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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: Water Power Development Association Title: Facts about water power Place: [ N e w Yo r k] Date: [1916] COLUMBIA UNIVERSITY LIBRARIES PRESERVATION BIBLIOGRAPHIC MICROFORM TARGET MASTER NEGATIVE « { ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD f oUSIN 550 W29 ES8 "^Tater power development association. Executive conunittee* Facts about v/ater povrer, shov/ing the extent of this natural resource in the United States, the limited present development especially at sites where federal permits arc required, and the de- mand for further devolopmont under adequate lavrs, (Vfith an analysis of tho "Morrill" report on electric poiver dovclopmont. Senate document no. 316, 64th Congress, 1st session^ 1916) Prepared by tho Executive committee of tho Water povTer development association •.. H. Vf, Hand, chairman, • .. tNevr York, Evo-/^^ning post job printing office. 1916?, ' 1 pA.,74 p. tables. 23^"* RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE:^^mY\ REDUCTION RATIO: I? 1 IMAGE PLACEMENT: lArTlA^IB IIB DATE FILMED: H 23 ^^ INITIALS: 1^l6 TRACKING # : ffiJH OB&'J^ FILMED BY PRESERVATION RESOURCES, BETHLEHEM, PA. CO .'^ A^ ^ ^i^^ ^^^7^ a^ 00 CJl 3 3 O > IS N CO 00 on ^^ OOISI O CJl 3 3 > o m CD O 6q en < N ^: =3 'S: 1.: »■ > .V ^ § A^i .-V^ -9:^ a? ^^. 01 ^: .> ^1 Ul o .-v*- Ul A* 'v'V a^ 8 3 3 to O Is Is Is Is c>> S ig to k) 1.0 mm 1.5 mm 2.0 mm ABCDCfGHUKLMNOPQRSTUVWXY? *bcdrtghi|klmnopqrstuvwi ^cr ^T^ fo f^ ^tr •*/ 'A> ^v ^^ 4^ # fp 'f^ m o Tj m "o > C u I Tl ^ m 3D O m '* j CJl z 3 3 5.0 1° Of li ODIM 8 4-> ^ /^ FACTS ABOUT WATER POWER Showing the Extent of this Natural Resource in the United States, the Limited Present Development Especially at Sites Where Federal Permits are Required, and^he Demand for Further Development under Adequat|(, Laws (With an Analysis of the ••Merrill** Report on Electric Power Develop- ment, Senate Document No. 316, 64th Congress, 1st Session, 1916) * pi i PREPARED BY THE EXECUTIVE COMMITTEE OF THE WATER POWER DEVELOPMENT ASSOCIATION Munsey Butldina, Washington, D. C. M ts H. W. HAND, Chairman of Executive Committee (Vice President and General Manager of I. P. Morris & Co., Philadelphia, Pa.) CALVERT TOWNLEY. Vice Chairman tant to the President. Westinghouse Electric Sc Manufaccurine Company. New York. N. Y.> W. W. NICHOLS. Treasurer (Assistant to Chairman, AUis-Chalmers Manufacturins Co.. New York. N. Y.) CHESTER W. LARNER (Hydraolic Ensineer. Weliman-Seaver-MorKan Co., Cleveland. Ohio) J. E. WAY J. E. WAY (R. Thomas & Sons Co., Eas^ Liverpool, ph|o> , ^ • • - r I < k > • • 1 ' • , , . » t . f » * ' • ••• , • t, » <«.••■> U.S 3 5i"0 y In FACTS ABOUT WATER POWER INTRODUCTION. In February, 1915, at the request of Senator Borah of Idaho the United States Senate adopted a resolution (Senate Resolution No. 544) as follows: "Resolved, That the Secretary of Agriculture be, and he is hereby, directed to furnish the Senate with all information in his possession as to the ownership and control of the water power sites in the United States, showing what proportion of such water power sites is in private ownership and by what companies and corporations such sites in private ownership are owned and controlled, what horse-power has been developed, and what pro- portion of it is owned and controlled by such private companies and corporations, and any facts bearing upon the question as to the existence of a monopoly in the ownership and control of hydro- electric power in the United States." In introducing this resolution Senator Borah said: "Mr. President, this Resolution is directed to the Secretary of Agriculture. Ordinarily it would not go there; but I am informed that the Bureau of Forestry is in possession of some very import- ant information in regard to this matter and that that Bureau would be glad to furnish the informa- tion if it were given an opportunity to do so. For that reason the resolution is directed to the Secretary of Agriculture." Nearly a year later, on January 17, 1916, the Sec- retary of Agriculture transmitted a report to the Senate with the following statement: "In accordance with the provisions of Senate resolution No. 544, passed by the Sixty -third Con- gress, third session, I have the honor to transmit herewith the information in my possession as to • i I « t • • •• • t.ai • » the ownership and control of the water power sites in the United States; * ♦ ♦". The report referred to in the Secretary's letter was ordered to be printed by the Senate (Senate Document No. 316, 64th Congress, 1st Session), and is entitled *^Electric Power Development in the United States". The report is in three parts, two of them voluminous and containing elaborate tables and charts. The order to print was given by the Senate February 8, 1916, but only Part I containing summaries and conclusions was issued at that time. These summaries and conclusions conse- quently received wide public attention before their origin and bases could be subjected to critical examination. Mr. Gilford Pinchot immediatelv sent a letter to the newspapers of the countrj^ quoting the report in support of his opposition to pending water power legislation and saying : "The water power men charge that conservation hampers development. The admirable recent re- port of Secretary Houston (Merrill) shows, on the contrary, that the most rapid development is in the National forests, where conservation is best enforced. On the other hand, 120 public service corporations own and are holding undeveloped and out of use an amount of water power equal to four-fifths of all there is developed and in use by. all the public service corporations in the whole United States." A newspaper summary issued from the Agricultural Department (January 20, 1916) after describing the re- port as "presenting in far greater detail than has ever been attempted before an exhaustive analysis of the general power situation", said : "The report states that 18 corporations control more than one-half of the total water power used in public-service operations in the United States, while six corporations control more than one- fourth. The character of this control is definite and complete. Further relationships through common directors and principal officers are dis- closed and tabulated." Numerous comments appeared in the newspapers of the country showing the misleading effect of the publi- cation of Part I without accompanying data; the fol- lowing is a sample : "The report shows that 156 monopolies are in the field, and that these are related. There was in 1912 an apparent investment in commercial water power stations of $2,000,000,000, or |301 a horse-power. The municipal investment is $77,000,000, or $138 a horse-power. The inference is that the private monopolies are over-capitalized. In 1902, 11.2 per cent, of the water power de- veloped in this country was in commercial stations ; in 1912, it was 23.8 per cent., or more than double. In 1912 commercial interests controlled 50 per cent, of the developed water power in the mountain states and 54 per cent, in the Pacific states. Three years later their control in these two sections was 90 per cent." (Indianapolis News, February 25, 1916). Part II containing the statistical showing of the re- port did not come from the printer until May, and Part III containing tables and charts dealing with interrela- tions between public service corporations was not publicly issued until the middle of August. Not until the latter date therefore was it possible to examine the report as a whole and estimate its trustworthiness and authority. Such an examination has now been made, and the result appears in the following pages. The report has come to be known as the "Merrill report" because it was prepared by and rests on the sole authority of Mr. O. C. Merrill, Chief Engineer of the Forest Service. This is made clear in the letters of trans- mittal. The Forest Service is the bureau in the Agri- cultural Department referred to by Senator Borah: it has to do with water power matters because of applica- tions for the use of forest lands for water power pur- poses. Mr. Gifford Pinchot was formerly head of this service, and Mr. Merrill's appointment as Chief Engineer was made upon his recommendation. As Chief Engineer of the Forest Service Mr. ^Merrill has charge of a con- siderable corps of engineers and assistants whose duty it is to pass upon applications for water power permits on the forest lands. Pending water power legislation, op- posed by Mr. Pinchot and Mr. Merrill, would transfer this authority to the Interior Department. The report makes no pretense of containing original research, except an effort to trace water power develop- ment since 1912, the latest year covered by the Census Bureau reports. For the most part the Merrill report consists of deductions and arguments based upon statis- tical data appearing in Census Bureau reports and in leading unofficial manuals containing information as to the organization of corporations and public service and banking concerns. Although the report contains 1,069 pages besides numerous plates, charts, etc., accompanying the text or separately enclosed, it does not directly ansuoer the ques- tions propounded hy the Senate, nor does it even in- directly answer the inquiries naturally involved in Senator Borah's resolution. The report does not in fact purport to deal exclusively with the subject covered by the resolution, namely water power sites and hydroelectric development. The report 5 is entitled "Electric Power Development in the United States", and is described by its author (Part I, page 11) as follows: "The report deals with the amount of de- veloped power in all the States, whether water power, steam power, or gas power, and whether developed by public service corporations, by in- dustrial corporations, or by municipalities. The inquiry has been made thus extensive because only by such means can a clear understanding be had of the relation of water power development to gen- eral power development and of the movement to- ward concentration of control in the electric-power industry." This statement of itself shows that the report is not responsive to the Senate resolution. It deals with steam power and gas power besides water power, although the Senate asked for no information regarding these. Only a small portion of the report deals with water power alone. The reason given for including steam power and gas power is stated to be that only by such means can a clear understanding be had of the relation of water power development to general power development (concerning which relation the Senate made no inquiry) and of the movement towards concentration of control in the elec- trical power industry (concerning which also the Senate made no inquiry whatsoever). A critical examination of the report must accordingly inquire whether the Senate resolution could not have been answered directly and simply; and also whether or not the author's additional and voluntary analysis of the electrical industry is accurate and reliable. In the following pages it will be made clear that the questions asked by the Senate are in fact pertinent and important, that they could have been answered directly and simply, and that truthful and accurate answers I! 6 I' would have thrown mach light upon the subject of water power legislation with which Congress is and for a long time has been endeavoring to deal. It will also be shown that the report's analysis of the electrical industry is not accurate and reliable, but is on the contrary- exceedingly inaccurate and misleading. It will be made clear also that both in his indirect response to the Senate resolu- tion and in his voluntary analysis of the electrical indus- try Mr. Merrill has tinged his report, official as it is, with a very evident bias in favor of certain well known views held by Mr. Pinch ot and other opponents of pending water power legislation, as well as with a very evident prejudice against the modern system of organization and operation of the public utility corporations of the countrv. It is fully realized that this is a serious criticism of an official report, not to be uttered unless sustained ; but it is equally true that nothing can be more damaging than to permit biased and prejudiced assertions and faulty deductions to be spread broadcast with all the authority accorded to official statistical utterances without at least pointing out their errors and submitting to impar- tial public judgment the result of their critical examina- tion by competent persons. The development of the water power resources of the country has been almost at a standstill for a long time, although American engineers have brought to a high state of efficiency the art of hydroelectric generation and transmission ; although American financiers and business men are willing to devote an enormous volume of capital to such development; and although the yet undeveloped water power resources of the country are reliably esti- mated at more than 50,000,000 horse-power capacity. The explanation is that existing development has very largely exhausted the water power opportunities commercially available at sites not requiring Federal permits. Water power development in navigable streams and on the public lands of the United States require such permits in every case. Federal laws au- thorizing such permits either do not exist, as in the case of navigable streams, or are unsuitable and inadequate as a basis for large investment, as in the case of water power sites on the public lands. The passage by Congress of laws permitting, under suitable safeguards, the development of available water power at sites requiring Federal permits would result: First: In the construction under Government supervision but without cost to the Government of navigation facilities vastly improving water- ways now used for transportation and opening up for navigation thousands of miles of waterways not now navigable. Second: In creating in connection with such navigation improvements an enormous total of hydroelectric power to be used in making nitrate fertilizer to supply at low cost the farmers of the South and East. Third: In beginning great construction works which would use capital now idle and keep it in this country against the competitive demands of European countries rebuilding at the close of the war, and against further competition from at- tractive investment opportunities in South Amer- ica and elsewhere. Fourth: In beginning great construction works which would employ many thousand men, skilled and unskilled. Fifth: In the development in connection with such navigation improvements of hydroelectric power for the operation of railroads by electricity with added comfort to passengers and enormous savings of labor, fuel and operating expense, thereby vastly improving the financial situation 8 9 ; i» of the railroads without increasing the expense of shippers. Sixth: In enabling this country to take the lead in producing "electric steel" at low cost and in enormous quantities, "electric steel" bringing into use low grades of ore heretofore econom- ically excluded. Seventh: In irrigation developments depend- ent upon cheap power for pumping purposes and upon water storage, both supplied in connection with navigation improvements. Eighth: In preventing floods through regula- tion of stream flow by reservoirs and other navi- gation improvements constructed without cost to the government. Ninth: In retaining in the United States the energy, skill and capital of Americans who, if restrictive laws continue, will be forced, as some already have been, to seek and develop hydroelec- tric power for their uses in Canada, Norway and other foreign countries. Congress has not failed to realize the importance of this matter, and for years has been endeavoring to deal with it. Lack of full information has been one of the prime difficulties. Senator Borah's resolution asked for facts requisite to an adequate understanding of the subject. The failure of those to whom the inquiry was directed to reply directly and simply is, in view of these circumstances, exceedingly unfortunate. The information asked for has been in a large degree secured from competent engineering authority and is supplied in the following pages. It is here briefly sum- marized as follows: 1. The Senate inquired: What proportion of the water power sites in this country is in private owner- ship? Answer: The total capacity of all water power sites in this country developed and undeveloped (without stor- age) is estimated by competent engineering authority at 60,700,000 water horse-power. Of this total capacity 46,900,000 water horse-power (developed and undevel- oped) are at sites requiring Federal permits and there- fore under public control, while 13,800,000 water horse- power, developed and undeveloped, are at sites privately owned and not requiring Federal permits for develop- ment. The proportion of such sites in absolute private ownership is therefore 22.8 per cent, of all sites. Devel- opment has how^ever already taken place at sites requir- ing Federal permits to the extent of 1,835,903 water horse-power. The permits issued have in a large meas- ure retained public control, but if all sites developed with the use of private capital are regarded as having passed to private ownership and control the total capac- ity of sites in private control, developed and undevel- oped, would be 15,635,903 or 25.7 per cent, of all avail- able sites. This is the highest possible estimate of water power sites in private control, and shows that nearly three-fourths of available sites developed and undevel- oped are in public control, a fact not brought out by Mr. Merrill but having an important bearing on the question of existing or possible water power monopoly. 2. The Senate inquired: By what companies and corporations are such sites in private ownership owned and controlled? Answer: A list of such companies would be of great length, showing great diversity of ownership and con- trol. It would include innumerable riparian owners, owners of mines, quarries and manufacturing plants throughout the country as well as owners of public util- ity enterprises. The report names 226 separate and dis- 10 11 i: I i tinct companies which it says control 4,470,570 developed water horse-power, or an average of 19,781 water horse- power each. This list alone shows diversity of ownership. Yet it accounts for less than a third of the water power sites developed and undeveloped held in private owner- ship. To answer the Senate's question fully there would have to be added to the long list given in the report the much longer list of riparians of all sorts, showing as stated great diversity of ownership of water power sites in private ownership developed and undeveloped. This fact is not brought out by the report though it is ex- ceedingly significant as bearing upon the question of existing or threatened power monopoly. 3. The Senate inquired : What water horse-power has been developed. Answer: Mr. Merrill takes from the census of 1912 and certain other data the estimate of 4,870,820 water horse-power as the total then developed and says that a census under his direction (chiefly from manuals issued annually by leading private authorities) shows an additional 1,668,114 water horse-power developed down to January 1, 1916 (Part I, page 12). The total is 6,538,434 water horse-power. The Avater power development listed by Mr. Merrill in his various tables amounts to only 5,321,699 water horse- power (Part II, page 66, Table No. 53), and this is the total he deals with in most of his comparisons. No recent official figures of present water power develop- ment are available other than those presented by the report. It is probable that a complete census of present water power development would show a considerable aggregate of additional water horse-power developed in small plants at private sites not requiring Federal per- mits and not listed in the Merrill report. The extent of development in small private plants could only be discovered by such a census. In the present discussion it has therefore been necessary to use the development figures presented by Mr. Merrill although the total devel- opment in the country including small private plants is doubtless somewhat larger than he indicates. As will presently be shown, the most significant fact regarding water power development in this country is the relatively large development which has taken place at sites not requiring Federal permits compared with the relatively slight development at sites requiring Federal permits. If complete development figures including the small private plants were available the contrast between the two classes of development would be even more striking. Mr. Merrill's estimate of 6,538,434 water horse-power developed shows a present development of 10.7 per cent, of the available water power. The total listed in his tables shows a development of only 8.8 per cent, of the available water horse-power. Either figure is eloquent of the failure of adequate development under existing laws. This failure is still more striking when existing de- velopment is examined under proper classification. Of existing developments listed in the report nearly 3,500,000 water horse-power have been developed at sites not requiring Federal permits, while less than 2,000,000 water horse-power have been developed at sites requiring government permits. In other words, nearly twice as extensive development has taken place at sites not re- quiring government permits as compared with develop- ment at sites requiring such permits, in spite of the fact that the available water power at sites requiring such permits is 46,900,000 water horse-power (developed and undeveloped) as against only 13,800,000 water horse- 12 18 I I' I power (developed and undeveloped) available at sites not requiring such permits. The available water power at sites requiring Federal permits is 77.2 per cent, of the entire water power available, but only 34.4 per cent, of existing development has taken place at such sites. On the other hand, the available water power at sites not requiring Federal permits is only 22.8 per cent, of all water power available, yet 65.6 per cent, of existing de- velopment has taken place at such sites. Again, only 3.9 per cent, of the water power available at sites requiring Federal permits has been developed while 25.2 per cent, of the water power available at sites not requiring such permits has been developed. In the western states where water power development has been most extensive less than two per cent, of the available water horse-power at sites requiring Federal permits has been developed, while more than 60 per cent, of the water horse-power available at sites not requiring Federal permits is already being utilized. The report does not bring out these facts, though they place beyond controversy the fact that water power development in this country has been held back and paralyzed by lack of Federal authority under the laws to grant such permits. 4. The Senate inquired : What proportion of existing developed water power is owned and controlled by pri- vate companies? Answer: Almost all the water power development listed in the report has been the work of private com- panies and corporations. Much is said by Mr. Pinchot and his associates of the desirability of water power de- velopment by municipalities and other public agencies, but the Merrill report itself shows that less than three per cent, of existing water power development is due to such public agencies. This is extremely important and sig- nificant, as showing the necessity of bringing in private capital if real and extensive development of water powers are desired. 5. The Senate asked for: Any facts bearing upon the question as to the existence of a monopoly in the owner- sliip and control of hydroelectric power in the United States. Answer : The facts bearing upon his question indicate that no such monopoly exists and none is threatened. Of the 60,700,000 available water horse-power in the United States at the highest estimate (that of Mr. Merrill) only 6,538,434 water horse-power have been developed, 10.7 per cent. If the entire development were in the owner- sliip of a single corporation it would not constitute a monopoly of available water power or anything approach- ing such a monopoly. Moreover, as will presently be shown, the ownership and control of the developed water power of the country is widely distributed. Mr. Merrill in his search for evidences of water power monopoly presents a list of 18 corporations which lie says control 51 per cent, of the hydroelectric power used in public service operations. His estimate of the amount of hydroelectric power used in public service operations is 4,609,787 water horse-power. His assertion therefore is that 18 public service corporations control 2,350,991 water horse-power out of 6,538,434 developed water horse- power or a little over 35 per cent. If the 18 corporations he names were owned and controlled by a single interest it would not constitute a monopoly of existing developed water power in any accepted sense of the term, especially in view of the enormous available water power open to development by competitors whenever the government chooses to allow such development. Moreover, the 18 corporations are large, independent concerns, which have 14 developed water powers for use in the course of tbeir regular public utility service in widely separated sections of the country. They are the great public utility hold- ing companies, furnishing light, power and street railway transportation in the populous centers. While they are not competitors in service of given localities they are active competitors in securing the location of power using industries near their plants and also in the purchase and management of local utility enterprises under the modern conditions surrounding the public utility business. Mr. Merrill, in his search for evidences of water power monopoly, gives Stone & Webster as the concern "con- trolling" more water power than any other corporation, but he only ascribes to Stone & Webster the control of 340,211 water horse-power, or 5.2 per cent, of the amount he says has been developed. This, of course, does not even approach monopoly. These estimates bear on the question of hydroelectric monopoly by showing it does not exist. There are other facts leading to the same conclusion. It is well known that the great present demand for authority to develop water power does not come from public utility concerns alone or even principally. Hydro- electric development is being sought in order to produce power with which to operate railroads now operated by steam, to make electric steel, to use in the electro-chemical industries, to make fertilizer by means of nitrate fixation from the atmosphere. The tendency is toward diversity of use and ownership, not toward monopoly or concen- tration of control. The report does not mention these facts, but they are most significant as bearing upon the question of hydroelectric monopoly. They show that such monopoly not only does not exist, but that the tendency is in exactly the opposite direction. 15 The foregoing deals with the Senate resolution and the Merrill report so far as they relate exclusively to water power. It has been shown that the Senate in- quiries were based on a real need of information, that they were pertinent to an existing controversy of great moment to the country, that they could have been an- swered directly and simply, and that truthful and ac- curate answers would have cleared up existing doubts, informed the Senate and the country authoritatively of the stagnation of water power development under exist- ing laws, dispelled the fear of stimulating or creating water power monopoly and opened the Avay to beneficial development. Facts and figures sustaining the answers here given are set forth in further detail under appro- priate headings in the succeeding pages. The report however does not deal with water powers exclusively or even chiefly. It contains a supposed analysis of the electrical industry and fully eighty-five per cent, of its text deals not with water power, but as the author states with "all power all uses". Careful examination of the report as a whole forces the conclusion that the report not only fails to answer the Senate resolutions but contains, in fact, an elaborate effort to support certain views urged by opponents of pending water power legislation, particularly the fre- quently expressed views of Mr. Gifford Pinchot, formerly Chief Forester, who has been actively at work during the present Congress to defeat pending water power legisla- tion. The Senate asked for information and received an argument; in no other way is it possible to explain the extraordinary manner in which Mr. Merrill has dealt with the impartial statistical information contained in the Census reports, garbled portions of which he has. chosen for presentation; his curious extension of the 16 17 19 ! f scope of his inquiry beyond that covered by the resolu- tion; his rapid and confusing changes from comparison with what he terms "all power all uses" to comparisons with power used in public service operations only; his wholly misleading and unscientific use of percentage cal- culations; and his apparent willingness to base his sum- maries and conclusions upon data which he himself de- scribes as incomplete and liable to error. Mr. Pinchot for instance has repeatedly insisted that water power development at sites requiring government permits has proceeded in a satisfactory manner under existing laws. The report labors to support this con- tention although the fact, as has been indicated and as the data hereafter presented conclusively show, is exactly the contrary. Mr. Pinchot continually declares that a "water power trust" either exists or is threatened. The report is skillfully arranged to present an impression of great "concentration of power control" although, even to seem to support this theory, dealing with water powers alone had to be abandoned and a vast volume of the report given over to statements regarding power development in general and the listing of many companies having no con- nection with water power development of any kind or nature. Mr. Pinchot again has repeatedly urged that govern- ment or municipal ownership and operation of water powers should be preferred to development and operation by the use of private capital. The report contains a "study" of municipal operation which labors lo exhibit it in a favorable light, although to do so it was necessary to "study" certain portions of official reports on the sub- ject meanwhile ignoring the remainder of the same reports which contained facts and figures less favorable to munic- ipal operation. In the following pages the data upon which the fore- going answers to the Senate resolution are based will be presented under appropriate headings. Thereafter the Merrill report will be examined as a whole, its principal arguments analyzed, some of its errors of method and fact pointed out, and in addition as far as may be pos- sible a clear statement will be made of the growth, organi- zation and financial and public relations of the public utility business a distorted view of which has been voluntarily included in the report. Briefly stated the latter examination will show that Mr. Merrill has utilized a major portion of his report in presenting in a false light with frequent and glaring errors, the public utility business as modern demand for service has required it to be organized. The rapidity of its growth, the extent of service rendered, the facilities created, the financial achievements which have made such •growth and service possible, the efforts of some of its leaders to develop a new source of power in spite of diffi- culties to use in public service, are all set forth as evidences of "concentration of power control". Mr. Merrill shows his prejudice against public utility concerns by inserting in his report unsupported state- ments involving tlie good faith of those who conduct the great electrical industries of the country; he concludes that electric plants municipally operated are "more con- servatively financed" though his own figures show that they are extravagantly operated; he makes absurd de- ductions concerning the profits of electrical enterprises and by calculating annual earnings per horse-power without regard to load factor reaches a maximum of futility and error. The facts are that modern demand for service has been met in the public utility business by modern methods of efficiency in organization, financial management and 18 physical operation. Inefficient operation with insufficient capital has been largely replaced by expert management and capital for continuing improvement and extension of service has been secured by so organizing the business as to permit it to compete in the money markets for its portion of the investment funds of this and other countries. By this means more than ?!8,000,()00,000 of investment have been brought to the service of the people of the cities and suburban districts of the country. By this means not only has service been created, improved and extended, but also its cost to the consumer has been constantly reduced. Meanwhile the return to the in- vestor in public utility enterprises has been moderate- sometimes greatly inadequate— and all dangers from monopoly or "concentration of controP' have been obliterated by public regulation of rates and service now in vogue in nearly all the states. It is hoped that those who desire to know the truth about water power or about the public utility business will examine the following pages before accepting as reliable the statements of the Merrill report even though they have been issued under official sanction. |ti I. Water Power Sites Under Private Ownership and Control. In order clearly to answer the Senate's inquiry as to what proportion of water power sites are under private ownership and control it is necessary first to ascertain what water power sites there are in this country. Several estimates of the potential water power resources have been made. The researches of the United States Geological Survey in 1908 placed the total, without con- sidering storage possibilities, at 36,916,250 water horse- power minimum flow and 66,518,500 water horse-power maximum flow. This estimate was reviewed in 1912 by the Commissioner of Corporations who concluded that the totals should be reduced to 32,083,000 water horse- power minimum and 61,678,000 maximum. These figures are again reviewed by Mr. Merrill, who estimates the potential water power resources of the country at 27,- 943,000 water horse-power minimum and 53,905,000 water horse-power maximum. A competent engineering authority has recently com- piled from all available official data an estimate by states of the potential water power resources of the United States and of each state, showing a maximum potential water horse-power for the United States (without stor- age) of 60,713,200. The term maximum potential water horse-power is used to represent the amount to which the sites would be developed in practice and is based on the assumption that on a country-wide average it will pay to develop any water power site up to a capacity equivalent to the lowest flow during the six high water months of the year. As development always equals and 20 frequently exceeds the theoretical maximum potential water horsepower the maximum figures are properly taken for purposes of classification and comparison. The following table, prepared as stated by competent engineering authority from official records, shows in the first column the maximum potential water horse-power of the United States and the several states, developed and undeveloped. The table also contains a classification of these water power resources. The second column shows the maximum potential horse-power developed and un- developed at sites in navigable streams and on the public domain (where Federal permits are required for develop- ment) ; the third column shows the percentage such sites bear to the total available water horse-power ; the fourth column shows the maximum potential water horse-power, developed and undeveloped, at sites not .requiring Fed- eral permits, and the fifth column shows the percentage such sites bear to the total available water horse-power. The table is as follows: 21 TABLE No. I. Potential Water Horse-power of the United States, and OF THE Several States, Developed and Undeveloped, WITH Classification. Place. United States... Maine New Hampshire Vermont **Mas8achusett8. . . Rhode Island Connecticut New York Pennsylvaoia.... New Jersey Maryland VirfTinla , West Virginia North Carolma.. South Carolina.. Georgia Florida Alabama , Mississippi Tennessee , Kentucky Ohio Indiana Illinois Michigan Wisconsin Minnesota Iowa Missouri Arkansas Texas Oklahoma Kansas Nebraska North Dakota.... South Dakota.... Montana Wyoming. Colorado New Mexico Arizona Utah Idaho Nevada California Oregon Washington Maximum potential water h.p. 60,713,200 916,000 - 901,000 4.242.000 849.700 117,600 210,500 976,000 892,000 1,090,000 766,000 699,900 28,100 1,070,000 71.000 862,000 210 400 201,000 188,000 441,000 332.000 758.000 560,000 483.000 184,(K)0 69,000 62.'),000 235,500 817,500 414,0((0 234,000 95,000 4,890,000 1,470.000 1,925,000 497,000 1,930,000 1,490,000 2.910,000 312,000 8,866 000 7,.'«)5.000 9,990,0(J0 Federal permits required. 46,91 8.','00 76,000 60,000 8.0.35,000 2!?8.300 * "14,666 150,000 409.000 275,400 40,700 24:<,000 8,000 648,100 463,966 89,591) 85,700 i43',466 155.666 264.000 229.000 60,300 30.000 120.000 19.500 58,400 10,000 4,610,000 1,410,000 1,785,000 452,000 1,885,000 1,413,000 8,780,000 292,000 8,355, ("00 7,320.000 9,700,000 Per- centage. 77.2 8.8 6.7 71.6 88.4 6.5 15.4 45.8 25.2 5.8 34.8 84.6 60.1 'ss'.k 42.6 17.7 '82.5 '26.5 47.2 52.9 32.8 43.5 19.2 8.8 16.8 10.5 94.8 96.0 92.8 91.0 97.7 94.8 95.5 98.6 94.3 97.5 97.1 Federal permits not required. 13,800,0(0 840.000 841,000 1,207.000 56t>,400 117,600 196.500 826.(K)0 48:^,000 814,600 725 3iX) 456,900 15,100 426.900 71,000 898.100 120,900 165.300 133.000 297,600 832,000 608,000 296.<»00 204,000 123.700 39,000 505.000 216,000 264,100 414,000 234.000 85,000 280.000 60,000 140,000 45.000 43.000 77.000 130.000 20.000 •510.000 185,000 290,000 Per- centage. 22.8 91.7 98.3 28.4 66.6 100.0 98.5 84.6 54.2 74.8 94.7 65.2 65.4 39.9 100.0 46.2 57.4 82.3 100.0 67.5 100.0 .5 .8 .5 .8 .7 79. 52. 47.1 67.2 56. 80. 91. 88.2 100.0 100.0 89.5 5.7 4.0 7.2 9.0 2.8 5.2 4.6 6.4 5.7 2.5 2.9 The most important streams of this region drain two or more states. The official records from which the data for this table were taken give summary estimates for the streams as a whole, and make no designation as to state jurisdiction; therefore, these nve states are grouped together under one estimate. ^^ 22 I . The foregoing table shows that of the available water horse-power of the United States 46,913,200 water horse- power, or 77.2 per cent., are so sitnated as to reqnire Fed- eral permits for development, and that 18,800,000 water horse-power, or 22.8 per cent., are so situated as to be capable of development without such ]>ermits. Strictly speaking, the latter tigure represents the total water horse-power which can be sai sites where de- velopment has taken place under Federal permits, although such permits in a large measure retain public control) is 15,G35,90t^ water horse-power. The ownership of these sites is gi*eatly diversitied. Only about one- fourth of these sites are owned by companies or corpora- tions important enough to be found in a search through the leading manuals dealing with such matters, yet even these make up a list of 22G names. A complete list would have to include riparian ownei*s, ownei*s of mines, quar- ries, farms, small manufacturing plants, too numerous to catalogue. The names could not even be secured without searching the title records in the counties of the several states. The striking featui^e of any such list if it could be secured would be the great diversity of ownership shown therebv. This would have answered the Senate's question sim- ply, directly and truthfully, but it would not have assisted in showing "concentration of water power control" nor the existence or threat of a **water jmwer monopoly". III. Wateu Power Devei^opment i\ the Ignited States. The Senate asked : What water horse-power has been developed in the United States? Mr. Merrill takes from the Census reports for 1912 and certain other data an estimate of 4,870,320 horse- power as the water power development in the United 31 States to that time. He also says that a special census taken for his report shows an additional 1,668,114 water horse-power developed in the years 1913, 1914 and 1915. This would give a total of 6,538,434 as of January 1, 1916. There is reason to believe however that his so-called census is not correct. He himself says (Part I^ page 18) that his data for recent development "has been secured from the McGraw Electrical Directory, April, 1915; The McGraw's Electric Railway Directory, August, 1914; Moody's ^Manual of Railroad and Corporation Securities, 1915; Poors Manual of Public Utilities, 1914; reports of the several state public utilities commissions; reports of the (ieological Survey and of the Engineers of the Forest Service; engineering periodicals; and an ex- tended correspondence with power companies. He adds tliat, ''the different tionrces of information do not always af/rec, hut in case of d\sa(freemcnt that information which seems the most reliable ha^ been used^\ The fact is that complete and satisfactory figures showing the extent of water power development in this country are nowhere available. Mr. Merrill notwith- standing his general statement lists only 5,321,699 de- veloped water hoi-se-power. This does not include nu- merous relatively small developments at private sites which would considerably increase the total. Neverthe- less Mr. Merrill's statements of developed water horse- power are the only ones available which are recent and official and therefore have been used in the absence of anything better in the discussion and analysis following. The following table shows the maximum potential water horse-power in the United States and in the several states, the total water horse-power developed in the United States and the several states (as set forth in the report ) and the percentage such development bears to the maximum potential water horse-power. The table is. as follows: I 32 TABLE No. III. Developed Water Horse-Power in the United States and THE Several States, as Shown by Mr. Merrill. I 1| United states.... Maine New Hampshire Vermont Massac liusetts. . . Rhode Island. .. Connecticut New York Pennsvlvania — New Jersey Maryland Virginia We^t Virjfinia.. North Carolina. South 'Jarolina. Georgia Florida Alabama Mississippi Tennessee Kentucky Ohio Indiana Ulinois Michigan Wisconsin Minnesota Iowa Missouri" •••.... Arkansas Texas Oklahoma Kansas Nebraska North Dakota.. South Dakota.. Montana tDelaware tLouisiana Wyoming Colorado New Mexico Arizona Utah Idaho Nevada California Oregon Washington — ♦•Maximum potential water horse power. 60,718,200 916,000 901,000 4,242,000 849.700 117,600 210,500 976.000 892.000 1,090.0UO 766,000 699.900 28,100 1,070 000 71,000 862,000 210,400 201,000 18»000 441,000 382,000 758,000 560,000 488 0(iO 184.000 69,000 625.000 285 500 817.500 414.000 284,000 96.000 4,890,000 1,470,000 1,925,000 497,000 1.980,000 1.490,000 2,910,000 812,000 8866,000 7,506.000 9,990,000 Water horse- power development. 5,821,699 277,589 424,884 799.580 168,.')88 9,947 8.W89 94,229 28,787 99,105 227.012 217,565 7,080 82,466 97,835 19,948 8,091 54.401 213,111 288.569 229.S68 169 481 90,670 2,200 6,777 1,758 11,688 10,799 80 18,068 902,896 54 160 2.544 92,803 562 88.680 96.784 162 800 18,820 722,125 166,768 381,184 Percentage of development to maximum po- tential water horse-power. 8.8 a.o 47.1 18.8 19.9 8. 1. 9. 2. 9. 29.6 31.2 30.4 7.7 .5 .6 .7 .7 .1 11.8 9.9 6.1 12.8 64.2 80.8 40.9 86.8 11.3 8.2 1.1 .7 8.7 2.6 18.7 4.1 .9 4.8 .1 1.7 6.5 5.2 4.8 8.9 9.1 8.8 *♦ In discu8;iing developed water horse-power the comparisons are properly made with the maximum water horse powcir capable of development because where develop- ment has taken place the installatioo has generally equalled and in some cases actually exceeded the theoretical maximum potential water horse-power. t Under the method adopted by the Geological Survey no potential water horse-power is shown for the states of Delaware and Louisiana, yet according to Mr. Merriirs tables water power development has taken place in these states to the extent of 54 and 160 water horse- power, respectively. 33 The foregoing table shows that only 8.8 per cent, of the water horse-power capable of development in the United States has thus far been developed. If Mr. Mer- riirs general estimate of total development were accepted as accurate the percentage of development would be only 10.7 per cent. Either figure strikingly shows how greatly wat«r power development has been retarded in the United States. That a principal retarding influence has been the lack of satisfactory laws permitting development where Fed- eral permits are required is shown by a classification of water horse-power development showing the relatively small amount of development where Federal permits are required as compared with the development where such permits are not required. The following table shows the total water horse- power developed in the United States (as stated in the report), the amount developed where Federal permits are required, the percentage this bears to the total develop- ment, the amount developed where Federal permits are not required, and the percentage this bears to the total development. The table is as follows : ■t * M !( 34 TABLE No. IV. Water Horse-power Development Classified with Percentages of Total. 1 United States. . . . Maine New Hampshire. Vermont Massachusetts . . . Rhode Island ♦Connecticut New York Pennsylvania N«»w Jersey Maryland Virginia West Virginia North Carolina... South Carolina... Georgia Florida Alabama Tennessee Ohio Indiana Illinois Michigan Wisconsin Minnesota Iowa Missouri Arkansas Texab Oklahoma Kansas Nebraska North Dakota South Dakota Montana Wyoming Colorado New Mexico Arizona Utah Idaho Nevada California Oregon Washington Delaware Louisiana Total water horse-power developed. 5,821,699 277,689 106,415 117,889 168,886 2.486 41,910 799.580 168,.<>d8 9.947 8JR9 94,229 28,787 99,105 227.012 217,565 7,080 82.466 97,835 19,948 8.091 54,401 218.111 238,569 229,258 159,481 20 670 2,200 6,777 1,768 11.688 10,799 80 18,058 202.895 2,544 92,808 662 88.680 96,734 152,860 18.820 722,125 166,768 831,134 64 160 Total developed where r ed. permits required. 1.686,906 200 806.600 118,000 29,000 11.760 9,000 12000 108.150 5,600 70000 42,000 1,252 '40,481' '68,866' 110.500 150,000 90,000 Percent- age. 8400 64.4 61,000 80.0 904 87.9 74.018 81.0 24,630 78.8 46,485 47.0 67,178 44.0 8.075 28.1 324,610 45.0 28.816 18.4 96,798 29.2 84.4 .6 88.6 70.0 30.8 49.5 9.1 5.8 49.7 79.6 86.0 43.0 6.8 '74.4 in'.h' 48.8 94.0 96.7 Total developed where Fed. permits not required. Percent- age. 3,48.'>79fi 277.5K9 108.415 117889 158.685 2,486 41.710 490.980 60,688 9.947 8.289 65.229 12,037 90,105 215,01-^ 109.405 1,430 12,466 .55 886 18,096 8,091 13.920 218.111 1B9,763 llK.7r>8 9,481 670 2,9)0 6.777 1.75H l^W-S 10,799 80 4.668 141.896 1,680 17,686 662 9,000 51,249 85,1P7 10,245 897,515 127.V47 884,841 54 160 65.6 100.0 100.0 100.0 100.0 100.0 99.6 61.4 80.0 100.0 lUO.O 69.2 50.5 90.9 94.7 60.8 80.4 16.0 67.0 98.7 100.0 25.6 100.0 72.7 61.8 6.0 8.8 100.0 100.0 100.0 100.0 1U0.0 100.0 86.6 70.0 62.1 19 100.0 86.7 68.0 66.0 76.0 56.0 81.6 70.8 1000 100.0 ♦In several instances early water power developments wer> at sites not th«»n requiring Federal permits, although since the Acts of 1890 and 1899 permits would be required at such sites if the development were now being made. Such developments hava of course been included in the column for development without Federal permit It . 35 The forej^oiiig table shows that only 34.4 per cent, of the water horse-power developiiient in the United States has taken place where Federal permits are required, al- though the available water horse-power at such sites, as shown by Table No. I, is 46,913,200 water horse-power; on the other hand, (Jo.O per cent, of existing development has taken place at sites not rc^cpiiring; Federal permits, although the total available water horse-power at such sites is only 13,800,000 water liorse-i)ower. In other words with an available water horsepower at sites not re(piiring Federal permits of less than one-third of that available where such permits aie recpiired, nearly tw^ice as great development has taken place where such jjermits are not required. These figures put beyond controversy the fact that watei- power development at sites requiring Federal permits has been greatly retarded by lack of adecpiate laws under which permits may be issued. This fact is strikingly shown by a comparison of the ]>ercentage of development which has taken place at sites re(piiring Federal permits with the percentage of develop- ment at sites not requiring such permits. The following table shows for the United States and the several states the available water horse-power at sites re(iuii'ing Federal permits for development, the percent- age of rofjjressed satisfactorily nnder existinjif laws. Mr. Merrill's report not only fails to j^ive the facts but labors to support the theory of satisfactory (b»velopnient. It was (jniekly seized upon by Mr. IMnchot for the purpose. Mr. Pin- chot sent out a letter in opposition to pending water Ijower le«!:islation to the newspapers of the count i-y soon after the report appearcnl from which letter the follow- in*:: parajjjraph is (pioted : 'The water power men charge that conserva- tion hampers development. The admirable recent report of Secretary Houston (Merrill) shows, on the contrary, that the most rapid development is in the national forests, wliere conservation is best enforced." In ajjparent support of the theory of satisfactory development the report says ( Part I, page 12) : 'T'he proportion of water power which is used in public service operations is more than twice as great as the proportion of other sources of power." This does not indicate large water power develop- ment, though hastily read it might seem to do so. When discussing developed power Mr. Merrill does not confine himself to water jiower; he brings in as he says "all power all uses". The quoted statement means that of the whole volume of developed power from all sources the public utility business has taken a larger proportion of the Vunitrd amount of water power develop(»d than it has of the larfic amount of power otherwise developed. This is undoubtedly true. Public ntility enterprises have thus far beefore him. He says (Part I, pages 40 and 41 ) : 43 "Of the 1,804,800 water horse-i>ower developed in the Western States in 1915, 536,782 horse- power, or 29.8 per cent., is in plants occupying national forest lands with some part — power house, water conduit, or divei'sion reservoir — of the immediate generating i)lant. No plants have been included if nothing more than the transmis- sion lines is on the national forest. In addition to the above, hydroelectric ])laiits with a capacity of 218,080 horse-i>ower, or 12.1 i)er cent, are directly dependent upon storage reservoirs owned by the operating companies or their subsidiaries and con- structed on national forest lands. The total of power developments thus utilizing national forest lands amounts to 754,812 horse-power, or 41.9 per cent, of the total developed ]»ower of the Western States. In addition to this, 172,760 horse-power occupy public lands outside the national forests and 72,000 horse-jjower are Visconsin for example has had a public-service commission for about 10 years and during that time the utilities of that State have been protected in their exist- 48 iii M i ing territory against competition by new projects. Be- fore competition can be initiated a certificate that public convenience and necessity will be promoted thereby must be obtained from the Railroad Commission of the State of Wisconsin. During all of the 10 years there has not been granted one single certificate of convenience and necessity, and yet no commission in this country is more highly considered or has greater influence. While local competition is thus generally prohibited and undesirable, the companies named are active competitors for the loca- tion of power using industries near the centers they serve and competitors also in the purchase and manage- ment of local public utility enterprises. It is difficult to deal patiently with the suggestion that such facts as these constitute evidences of monopoly. The subject will be further treated in dealing with that portion of the report which presents supposed evi- dences of "concentration of control" in the production of power from all sources. VI. Mr. Merrili/s Misleading Analysis of the Electrical Industry. The foregoing deals with the facts relating to water powers in the United States, the sole subject of the Senate resolution. Fully 85 per cent, of the Merrill report, how- ever, is taken up with a voluntary presentation of data and argumentative discussion relating to public utility corporations and public service operations. This large portion of the report will be briefly examined and the leading facts concerning the public utility business under modern conditions will be outlined. It will be shown that Mr. Merrill has presented some of these facts and ignored others; that he has misinterpreted the rapid growth and magnitude of present-day public service opera- tions, which are strikingly shown by existing and reliable 49 statistical information made use of; that he has con- sidered such growth and magnitude as evidence of a mon- opolistic tendency which does not exist in any accurate sense of the term, and which can not exist owing to the mature and conditions of public utility service. That Mr. Merrill approaches this branch of his inquiry with an evident prejudice is shown by numerous ex- pressions in his text. For instance, the author in dis- cussing the cost of public utility central power stations says (Part I, page 13) : "Furthermore, it appears to he the general practice of puhlic-utility corporations to denomin- ate as 'cost of construction^ the amount which will make assets equal to liabilities on their bal- ance sheets. Since stocks and bonds are carried on such balance sheets at par, the so-called 'cost of construction' is scarcely more than net capitali- zation. In the majority of cases it would be more nearly correct to call this term 'assumed present value of properties' than to call it 'investment in' or 'cost of such properties." Mr. Merrill's discussion of cost of construction is avowedly based upon the data presented in the Census Bureau's report of 1912 in "Central Electric Light and Power Stations and Street and Electric Railways". This report, in presenting data relating to cost, contains the following unbiased statement which may properly be compared with the expression quoted above. The state- ment from the Census report of 1912 is as follows : "Cost of Construction and Equipment. — The schedule used at the census of 1902 called for a separate statement as to the cost, during the year and to date, of land; buildings; machinery, tools, and implements within stations; overhead electric service construction; underground electric service construction; lamps, motors, meters, and trans- '^r 50 /^! II , loiiuers, wiled for use; supplies of every descrip- tion on hand ; and miscellaneous equipment. The object of these inquiries was to ascertain the total cost of the plant and equipment, and the expen- ditures during the year for extensions, additions, and repairs. It was presumed that the electric companies kept an account of this kind but a majority contended that it was impossible to re- port the cost in such detail, and manv asserted that they had no data from which even the total cost of the plant and etpiipment to date could be estimated with a fair degree of accuracy. More- over, a considerable number of the electric stations have changed ownership during recent vears, and the purchase price often has little relation to the actual cost of the plant, and in fact seldom, if ever represents this cost. The transfer is frequentlv made through the exchange of stock or by some other arrangement whereby it is impossible to as- rertain the money equivalent. In view of these con- ditions the attempt to ascertain the cost of con- struction in such detail was abandoned in 1907, but in an effort to preserve the comparative value of the statistics the total cost of the plant and equip- ment to date and the cost of construction during- the census year were requested. Even this niodn hcation of the inquiry was unsatisfactory, and in 1912 It was still further simplified, and only the total cost of construction, ecjuipment, and^ real estate was called for. Many and varying factors enter into the cost of plants and equipment. Sites and rights, which in one instance may cost but little, in another mav be very expensive. The equipment of a station designed and prepared to supply current to a larn^e city or thickly settletl communitv is quite unlike that of a station transmitting electricitv consider- able distances and selling in bulk to but few cus- tomers. Notwithstanding these limitations the data pre- sented in the following table may l)e accepted as 51 presenting a fair approximation of the growth of the industry in respect to cost of construction and equipment for the United States, for the several geographic divisions, and for the individual states'' (Central Electric Light and Power Sta- tions and Street and Electric Railways, 1912, pp. r>4-()5). Notwithstanding his own criticism of the data for cost of construction of commercial central stations and the explanation by the Census Bureau above quoted, Mr. Merrill does not hesitate to use these data to present an unfavorable comparison with the reported cost of munic- ipal central stations. In the absence of prejudice he would not have been able to describe the data as unre- liable in one breath while quoting it for unfavorable comparison in the next. The comparison itself will be dealt with later. Again (Part I, p. 15), Mr. Merrill says: "In contradistinction to the corporate rela- tionships shown through ownership, lease, or management, by means of which the connection is definite and direct, the interrelations which arc evidenced by common directors are indefinite, and the extent of control cannot be quantitively determined except in those instances where a ma- jority of the directorate is common to two cor- porations. Where the preceding data shoiv accomplished control, these data show potential control, a marked tendency toward association or community of interests, particularly between the principal holding companies, that cannot he viewed without concern,'^ This of course is mere argument. The natural atti- tude of an official and unbiased report would be to pre- sent the facts. To assert that "interrelations which are evidenced by common directors are indefinite'^ but shoio I i ill 52 potential control is nothing but assumption. The fact of occasional common directors as will presently be shown has an altogether different and much simpler ex- planation. The question as to whether or not the exist- ing facts can be viewed with or without concern belongs obviously in the realm of debate, not in that of scientific inquiry. Again (Part I, page 62), in discussing the alleged "controP' of undeveloped water power (heretofore re- ferred to), the report says: "In connection with the other studies made for this report considerable information was col- lected concerning the amount of undeveloped power reported to be in the ownership or control of public-service corporations. Time has not been available for verifying the data or for determin- ing whether or to what degree such undeveloped water powers are claimed by those interests which control the majority of the developed pow- ers. The data show, however, that 120 out of about 1,500 public-service corporations, the devel- opments of which have been listed in this report, claim to own or control a total of 3,683,000 unde- veloped water horse-power, or 80 per cent, of the total water power at present developed by public- service corporations. Whether or not these figures are wholly reli- able, it may be pertinent to remark that those who lay claim to such extensive ownership or control of undeveloped power sites are hardly in a position to contend that any legislation or lack of legislation or any administrative policies of the executive departments of the Government should be held responsible for the stagnation in water power development which they allege ex- ists. The fact, if it is a fact, that a comparatively few corporations hold unused nearly 4,000,000 water horse-power would of itself furnish suffi- cient explanation.^' 53 If Mr. MerrilPs data is as unreliable and incomplete as he says it is— and as has previously been shown it is even more so— he could not, in the absence of prejudice, base "conclusions" upon it. Yet he does so base them, opening the door to Mr. Pinchot who quickly seized the opportunity offered and spread the argument broadcast without any reservation whatever. The evident bias of the report is also shown by the curious method used in dealing with the income, ex- penses, debt and dividends of a public utility business. Under the heading "Income, Expenses, and Surplus", the report says (Part I, page 48) : "For purposes of comparison the data are given in the aggregate, per horse-power of pri- mary power installed^ and per horse-power-year of electric power generated/^ On the following page the report says : "Net income per unit of installation, when compared with cost of capitalization for the same unit, indicates the average return upon both con- tributed funds (stock) and borrowed funds (bonds). Surplus in the same unit indicates the return or profit or earned dividends upon the con- tributed funds. These are the relations in which the investor is chiefly interested. Net income and surplus per unit of output, on the other hand, when compared with gross income for the same unit, indicate what proportions of the rates paid by the public for the service rendered are retained by the public utility to pay interest upon debts and dividends upon stocks. These are the rela- tions in which the consumer is interested." The author follows this in Part II by tables in which he estimates income, debt, dividends, etc., on the basis of generated power ; for example, he says that com- mercial central stations annually earn $165.00 per horse- 54 i 1 1 power-year generated. This is the figure according to Mr. Merrill in which the '^consumer is interested'^ Such a statement could only result from one of two causes, namely, gross ignorance of the electrical industry or extreme eagerness to exaggerate its income and profits. The nature of the electrical business requires installa- tion up to the maximum demand (popularly known as "rush hour" business). Without such installation serv- ice would be impossible. The fact that part of the time generators must stand idle is one of the great difficulties in the industry, inherent in its physical and economic conditions. If power could be stored during periods of minimum demand and utilized at maximum demand electricity could be sold at greatly reduced cost, but this is as yet impracticable. Consequently installed power and not generated power is always used as a basis for unbiased estimates of relative income, expenses, etc. A simple example may be taken from the electric lighting industry. The consumer requires electric power for lighting in varying amounts during the day. Some parts of the day he uses no light; again one or two lights may be sufficient; later every light in the house may be used. The habit of consumers in respect to lighting are strikingly similar. Generally speaking they all light up their houses at about the same time and to about the same extent. From these causes and others of a similar nature the varying demand for current arises, the most striking and troublesome feature of the electric lighting business. When generally speaking all the consumers are burning all their lights the demand on the lighting plant is very heavy. This is known as the period of maximum demand or the "peak of the load". This period may continue for only an hour, or even less, hut the lighting plant miist have generators capaible of pro- ducing the required volume at the instant it is called for oo (storage being in the present state of the art impractic- able for such purposes). Accordingly the installed ca- pacity of the plant must be large enough to supply the highest or peak load demand; and also the cost of the plant (i. e., the investment) will be the cost of producing such an installation ; the expenses of the plant will be the expense of maintaining such an installation and keeping it ready for instant use; and the income of the plant will be a certain rate of return (usually fixed and limited by a Public Service Commission) on the amount of the total investment. Mr. Merrill admits that the rate of return on the whole investment is a matter of prime interest to the investor, and that therefore he will wish to know the income of the plant per unit of installation. But he declares that the consumer is not interested in this, but in the income, etc., per unit of power generated. The absurdity of this statement is apparent. The consumer is interested in the rate he pays for service. This rate is based on the cost of operating the plant plus the return allowed the investor who has created the plant. Hundreds of court and commission decisions have placed this beyond controversy. The consumer, no less than the investor, is therefore interested in the amount of the investment and in the facts relating to income, expenses, etc., of the whole plant. No court or commission would hear him a moment on the relation of the income of the company to the amount of power generated. Such data would not bear on the question of whether or not the investor was receiving too high or too low a return, or charging too high or too low a rate, because in such testi- mony the investors' additional service, of always being ready to carry the peak of the load, and of carrying it when required, would be ignored and that is a prime requirement of the business. The situation described is Hi 56 technically known as the "load factor''. Mr. Merriirs effort to discuss the facts of public utility service without taking this into account is indefensible. All the very large part of his treatment of the subject in which he discusses the income, expenses, etc., on the basis of power generated is therefore valueless or worse. Enough has been quoted to show the bias of the report. Attention also is called to an extraordinary shifting and reshifting of the power totals used for pur- poses of comparison. In describing his report the author says (Part I, page 11) : "The report deals with the amount of devel- oped power in all the States, whether water power, steam power, or gas power, and whether developed by public-service corporations, by in- dustrial corporations, or by municipalities." I When announcing the total power used for his compari- son, however, he says (Part I, page 12) : "The total primary power under development in the United States in 1912 in commercial and municipal central stations, street and electric railways, and in manufacturing plants as esti- mated and reported for the year was 30,448,246 horse-power." I ; Later on in presenting data which he says show "con- centration of power control" he deals with power used in public service operations only. This total he places at about 14,000,000 horse-power. The fact that he thus uses at least three dif- ferent bases for his comparisons requires the greatest care in examining his report and in drawing conclusions from the percentages he freely uses. Many of his tables 57 fail to show on their face what basis for comparison is being used in that particular case. Complete figures showing the amount of power actu- ally developed in the United States are not to be found in the report, notwithstanding the broad language of the first announcement quoted above. It would be exceed- ingly difficult, perhaps impossible, to secure an accurate total. Various estimates have been made, varying from 100,000,000 to 150,000,000 horse-power. Figures recently made public by the Bureau of Census containing sum- maries for 1914 give 22,537,129 horse-power for manufac- turers alone, only about 7,500,000 less than the total used by Mr. Merrill when referring as he says to "all power all uses". The figure given by Mr. Merrill is unquestionably inaccurate and misleading, and all that portion of his report in which percentages are based upon his estimate of total primary power developed must of necessity be rejected as valueless for any scientific purpose. His later comparisons, where he deals only with power used in public service operations are more reliable if the basis of his comparison is clearly in view, but with this basis in view the percentages he presents are in many cases without especial significance. For illustration, if 85 public service corporations "controlled" 65.8 per cent, of the total power developed from all sources in the United States, a highly significant situation would undoubtedly be shown ; but the fact that 85 public service corporations "control" 65.8 per cent, of the total power used in public service operations (as stated in the report) (Part I, page 58) is without special significance especially when it is noted that about the same percentage of urban popu- lation is centered in 85 leading cities, indicating (what everybody knows) that population and demand for public utility service naturally go hand in hand. i 58 i § The author so frequently shifts his bases for com- parison that the result is confusing and misleading. This defect runs throughout the report and requires close scrutiny on the part of one seeking in his report the a(!tual facts relating to power in the United States. Reference has already been made to comparison in the report of the cost of construction of commercial and municipal plants. On page 45 of Part I of the report Mr. Merrill gives the cost per horse-power of the installa- tions of municipal central stations for the years 1912, 1907 and 1902 as |138, |133 and |138, respectively, and compares these figures with ?301, $279 and $286, respect- ively, per horse-power installation in commercial central stations. He contends that the figures for the municipal central stations show more accurately the actual cost of such enterprises per horse-power than do the figures for the commercial central stations, intimates that in the case of commercial stations the cost has been "watered", but nevertheless urges that the figures show that municipal plants have been mori^ conservatively financed. There are two reasons for the high cost of commercial systems. First, commercial stations are greater users of water power for generating purposes than are municipal plants and it is well known that the cost of water power installa- tions is far higher than that of steam power installations. Mr. Merrill states that out of 4,870,320 water horse-power developed, 48 per cent., or 2,337,753 water horse-power, are used in commercial central stations, and that only 2.7 per cent., or 131,498 water horse-power, are used in municipal central stations. Second, municipal systems are compact and their consumers are closely grouped. Their lines do not run for hundreds of miles over sparsely settled country. 59 Commercial systems are obliged to operate in such terri- tory, and this adds to the cost of installation. Available figures at hand for 19 public service companies show a total of nearly 20,000 miles of transmission line, with cost of construction running from a maximum of $19,500 per mile to a minimum of |3,000 per mile. The average shown by these figures is about $11,000 per mile. On this basis the total investment of the 19 companies in transmission lines is more than $200,000,000, or nearly 10 per cent, of the total investment in commercial cen- tral stations. No such cost is encountered by municipal stations operating as they do in restricted territory only. Having used the census figures relating to cost of con- struction so as to present a comparison between com- mercial central stations and those municipally owned, unfavorable to the former, the author fails to com- ment upon other figures in the same census report which are significant, and which exhibit municipal opera- tions in a less favorable light. On pages 51 and 52 the re- port deals with relative figures of municipal and com- mercial plants including "income and operating expense'*. It states that the gross income per installed horse-power iu municipal stations averages $42 for the United States. It had previously shown that the gross income in com- mercial central stations was $40 per installed horse- power. Therefore the figures show that municipalities are charging higher rates for their product than privately owned companies. Mr. Merrill's figures also show that municipal plants are extravagantly operated because under the heading of "Total Expenses'' it appears that it required 84.5 per cent, of the gross revenues of municipal plants to pay operating expenses, while the commercial stations were operated on the basis of 62.5 per cent, of gross income. Mr. Merrill does not mention these figures when drawin*' m 60 conclusions from bis study of the census figures relating to municipal power plants. A very large part of the report deals with the supposed "concentration of power control". The report as has been shown assumes to deal with "all power all uses". In discussing "concentration" however this method or scope is abruptly dropped and power of all kinds used in public service operations only is referred to. Having discussed a total of about 30,000,000 horse- power in other portions of the report the impression might easily be had that the percentages dealt with under '^concentration'' were percentages of this total. It is im- portant to observe that they are not. They are percent- ages of power used in public service operations, a total according to the report of about 14,000,000 horse-power. He attempts primarily to show monopoly or concen- tration of public service power by certain corporations, and then to show that these corporations are interrelated, the evidence being that some of them have one or more directors or principal officers who are also directors or officers in other corporations on his list. His statements regarding concentration of control of electrical power development will first be examined. He says (Part I, p. 14) : "If inquiry is made into the control by certain corporations, it is found that 85 public-service corporations, through ownership of properties, majority of ownership of stock, lease, or direct management, control 68.6 per cent, of the total public-service power in the United States; 35 of these 85 control one-half of the total ; 16 control one-third; and 10 control one-fourth. Of these 85 corporations, 59 have water power developments; and of these 59, 18 control 2,356,521 water horse- power, or more than one-half of the total water i; i- . 61 power used in public-service operations in the United States. Of these 18 corporations, 9 con- trol more than one-third of the total and 6 more than one-fourth." This is further elaborated on pages 58 and 59 of Part I as follows : '^United States — At the end of the summarv tables is given a list of the 87 corporations each of which, according to the data given in the de- tailed sheets, controls not less than 30,000 horse- power of primary power. Two companies con- tained in the list, the International Paper Co. and the Union Carbide Co., are engaged in manufactur- ing. The remaining 85 are public-service corpora- tions, these 87 corporations control 3,496,423 water horse-power and 6,275,092 steam and gas horse-power, a total of 9,771,515 horse-power, or 65.8 per cent, of the total listed for the United States. If the two manufacturing concerns are eliminated and the amount of manufacturing power contained in the tables is substracted from the total, the 85 concerns remaining control 68.5 per cent, of the total public-service power in the United States." It is necessary to examine the list in order to deter- mine whether it shows "concentration" of electric power development as the report asserts. Included in the list are the Commonwealth Edison Company of Chicago which the report says controls 3.44 per cent, of the primary power used in public service operations. This company has four central stations. It lights Chicago. It has no water power. It is a large concern but its operations show no "concentration" of power control, unless the reference is to local con- centration for service in a given vicinity. Local con- centration of course exists everywhere because public J 62 63 utility service is universally recognized as a natural monopoly in given localities and as such is both regulated as to rates and service and protected from indiscriminate and wasteful competition by the laws of most of the states of the Union. The same may be said of the Consolidated Gas Com- pany of New York. The report says it controls 3.25 per cent, of the total primary power used in public service operations. It is a large company, but its extent has no bearing on the "concentration" Mr. Merrill seeks to prove. The same is true of the lighting companies of Philadelphia, Indianapolis, etc., included in the list. Another group whose extensive operations can have no possible bearing on the concentration the report seeks to prove is made up of companies included in his list which make and use electric power as incidental to furnishing transportation service. Among these taken from the list are the Interborough-Metropolitan Company of New York which operates the subways, surface cars and elevated service in Manhattan and the Bronx, and the Brooklyn Kapid Transit Company similarly situated in Kings County. The Interborough, the report says, controls 1.67 per cent, of the total primary power used in public service and the Brooklyn Rapid Transit Com- pany 1.33 per cent. They are large companies, doing an extensive business but they have nothing to do with power "concentration". The same can be said of the Boston Electric Railways Company (.85 per cent, ac- cording to Mr. Merrill), Philadelphia Rapid Transit Company (.71 per cent.), New York, New Haven & Hart- ford Railroad Company (.71 per cent.), New York Cen- tral & Hudson River R. R. Co. (.63 per cent), Pennsyl- vania Railroad Company (.58 per cent.) and numerous other traction concerns included in Mr. Merrill's list. Another group which he includes in his list whose operations can have no bearing on the concentration he seeks to prove are such manufacturing concerns as the International Paper Company, the Aluminum Company of America, the Union Carbide Company and others. From the foregoing it is apparent that Mr. Merrill has jumbled together certain facts of common knowledge and asserted that they prove his theme, when in fact they prove nothing of the sort. The operations of the com- panies named do not show "concentration" in any sense whatever; they show size and consuming power. The eighty-five leading cities of the United States con- tain 54.2 per cent, of the total urban population of the United States, more than one-half; thirty-five contain 43.5 per cent.; 16 contain 34.1 per cent, and 10 contain 29 per cent. The percentages are strikingly similar to those in Mr. Merrill's table showing percentages of con- trol by leading companies of public service power. If suburban population were included the percentages would be substantially identical with the power percentages given by Mr. Merrill. This fact that the percentages so nearly correspond to those in Mr. Merrill's table of power "concentration" is exceedingly significant. He has noted certain facts which indicate nothing as to "concentra- tion of power control" but which do show two things: First (what everybody in the electrical industry knows), that there is a natural relation between population and electrical power demand ; and, second ( what every econo- mist and most laymen know), that public utility enter- prises in particular centers are natural monopolies. No monopoly of primary power, nor of water power, is in the slightest degree indicated by the data presented by Mr. Merrill. No such monopoly exists, nor has any such monopoly been attempted. If attempted it would ; 64 fi Im nl\ necessarily fail, because the sources of power are too generally accessible and too numerous and varied. Gen- eration of electricity in isolated plants would always be available to meet a monopoly of electrical power supply. The United States Census of Manufactures for 1914 contains data showing the enormous increase of pro- duction of electric power in isolated plants (which how- ever Mr. Merrill ignores in his report). The figures are given in the following table: H. P. OF Electric Motors Employed in Manufactures. Increase 1904 1914 1904 to 1914 Kun by rented power 182,562 3,910,417 3,727,855 Run by current generated in the manufacturing establishments.. 310,374 4,926,227 4,615,853 492,936 8,836,644 8,343,708 It is interesting and significant that the total of elec- trical power so indicated by the census of 1914 as then produced in isolated manufacturing plants alone was greater than the entire product of water power through- out the country in 1915, as stated by Mr. MerrilFs report. Wherever coal, oil, or other fuel for power purposes can be secured — which is everywhere in this country — there is a direct and final denial of the possibility of a power monopoly. Public service corporations market large units of power only where they make rates lower than the cost of production of power by individual users. This is efficient service, not harmful monopoly. The Census Bureau Report of 1912 said (page 111) : "The interesting fact develops in connection with this greater increase of electric service to the public that its cost has steadily decreased during the census period referred to, while the cost of liv- 65 ing has steadily increased. A typical example may be cited from the statistics of Massachusetts, between 1904 and 1912, ^based upon the reports of the State Board of Gas & Electric Light Commis- sioners, which shows that while in the seven years the cost of living, predicated upon current market prices, had risen 37 per cent., the rates for elec- tricity had been reduced about 17 per cent' In other words, while the cost of food, coal, shoes, household equipment, etc., had increased over one- third in the seven years, the cost to the public of a very large proportion of its light and power fur- nished by public utilities had been lowered one- sixth." Another fact which the report does not mention, but which is set forth in the Electrical Census of 1912 tends to contradict the whole theory of concentration. This fact is the steady increase in the number of central sta- tions. Previous to 1912 the Census Bureau enumerated each central station plant as an individual central sta- tion, no matter by whom it was owned or controlled, but in compiling the census of 1912 the practice was changed, as stated by the following extract from the census bulletin : "When a number of plants were operated under the same ownership, it often was impracticable to secure a separate report for each and therefore a single report was made to cover the operations of all and they were counted as one plant." The adoption of this method resulted in public utility companies which owned several generating plants located within tlie same State usually being accredited with the ownership or control of but one station. Naturally the new practice caused the census of 1912 to show^ relatively a small increase in the number of electric central stations / if ■J 66 and tlie tendency is thus not fully indicated; but the figures are striking in any event. They are : Year. 1902 1907 1912 Total Central Stations. 3,620 4,714 5,221 Thus the number of central stations increased by 1,601 in the ten years from 1902 to 1912, and this show- ing is made in spite of the changed policy of the Census Bureau. If Mr. Merrill's figures for 1915 are correct the in- crease since 1912 is still more striking. He gives the total number of central stations for 1915 as 6,939, an increase of 1,718 since 1912. He does not, however, comment on the effect of these figures on his theory of concentration, which they obviously tend to disprove. Mr. Merrill also endeavors to show "concentration'' in the electrical industry by the familiar method of ascrib- ing interconnection to corporations having one or more "common directors". He thus describes his efforts (Page 59, Part I) : "A study of the interrelation of the various public utility electric corporations with each other through common directors or principal officers leads one into an almost endless maze of inter- connections. It is extremely difficult to correlate the mass of information and to determine in many instances whether a particular company has the closer association with one or another group of interests. In studying the extent of such inter- relationships the chief source of information has been Moody's Manual of Corporations, 1914. The 1915 edition was not available at a sufficiently early date to permit of its use in this line of in- vestigation. The relations shown therefore unless otherwise noted are those existing in 1914. It 67 has not been possible, of course, even had it been desirable, to verify the data as presented in the several corporation manuals. The standing which they have and the presumption that all the infor- mation which they contain has been furnished by the corporations, the activities of which are de- scribed, would seem to make further verification unnecessary. The accuracy of the data herein presented is dependent therefore upon the accu- racy of tlie source from which they have been derived. In Table 1, Part III, is given in alphabetical order a list of ^ome 1,500 corporations engaged in the power business, under each of which is listed, also in alphabetical order, both the power corpora- tions and the banking corporations with which it is affiliated through principal officers or common directors. The list gives also the total number of principal officers and directors in each corpora- tion and the number common to such corporations and every other affiliated corporation. The prin- cipal officers considered are the president, vice- president, secretary and treasurer, but such offi- cers have not been counted a second time if thev serve also as directors. There is also given in Table 2, Part III, a list in alphabetical order of 2,172 directors and principal officers common to two or more of the corporations studied and under each director or principal officer a list both of the power corporations and of the banking corpora- tions in which he serves. These two lists serve as the fundamental data for this section of the report." Part III of the report, wliich is a volume of some- thing more than 500 pages, including numerous charts, is entirely devoted to the subject of supposed interrela- tion between corporations engaged in the production of power. About 150 pages are taken up with lists of cor- porations with the supposedly affiliated corporation printed underneath. By this means each corporation is / 68 i made to do service many times. For illustration: The first corporation in the list is the Adams Gas Light Com- pany of Massachusetts, a local company, owned by the Massachusetts Lighting Companies. The Massachusetts Lighting Companies is a holding company, with numerous other properties, on the boards of which it naturally has representation. In many cases the same individual rep- resents it on several boards. Thus, under Mr. Merrill's system, most of the companies owned or controlled by the Massachusetts Lighting Companies are listed as affili- ated with the Adams Gas Light Company. In this par- ticular case there are sixteen such companies. Each company later appears on the list as the principal com- pany whose affiliations are to be shown, and underneath the list of sixteen is duplicated. By this means each company appears in the list at least sixteen times and the sixteen together do service in the list 256 times. In all a little less than 1,500 corporations, are represented in lists containing with repetitions and duplications about 22,000 companies. The list is introduced with an explanatory statement, the opening paragraph of which is as follows : "Each company named in the following tabu- lation is directly or indirectly related to every other company, such relationship occurring through common directors or principal officers, or through lease, stock ownership, or some other form of control. As far as information is avail- able, the tabulation shows the manner and extent of relationship. In many cases the relationship is indirect and also remote." About 100 pages more are taken up with a list of about 2,200 persons who are principal officers or directors of more than one public utility corporation or industrial corporation owning water power. This list was compiled 69 it ' from the principal manuals dealing with such matters. No list is given of the principal officers and directors of public utility corporations, etc., who serve only one com- pany. Such a list would contain about 20,000 additional names and could have been compiled from the same sources. The remainder of Part III is taken up with diagrams and charts intended to show in a graphic manner in- terrelation between public utility companies, particu- larly holding companies, resulting from the presence on their boards of one or more common directors or principal officers. The method of showing interrelation between the principal holding companies is illustrated by the first chart (Part III, page 245). A relationship between W. S. Barstow & Company and The J. G. White Management Company is attempted to be indicated. Four of the directors of W. S. Barstow & Company are also directors of the General Gas & Electric Company of Maine. These are W. S. Barstow, J. B. Taylor, C. G. White, Jr., and L. B. Tyng. Another director of the General Gas & Electric Company of Maine is A. L. Kramer. Mr. Kramer is also a director of The J. G. White Management Company. From this and another similar instance Mr. Merrill apparently concludes that W. S. Barstow & Company and The J. G. White Manage- ment Company are "affiliated". This is the kind of re- lationship he elsewhere speaks of as representing "poten- tial control". Whether W. S. Barstow & Company have "potential control" of The J. G. White Management Com- pany through Mr. Kramer's membership in the board of the General Gas & Electric Company of Maine or whether the "potential control" is the other way around Mr. Merrill does not indicate. The whole attempt to show interrelations through the circumstance noted is of course utterly absurd. A simple 70 h explanation would be that The J. G. White Management Company has a minority interest in the General Gas & Electric Company of Maine and is thus, under the most ordinary business methods, represented on its board. It is well known that the two principal concerns men- tioned, W. S. Barstow & Company and The J. G. White Management Company ai*e wholly independent of each other, are engaged in the business of owning and man- aging public utility properties, and are frequently com- petitors in the purchase of properties and in securing for the regions their companies serve the location of power using industries. This illustration is taken because it is the first on the list of diagrams. Similar analyses could be made in every case where an attempt is made to show interrela- tion between the large holding and managing companies. The "common director" method of showing "concen- tration" is outworn. Congress has dealt with the subject in the Clayton Act, in so far as interstate business is affected. If 2,000 or more directors appear on more than one board, what of the 20,000 or more each of whom de- votes all his energies to one company only? How does it come about that the 2,000 control the 20,000? The fact is of course the small minority does not control the large majority. A "common director" often represents the desire of a company to secure as a representative on its board some man of particular experience, particular skill, particular financial resource or particular standing in the community or business world. Minority interests without a particle of "control" are frequently so repre- sented, as are the owners of first or second mortgage bonds. The function of a "common director" generally is not to "control" but rather to safeguard as opportunity offers the interests he represents against possible invasion by those who do control. These are facts of ordinary f.WN 71 business experience. No "conclusions" can be drawn in any particular case from the presence of a common direc- tor and the case does not become any stronger by lump- ing them together in a table or list or diagram. Mr. Merrill in his search for evidences of "centrali- zation of power control", has misinterpreted the plain and well known facts of the public utility business under modern organization. Some of the facts, briefly stated, are as follows: 1. The growth of the public utility business has been constant and rapid. In 1902 the investment in electric light and power pUints was |500,740,352 ; in 1907 this had increased to };l,090,913,622 ; in 1912 to |2,175,678,266, more than four times the investment in 1902 and twice the investment in 1907. Similarly the investment in street and electric railway properties increased from $2,308,282,099 in 1902 to |4,708,568,141 in 1912. The present figures if available would undoubtedly show an investment in electric light, power and street railway properties in excess of $8,000,000,000. This enormous growth has been due to the constant demand in the popu- lation centers for more and better service. Part of the growth has also been due to the ability of public utility concerns to furnish power for industrial uses below the cost of power produced by individual power plants. The growth of the public utility business is continuing un- diminished, greatly to the advantage of the country, add- ing to the comfort and convenience of the communities served, relieving congestion of population, cheapening production where power is a large factor, and providing a profitable field of investment for security holders, small and large, numbering many hundreds of thousands and scattered throughout this and foreign countries. / 72 2. Public utilities are natural monopolies in the regions served and are recognized and regulated as such. Experience has taught that the usual result of competi- tive service is duplicated capital upon which the public is almost inevitably compelled directly or indirectly to pay a return. It has thus come to be a matter of common acceptance that monopoly in public utility service is not to be condemned but is in fact desirable if properly regu- lated. In very many states public utility monopolies in localities are now protected by laws prohibiting the grant- ing of competing franchises unless the public necessity therefor is certified by some competent and impartial body. In administering such laws the public utility com- missions have fully recognized public utilities as natural monopolies and have refused to grant such certificates unless the showing of public requirement amounts to demonstration. These laws and their administration have been generally upheld by public opinion. Better service has resulted and improvements otherwise unat- tainable have been secured as a result of the greater stability of the investment protected from unwarranted raids and invasion. 3. The demand for improved public utility service has rendered necessary great changes in the methods of organizing and financing public utilities. This has been imperative because of the constant demand for new money for additions and extensions in order efficiently to serve the public. It has been estimated that the elec- tric light and power business and allied industries alone require $400,000,000 a year of new capital in order to keep pace with the demand for improved service. Such sums are of course only to be found in the general in- vestment markets. But small isolated companies are unfitted to enter this field except at prohibitive interest 73 rates. Organization into larger groups has solved the difficulty by creating a diversified investment able to pro- cure capital at greatly reduced rates. An important element of the cost of public utility service is the cost of money ; and that cost whatever it may be must be con- sidered and allowed by public service commissions in fixing rates. The public therefore pays the bill and con- sequently large concerns, with diversified interests, con- tribute directly and emphatically to the public welfare when by modern systems of organization they reduce the interest charges which the consumer pays on the neces- sary investment. At the present time out of a total of about eight bil- lions of dollars invested in electric light and power, gas, and traction, nearly six billions are organized in groups whose security issues are suitable for distribution to gen- eral investors all over the world. This grouping of utility properties is the contribution of the financier to the upbuilding of the volume and quality of public utility service to meet the demand of the American people for high class accommodations in their cities. Without this contribution progress would have been impossible. The transition from old and unsatisfactory financing has been rapid. The position of the holding company in the public utility business is altogether different from that of the holding company in other fields where com- petition is a factor. Objections to the latter obviously do not apply where monopoly of service centers is ac- cepted and desirable and where regulation of rates and service takes the place of competition in insuring against laxity of service or exorbitant charges. 4. Public utility enterprises have utilized a large per- centage of existing water power development because their power needs are insistent and their ability to finance 74 under difficulties created by inadequate water power laws has been relatively greater than less settled enterprises. These simple, well-known facts of the public utility business explain the data which Mr. Merrill has presented though they lead to a far simpler and less sensational interpretation than that which he has placed upon them. I I I I I I <18W F. . r« — — J LIBRARY NEW YORK CITY i INTENTIONAL SECOND EXPOSURE 74 under difficulties created by inadequate water power laws has been relatively greater than less settled enterprises. These simple, well-known facts of the public utility business explain the data which Mr. Merrill has presented thougii they lead to a far simpler and less sensational interpretation than that which he has placed upon them. ei8w FROFERTY CF TKE > it'' .S i't'* »|V\ LIBRARY NEW YORK CITY . 'k w Tht Erentaf Post Job Printing Omc*. Inc. 156 Pulton 8t.. N. Y. COLUMBIA UNIVERSITY This l)ook is due 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. DATE BORROWED JAN 16 19 11 5 DATE DUE Zi2 MAY 3 lana 3 // 7 2J966 DATE BORROWED DATE DUE c2S(esa)MSO il ^ ■ i\ 550 ' 29 Water power development assoc. ft>^H aWi- NEH S£P281994 COLUMBIA UNIVERS TY LIBRARIES 0044269447 SEP 6 1939 r END OF TITLE