[276] All expenses of the joint Dallas officers and offices were paid by the Central & South West Utilities Co. The billed portions of such expenses were deducted from the total expenses paid and the remaining joint general expenses were not charged to any subsidiaries but instead were ratably absorbed by the Central & South West Utilities Co. and its subholding subsidiary, the American Public Service Co., in accordance with the following instructions which were set forth in a letter written by H. K. Stark, general auditor of the Central & South West Utilities Co., under date of April 26, 1929: "All undistributed expense to be paid by Central & South West Utilities Co. which company will in turn bill to American Public Service Co. that percentage of the net undistributed expense which the gross income of American Public Service Co. and its subsidiaries is of the gross income of all of the companies of the group. This percentage to be determined at the end of each year on the basis of gross income for that year and used as basis for adjustment of charges for the 12 months preceding and for computation of monthly charges (subject to adjustment at end of year) during the succeeding 12 months. Central & South West Utilities Co. to take credit for all billing rendered against operating subsidiaries directly or through American Public Service Co. This credit to be deducted from total undistributed expense to determine net undistributed expense. Undistributed expense is such expense of a general nature as cannot be directly allocated to operating subsidiaries or to either holding company, but is common to all or to at least the two holding companies. Legal department expense and income to be excluded from all consideration in this connection as a separate activity." The portion of such unallocable, joint general expenses thus paid by the American Public Service Co. represented 31 percent of the total for 1929 and 30 percent of the total for 1930. Á summary of the supervision charges paid by American Public Service Co. for the years 1926 to 1930, inclusive, follows: The following tabulation shows the gross income to Central & South West Utilities Co. for actual services rendered: At 150 percent of salaries.. Total income to Central $16, 700. 46 $45, 888. 84 $67, 059. 40 $34, 948. 61 $39, 107.78 $203, 705. 09 [278] The above-mentioned $203,705.09 for services rendered from 1926 to 1930, inclusive, was charged to subsidiaries as follows: American Public Service Co---- Total____ $39, 284. 80 41, 864. 49 23, 832. 25 16, 412. 79 52, 101. 39 12, 272. 00 17, 937. 37 203, 705. 09 The following tabulation shows the departments of Central & South West Utilities Co., the number of employees, the salaries and the charges to subsidiaries by departments for the year 1929, taken from a statement prepared by the company: In order to illustrate the method of charging subsidiaries for particular work, certain bills rendered are quoted in part as follows: L54, Dec. 31, 1926: To charge you for your proportion of Mr. James C. H 127 Aug. 31, 1928: To charge you for services of L. P. Reiss during F 121 June 27, 1930: To charge you for the services of C. C. Herrmann $116. 14 180.00 23. 62 397.90 87.50 150.00 The charges to American Public Service Co. for services of employees of Central & South West Utilities Co. were rebilled by American Public Service Co. to its subsidiary for which the services were performed. [280] Income from services rendered by legal department. The total income to Central & South West Utilities Co. for services rendered by the legal department was as follows: Of this $155,031, Southwestern Gas & Electric Co. paid $52,190 and Central Power & Light Co. paid $49,136. The balance was paid by a large number of other companies. The basis for the charges by the legal department was dependent upon the nature of each job done by the legal department. [281] Control.-The manner and extent of supervision and control exercised by the Middle West Utilities Co. and by its subsidiary, the Central & South West Utilities Co., over their respective subsidiaries with respect to certain phases of the business and the discretion allowed the operating companies' executives in other matters, have herein before been stated and shown in various ways, but the following correspondence is also submitted to illustrate more precisely the application of those policies in a few instances. DALLAS, TEX., April 8, 1932. Operation: Transmission and distribution expense. Messrs. J. T. Persons, F. W. Schroeder, R. W. McClure, R. K. Lane, A. Patterson, N. P. Heath, J. R. Jones. There has been considerable interest in comparing the operations of the various companies with respect to transmission and distribution expense. While many local factors determine the amount of money which should be spent per unit of comparison, the tabulation attached will give you an index of the experiences of the companies in our South West group. As you will note, the conversion expense is based on the substation unit, which is perhaps not a very good unit. The transmission expense is divided on the usual unit of the expense per mile. The distribution expense we have calculated on the basis of the customer unit. This also may be questionable, however, it is a unit which we use very frequently or income in comparing various companies. It is desirable for each company to cut their expenses to as low a point as possible and still render a reasonable service. This would mean that a company with reasonably new facilities should be able to reduce their expenses per unit below that of companies with older facilities. In other words if you happen [282] to show favorably on the comparison you should not take the favorable showing to mean that you have done as careful a job of conserving operating expenses as someone who may have a higher unit expense. This information is being sent out at the request of several operating department engineers. Operation: Electric utility analysis. GEO. A. MILLS. DALLAS, TEX., October 6, 1931. Messrs. E. R. Hoppe, R. W. McClure, R. K. Lane, J. T. Persons, A. Lieberman. Our statistical department has compared your electric operations for the first eight months of 1931 with the corresponding period in 1930. I am attaching a copy of this analysis for your own company. We would ask that you study your particular situation and make further reductions wherever possible since the group as a whole does not show an operating expense reduction equal to the loss in revenue. You can therefore understand that the net income is down. To point out the comparison of your oper ations with some of your affiliated companies, the following unit comparison gives you an idea of your unit expenses as compared to the other companies. (Average number of customers used in above comparison.) You will notice from the above table there is a great variation, some of which is controllable. GEO. A. MILLS. [283] DALLAS, TEX., May 12, 1932. Rates: Standard schedules. The transition from a large variety of inherited rates to the so-called "standard schedules" has been accomplished in the Southwest. During the past few years many suggestions have been sent to you modifying, simplifying and adding to the several standard forms in use. In order to bring these past suggestions up to date and give you in one small exhibit the present recommended standard schedules, the attached is sent you. The present standard schedules consist of five schedules, as follows: Residential service, commercial service, general power service, combined light and power service, industrial power service, and "terms and conditions" referred to in these schedules. All other schedules are considered special since they are not used by the general public. Municipal lighting and power, gin rates, sign-lighting rates, and so on, are considered special schedules. In the future the use of special rate schedules should be reduced rather than extended. In preparing the attached schedules, care has been given to the working of each statement to avoid some of the difficulties experienced in the past. The matter of optional rates has been given special consideration to avoid complications with the customer, regulatory bodies, and the courts. The "terms and conditions" attached, which are a new feature of our standard schedules, are the result of selecting the most appropriate paragraphs from among many exhibits used by our companies. While some of you have prepared your own terms and conditions, we would ask that you consider this exhibit as a guide for future changes. We recommend these schedules to you for your present and future use. GEO. A. MILLS. [284] Numerous other subjects were covered in the intercompany correspondence including results of driving tests to determine the most economical speeds of automobile operation; establishment of automobile-inspection methods to insure greater life and lower cost per mile for automotive equipment; analyses of the customer cost in serving electric customers; sale of equipment and material in stock at "incentive" prices to induce sales during 1932 as the management was "now primarily interested in reducing stocks and conserving cash"; operating economies and reduction of operating expenses; demands for lower electric and gas rates to conform to the downward trend of living costs; curtailment of company activities and abolition of certain departments; operating company budgets; salary and wage reductions; analyses of earnings, etc. (See appendix no. 3.) [285] CHAPTER IX. OTHER POLICIES AND PRACTICES This group of operating companies all had extensive ice departments, gross revenue from which amounted to between 23 percent and 15.7 percent of the total revenue of these companies during the years 1927 and 1931. The percentage of these revenues declined from 23 percent in 1927 to 15.7 percent in 1931, whereas the percentage of electric revenues to total revenues of these companies increased from 57.2 percent in 1927 to 75.9 percent in 1931. During the same period, the corresponding percentage of gas revenue decreased from 16.4 percent in 1927 to 4.4 percent in 1931, while water, railway, and bus services accounted for the remaining gross revenues. It will be seen from the foregoing that with such a large ice business it was essential to maintain the proper distinction and allocation of all expenses between the respective departments, particularly between the ice and electric departments, in order to have any proper foundation for net revenues from the respective services. In many instances, some of the facilities of these companies are used jointly by the electric and ice departments; and, likewise, the time of various employees is spent in connection with such joint facilities or divided between those services. Available time did not permit the examiner to make such an exhaustive investigation as would be necessary to determine whether or not and to what extent the direct costs of the respective services in such cases were properly allocated, but assurance was given by H. K. Stark, general auditor of the Central & South [286] West Utilities Co., that the operating companies conscientiously endeavored to properly allocate all such direct costs to the services to which they pertained. Interdepartmental services.-The following practices are fairly illustrative of the methods employed with respect to interdepartmental charges for services. The Central Power & Light Co. charged its ice, gas, water, and railway departments with electric power and light furnished them at prices which were intended to cover the cost of generated or purchased power plus transmission and conversion thereof. The amount of power thus furnished by the electric department of the Central Power & Light Co. to the other departments of that company ranged from approximately 27 percent of the total power generated and purchased during 1926 to 12 percent thereof during 1930. The rates charged the other departments for the power furnished by the electric department was as follows: Cents per kilowatt-hour As before stated, these rates covered the approximate average cost of delivering energy to the other departments, but did not include any portion of fixed charges and overhead expenses, and, therefore, resulted to some extent in subsidizing the ice and water utilities and penalizing the electric utility. [287] The corresponding direct costs of power thus delivered by the electric departments to the other departments of those companies during the same years were as follows: 1926. Cents per kilowatt-hour 1. 46 1928. 1929. 1930_ 1. 17 1. 14 .89 .83 During these years, the total power generated and purchased by the Central Power & Light Co. had increased from 67,160,324 kilowatt-hours in 1926 to 238,445,005 kilowatt-hours in 1930, and the direct cost of delivering such power to the other departments had correspondingly declined to 0.83 cents per kilowatthour, as above stated. During the same period, the power delivered by the electric department of the Central Power & Light Co. to the other departments had increased from 19,568,894 kilowatt-hours in 1926 to 32,132,555 kilowatthours in 1930, and to avoid any further injustices to its electric department in connection with the interdepartmental charges for such power the rate therefor to these other departments was increased to 1.20 cents per kilowatt-hour as above shown, which for the first time was materially greater than the direct cost thereof, above referred to. Such interdepartmental charges for electricity and gas were not treated as revenues. Instead the production cost thereof was credited to the production costs of the department rendering such service, and the excess of such charges, as in 1930 and subsequent years, over such production cost was credited to the general and miscellaneous expenses of the department rendering the service. [288] Such production costs of the respective companies differed from year to year and according to the territory served, and the interdepartmental charges made by those companies for power and gas likewise differed; but the same principles were followed by all of the operating companies in this group with the object of charging the respective departments rates approximately in harmony with the industrial rates such departments, if separately incorporated, could obtain on their volume of consumption. Apportionment of general expenses.-The practice of the operating subsidiaries of the Central & South West Utilities Co. differed somewhat with respect to efforts made to allocate all general office and other general expenses directly to the operations of the utilities to which they pertain; but for the most part general expenses were properly allocated directly to the respective activities so far as practicable, and the remainder of such general expenses was then apportioned and charged to the electric, water, ice, railway, and bus operations on the basis of the ratio of the gross earnings from those respective sources to the total gross earnings | for each month. |