal Electric Lighting & Power Com- panies, which it proceeded to do by the acquisition of the shares of the former and of the property and assets of the latter Com- pany. The Municipal Electric Lighting & Power Company had been formed in 1889 to take over and operate the contract for lighting the City of St. Louis for the period of ten years from 1890 to 1900, and shortly after its formation had ac- quired the property of the St. Louis Illuminating Company. This last mentioned Company had previously taken over the United Electric Light & Power Company, which was in turn the outcome of several smaller Companies dating back to 1881, or to what was practically the beginning of the electric lighting business in the City of St. Louis. The full list of all these Companies is as follows: (1) Brush Electric Association. (2) Excelsior Electric Company of St. Louis— originally the "Guernsey & Scudder Electric Company," and later the "Guernsey-Scudder Electric Light Com- pany." (3) The Metropolitan Electric Company. (4) St. Louis Western Electric Light Company. (5) United Electric Light & Power Company — originally "The St. Louis Thomson-Houston Electric Light >. V y y Appendix A 17 Company," and later the "St. Louis Thomson- Houston Electric Company." (6) St. Louis Illuminating Company. (7) Municipal Electric Lighting & Power Company. (8) Edison Illuminating Company of St. Louis. (9) The Missouri Electric Light & Power Company. (10) St. Louis Electric Light & Power Company— orig- inally the "St. Louis Electric Power Company." (11) The Electric Light, Power & Conduit Company of St. Louis. (12) Missouri-Edison Electric Company. With a view to ascertaining if possible, the amount and nature of the actual cash investment in these various com- panies it was deemed advisable that we should go back into the accounts of this earlier period ; but the only ledgers and books of account in existence at the present time, so far as we have been able to discover, are those of the Missouri-Edison and its immediate predecessors, the Edison-Illuminating and the Mis- souri Electric Light & Power Companies, and these books were duly inspected by us along with the relative minute books. Trial balance sheets. Profit and Loss Accounts and Summaries of the Expenditures for Construction by the three Companies are hereto annexed (see Exhibits II-L and following) which set forth the results of the operations of each one of these for the entire period of its existence and its financial position at the close of the period. Only the minute books, but no books of account could be found for the Municipal and St. Louis Illuminating Compan- ies, although there were on file some important vouchers and invoices of the Municipal Company which, when examined in conjunction with the minutes, afforded much precise and de- tailed information with respect to the construction expenditures of that Company, and, in fact enabled us to reconstitute a statement of those expenditures. Copy of this statement is hereto annexed in Exhibit II-K. I f 18 Appendix A Neither the minute books nor books of account nor vouchers were, however, available in the case of the United Electric Light & Power Company or the group of smaller companies comprised in the United Company. It may be added that there was available for our examination an excellent corporate history of all these Companies from the first one down to the Missouri-Edison, which was prepared by the Company's attorneys at the time of the merger in 1903, and from this source we were able to glean the essential facts herein presented with respect to the capital stocks, date of incorporation and inter-relationship of the earlier Companies. As to the investment in Plant and Property, however, the corporate or legal history would not, of course, give the par- ticulars thereof and it has not been possible for us to obtain much light on the amount of the investment therein. In default of the exact data and for the purpose of the estimates of returns on investment hereinbefore made, in this report, we have proceeded on the theory that the property and assets of the St. Louis Illuminating Company, including those of the United Electric Light & Power Company (and meaning in effect the property and assets of all Companies which pre- ceded the Municipal Company), were worth at least the $500,- 000.00 of bonds which the Municipal Company gave in pay- ment to the St. Louis Illuminating Company. This estimate makes no allowance, however, for the $750,000.00 of stock which the Municipal Company gave in the purchase, in addi- tion to the bonds above mentioned, and is necessarily the least favorable presentation of the case from the point of view of the Company. As in the case of the Companies in the Union Group, some understanding of the history of the Missouri-Edison group of Companies is essential to a clear grasp of the whole situation, and we give here a brief synopsis of the history of these Com- panies as follows: BRUSH ELECTRIC ASSOCIATION. This Company was incorporated July 6, 1881, with an au- thorized capital stock of $250,000.00 'Ho acquire by way of license, assignment or otherwise * * * all rights * * * ac- quired or held by the Brush Electric Company of Cleveland, < » i Y Appendix A 19 Ohio, under any letters patent of the United States for the manufacture and use * * * Qf dynamo — electric ma- chines and apparatus. * * * By assignment made some time prior to December 31, 1889 (we quote again from the corporate history) but of which no record can be found, the Company, which seems to have had no real estate, appears to have transferred all its properties and franchises to the United Electric Light & Power Company. EXCELSIOR ELECTRIC COMPANY OF ST. LOUIS. This Company was originally incorporated as the "Guernsey & Scudder Electric Light Company'' on June 13, 1885; on December 28,1885, its name was changed to "Guernsey-Scudder Electric Light Company," and on April 25, 1887, to the "Ex- celsior Electric Company of St. Louis." The authorized capital was $13,000.00. On June 16, 1888, the Company executed a chattel mortgage or deed of trust covering all its property and franchises (it appears to have owned no real estate) to Manning Tredway, Trustee for Dwight Tredway, to secure payment to the latter of two promissory notes of $6,350.00 each. Default having been made in payment of these notes, the Trustee, on August 30, 1888, sold to Dwight Tredway, for the sum of $6,550.00 all the property and franchises of the Company, and he subse- quently transferred the same to the Metropolitan Electric Com- pany. THE METROPOLITAN ELECTRIC COMPANY. This Company was incorporated September 1, 1888, with an authorized capital of $100,000.00. After its incorporation the Company appears to have acquired all the property and assets of the Excelsior Electric Company of St. Louis from Dwight Tredway, to whom the same had been sold, as above stated, on August 30, 1888. The Excelsior Com- pany appears to have owned no real estate and (as the corporate history alleges) a search of the records of transfers of real and personal property showed no entry of any transfer from Dwight Tredway to the Metropolitan Company or to any other corpor- ation or person. It was noted, however, that the Metropolitan Company was incorporated only two days after the sale to i\ 'I V 20 Appendix A Dwight Tredway, and that said Tredway subscribed to 996 shares of the total issue of 1000 shares of the Company's stock. It is believed that he paid for his stock with the property of the Excelsior Company. On February 28, 1889, the Company transferred by deed all its property and assets (except its book accounts, bills receivable, cash on hand and incandescent plant) to the United Electric Light & Power Company (then ''The St. Louis Thom- son-Houston Electric Company") in consideration of the amount of $51,000.00 of stock of the latter corporation. The incandescent plant reserved in this deed appears to have been electrical machinery which had been bought from the West- inghouse Company but not paid for; it was subsequently turned over to the Missouri Electric Light & Power Company which became the licensee of the Westinghouse Company for its electrical machinery and patents covering the same. ST. LOUIS WESTERN ELECTRIC LIGHT COMPANY. This Company was incorporated November 28, 1887, with an authorized capital stock of $60,000.00 and would appear to have operated under the franchise to F. L. Johnston, the President of the Company, who, on March 4th, 1887, had filed his acceptance of the terms of ordinance 12723, but does not seem to have made any assignment of the franchise to the HCompany. The Company, however, made the returns of its gross receipts to the City. Johnston owned apparently 598 shares out of the 600 shares of Capital Stock and is believed to have turned over the franchise to the Company together with other property in payment for his stock. On February 1, 1889, the Company transferred by deed all its property and franchises (it does not appear to have owned any real estate) to the United Electric Light & Power Com- pany in consideration of the sum of $20,000.00 and of $27,- 500.00 of the stock of the latter corporatiSh. UNITED ELECTRIC LIGHT & POWER COMPANY. This Company was incorporated originally as "The St. Louis Thomson-Houston Electric Light Company" on October 23, 1883. On April 18, 1884, the name of the Company was t v A p p E ]^ 1) I X A 21 changed to "St. Louis Thomson-Houston Electric Company." On March 25, 1889, it was again changed to the "United Elec- tric Light & Power Company." The capital stock as originally authorized, was $25,000.00. On February 29, 1884, it was increased to $50,000.00; on February 7, 1885, to $150,000.00 and on March 25, 1889 to $500,000.00. On February 28, 1889, the Company acquired by deed from the Metropolitan Electric Company, all the property and fran- chises (except the book accounts, bills receivable, cash on hand and incandescent plant) of the latter corporation, which had previously acquired all the property and franchises of the Excelsior Electric Company of St. Louis. On February 1, 1889 the Company acquired by deed all properties and franchises of the St. Louis Western Electric Light Company, and at some time prior to December 31, 1889, through a transfer of which no record has been found, the Company acquired the property and franchises of the Brush Electric Association. On December 31, 1889, the stockholders of the St. Louis Illuminating Company authorized the purchase of the prop- erty and franchises of the United Electric Light & Power Company in consideration of all the increased capital stock of their Company, namely, $400,000.00 and in addition all the bonds of their Company, namely, $500,000.00; on the same date the United Electric Light & Power Co. transferred by deed all its property and franchises to James J. Davis for the sum of $700,000.00 and said Davis and wife transferred to the St. Louis Illuminating Company for the sum of $900,- 000.00. Generally speaking in reference to all these five Companies, the corporate history recites that they were all organized under the laws of Missouri and their duration fixed at fifty years. The Brush, Excelsior and United Companies all appear to have filed acceptances of the terms of City Ordinance 12723 and to have furnished the bonds required by the City thereunder, but to have possessed no other grants or franchises from the City. The Metropolitan owned no franchise except that under Ordinance 12723 derived from the Excelsior Company. Men- Mito y i i , I i 22 Appendix A tion has already been made of the fact that the St. Louis Western Electric Light Company operated under Ordinance 12723 by reason of F. R. Johnston's, the President, filing of his acceptance of the terms thereof, although no evidence is found of his assignment of the same to the Company. Out- side of the main facts hereinbefore recorded, the history re- cites with reference to each one of the Companies that ''fur- ther information is not obtainable because of the loss of the Company's record books/' ST. LOUIS ILLUMINATING COMPANY. This Company was incorporated on May 26, 1885, with a capital stock of $100,000.00, to which the chief subscriptions were those of Chas. Heisler for 499 shares, and of W. C. Allen for 300 shares. At the first meeting of directors on May 28, 1885, contracts were approved under which the Heisler Electric Light Com- pany and Chas. Heisler, in consideration of $50,000.00 paid by the Illuminating Company, agreed to sell the exclusive right to use for central station lighting only within the City and County of St. Louis, the Heisler patent cut-offs, etc. The con- tract provided also for the assignment to the St. Louis Illumi- nating Company of 20% of such stock as might thereafter be received by the Heisler Electric Light Company from other companies organized throughout the United States, but the Heisler Company was later released from this provision in the contract, the consideration for the release being the payment by the Heisler Company of $1,000.00 in cash and the transfer of 120 shares of St. Louis Illuminating Company stock. On June 23, 1885, the proposal of the Heisler Company to sell a 120 light machine with its exciters, two lines of wire on Sixth street and two lines on Fourth street complete and in operation, and some other equipment for $2,000.00 was accepted. It was also decided to purchase from the Heisler Company two machines for 240 lights for $2,250.00. In October, 1885, the Treasurer was authorized to purchase lots 20 and 21, City Block 50, on the South side of Gratiot between Second and Third streets, at $50.00 per front foot. These lots were transferred through all subsequent reorgani- zations of this and the successor Companies and are owned by r ^/ '> Appendix A 23 the Union Electric Light & Power Company at the present time. In May, 1886, the purchase was authorized from W. R. Allen of his rights to the Heisler dynamos and other apparatus in the State of Missouri, for $15,000.00 cash and $7,000.00 in the Company's notes in one, two and three years, and secured on the Company's property in St. Louis. Some months later these rights were resold to the Pleisler Company in consider- ation of — (1) A receipt in full for their claims against the Com- pany for work done and material furnished . (2) A contract under which they agreed to furnish ma- chinery in future at 25% over manufacturing cost, and, (3) Their undertaking to replace all cut-outs of the old construction now in use by new ones, and to ex- change the four 150-light machines for two ma- chines of double the capacity free of cost. In November, 1888, it was resolved to sell the remaining treasury stock of 207 shares at 60. It is not exactly clear how the 207 shares in question came into the treasury, but perhaps this is not material. The increase of the capital stock from $100,000.00 to $500,- 000.00 was authorized on December 30, 1889, and on Decem- ber 31, 1889, an issue of bonds of $500,000.00 was authorized to be dated August 1, 1889, and payable August 1, 1919, with interest at 6% per annum and secured by trust deed to the Atlantic Trust Company of New York as Trustee. At the same time it was resolved to purchase all the property of the United Electric Light & Power Company and to pay therefor the increase in the stock ($400,000.00) and all the newly created bonds of $500,000.00. At a stockholder's meeting on May 16, 1890, it was decided to accept the proposition of the Municipal Electric Lighting & Power Company to purchase the property of the St. Louis Illuminating Company for $750,000.00 capital stock and $500,- 000.00 in bonds of the Municipal Company. t A 24* Appendix A MUNICIPAL ELECTEIC LIGHTING & POWER COMPANY. This Company was incorporated on June 19, 1889, with a capital stock of $750,000.00 in shares of $10.00 each, the chief subscriber thereto being Charles Sutter for 74,400 shares. In May, 1890, the capital stock was increased to $1,500,000.00. The Company was formed to take over and operate the City Lighting contract for a period of 10 years from January 1, 1890. At the first meeting of the stockholders on June 19, 1889, an issue of first mortgage bonds of $750,000.00 was author- ized to be dated June 19, 1889, and payable in 20 years with interest at 6% per annum. Later, some legal objections aris- ing, the date of issue was changed to read June 20, 1889. Still later, in May, 1890, it was determined to increase the bonded debt to $1,500,000.00, and upon the surrender and cancella- tion of the bonds theretofore issued, of $750,000.00, to issue a new series of bonds of $1,500,000.00 to be dated February 1, 1890, and maturing February 1, 1910, with interest at 6% per annum. It was noted that, included in the property pledged, was the following real estate, although the minutes did not spe- cifically record the purchase thereof. Lots 5-6-7-8 block 2, Johnson's addition to the City of St. Louis, and in City Block 456, fronting in the aggregate 100 ft. on the eastern line of 19th (for- merly Johnson Street) by a depth eastwardly of 110 ft. and bounded on the north by property of the Missouri Pacific Railway. Lots 7-8 and the northern 10 ft. of lot 6 in block 1, John- ■ son's addition, and in City block 2286, having an aggregate front of 60 ft. on the western line of 19th (formerly Johnson street) and bounded on the north by the property of the Missouri Pacific Railway. This property was the site of the Power Plant of the Municipal Company, and together with adjacent property acquired by its successor, the Missouri-Edi- son Electric Company, is still owned by the Union Electric Light & Power Co. A i» r E N D I X A 25 At a meeting of the directors June 19, 1889, Mr. Sutter reported he had made two contracts wdth the City of St. Louis for furnishing Arc Lighting and he proposed making con- tracts with the Company by which it would furnish the lighting contracted for by him and that as a consideration therefor, he would transfer all his franchises for furnishing commercial light and power and it was arranged to enter into a contract to that eft'ect. It was also decided to assume various contracts he had made for supplies and materials in his name for the construction and equipment of an electric light plant. In consideration of the above, the stock he subscribed for was issued to him fully paid. The remaining half of the capital stock, being all of the in- crease authorized in May, 1890, together with $500,000.00 bonds (being part of the $1,500,000.00 authorized at the same time) was issued in payment for the purchase of the real estate and personal property, contracts, rights, etc., of the St. Louis Illuminating Company. As intimated in the preliminary remarks of the present memorandum, the books of account of the Municipal Com- pany were not available for our inspection, but the minute book was, and afforded complete information regarding the bonds issued by the Company from time to time. The ma- jority of the bonds would seem to have been disposed of to or through Ladenburg, Thalmann & Company, or to a syndicate composed of Ladenburg, Thalmann & Company and others, which was formed to finance the Company and which first made advances on the security of the bonds, and then later purchased the bonds outright in settlement of the advances. The transactions in connection with the various advances are somewhat numerous and it is not practicable to account for the exsici disposition of all the bonds, but the references in the min- utes are sufficiently clear and explicit to warrant the statement that they were sold for cash and the proceeds expended on the property of the Company. Thus at a meeting of the directors on September 17, 1889, the Secretary was authorized to sell 600 bonds at 90, and on October 2, the Trustee was authorized to deliver 400 bonds of this issue (June 20, 1889) to take up a like number of honds of the erroneous issue (June 19, 1889) heretofore sold r ^i '1 ( 26 Appendix A and delivered to Ladenburg, Thalmann & Company. Again on November 6th, the secretary reported that he had caused the Trustee to deliver to Landenburg, Thalmann & Company, $400,- 000.00 bonds, of which $200,000.00 were to be used in pay- ment of the indebtedness to Jenney & Company for dynamos, lamps, etc. Again, at a meeting on November 26, 1889, the Trustee was directed to deliver $130,000.00 bonds to Ladenburg-Thalmann & Company, same having been sold to them at 90. On November 6, the secretary reported that he had delivered 20,000 to Rohan Brothers Boiler Manufacturing Company at 95 and taken that Company's receipt for $19,000.00. On Jan- uary 25, 1890, it was agreed to pay 16 bonds to Charles Sutter in settlement of his account of 95 flat. With respect to the advances from the syndicate and to the bonds pledged as collateral therefor, the minutes of March 29, 1890, refer to loans aggregating $149,910.00, as to which it was resolved to execute notes for that amount and to pledge $167,000.00 bonds as security. On April 8, 1890, reference is made to further loans and notes of $97,500.00 and to the pledge of $108,000.00 bonds. On May 2, 1890, further notes are authorized of $50,000.00 and $55,000.00 bonds ordered pledged therefor. On May 7, 1890, it was ordered that the syndicate be given bonds up to 70% of the notes then held for them, and the Treasurer was authorized to deliver $96,- 000.00 (or $97,000.00) bonds (of which $48,000.00 were to be of the old issue and $48,000.00 or $49,000.00 of the new issue) additional to bonds then held by the syndicate, mak- ing 427 bonds so held in all. On July 26, 1890, the state- ment is made that 373 bonds of the old issue had been sold. On September 18, 1890, settlement was directed to be made with the Fort Wayne Electric Company for lights and appli- cants supplied by them, and Ladenburg, Thalmann & Com- pany were directed to deliver in payment therefor $200,000.00 bonds at 95. On November 5, 1892, the syndicate having up to that time made advances of $466,000.00 and holding bonds for $427,- 000.00 offered to accept the bonds so held by them at 80c on the $1.00 and to apply the same as a payment on account, which offer was accepted. r 4 T r >' V r I i> Appendix A 27 These various transactions may be summed up in the fol- lowing manner: Date op Minute. Particulars of Bonds. Amount. 1889, November 6, $400,000.00 bonds delivered to Lan- denburg, Thalmann & Company, of which $200,000.00 were to be reserved for payment of indebted- ness to Jenney & Company and $200,000.00 were sold at 90 $200,000.00 Sold to Rohan Brothers Boiler Man- ufacturing Company 20,000.00 @ 95 1889, November 26, Delivered to Ladenburg, Thalmann & Company 130,000.00 @ 90 1890, January 25, Delivered to Charles Sutter 16,000.00 @ 95 Difference presumably delivered and sold to contractors 6,000.00 $372,000.00 1890, May 7, Delivered at 70 to syndicate as secur- ity for advances up to that time, viz.: 426 bonds, of which it was stated that 48 were to be of the old issue and 48 of the new (426-48).. 378,000.00 @ 70 Total bonds of first issue $750,000.00 1890, May 15, Issued in connection with purchase of St. Louis Illuminating Company 500,000.00 @ par 1890, September 18 Issued to Fort Wayne Electric Co., in settlement of purchase 200,000.00 @ 95 1890, May 7, Balance (48) of 426 bond delivered to syndicate and subsequently ac- cepted by them @ 80 on account. 48,000.00 @ 80 Additional bond evidently delivered to syndicate 1,000.00 @ 80 Difference presumably sold but not identified in minutes 1,000.00 Total of second issue $750,000.00 Total of both issues $1,500,000.00 It will be clear that the minutes were more than usually explicit regarding the successive sales of bonds and the pur- poses for which they were to be applied, and from this source and from vouchers and other apparently authentic memoranda which had also been preserved, we w^ere able to reconstruct U 28 Appendix A i f' with reasonable definiteness the cost of- property account of the Municipal Company from the time of its formation in 1889 up to its absorption by the Edison Electric Illuminating Com- pany in 1893. The statement thereof is hereto annexed. (See Exhibit II-K). It will be seen that we have adopted as the value of the investment the amount of the bonds and floating debt of an aggregate of $1,950,000.00 (without consideration of the capital stock amounting to $1,500,000.00). In view of the fact that the books are not available and the earnings are not now ascertainable we do not include the value of the investment in our calculations regarding the return on the investment until the year 1893, when the property was taken over by the Edison Illuminating Company. MISSOURI ELECTRIC LIGHT & POWER COMPANY. This Company was incorporated on December 29, 1888, and at the first meeting of the incorporators on January 2, 1889, it was decided to issue bonds in the sum of $500,000.00 for the purpose of providing a fund which, in addition to the capital stock of the company would be sufficient to purchase the West- inghouse Electric Company's rights in sundry * * * pat- ents on improvements on apparatus * * * also to pur- chase real estate, erect buildings, purchase machinery, etc., 20- year First Mortgage 5% bonds for $500,000.00 dated April 1, 1889, were issued in due course. It is our understanding that the plant and machinery proposed to be acquired was the incandescent plant which had been purchased from the West- inghouse Company but not paid for by the Metropolitan Elec- tric Company, and which was reserved in the deed from the Metropolitan to the United Electric Light & Power Company. At a meeting of directors on January 15, 1889, the purchase for the sum of $17,590.00 of the lot at the southeast comer of Twentieth and Lucas (afterwards we believe changed to Locust) Street, being 169 feet on Lucas Street by 154 feet 11 inches on Twentieth Street, was approved as a site for the plant. A month or two later the adjacent lot on the east fronting 100 feet on Lucas Place was purchased for $120.00 a foot. At a meeting on February 1, 1889, the Committee previously instructed to inquire into the matter reported that the West- 1. y e t y y ) ) > r V Appendix A 29 inghouse rights in St. Louis were held by A. E. Adreon of Pittsburg, who was willing to sell the same for $600,000.00, being presumably the entire capital stock of the company and the purchase was approved on the basis proposed, but we are not clear that stock was delivered to him. In any event it sub- sequently came into the possession or control of the Edison Illuminating Company on the formation of that Company, as will appear from our remarks on the Edison Company. At a stockholder's meeting April 24, 1891, it was voted ta increase the capital stock to $1,100,000.00, but it does not appear that this increase was ever carried into effect. At a stockholder's meeting on May 1, 1891, an issue was authorized of Second Mortgage bonds of $600,000.00 to be dated May 1, 1891, and to bear interest at 6%. These bonds are still outstanding at present, having become First Mortgage bonds by reason of the prior Mortgage bonds having been re- tired by the Missouri-Edison Electric Company. In addition to its bonds the Company negotiated its bills payable from time to time, its indebtedness on this account having increased ta $478,596.03, at the date of the transfer to the Missouri-Edison in 1897. At a stockholders' meeting on S^tember 29, 1897, it was resolved to convey to A. D. Brown all the property of the cor- poration subject to the two deeds of trust theretofore made by the Company, namely, — Deed dated April 1, 1889, securing issue of $500,000.0a 6% 20-year bonds. Deed dated May 1, 1891, securing issue of $600,000.0a 6% 30-year bonds. Subsequent meetings would appear to have been held from time to time thereafter until 1903, and which indicate that the separate corporate existence of this Company was continued throughout the life of the Missouri-Edison and until the merger of that Company with the Union Electric Light & Power Company, but these latter meetings were merely for the traris-^ action of routine business and disclose nothing of importance- or which would seem to us to call for comment. V \ 30 AppendixA The first mortgage bonds of $500,000.00 above referred to were apparently all sold for cash at par, and the second mort- gage bonds of $600,000.00 were disposed of thus: — A first lot of $333,000.00 at 60 (the price fixed at a meet- ing of directors on June 30, 1891) ; and, A second lot of $267,000.00 at 80 (the price fixed at a meeting of directors on December 22, 1892). The discount of $133,200.00 in the former case and $53,- 400.00 in the latter was debited to construction. An inspection of the Company's ledgers discloses that the whole of the funds raised on these bonds or bills payable, to- gether with a further sum of $545,645.85 out of profits, up to September 31, 1897, were expended on the property of the Company as follows: On property and plant $ 771.359.78 On overhead system (including discount of $186,600.00) 1,278,138.47 On underground conduit 74,743.63 $2,124,241.88 The funds being provided in the following manner: From the sale of bonds of $500,000.00 at par. .$ 500,000.00 From the sale of bonds of $333,000.00 at 60 . . 333,000.00 From the sale of bonds of $267,000.00 at 80 ... . 267,000.00 $1,100,000.00 From bills payable 478,596.03 From undivided profits (before providing for depreciation) 545,645.85 Total as above $2,124,241.88 Appendix A 31 r '( y V y > y -} y EDISON ILLUMINATING COMPANY OF ST. LOUIS. This Company was incorporated on October 24, 1892, with a nominal capital of $5,000.00 which was increased to $3,500,- 000.00 in January, 1893. In the same month an issue was au- thorized of $3,000,000.00 6% First Mortgage bonds to be dated February 1, 1893. At a meeting on March 7, 1893, a proposition was submitted from the General Electric Company to execute a license of the right to use all apparatus, etc., in consideration of $800,000.00 of which $500,000.00 was to be paid in capital stock and $300,- 000.00 in First Mortgage bonds, which proposition was ac- cepted. On July 24, 1893, the capital stock was increased to $4,000,000.00. On July 31, 1893, an issue of 6% bonds was authorized to the amount of $4,000,000.00 to be dated August 1, 1893, and to embrace all property of the Company in the City or County of St. Louis, etc., and all shares of capital stock owned by the Company in any corporation whether held directly or in trust for it. This issue of bonds superseded and cancelled the one of $3,000,000.00 previously authorized. On October 14, 1893, it was resolved to purchase the shares of the Missouri Electric Light & Power Company upon the following terms : (1) The issue of 20,000 shares of capital stock of this Company. (2) The issue and delivery of 850 shares of the 5-30 6% gold bonds, dated August 1, 1893, of this Company. (3) The assumption and payment by this Company of the interest and principal as they respectively ma- ture of the First Mortgage bonds of $1,100,000.00 excluding interest payable prior to May 1, 1893. ' (4) The assumption and payment of certain liabilities of minor importance. 32 Appendix A At the same meeting it was also agreed to purchase from James Campbell the property of the Municipal Electric Light- ing & Power Company as of May 1, 1903, and acquired by the said Campbell from the said Municipal Company by deed dated October 13, 1893, but excluding the two contracts for public lighting held by the Municipal Company upon the following terms: (1) The issue of 15,000 shares of capital stock. (2) The issue of 1,950 5-30 6% gold bonds, dated August 1, 1892. (3) The acceptance of an assignment from said Munici- pal Company of the two contracts for public light- ing, dated March 13, 1889. (4) Certain other conditions of relatively minor import- ance. This was of course on the basis of exchanging the stock for a like amount of the stock of the former Company and issuing $1,950,000.00 of its bonds in payment of the bonded and floating debt of the former Company. At a meeting of November 21, 1893, it was voted to issue $400,000.00 bonds to the General Electric Company under the agreement theretofore entered into with them, but at a subse- quent meeting on December 9, 1893, the amount of bonds to be delivered to them was reduced to $310,000.00. This made a total of $4,000,000.00 capital stock and $3,110,000.00 of bonds issued at the inception of the Company and for the following purposes, namely — Stock. Bonds. To Municipal Company $1,500,000.00 $1,950,000.00 Missouri Electric Company. 2,000,000.00 850,000.00 General Electric Company. . 500,000.00 310,000.00 $4,000,000.00 $3,110,000.00 t > 4 / Appendix A 33 N At a meeting of May 20, 1895, the sale of $500,000.00 bonds was authorized at 75. Apparently only $470,000.00 of these bonds were sold. The discount of $117,500.00 thereon was charged ^to Plant Construction. The balance of $30,000.00 bonds was apparently issued in payment at par for legal serv- ices of Judge Madill. The minutes from then on disclosed no further transactions of importance. Subsequently the Company defaulted on its bonds and it was reorganized as the Missouri-Edison Electric Company under the plan and agreement of reorganization and on the basis of the exchange of securities, which are later referred to in our remarks on the Missouri-Edison Company. To effectuate the plan the property of the Company was deeded to A. D. Brown by whom it was then transferred to the Mis- souri-Edison. An inspection^ of the Company's ledgers discloses that the financial condition of the Company at the date of the sale by the Trustee to the Missouri-Edison Company was as follows: Cost of property $7,497,394.94 Made up of the following items, distinguishing between charges offset by stock and those offset by bonds: Bonds. Stock, For acquisition of — Municipal Company $1,950,000.00 $1,500,000.00 Missouri Electric Light & Power Co 850,000.00 2,000,000.00 Issued to General Electric Com- pany 310,000.00 500,000.00 $3,110,000.00 $4,000,000.00 3,110,000.00 $7,110,000.00 34 Appendix A Appendix A Other charges comprising — Discount on bonds. . 117,500.00 Prior liabilities of Municipal Company assumed 32,998.42 Attorney Fees 30,000.00 Interest on bonds of Edison Illuminating Company, August 1 to November 1, 1893 46,800.00 Cyclone Expense 65,604.30 Sundry charges and Expenditures in excess of transfers to Missouri-Electric Light & Power Company (net) 94,492.22 $7,497,394.94 If there be added the loss to September 12, 1907, as shown by the books of the Com- pany 386,678.75 We arrive at the total property and deficiency of $7,884,073.69 Which was offset on the liability side by — Bonds $3,610,000.00 Capital Stock 4,000,000.00 Net Current Liabilities 274,073.69 $7,884,073.69 With reference to the trial balance appended to this report (see Exhibit II-L) it may be as well to here note that the Missouri-Edison books were opened on the basis of consolidat- ing the two trial balance sheets of the Edison-Illuminating and Missouri Electric Light & Power Companies (see Exhibit II-L) ; that is to say the simple plan was follow^ed of bringing forward all balances of every character and whether relating to the property or other assets, or to the liabilities and surplus from the books of the former Companies, with this difference only, that the plan of reorganization having provided for the sur- render of the $3,610,000.00 bonds of the Edison-Illuminating Company in exchange for $1,805,000.00 in bonds and $1,805,- 000.00 in stock of the Missouri-Edison Company the outstand- 35 r y i r / ing bonds of the Illuminating Company of $3,610,000.00 w^ere first reduced to $1,805,000.00, the cost of property being re- duced by a corresponding amount; and the capital stock of $600,000.00 of the Missouri Electric Light & Power Company was dropped from one side and the franchise value of the same amount from the other. MISSOURI-EDISON ELECTRIC COMPANY. This Company was incorporated on October 4, 1897, and acquired the property of the Edison-Illuminating Company and Missouri Electric Light & Power Company by deed from A. D. Brown, to whom the property had been conveyed in pur- suance of the Plan and Agreement of Reorganization, dated February 15, 1897. The plan provided that the new Com- pany (the Missouri-Edison) should be formed with an au- thorized issue of $4,000,000.00 of capital stock, of which $2,000,000.00 was to be 5% Cumulative Preferred and $2,000,- 000.00 of Common. It provided also for an issue of $4,000,- 000.00 5% 30- Year Gold Bonds, the disposition of the new securities to be as follows: Edison Illuminating Company. Outstanding Stock $4,000,000.00 To be exchanged for new Common @ 50% Outstanding Bonds 3,610,000 00 To be exchanged for new Bonds (50%) New preferred (50%) For outstanding bonds of the Missouri-Electric Co • There were reserved bonds in full Missouri Elec. Light & Power Co. Missouri- Edison Elec- tric Co. $2,000,000.00 1,805,000.00 1,805,000.00 $1,100,000.00 new 1,100,000.00 $7,610,000.00 $1,100,000.00 $6,710,000.00 Reduction in Capitalization $2,000,000.00 In our remarks on the Edison Illuminating Company, it has already been explained that the books of the new Company (The Missouri-Edison) were opened on the simple plan of carrying forward thereto all balances as they appeared on the face of the ledgers of the Illuminating and Missouri Electric y- 36 Appendix A Light & Power Companies, except only that the outstanding bonds of $3,610,000.00 of the Illuminating Company were first reduced to $1,805,000.00, the Cost of Property being re- duced by a corresponding amount. It is necessary to point out that in the process of carrying forward the balances in this manner the Capital Stock of the Illuminating Company of $4,000,000.00 was brought on to the books of the new Com- pany at the same amount, the fact being lost sight of that there was to be issued only $1,805,000.00 thereof in part ex- change for bonds, and in consequence the net reduction in the capitalization was shown at only $1,805,000.00 instead of at $2,000,000.00 as it should have been. The difference of $195,- 000.00 of capital stock was retained in the Treasury of the new Company, though it w^as not so recorded on the books. When subsequently sold, the proceeds were credited to surplus, but strictly speaking, should have been applied to the credit of Cost of Property. We have not, however, undertaken to readjust this particular item, for the reason that sundry items of reorganization expenses and interest of nearly a correspond- ing amount were charged to surplus, which should perhaps be added to the Investment for the purpose of the present report, and the credit to Surplus on the other side may therefore be said to practically offset the debts on the other. Of the $1,100,000.00 bonds reserved for exchange for the underlying bonds of the Missouri Electric Light & Power Company, $500,000.00 was applied in retiring a like amount •of First Mortgage bonds of that Company. The $600,000.00 Second Mortgage bonds are still outstanding at the present date, having become First Mortgage bonds by reason of the retire- ment of the prior mortgage. The balance of $1,095,000.00 authorized to be issued of the total of $4,000,000.00 were disposed of for cash at par or at various discounts as follows: Missouri Missouri Electric Edison First Second Total Discount Issued or outstanding at beginning $1,805,000.00 $500,000.00 $600,000.00 $2,905,000 00 $ Sold at par 5,000 00 5,000 00 Sold @ 96.85 30,000.00 30.000.00 945.00 Sold @ 95 1,060.000.00 1,060.000.00 53,000.00 xchanged 500,000.00—500,000.00 $3,400,000.00 $600,000.00 $4,000,000.00 $53,945.00 V #7 < i > ^ k' y V Appendix A 37 The discount of $53,945.00 above mentioned, together with commissions of $26,500.00 (being at the rate of 21/2% on $1,060,000.00 bonds sold), was charged to Construction Ac- count. At a meeting of the directors on January 21, 1898, it was decided to exercise the option to purchase the property of the St. Louis Electric Light & Power Company in accordance with an agreement entered into by the Reorganization Committee of the Edison Illuminating Company, and the purchase was accordingly consummated, and the purchase price of $250,- €00.00 would appear to have been paid in cash in accordance with the agreement. On November 14, 1902, mention is made of the fact that an option had been given to the U. S. Government on the Com- pany's property at 17th & Walnut Streets of about 100 feet at a price of $300.00 per foot. This sale was effected in accord- ance therewith and the proceeds of $30,000.00 were deposited with the Trustees under the mortgage, in whose possession the amount remains at the present time. Except for the matters hereinabove referred to, the minutes relate for the most part to purchase of new machinery and equipment or other matters of construction and operation rather than to financial transactions of more than usual magni- tude or importance until the meeting of June 19, 1903, when it was voted to call a meeting of the stockholders to act upon the proposition to amalgamate with the Union Electric Light ^ Appendix A 39 tion of that time, namely, for the period from November 1, 1891, to August 31, 1895, and in any case did not give details of the charges to property account, which amounted to $132,- 479.75 at August 31, 1895. The minutes disclose that the Company was formed in 1888 with a capital stock of $8,000.00 which was issued to John C. At wood in consideration of his transfer of dynamos, engines and other property in the leased premises at 304-6-8 Locust Street. At the same time an agreement was entered into with D. W. Guernsey, agent of the Sprague Electric Railway and Motor Company of New York, by which he agreed to transfer his rights under a certain contract with the Sprague Company in consideration of a payment to him of $1,800.00 per year until June, 1893. In 1890 the capital stock was increased to $30,000.00; in 1892, to $75,000.00; in 1896, first to $200,0.00.00 and then to $700,000.00. It would appear, however, that only $450,- 000.00 was issued in all. The successive increases from $30,- 000.00 to $450,000.00 were apparently all paid for by stock dividends. In addition, certain cash dividends were declared and paid from time to time. THE ELECTRIC LIGHT, POWER & CONDUIT COMPANY. It may be as well to refer here to another Company, which is mentioned in the chart and Table of Companies, and this was the Electric Light, Power & Conduit Company which according to the minute book thereof was formed on Septem- ber 28, 1896, with a capital stock of $50,000.00. In December, 1896, it was voted to increase the stock to $600,000.00 and to issue bonds of $600,000.00, but so far as we are aware, these resolutions were never carried into effect and the Company conducted no further business. It would appear, therefore, that the formation of the Company was the initiation of a strategic plan, the continuance or completion of which was probably rendered unnecessary by subsequent developments. St. Louis, Mo., November 15, 1909. V V ^ i Y f > > > ^ > > > > V APPENDIX B ANALYSIS OF Rate Calculations FOR Electric Light and Power REPORT TO ST. LOUIS PUBLIC SERVICE COMMISSION BY James E. Allison, Commissioner and Chief Engineer \ \ ' fl A l* !• K N I) I X H Messrs. Joseph L. Hornsby, Chairman, James A. Waterworth, James E. Allison, Saint Louis Public Service Commission. Gentlemen : — In pursuance of my duties as Chief Engineer of this Com- mission, I herewith respectfully submit as a report, an anal- ysis of the theories and principles of Electric Light and Power rates. Parts I, II and IV of the report are taken up in setting out the generally accepted method of calculating Cost to Serve rates by Connected Load or Maximum Demand. The remaining parts of the report are devoted to an analysis of these and other methods and theories of rate calculation. Investigation into the rates of a number of large compa- nies show^s that while Connected Load or Maximum Demand are generally used as the most important basic factors in the rate, yet there seems to be no very serious effort to apply rates in w^hich there is even an attempt to follow the Cost to Serve principle. In making this report the writer does not present any scheme of rates, but merely attempts to analyze underlying principles and to lay before the Commission some of the fal- lacies of accepted methods. Respectfully submitted, James E. Allison, Commissioner and Chief Engineer, August 25th, 1910. V i V i \ -< < V A p r E N I) I X B "Individual Cost to Serve'' Rates PART 1. In attempting to devise a rate which will cause each indi- vidual consumer to pay in direct proportion to the cost of ren- dering him his required service, the entire cost can be divided into three elements. 1st: The Costumer's Charge, which is that element of cost caused by the mere connection of the consumer, irrespective of his use of current. Costs assignable to this element being such as the cost of reading the meter, making the bills, keep- ing the accounts, etc., etc. ; the charge being the same for each individual consumer. 2nd: The Manufacturing Charge, or the cost of manu- facturing and delivering the current irrespective of the invest- ment. 3rd: The Investment Charge, consisting of the return on the investment, the taxes and insurance, the depreciation and perhaps other minor charges.* The just apportionment between the consumers, of charges under the first two elements is only a matter of correct account- ing, but when we come to consider the third element, we are confronted by the problem of determining the share of the investment caused by each individual consumer and his conse- quent proportional responsibility for the amount of income necessary to pay the Investment Charges. The demand for current upon a plant doing a general busi- ness will vary greatly during the year or during the several years for which the plant is designed to render service, and the investment must be made to provide a plant adequate to produce the greatest amount of current which may be demanded of it at any. one instant during the period for which it is designed. This greatest demand, during the term for * These charges may be made to include such items of expense as are chargeable to demand or capacity. ■ i y 4 AppendixB which the income is being calculated, may be called the Investment Peak. For rate calculating purposes, it is assumed that there is a direct relation between the Investment Peak and the invest- ment, and consequently between the greatest Instantaneous Demand and the investment, and that the Investment Peak or the greatest Instantaneous Demand is a direct measurement in kilowatts, of the investment in dollars. It is generally assumed to follow then, that the part of the total Investment Charge assignable to each consumer is in direct proportion to the number of K. W.'s which he demands on the Investment Peak, or at the greatest Instantaneous Demand. In other words, his Investment Charge is measured by his Peak Responsibility. As it is manifestly impossible to obtain an actual measure- ment of each consumer's K. W. demand at the instant of the Investment Peak, the problem presents itself of devising some means of determining approximately the Peak Responsibility of each consumer. From that we can obtain his Individual Investment Charge, which is to be reduced to a K. W. H. rate or left as a flat charge. Two methods have been used in attempting to solve this prob- lem. In one of these it is assumed that the Maximum Demand of the consumer is a measure of his Peak Responsibility. In the other it is assumed that his Connected Load is the correct measure. Both of them are open to serious objections, as shown in the following analyses : PART II. Analysis of Maximum Demand Method of ' Rate Calculation. Step 1. First: We assume that there is a direct relationship be- tween the Peak and the investment. Step 2. Next, the proper yearly return on the investment, plus taxes and insurance, plus proper yearly depreciation charge, is •divided by the Investment Peak Load multiplied by the decimal ^ V \ r < \ r V y ^ AppfndixB 5 of efficiency of .distribution. The result of this process will be the yearly amount of Investment Charge assignable to each K. W. of Instantaneous Demand. (Instantaneous Demand here means that portion of the Peak actually delivered to the consumers.) Step 3. At this point we assume that there is a direct relationship between each consumer's Maximum Demand and his share of the Instantaneous Demand or his Peak Responsibility, but recognizing that the sum of the Maximum Demands of the consumers is far in excess of the Instantaneous Demand, we use a diversity factor, assuming that only a portion of the con- sumer's Maximum Demand comes on the Peak. Having used our diversity factor, we have the amount of yearly Investment Charge assignable to each K. W. of Maximum Demand of each consumer. Step 4. It now becomes necessary, in order to fix a consumer's yearly Investment Charge, to determine his Maximum Demand. Not having maximum demand meters, we here select, from experi- mental data collected from the use of demand meters by sev- eral different companies in other cities, a percentage showing the average ratio between ^e Connected Load and the Maxi- mum Demand of consumers using current for the same pur- pose as the consumer for whom we are trying to fix a rate. Step 5. By dividing the yearly Investment Charge, as arrived at in Step 3, by 12 we have the monthly Investment Charge per K. W. of Maximum Demand, and by multiplying this figure by the Individual Maximum Demand, as arrived at in Step 4, we have the monthly Investment Charge of each individual consumer. Step 6. Having the monthly Individual Investment Charge for the consumer, the next problem is to work this charge into the consumer's bill. There are a number of methods in use for doing this. The most obvious, and perhaps the most correct, 6 Appendix B \\ is to make a flat charge per K. W. of Maximum Demand. Gen- erally, however, this method is undesirable on account of its unpopularity and various other schemes are adopted for work- ing the charge into a rate per K. W. H. A typical method consists in assuming that a K. W. H. con- sumption equal to a certain number of hours' use of the Max- imum Demand (generally 30 or a multiple thereof) should, in a month, at the base rate to be established, care for the Cus- tomer's Charge, the Manufacturing Charge for current con- sumed in the assigned hours' use of the Maximum Demand, and the monthly Investment Charge assigned to the cuMomer. The result of this last calculation, assuming that our process is correct, gives us a rate which should properly take care of all charges, provided the consumer used more than the num- ber of hours of his Maximum Demand which we arbitrarily assign. For each K. W. H. of additional current in excess of the assigned hours' use of the Maximum Demand, we make an additional or secondary charge equal only to the Manufactur- ing Charge. All other costs having been covered in the appli- ■cation of the base rate to the assigned hours' use of the Maxi- mum Demand. (In practice, the ;8econdary charge is gen- erally made to assume part of the burden of Customer's Charge and Investment Charge.) For convenience in discussion and analysis, let us reduce the foregoing steps in our calculation to algebraic formulae. Appendix B y- ) y i \ ) V V V f Let R T D P E= PE = C= F= H= = Proper Return on Investment for year. = Taxes and Insurance per year. = Proper Depreciation Charge per year. = Investment Peak. = Decimal of Efficiency of Distribution. = Instantaneous Demand. = Investment Charge per year per K. W. of Instantaneous Demand. = Diversity Factor. = Investment Charge per year per K. W. of Individual Maximum Demand. I=^= Investment Charge per month per K. W. of Indi- - vidual Maximum Demand. K = Individual Connected Load. N= Decimal Ratio of Class Maximum Demand to Connected Load. KN= Individual Maximum Demand. KNI = Monthly Individual Investment Charge. A = Monthly Individual Customer's Charge. B= Manufacturing Charge per K. W. H. L=Cost Lamp Renewals per K. W. H. M = Assumed standard number of hours use of Individual Maximum Demand per month. S = Individual K. W. H. per month. X = Base Rate for K. N. M. or Primary Rate. X' = Rate per K. W. H. which will produce proper amount for sum of all charges. Y= Customer's Bill. 8 Appendix B Step 1. Assumed relation of Peak to Investment. Step 2 is represented by R+T+D P.E. = C Step 3 is represented by C F = H F = Sum of Consumer's K.N. re; Step 4 is represented by K.N. = K.N. Step 5 is represented by 1=1 12 * Step 6 is represented by K.N.M.X. = A + K.N.M.B. + K.N.I. then, A+K.N.M.B + K.N.I . K.N.M. or where lamps are furnished A + K.N.M. (B + L.) + K.N.I. X= K.N.M. then, Y=X.K.N.M. + B (S-K.N.M.) where lamps are furnished, Y=X.K.N.M. + (B+L.) (S-K.N.M.) X' cannot be calculated, as we have no applicable hour factor. „ ♦. Appendix B 9 PART III. The preceding calculation plainly divides itself into two main problems. First: The determination of the amount of the Investment Charge which should be assigned to each individual consumer. (See Steps 1, 2, 3, 4, and 5.) Second : The distribution of this charge and the Customer's Charge by causing them to be carried by a certain portion of the K. W. H. used by the consumer. (Step 6.) Let us first analyze the foregoing method of solving the sec- ond problem, i. e. the distribution of the Investment Charge and the Customer's Charge, in accordance with an arbitrary standard of K. W. H. consumption, as represented by factor K. N. M. The most obvious objection to this process is, that whenever a consumer uses in a month less than M. times his Maximum Demand he escapes a part of his rightful assignment of Invest- ment Charge and Customer's Charge. Therefore, it becomes necessary either to make M. so small as to produce practically a flat charge to cover the Investment Charge and Customer's Charge, or by mere guessing, to raise the whole rate so as to talge care of that portion of the Invest- ment and Customer's Charge which certain consumers may escape. Another evident objection is, that two consumers having the same Maximum Demand and using approximately the. same K. W. H. in the year may be charged substantially dif- ferent prices per K. W. H. We will suppose that A. uses each month nearly M. times his Maximum Demand, while B. will use very little in some months and very much in excess of M. times his Maximum Demand in other months. Both, however, using approximately the same K. W. H. in a year. It is plain that B. will receive the benefit of discount in sec- ondary charges for a part of his K. W. H.'s, while A. will receive no such benefit. This result places a premium on irreg- ular use of the current and causes a manifest injustice in the rate. ; 10 Appendix B It must not be assumed that the two preceding objections are merely possible instances. The examination of the accounts of any good sized electric company will show that they apply to a very large number of consumers, and will materially disturb or perhaps render entirely inaccurate, any ''Cost to Serve" rate calculations using the same or a similar method of distributing the charges into the bill. In analyzing the first problem in our calculation, i. e., the assignment of the correct Individual Investment Charge to each consumer, we find that we have adopted the consumer's Indi- vidual Maximum Demand as the unit for measuring his Peak Responsibility. Without demand meters we have no way of determining what his actual Individual Maximum Demand is, so as a make- shift, we select a factor N. with which to evolve his individual Maximum Demand from his Connected Load. This factor N. is a supposed average ratio between the Con- nected Loads and the Maximum Demands of a whole class of consumers making a supposed similar use of current to that of the particular consumer whose rate we are trying to deter- mine. N. has been deduced from experiments made with demand meters, showing, for instance, that the average ratio between the Connected Load and the Maximum Demand of residences or butcher shops or sausage grinders in a certain city, is such and such a figure. Unfortunately for our confidence in this experimental data, the published results from various different cities show such a variation in the derived factors for the same class of consumers, that the use of one of them in such a serious matter as a rate calculation seems an absurdity. In the residence class for instance, the published results vary from stating that the aver- age Maximum Demand is 21% of the Connected Load, to placing it as high tis 50% of the Connected Load. Such a margin of error in the important factor N. of our formula, must render the results of any calculation in which it enters absolutely valueless, even if all other factors and assumptions were correct. As an additional absurdity, w^e may see that although we are using our factor N. to determine the Individual Maximum De- mands by multiplying it with the individual factor K., yet N. > i Appendix B 11 itself, even if correctly derived, only represents the factor of a class average, and is in no way applicable to calculations to produce the Individual Maximum Demand. Let us take an example say in the residence class. Assume that the actual measured Maximum Demand of one consumer proves to be 85% of his Connected Load, of another 15%. It is seen that the average is 50%, which when applied to either of the consumers individually, in no way considers his real Maximum Demand. The assignment of a certain value to N. in accordance with the occupation of the user (making residences a class by them- selves) is in itself an entirely illogical proceeding. These classes are not divided in accordance with any even probable ratio between the Individual Maximum Demand and Connected Load. The classification is really made as to the probable hours in the day during which they use current, and the probable time of their Peak. This being the result of simi- larity of occupation. It is evident that when we use N. we are in no way obtain- ing the Maximum Demand of the individual, nor in fact any factor pertaining to him individually. Yet we are using N. to determine what part of the investijient he shall be responsible for. It may also be noted here that we are using another factor F. which is an average figure computed from the Instantaneous Demand of the whole body of the consumers, and is not appli- cable to obtaining a correct result, either for a class of con- sumers or for an individual consumer. Having labored to prove that the preceding method of deter- mining the Individual Maximum Demand is incorrect, it might be well to now inquire of what use it would be even had we obtained accurately the actual Maximum Demand of each con- sumer. We are assuming in this method of calculation that the Indi- vidual Maximum Demand is the unit of measurement of the actual Peak Responsibility of each consumer. Is there any natural ratio between the consumer's Individual Maximum Demand and the K. W.'s he happens to be using at the Investment Peak, i. e. his Peak Responsibility? There is actually none whatever, nor in this method of calculation has -.X. I jl w 12 Appendix B there been any factor developed which establishes any ratio or relation between the two. To illustrate the absurdity of the whole proposition, let us assume in a given plant that the Investment Peak occurs at 5 p. m. on the 10th of December. Let us also assume that a correct diversity factor of 3 has been deduced. Now, if our assumption that the consumer's Maximum Demands are the measure of the Peak Responsibility is correct, then at 5 p. m^ on the 10th of December, each individual consumer connected with the plant will be using K. W.'s equal to just one-third of the greatest amount which he individually has used at any one instant within a period of time not definitely fixed. It is not possible that this can be even approximately true, or that there can be established, even approximately, by this method, any ratio between Individual Peak Responsibility and the consum- er's Individual Maximum Demand. If, then, we do not question our theory that the Peak is the correct K. W. measure of the investment, and each consumer's Peak Responsibility is the measure of his Investment Charge, we must conclude that Maximum Demand is not available as a factor to enter into rates purporting to differentiate in accord- ance with the "Cost to Serve." / Y I Appendix B 13 PART IV. Analysis of Connected Load Method of Rate Calculation. ^ The use of the Connected Load of the consumer as a measure of his Peak Responsibility shows some mathematical advan- tages over the Maximum Demand. Its numerical value can be accurately established. It is not the measure of an instant, and we can be sure that it is in force as a factor at the time of the Investment Peak. Using the same letters as in our analysis of the Maximum Demand method, we would arrive at the formulae: R+T+D P.E. = C F= Sum of Connected Loads P.E. F { y } ^ K=K 12 K.M.X.=A+K.M.B. + K.L X= A+K.M.B. + K.L K.M. With Lamps A+K.M.(B-fL)4-K.L X= K.M. Y=X.K.M. + B.(S-K.M.) ' i r ii iHI 14 Appendix B With Lamps. Y=X.K.M. + (B + L) (S-K.M.) X' cannot be calculated, as we have no applicable hour factor. Here by the elimination of the unreliable factor N. we find that all the factors can be known accurately, but this is merely a mathematical advantage over the Maximum Demand method. The individual consumer neither causes the investment nor uses the investment in accordance with any law of proportion between his use or demand and his Connected Load. There are so many and various reasons governing his instal- lation which bear no relation to his demand or use of current, that there can be no fixed ratio between his Connected Load and his Investment Kesponsibility. Take for instance, residence lighting. The consumer does not install lamps with a view to the gross amount of light he will use, either at one time or in the aggregate, but in accord- ance with the size and luxuriousness of his dwelling. His consumption and demand for current depends on the size of his family, his personal habits and his personal disposition to economize or be extravagant. In business lighting, the ratio between use or demand and the Individual Connected Load, is governed by so great a num: ber of circumstances that rates based upon this ratio would, to even approach justice, have to be varied to meet an almost infi- nite number of classes ; entirely too great a number to be prac- tical, even if the proper data could be obtained. The power business will probably come closer than the other two classes to having a fixed relation between use or demand and the Individual Connected Load. But even here, we find wide differences due to over or under equipment of motors and various other individual circumstances. It then appears plainly evident that there can be no fixed relation between the consumer's Individual Connected Load and his Individual Peak Kesponsibility or Investment Responsi- bility, consequently our use of K. as a measure of his Invest- ment Charge is entirely illogical, and our whole calculation is based on an erroneous assumption. The use of the factor M. has also all the disadvantages it had in the Maximum Demand method. i i A \ I i Appendix \^ 15 PART V. In the preceding calculation the factors P. E. F. and C. were used by the writer because it seems customary to do so. The theory being that the Peak is the correct K. W. measure of the Investment and each consumer's Peak Responsibility, the meas- ure of his Investment Charge. A glance at the equations, however, shows that P. E. F. and C. are entirely superfluous factors in arriving at the value of H. either bv the Maximum Demand or the Connected Load method. In the Maximum Demand formulae ^ R+T+D j^ SumK.N. , _. C C = — ^^::^ — and F= — ^r^^ — and H = P.E. P.E. F Then H = / Sum K.N. \ / R+T+ \^ P.E. R+T+D Sum K.N. And in the Connected Load method ^ R+T+D ,_, SumK .„ C C = — ^^^^ — and F= and H. = P.E. P.E. F Then H = / R+T+D \ (■ SumK. P.E. R+T+D SumK. The result of the elimination shows that while the Peak is the basis of the theory and the Peak Responsibility a resulting theoretical factor, in the attempt to bring in Maximum Demand and Connected Load as factors, neither the Peak nor the Peak Responsibility remain necessary to the calculation. In fact on 16 Appendix B account of the functions of the Diversity Factor (F), the Peak has no value whatever in the calculation. What these methods really do is to assume flatly either that the Individual Connected Load is the correct measure of the Individual Investment Responsibility, and that tlio sum of the Connected Loads is the measure of tlic whole investment, or that the Individual Maximum Demand is the measure of the Individual Investment Responsibility, and the sum of the Max- imum Demands is the measure of the whole investment. It is evident from page 14, that to distribute the Investment Charges among the consumers in proportion to their individual Connected Loads is, on the face of it, a manifest injustice, and that Connected Load cannot be taken as a measure of Indi- vidual Investment Responsibility, nor can the sum of the Con- nected Loads, therefore, be taken as a measure of the invest- ment. As for the use of a Maximum Demand deduced by the use of N. this is shown to be incorrect to absurdity, for N. in no way gives us even an approximation of the true Individual Maximum Demands. (See pages 10 and 11.) The Individual Connected Load and the calculated Maximum Demand (K. N.) being eliminated as unfit factors, there remains then to be considered only the use of the true measured Indi- vidual Maximum Demand as the measure of the Individual Investment Responsibility and the sum of these Maxinuim Dcniands as the measure of the whole investment. We have, however, the plain and simple fact tliat the invest- ment is made for the express purpose of producing a i)lant designed to meet a certain demand upon it, namely, the Investment Peak, and leaving out of account the very disturb- ing element of the distance Factor in the distribution equip- ment, which will be treated later in this paper, it is evident that the investment in a given plant wdll vary in approximately direct ratio (making proper apportionment of certain fixed expenditures, see page 30) to the height of the Investment Peak, and that the Investment Peak is therefore the most correct K. W. measure of the investment obtainable. Grant- ing this, it follows that if the sum of the true Maximum De- mands of the individual consumers is a proper measure of the investment, it must vary at least approximately, as the Invest- ment Peak varies. • m* Appendix B 17 Now, the sum of Maximum Demands occurring at differ- ent, possibly widely different times, may vary almost indefi- nitely without affecting the Peak demand upon the plant in any ratio to such variations. In fact, it is entirely possible, oven probable, that on account of the variation in the time of the occurrence of Individual Maximum Demands, the sum of these demands might increase while the Peak load would actually decrease or vice versa, showing conclusively that there can be no fixed relation between Peak and sum of Maximum Demands. Any study of the facts and data of electric service make it plainly evident that the Maximum Demand of the individual consumer bears no fixed relation to his demand at the time of the Peak, and therefore no relation to his individual Peak Responsibility or share in causing the investment. Nor can there be any relation established between his individual Maximum Demand and his use of the investment as measured by his K. W. H. consumption. As the result of the foregoing analyses, we must conclude that neither the Connected Load nor the Maximum Demand can be correct factors in calculating rates which pretend to differ- entiate in accordance with the cost to serve, and considering the elements of error entering into the calculation, we cannot escape the further conclusion that such methods or formulae purporting to establish, even approximately, the cost to serve tlio individual must tend to mislead both the managers of •electric companies and the public. i t I 18 Appendix B PART VI. In the tlicory of the foregoing methods of calculation, we have the primary assumption that the Investment Peak is tlio K. W. measurement of the investment in dollars. This seems logical and not subject to attack (if we neglect the distance factor) . But we next assume that each consumer should pay Invest- ment Charges in proportion to the K. AV/s which he demands at the instant of the Investment Peak, or according to his Peak Responsibility, leaving entirely out of account the essen- tial element of the time during which he uses a portion of the investment in off-peak hours. In other words, his share in causing the investment is assumed to be the sole measure of his investment charges. Now, is it not logical and fair to assume that his use of the investment is equally a factor in determining his Investment Charges? The omission of the time factor or use of the investment by the individual, not only renders a correct solution of the prob- lem impossible, but it goes against all established and tried theories of cost accounting, opposes fundamental commercial principles and attempts to place the electric business in a unique class, for which there is no adequate reason or justifi- cation. AVe have assumed that the K. W.'s which occur on the Investment Peak sliould bear all of the charges for that invest- ment, and that the K. AV.'s which occur off the Peak should go entirely free of Investment Charges. If these Peak K. W.'s were persons, would they pay all the Investment Charges and then allow their investment to be used free by the off-peak K. W.'s? Certainly not. And they are persons in the sense that each one of them traces back to a consumer. Is it not proper, even if the Peak K. W.'s have caused the investment, that the off-peak K. W.'s pay proportionately for their use of the Investment? As the multiplicity of Instantaneous K. W.'s is measured by the hour, it is seen that if the off-peak K. W.'s are taken into account, as well as the Peak K. W.'s, the Investment Charge Appendix B 19 'I will spread itself evenly into a K. W. H. charge, making each K. W. H. equally responsible for its share in the investment. Let us illustrate this by the diagram as shown on Plate A. The diagram is supposed to represent a station load curve, vary- ing the load at the hour periods. The results would be the 16. d ■^ V II r/a/e /I ^ 7 d. £. ± I .?S .9 3 3 3 5.. ^ Ul L2. lA Id, .. 6 6 7 8 9/01/ /^ / £ J >^5 6 IS 9/0// /£ / 2 3-^ Ay/i^M Noon. same if the variations occurred every second or less, but it would not offer quite so clear an illustration of the priniciple involved. The diagram is made to represent only one day, while of course the real curve would extend over the entire year. But this also would make no difference in the result of the illustra- tion. i f 20 Appendix B In the diagram each square is supposed to represent a K. W. H., the vertical ordinates of the curve being the measure of the K. W.'s. Introducing the time element, wc will assume that the Peak column (A) is nil the load there is, then of coui-so the total Investment Charge must be borne by the K. W. ll.'s in that column. In this instance, there being 20 K. W. II.'s in the Peak column, each would be responsible for one-twentieth of the Investment Charge. So far this seems correct and just, but now come the 16 K. W. H.'s in column (B) and make use of the plant in propor- tion to the height of their column. It is logical and just that they should bear their portion of the Investment Charge, so we would then have the Charge shared among 36 K. W. H.'s instead of the original 20. Introducing column (C) (14 K. W. H.) we would have the Investment Charge shared among 50 K. W. H., and so on throughout the year or the revenue period. Each K. W. H. bearing an equal portion of the Investment Charge. There is nothing new about this theory except as applied to present methods of reasoning on electric rates. That time is an element of Investment Charge is, as stated above, not merely a theory, but an accepted principle underly- ing nearly all commercial calculation. In some of the larger industrial plants the cost accounting even goes so far as to keep account of the time of use of the larger machines in producing a certain article, and tJic cost of the article is charged with that time of use separately from the accompanying labor charge, making it purely an Invest- ment Charge. Boiled down to a few words, the theory is that Investment Charge is a species of rent and should be paid in proportion to the fraction of the plant used, and the duration of the time during which it is used. For convenience in discussion, let us call the theory of dis- tributing Investment Charges in proportion to Peak Responsi- bility the Cause of Investment Theory and the theory here advanced and diagramed the Use of Investment Theory, or the Cause Theory and Use Theory. From page 18 it would appear eminently unjust and illogical to apply the Cause Theory alone, even if correct calculations «* T « Appendix B 21 for the individual consumer could be made under it, which from preceding pages, seems impossible. The Use Theory seems much more rational and more likely to result in substantial justice between the consumers. The calculation also can bo easily made and applied. But in con- sidering the entire neglect of the Cause Theory there appear some very disturbing possibilities, as illustrated by the follow- ing case: Suppose a given plant having apportioned its Investment Charge evenly over the estimated K. \V. H. consumption, should take on a consumer or class of consumers who would cause an increase in investment, but would bring a K. W. H. con- sumption of a less ratio to the increased investment than the ratio formerly existing for the whole body of consumers. The result under a strict application of the Use Theory would be an increase of Investment Charge for all the K. W. H.^s sold^ without the original consumers receiving any additional benefit as consumers. This line of reasoning might be applied throughout the whole building up of the business, and would tend to show that, theoretically at least, the Cause Theory should not be wholly neglected in attempting to solve the problem of Individual Cost to Serve Rates. It would seem that the ideal method would be a combina- tion of the Cause Theory and the Use Theory. But, unfortu- nately, even if it were [)ossible to assign even approximately correct charges to the individual under the Cause Theory, there is no logical way of determining the proportion of weight which each of the two theories should have in the calculation. While there seems to be no absolutely correct theoretical solution of the difficulty, yet it may perhaps be possible to find some practical solution which will result in at least approxi- mate justice to all consumers. Before attempting this, however, it becomes necessary to present data as set forth in the following "Part" of this anal- ysis: li r ,, , II pi 22 Appendix B PART VII. In attempting to adjust rates among individual consumers by a distribution of Investment Cliarges, in accordance with the Cause of Investment or Peak Responsibility, we find it impos- sible to make the calculation (even granting that the theory is correct) from the very simple fact that there is no way of determining the Peak Responsibility of the individual except at a prohibitive cost. The Use or Rent Theory of distribution of Investment Charges we find easy of accurate calculation by simply spreading the Investment Charges over the estimated K. W. H. output, and we also find the theory in agreement with all established commercial usage, and probably productive of more approxi- mate justice than the Cause Theory alone. Nevertheless, it must be conceded that the Cause of Investment has some bear- ing in justice on the distribution of Investment Charges. In an effort toward a better understanding of the question, the writer has collected the following data in regard to Class Loads and the Peak Responsibility of each, as shown in the operation of the plant of the Union Electric Light and Power Co., of St. Louis. It must be kept clearly in mind, however, that it by no means follows that data which is correct for a class as a whole can be correctly applied to the individuals of that class. As shown by the illustration in the first paragraph on page 11, the calculation of averages will not work backward; there- fore, any adjustment of the distribution of Investment Charges based on class data should be applied to the individual with extreme caution and with the clear understanding that he is being either penalized or rewarded on account of his being in the class to which he is assigned. In the year 1909 the highest Peak in the combined generat- ing curve of the Union Electric Light & Power Co. (exclusive of street railway load) occurred on the 10th of December, and for the present purpose this is taken as tlie Investment Peak of the plant. I* VTI i* Appendix B 25 24 Appendix B Kesidence Lighting. Taking: up first tlic dilTcrcnt relations of residence lighting service, the writer sought for a source from which a typical residence lighting curve could be developed. A tolerably sat- isfactory base for data was found in the records of Feeder No. 5909, which serves the district bounded by Clara Avenue on the east, Hodiamont Avenue on the west, Cabanne Avenue on the south, and Etzel Avenue on the north. There are 516 customers on this Feeder, all being residences with the exception of two churches and a few small instances of business lighting. The residences in the district vary from smaH flats to large residences, and are perhaps as typical of the whole body of residences as any group which could be found. The Feeder log and the complete monthly accounts and Connected Load record of each consumer were available and were used in making up the data. Plate I shows the combined generating curve of the plant (exclusive of street railway load) for December 10th, 1909. Plate IT shows the typical residence curve for December 10th, 1909. Consulting the curve on Plate I we find that the Investment Peak occurs at 5 p. m. Consulting Plate II we find that where the typical residence curve crosses the 5 o'clock ordinate it shows a demand of 81 K. W., therefore these residences are contributing 81 K. W. to the Investment Peak, which in the Cause Theory measures their Peak Eesponsibility and Investment Kesponsibility. From the accounts we find that during the whole year the meters of the consumers responsible for the Plate II curve, show a total consumption of 149,640 K. W. H. Dividing this figure by 81 we find that for every K. W. contributed to the Investment Peak, a tjrpical residence load will bring a revenue from 1847 K. W. H. or the ratio between K. W. H. delivered yearly and K. W. of Peak Responsibility is l?i^ > ' V > Power. As a typical Power curve, the 500-volt current of the Union Electric Light & Power Co., has been selected as being a pure Power load. The curve for December 10th, 1909, is shown on Plate III, where we find the Peak Responsibility is 2125 K. W. The K. W. H. delivered to the consumers is derived from the generating output and a factor of Efficiency of Distribu- tion of 73%, the resulting ratio between K. W. H. delivered yearly and K. W.'s of Peak Responsibility is 3380 Municipal Lighting. While we have no specific curve on Municipal Lighting, it being a 4000 hour flat service, we can safely assume that the ratio between K. W. H. .delivered and K. W. of Peak Respon- 2920 sibility is 4000 x .73 (efficiency of distribution) = - . Business Lighting. The writer has been able to obtain a number of curves and accompanying data relating to different kinds of business con- sumers, but all of them are for large concerns in which Power forms a considerable part of the load. There is nothing at present available for pure business lighting, such as is required by service to smaller or average size concerns, but it is prob- able that type curves of business light might be obtained by making arrangements of connections and by taking proper readings at a cost not out of proportion to the value of the resulting data. For purposes of comparison, there can be assigned to each of the above classes what may be called a Responsibility Load Factor, taking into account the Peak Responsibility of each class and the 8760 hours of the year. These factors are for Residence Light, 21.1%; for Power, 38.6%; for Municipal Light, 33.3%. i INTENTIONAL SECOND EXPOSURE j^<» — t»-;,rf»«iij**.»( > . Appendix B 25 24 Appendix B Residence Lighting. Taking up Wn^i tlic dilTcrcnt relations of residence ligliiing service, the Avritcr sought for a source from Avhich a typical residence lighting curve could he developed. A tolerahly sat- isfactory base for data was found in the records of Feeder No. 5909, which serves the district bounded by Clara Avenue on the east, Hodiamont Avenue on the west, Cabanne Avenue on the south, and Etzel Avenue on the north. There are 516 customers on this Feeder, all being residences with the exception of two churches and a few small instances of business lighting. The residences in the district vary from smaH flats to large residences, and are perhaps as typical of the whole body of residences as any group which could be found. The Feeder log and the complete monthly accounts and Connected Load record of each consumer were available and were used in making up the data. Plate I shows the combined generating curve of the plant (exclusive of street railway load) for December 10th, 1909. Plate IT shows the typical residence curve for December 10th, 1009. Consulting the curve on Plate I we find that the Investment Peak occurs at 5 p. m. Consulting Plate II we find that where the typical residence curve crosses the 5 o'clock ordinate it shows a demand of 81 K. W., therefore these residences are contributing 81 K. W. to the Investment Peak, which in the Cause Theory measures their Peak Responsibility and Investment Responsibility. From the accounts we find that during the whole year the meters of the consumers responsible for the Plate II curve, show a total consumption of 149,640 K. W. H. Dividing this figure by 81 we find that for every K. W. contributed to the Investment Peak, a typical residence load will bring a revenue from 1847 K. W. H. or the ratio between K. W. H. delivered yearly and K. W. of Peak Responsibility is >' > Power. As a typical Power curve, the 500-volt current of the Union Electric Light & Power Co., has been selected as being a pure Power load. The curve for December 10th, 1909, is shown on Plate III, where we find the Peak Responsibility is 2125 K. W. The K. W. H. delivered to the consumers is derived from the generating output and a factor of Efficiency of Distribu- tion of 73%, the resulting ratio between K. W. H. delivered 3380 yearly and K. W.'s of Peak Responsibility is -— . Municipal Lighting. While we have no specific curve on Municipal Lighting, it being a 4000 hour flat service, we can safely assume that the ratio between K. W. H. .delivered and K. W. of Peak Respon- 2920 sibility is 4000 x .73 (efficiency of distribution) = _ . Business Lighting. The writer has been able to obtain a number of curves and accompanying data relating to different kinds of business con- sumers, but all of them are for large concerns in which Power forms a considerable part of the load. There is nothing at present available for pure business lighting, such as is required by service to smaller or average size concerns, but it is prob- able that type curves of business light might be obtained by making arrangements of connections and by taking proper readings at a cost not out of proportion to the value of the resulting data. For purposes of comparison, there can be assigned to each of the above classes what may be called a Responsibility Load Factor, taking into account the Peak Responsibility of each class and the 8760 hours of the year. These factors are for Residence Light, 21.1%; for Power, 38.6%; for Municipal Light, 33.3%. i 1 i > i »»mm im\»m(ymtt.imkt n.> < y AppendixC 5 The conclusion that scientifically correct rates for electricity cannot be mathematically calculated is not a welcome one, but it is the truth, and it is much better to know and acknow- ledge the truth than to follow blindly a false or only partially true formula. Especially is this true in the case of a Public Service Commission charged wath the duty of fairness both to the consumer and the company. While we cannot say that a rate is absolutely correct scien- tificially, yet with the data available it is quite possible to arrive at rates which will not only be substantially just and perfectly practical, but which can also, in a measure, be de- fended scientifically. CAUSE THEORY RATES. The Cause Theory is based upon the assumption that the investment in plant is made to meet the demand of the highest peak, and that therefore each individual's share in paying the yearly investment charge should be in direct proportion to his peak responsibility, i. e., to his share in this highest or investment peak. The theory has two decidedly w^eak points. First, it assigns all of the investment charge to the consumer or the current which comes on the investment peak, and absolutely none of the investment charge to those consumers or that portion of the current which does not come on' the peak. Second, there is no practical way of determining the Peak Responsibility of the individual consumer, and we are driven in making calculations to use the Peak Responsibility of classes of consumers. These class Peak Responsibilities may be obtained as de- scribed in relation to residence load on page 24 of my former report. It is evident, however, that the segregation of classes of business upon separate feeders, in order to obtain data, may not always be an easy or simple matter. As pointed out in my former report, the justice of applying class data to the individual is measured by the similarity in shape of his load curve to the load curve of his class. Fortunately, in two important classes of consumers, resi- dence and power, we may assume that the 4m load curves and ^ g Appendix C the individual load curves are approximately parallel, at least enough so to assume that there will be no great injustice in as- signing to the individual the same K. W. of Peak Responsibility per K. W. H. of consumption as is shown to be right for his class. Being assured, then, that our data will enable us to get approximately correct results to the individual, according to the Cause Theory, in at least the residence and power classes, we may proceed to develop our formula for the calculation. First, we take the gross income required to be obtained from the sale of current, which should equal the operating expenses, plus the taxes and insurance, plus the proper depreciation and amortization charges, plus the proper return on the investment. This we call the Total Cost. This Total Cost we then divide into three parts. First : The Customer's Charge, which is that portion of the cost caused by the mere connection of the customer, irrespective of his use of current. Costs assignable to this charge being such as the cost of reading the meter, making the bills, keeping the accounts, etc., etc. The charge being the same for each individual consumer. Second: The Manufacturing Charge, or cost of manufac- turing and delivering the current, irrespective of the invest- ment. Third: The Investment or Demand Charge, consisting of return on investment, taxes and insurance, depreciation and perhaps some of the operating charges traceable to demand. The selection of the items of expense which should properly be included in the Customers' Charge is a matter of much debate, and according to the mind of the ratemaker, the Cus- tomers' Charge may be made to vary greatly. To obtain the rate for a class (or an individual, if we could get the data) we have the Peak Responsibility of the class ob- tained as shown in part VII of my former report, and as the theory assumes that Peak Responsibility is the measure of in- vestment responsibility, the investment charge for the class would be the same decimal of the total investment charge as the class peak responsibility is of the investment peak. It is also evident that the class charge for manufacturing r f > ii ( ' y V V '^ I i Tl. f : AppendixC 7 cost would be the same decimal of the total manufacturing cost as the class consumption of K. W. H. is of the total con- sumption of K. W. H. The individual Customer's Charge would be the total Cus- tomers' Charge divided by the total number of customers, and the amount of Customers' Charge assignable to a class would be the Individual Customer's Charge multiplied by the number of customers in the class. Having, then, the investment cost for the class, the manu- facturing cost for the class and the total Customers' Charge for Ihe class, we have but to divide the sum of them by the esti- mated or ascertained K. W. H. consumption of the class to arrive at the average rate of the class. However, as the Customers' Charge should properly be as- signed flat to each customer, it is better to so divide the calcula- tion as to give the rate exclusive of the Customers' Charge, and :also with the Customers' Charge absorbed. Reducing to formulae, let R= Total Cost. A = Total Investment Charge. B= Total Manufacturing Charge. C= Total Customers' Charge. D= Total Consumption K. W. H. E= Total Number of Consumers. P= Investment Peak (K. W.). A+B + C=R. r= Class Peak Responsibility (K. W.). s = Class Consumption (K. W. H.). t= Number of Consumers in class. X = Class Rate exclusive of Customers' Charge. Y = Class Rate with Customers' Charge absorbed. 8 Appendix C Appendix C 9 i! r -=r = Decimal of Class Peak Responsibility. s D = Decimal of Class Manufacturing Cost Responsibility. — - = Individual Customer's Charge. Then 8 r A s _. . C ^ _A+-B+^t =Y s C When X is used as rate, — would be charged flat to each customer. USE THEORY RATES. In the Use Theory, we start with the assumption that each consumer should pay investment charges according to the portion of the plant he uses, regardless of whether it is on or off the peak, and also in proportion to the duration of the time he uses it. In other words, for each kilowatt hour of service he pays his prorate of the investment charge as divided among all the kilowatt hours produced during the year. The weak point in this theory is that it makes no provision for a just charge to the consumer who causes a large investment and contributes a small return toward the general fund for paying the investment charges. Nevertheless, it does provide investment charges for the off- peak load, which gets the benefit of the investment as well as the peak load. r 'ii V V /f ■ ^ The formula for calculating rates by the Use Theory is developed by simply taking the total Investment Charge plus the Total Manufacturing Charge and distributing it equally over the total estimated K. W. H. consumption. To this there is to be added the Customers' Charge, either flat to each cus- tomer, or if it is to be absorbed into the rate by classes, the Individual Customer's Charge is multiplied by the number of customers in the class and divided by the K. W. H. Consump- tion of the class. The result is, the extra charge to be added in absorbing the Customer's Charge into the class rate. Reducing to formula and using the same letters as in the Cause Theory, we have A+B D = X A + B D + C^ E s = Y C When X is used as rate, ^=- would be charged flat to each customer. E Having developed our formula for calculating rates accord- ing to the two theories, Cause and Use of the Investment, let us briefly review the points in which they supplement each other. The Cause or Peak Responsibility Theory, as we see, does not provide that the off-peak load shall pay any of the invest- ment charges. Now, as a matter of fact, the benefit derived by the consumer from the Company's investment or his use of that investment may not be at all in proportion to his peak responsibility. Yet, by the Cause Theory he pays investment charges directly in proportion to it. For illustration, let us suppose the extreme case of a theater which does not give matinees. Here we would have a large load, no part of which would be likely to come on the peak. It would, therefore, by the strict application of the Cause Theory, escape all investment charges, and if all returns and profits were figured as part of the investment charges, the cur- rent would even be sold at exact cost to the Company. The 10 Appendix C result, we see, is an absurdity, in that this consumer has the use and benefit of large investment which is paid for by some one else. The same reasoning will apply in a measure to all loads having small peak responsibility in proportion to their use of the plant (or K. W. H. consumed), and it will apply inversely to loads having large peak responsibility in proportion to their use of the plant (or K. W. H.) The Use Theory is the exact opposite of the Cause Theory, in that it considers exclusively the use of the plant made by the consumer, to the entire neglect of his peak responsibility. The one, in a way, supplements the other, and (leaving out of account the Expediency principle and the distance factor) we may assume with as much confidence as is possible in deal- ing with the kaleidoscopic question of rates that approximate truth is somewhere between the results of the two calcula- tions. At what point between these two results the approximate truth may lie, must, as stated before, be determined by judg- ment alone. In such a case there is, unfortunately, very little to base judgment upon. Very fortunately, however, the re- sults of the two calculations when applied to actual facts do not show a wide variation, as is seen by reference to Table I. In this Table the actual operations of the Union Electric Light and Power Company for the year 1909 have been taken as a basis for the calculation (the street railway business being omitted) . The figures are, of course, only used for illustration, and it is not intended to imply that the rates evolved are either correct or incorrect for producing a proper return. RESIDENCE RATES. In Table I the writer has assumed five different amounts a? individual Customer's Charge per year, namely: $6.00, $9.00, $12.00, $15.00 and $18.00 per year per customer; and the Table shows rates calculated under each of these assumptions. It is seen by comparing the results that in residence rates, especially, the Customers' Charge is really the controlling fac- tor in the differentiation of the rate. This fact is shown by comparing the figures opposite ''residence" in columns 3 and K I \ c: /A u- \ CQ < H ^ a- H Oo H CO 3 o> 00 aa a ea V c« S H U) CO D < « CO V a > 9) Oi Q «^ »5x *j Q U §u u rd z c2.s 2 -t-t at Oi o c > 0,^ o •4-1 c 9i > a ..2 uS :i CO 4-* CO CO U S, 0> Q CO t. 3 O o ooooia ooiaiacq o"os"e>5o" lOlOrH r-tT-ILOeO T}<(MlO-^ eoiOiHeo iHOO© • • •* •OS t-»H •lO ia(M •■^ «DO •o oo •o a • OSIQO osT}-eo eot-i-HOs t-l«OSt- ecioi-neo tHO©© • • • ■ • t- •OS os© •M CItH •N CO© •© oo •© a • . • OS ^ OS C-er «oco«oeH •eo OSt- -lO rH© •rH cq© •© ©o •© t-oot-© ui cocoes r-IOOSr-l t-iaTi ^ eo OS ^ lOt-COUS r-icoeot- lOoTcq© OOOOtHfH COlOrHt- eo eg la OS t^ OS t- cg ©COt-'^ eg eg 00 tH ©t-t-© CDrH©i£5 lOTt o xi bo •O oj o B M ^ Cm ■*■> o bo G Cum O bo S « o iQ (ui! c "m ^ C 2 01 o 3 3 a ■*-> o Si bo o : ed OQ en ^ C CO « O 3 3 o © o 0(} © © © © eg* o © OS © © » •*» § > 03 -O JS 2 3 S o a i^ •^N .°° 00 (3 0) 2 ol 9i -»-> 00 O u .d 4) H .£3 O 73 a 12 Appendix C 8 of the Table, as they appear in the $6.00, $9.00, $12.00, $15.00 or $18.00 Customers' Charge group. It is seen that a difference of about 4 cents per K. W. H. is made in the average residence rate by assigning $18.00 per year, or $6.00 per year per customer, to this charge. It is evident, therefore, that to obtain an approximately just rate great care must be exercised in selecting those items which can properly be taken into account in making up the Cus- tomers' Charge. By loose reasoning on this point it is possible to place a very unjust burden upon the small consumer and upon the residence consumers as a whole. No item should be accepted unless it is shown to be such as is caused directly by the consumer irrespective of his use of current, and that each consumer is responsible for approxi- mately an equal amount of the item. If this cannot be dem- onstrated it must be assumed either that the item is one caused in proportion to the use or K. W. H. Consumption, or that it is of such a general nature that it should be assigned in pro- portion to the benefit in service received by the consumer. In either case the item would properly be a K. W. H. charge. It has been argued that all the items of general expense such as executive salaries, etc., etc., should be included in Customers' Charge. The basis of this argument is that general expenses increase or decrease directly as the number of customers in- crease or decrease, and therefore the customers should bear an equal individual responsibility for such charges. In the first place, the assumption is erroneous. As shown by Table II (made from the Union Electric Light and Power Company's books), the general expense does not increase or decrease in direct proportion to the number of customers. In the second place, even if it did, that is no demonstration that each customer, regardless of his consumption, is equally re- sponsible for the charge, and the possible injustice of loading up the small consumer with charges for which he may not be responsible is quite apparent. Table III shows the variation of general expense as applied to each K. W. H. of output, and it is seen that an argument that general expense increases or decreases with output is quite as tenable as the argument that it varies with the number of customers. 4 r ^>* I Appendix C 13 In Table II the highest point of the charge per customer is 132 per cent of the lowest point, while in Table III the highest point of the charge per K. W. H. is only 119 per cent of the lowest point, showing that the general expense follows more closely to the variation of the output than it does to variation of the number of customers. The argument is not conclusive either way, as assignment of items to general expense may be varied with accounting methods. It is true that certain items and portions of items of general expense may be justly assigned to Customers' Charge, but such items must be carefully sought out and their relation to the customer definitely established. In cases of doubt, the benefit must be given to the small man, and no "glittering generalities" can be accepted as ground for swelling the Customers' Charge. It has been advanced as an argument for high residence rates that the efficiency of distribution for residence load is very low on account of the constant 24-hour iron loss in the trans- formers, but actual measurements of the all-day efficiency do not show that the efficiency of distribution in residences is necessarily less than the average efficiency of distribution for the whole plant. In other words, actual measurements in the case under con- sideration do not show that there is greater loss in distributing to residences than to the average business. Table I also shows the rates worked out on the basis of dis- tributing the Investment Charge in proportion to the Con- nected Load by each class, and the results as shown in column 12 tend to prove the writer's contention in his former report that Connected Load is not a proper factor in rate making. The only reason which can be advanced for using Connected Load as a factor is that it is an attempt to measure the con- sumer's peak responsibility. Under the Cause Theory in the Table, we show, by another method, rates in which the peak responsibility is obtained, as closely as is possible with ex- isting data. A comparison of the figures in column 3, column 8 and column 12 will show the injustice which might be done, especially to the residence class, by allowing the connected load method of calculation to stand as correct. No company of any size can, of course, put into effect resi- 14 Appendix C I o o o Q w 52; o • l-( CO :3 o 10 o CO o P5 O O O U) o CO CO S3 o > • r-t d o o »o CO CD 00 o 10 Oil CO CO o o s o 00 O S > < Oii>THcoGOc:>co 00:>IOOO(MCOOG o:> 10 00 10 10 "^ 00 00 CD CO 00 (M CO o:> CO 00 00 00 l:^ (M G<1 00 00 • ••*■• t^ CD 10 O CD 10 00 o:) 10 T— I t^ ^ (N t^ T-H O 10 (M (^1 CD 1— I 00 O ^ (M 10 CO 10 '^ (M t^ CD '^ O CO rH (M m- GO "^ CO o > -4-J C CO Ph w c» '^ ^ fi o C3 fl g « ^ fe O 03 5^ CO C3 . ""^ CO . -^ CO • ' id o •1— i -♦J C3 fcJO CO > hH O • I— 1 CO CO • I— I O o £ o P^ HH Ph o CO o ^- CO 10 10 tH 10 T-H • id tH 00 00 7—1 CD • id tH 00 00 • CO 10 00 CO €^ O 10 ^. (M* 1—1 ^ Q O CO CO C X! 03 t-t O G O ■^ -«->■ o f. \ r Appendix C 15 Af I n V dence rates based upon a distribution of investment charges in proportion to Connected Load, but the calculation has been used, and will probably continue to be used, until thoroughly discredited, as an argument to justify high residence rates. Table I shows, in columns 7, 11 and 15, the portions of the revenue to be produced from each class under the different theories and by the different assumptions of Customers' Charge. The total revenue in each case should be the same, but the figures in the Table vary slightly, owing to the calculations not being carried out beyond three, four or five decimal points in some of the factors. Column 5 in Table I shows the average class rate under the Cause Theory which would be paid per K. W. H. provided the Customers' Charges were assessed flat to each customer, and column 10 shows the same charge under the Use Theory. The assessment of the Customers' Charge flat to each cus- tomer is the theoretically correct and just plan for distributing that part of "cost to serve" among the customers, but on account of the extreme unpopularity of any flat charge there are very serious questions of policy involved in deciding whether to assign the Customers' Charge flat to each consumer or to absorb it in an average class rate. If our assumption is correct that individual residence load curves, are approximately parallel to the class curves, then the rate under either the Cause or Use Theory (with the exception of the differentiation caused by the cus- tomer charge) should be the same for all consumers in that class, unless the application of the Expediency principle is shown to be necessary. A study of the classification of cus- tomers, according to consumption, as compiled for the Com- mission, shows us that in the residence class there are practically no really large consumers, and the number who are enjoying appreciable discounts for quantity would not materially affect the business, even if they betook themselves to other sources of light. As a matter of fact, the large consumer of residence light is the most unlikely person to discontinue service on account of price. It can therefore be concluded that the Expediency principle is not applicable to the residence class unless it can be shown to be both just and necessary that this class should be burdened with some of the costs of other classes of consumers. 16 Appendix C Appendix C 17 t o o o Oh P o O o :3 o o cd hH U PL, • i-H CO O o CD O CO a» G X W '^ (-< o o > • I— I ■*-> a f-> as O Eh CO 00 o o CO o o o od~ 1—1 <:o CO 00 CO t^ (M CO lO 00^ co" '^ 00 OO CM CM OO CO OO OO t^ 1— i O CO t- t^ t^ CO <^ T— I o o o o o o o o o IC t- CO CO' lO CO O CO t^ (N Tt^ ^ O O O o o o o o o t^ c:> CO t^ O CO O O (M O ^ (N O O I-H o o o o o o ^3- '^ o (M CO lO CO • T-H t^ rH CO OO T— 1 Ci 00 • (M r-i CO o CO r^ CO 00 t^ t- lO CO r-{ CM ^ ^ 1—1 CO o o o o o o • o 1—1 o o o o o o • o o o • o • o ■ o • o • o • o • o • dd- OO CO tH OO ^ lO o c:> t^ CO o o o o o o o o o o CO '^ 00 O (M CM tH (N (M CO (M (N O O O O O O O O O o:) lo lO o CO OO o o o o o o (M I:- o o o o CM o o o 00 t^ lO o CO t^ 1-H O o o o o o o o o o o 00 "^ CO Oil cao t^ CO CO CO OO (-vq rH O CO t- ^ CO rH O O o o O O O o ^ <^ O o o o o o •I— t C3 3 C3 o OQ ffi > -t-i ^ • X M W 02 • I— I 03 C3 • I— I 5 fl C^ O .—I CM O (M O CO 00 1—1 CO O 1-H o o o o o • I-H cd s ^ t-; hS Oh CB © c • I-H CB ^ e^-H •-H o "— ' G ^ o o o • I-H »-^ o o KH Ph • ^ O) • CM l> • t^ lO • O CO • o T-i • o o • o o • • • Oi 1— ( • CM ^ • CX) t^ • o o • o 1—1 • o o • o o . " to CO o o 00 OO t^ CO o o CO CO CO CO o o o O o o co CO CO o o a. w d o (— I "o < vU If the last condition is not admitted we can conclude that the results arrived at from the use of the formulae will give very closely the correct rat^s for residence light. POWER RATES. In considering the rates for power we can assume that, gen- erally speaking, there is a similarity between the individual customer's load curve and the load curve for the class, and that therefore a similar K. W. H. rate applied throughout the class would be approximately just, but in this class the Expediency principle becomes a powerful factor in deciding the proper rate, as there are many large users who would be driven to other sources of power if charged the average rat€ for the class. The enforcement of such a rate might, and prob- ably would, cause a very appreciable loss in volume of business, with the result that the remaining consumers would be com- pelled to pay more than would be the case if the rates were adjusted to meet the conditions. It will, therefore, probably be found, for the benefit of all, that the Company be allowed to charge a rate in some cases higher and in some cases lower than the average class rate. MUNICIPAL LIGHT. In considering the rate for Municipal lighting, the Com- mission is confronted with the existence of a long-time con- tract which cannot be changed. The only course, then, is, if the charge is found too high, to shift the surplus return to the benefit of the other consumers. If the rate is found to be too low, the deficit must me shouldered by the other con- sumers. It is seen here that under strict regulation it is to the disad- vantage of the general consumer for the City to pay too low a rate for Municipal light. It is, however, to the advantage of the taxpayer that City obtain as low rate as possible. BUSINESS LIGHT. In the foregoing classification of consumers into Residence, Power and Municipal, it has been assumed with what seems ^probable correctness that the load curves of the individual con- I 18 Appendix C Appendix C 19 sumer are in most cases approximately parallel to the class load curve and that therefore the application of the class rate to the individuals (taking Expediency into account in Power rates) will bring about rates as nearly correct as can be expected in dealing with a subject having so many necessarily neglected factors. But in making the classification which we call Busi- ness Light we have included therein all consumers other than Residence, Power or Municipal. This is really no classifi- cation at all, and the average rate evolved for this Business Light class is merely the average rate for the balance of the business after deducting that of the first three classes from the whole. The multiplicity of uses, demands and conditions included in the class, and the very meager data at present available for determining the actual peak responsibility of the different kinds of consumers, prevents the application to the individual of the average class rate calculated by the Cause Theory or peak responsibility. This same meagerness of data renders the division of the Business Light consumers into accurate classification as to peak responsibility, a practical impossibility beyond a few rough subdivisions. It will probably be possible eventually to so divide Business Light into sub-classes in accordance with parallel load curve?* as to obtain satisfactory rate calculations under Cause Theory for a great number of consumers, but to carry out the experi- ments necessary for obtaining the requisite data will probably require several years' time. In applying the Use Theory, however, we have all the neces- sary data, for in this calculation the individual consumer pays investment charges in accordance with the service rendered him, or bv his K. W. H. consumption as shown by his meter readings. But while this calculation may be correct for the individual so far as it goes, we have no means of determining how far the result should be modified by his peak responsibility, i. e., by the Cause Theory. In this class also it will be found that the Expediency Prin- ciple is a very powerful factor, and that undoubtedly if a strictly average cost to serve rate were adhered to, large portions of the business would be lost, causing in the end an increase in rate to those consumers who would remain. 1/ V "f ■ 7 What, then, must be done, for the problem must be solved in some way? The writer would suggest that after eliminating from the class certain obviously exceptional sub-classes the Commission fix a maximum class rate somewhat above the average class rate, to compensate for reduced rates made to meet the varying conditions of "expediency" and "cost to ser\^e." From this maximum rate for the class such variations must be made, by discounts or wholesale prices, as may seem best to fit the exist- ing conditions; having always in mind that the class as a whole must produce the amount of income assigned to it ii^ the class rate calculation. WHOLESALE RATES. In the former report on Analysis of Rate Calculations the writer has taken the position that wholesale rates 'per se, are not justifiable in the charges of a public service corporation (see page 38, Report August 25th, 1910), and that differenti- ation of rates can only be justified on the "cost to serve" or "expediency" principles. This position seems theoretically cor- rect. But in devising some plan by which the Company may meet the existing conditions in the application of these two principles to Power and to Business Light, the Commission finds itself confronted with the alternative of allowing rates or contracts to be made especially for certain individual consum- ers, or of establishing some scheme for wholesale rates or dis- counts to roughly meet the requirements of the situation. It seems unavoidable, then, that here, as at many other points in rate making, theory must be sacrificed somewhat for the sake of practical results, for it is an established principle that in public service there should be no opportunity for per- sonal discrimination, and that rates and schedules should be published and should apply to any or all consumers who com- ply with the conditions. Apparently, about the only possible plan for meeting this situation is by some system of wholesale prices, although it is evident that so soon as we institute concessions or discounts on account of quantity alone we lose sight of actual "cost to serve." We can, however, obtain some guide to the proper applica- 20 Aptendix C Appendix C 21 tion of the Expediency principle by inquiring what low prices must be established to prevent power and light of large con- sumers being transferred to other sources than the central sta- tion to such an extent as to injure the whole body of the remain- ing consumers. The question, to a great extent, is to determine what axe the competing sources of light and power, at what quantity of consumption the competition begins, what prices must be made to meet this competition and at what point it is to the best interest of the consumers as a whole to allow the business to be taken from the central station company. Data on these points is now being collected for the Commission and will be submitted when required. Having fixed these competing points in the rates, and having decided upon the quantity of consumption at which they be- come effective, it remains to make such compensating allow- ance in establishing the maximum rate as will insure the proper income from the whole class. The writer is aware that the study of this and the former report on rate calculations shows that rate making is not an exact science, yet a review of the conclusions to be drawn from both reports makes it apparent that certain rates may be calcu- lated with at least approximate accuracy and justice. Recapitulating from the former report and adding conclus- ions to be drawn from present report, we have the following : CONCLUSIONS. First : Neither the Connected Load nor the Maximum De- mand of the consumer are rational factors to enter into Cost to Serve rate calculations. Second : If the Use Theory alone is applied, the Investment Charge will distribute itself into a level K. W. H. charge, and the only differential element will be the application of the Cus- tomer Charge. Third : There is at present no practical method of obtaining data for calculating individual Cost to Serve rates according to the Peak Responsibility or Cause Theory, and any calcula- tion on this theory must be based upon Class Factors. 9 C/ 1 2 i V 1 r r > H Fourth • For the general good of the consumers it may be necessary to modify Cost to Serve rates on the Expediency principle. Fifth- By using the records of feeders on which certain classes or portions of classes have been segregated, it is possible to obtain satisfactory data as to the class peak responsibility for some classes. Sixth- On account of close similarity in results in this ca^e of Cause Theorv calculation and Use Theory calculation^ there is no great difficulty in assigning rates taking both theories into account. Seventh: Customers' Charge is an exceedingly important factor in establishing residence rates, and items admitted to the charge need to be closely scrutinized. Eighth : In Residence Lighting it is possible to reach tol- erably accurate results under both Cause Theory and Use Theory, and these rates are justly applicable to the individual. Ninth : Correct Power rates can be calculated, but will have to be adjusted to meet "Expediency" conditions. Tenth : In the Business Light class. Cause Theory rates for the variety of services under that head cannot be calculated closely with present available data, but Use Theory rates must be taken as a base to work from, and adjustments made ac- cording to judgment and "expediency" conditions. Respectfully submitted, JAMES E. ALLISON, Commissioner and Chief Engineer. I COLUMBIA UNIVERSITY This book is du« on the date indicated below, or at the expiration of a definite period after the date of borrowing, as provided by the rules of the Library or by special ar- rangement with the Librarian in charge. j DATE BORROWED DATE DUE DATE BORROWED DATE DUE 1 »y i. b 1 ji-. ^ ( 1 1 } I ! i 1, 1 1 1 ■ t ^ .. I C2a(63a)M50 ^ < * ^■' V ^: '^ A \ ( f / V (I H ¥ f k > > 550.7 Sa 2 St. Louis. Pub. Serv. Conm. Rept...on rates of eleotiic light and power Mo?^ OCI MJI^ n COLUMBIA UNIVERS TY LIBRARIES 0044269650 #1 J I SEP 6 1939 END OF TITLE