Public Utilities: Conservation Division, War Industries Board

Memorandum for Mr. Shaw:

My study of conservation as applied to public utilities has disclosed a unique situation. After twenty years experience in this field, I expected to find many opportunities for economies, both public and private, and I have found them.

It is inside history that these utilities never wanted to teach economy to the public, as their business was to increase sales and they never had seriously to practice it themselves until profits approached the danger line. Max Thelen, Chairman of the Special War Committee of the National Association of Railway and Utility Commissioners, speaking of possible economies says, “In very few instances (where public utilities have applied for relief) have they given proper consideration to the reduction of their operating expenses.”

It is a fact, however, that since we have been at war no branch of business has more assiduously applied itself to this subject or has employed greater engineering and financial talent in an effort to stem the tide of ever increasing costs, than these utilities. Every item entering into their product has increased from 50 to 200 per cent, while their selling price has remained arbitrarily fixed at pre war rates, from which there has been no relief by governmental intervention. Iron, steel, coal, copper, oil, and wages among other items entering into their operations, have been paternally regulated upward until the line of costs has crossed the line of profits and every ounce of new business has become a liability instead of an asset. Conservation, therefore, is a necessity and some of the headings under which it may be applied can roughly be itemized as follows:

Street Railways:

1. Boiler room economies, proper heating, ventilating etc., saving 10% fuel.
2. Proper tests for line losses and proper return current rail bending.
3. Interconnection of power stations and hydro-electric power plants.
4. Skip or stagger stop schedules.
5. Lighter weight and one man cars.
6. Central clearing agency and salvage of all scrap.

Electric light plants:

     a, b and c as above.

1. Readjustment of power demand in factories, etc., saving from 11 to 34% fuel.
2. “Daylight Saving” extended through the year, elimination of unnecessary lights, disuse of   carbon lamps, etc.
3. Read meters quarterly, use women where possible, deliver bills by hand and hold receipts.
4. Elimination of isolated plants that waste fuel.
5. Use more galvanized iron wire and less insulated wire.
6. Same as (f) above.
7. Arrange customers so as to equalize load factor.

Gas plants:

1. Abolish present candle power standards and establish a calorific basis (528 B T U’s as in Massachusetts), saving 25% of all oil used or 3,750,000 barrels. Estimated 10 million gallons of tuluol can be recovered from 550 million gallons gas oil to be used. Value of gas unimpaired.
2. Use incandescent for open flame burners. Some estimate a saving of 3½ million tons coal and 93 million gallons of oil besides great saving to transportation.
3. Teach use of gas as fuel and conservation of all uses by proper adjustment of apparatus.
4. Same as a and b above.
5. Same as both f’s above.

Water works plants:

1. Install meters for all consumers. Discontinue “assessed” or flat rates. 40% of all water pumped is wasted unless metered.
2. Discontinue use of all automatic sprinklers on lawns, etc., public and private fountains, drinking trought (as unsanitary and unnecessary). Use such water only for gardens and production of foodstuffs. Prohibit flushing of streets by tanks and fire hose. Also automatic flush tanks in public sewers, now entirely unnecessary.
3. Leaky reservoirs, basins, mains, and services. A 1/32 inch leak (the smallest) under 40 pounds pressure will waste 100,000 gallons per annum.
4. Station efficiency. Leaky valves, slipping of plungers, short stroking of pumps lose 20% efficiency.
5. Reduction of pressure, especially at night.
6. Same as two f’s above.

In many localities those economies are met by opposition from state or local commissions, politicians, or by old franchise requirements or long standing traditions, plus the inevitable hostility of the public toward granting anything to a public franchise holder. These I think could all be cleared up by specific order or recommendation from the government.

It is along these lines that I recommend immediate action, I have followed the suggestion of Mr. Baruch in his letter to you of March 8th and have avoided “the constant harrowing of the business man by questionnaires and meetings.”

I have found no end of public utility data contributed to various departments whose interests have in places overlapped and I have attempted to synchronize them so as to avoid duplication of time and labor. This applied to the Coal and Oil Divisions of the Fuel Administration, the Ordinance Department, Bureau of Standards, Transportation, War Finance Board, Labor Department, and even the Food Administration and the Geological Survey. In some cases, especially the Fuel Administration, I find an efficient corps of state engineers in process of formation which could easily add to their duties such further economies as we may recommend beyond the saving of coal and oil. All departments agree that something should be done and at once but it remains for some department to issue the edict, bringing all loose ends together and justify the enforcement of economies so difficult to put into general effect without governmental sanction.

Important as are these economies, their benefits are at best but a drop in the bucket compared to the real question that confronts public utilities. Their situation is so serious that no amount of saving can save them. Most of the utilities, not already bankrupt, are rapidly heading that way. So grave has become this situation, so apprehensive regarding the adequacy of public utilities to continue their services under present conditions, and so necessary to the life of the country that they be maintained, that Secretary McAdoo on February 15, 1918, laid the matter before the President with peculiar emphasis, concluding as follows:

“I earnestly hope that you may feel justified in expressing the conviction that the vital part which the public utilities companies represent in the life and war-making energy of the nation ought to receive fair and just recognition by State and local authorities.”

President Wilson in his reply to Secretary McAdoo, dated February 19th, 1918, said:

“It is essential that these utilities should be maintained at their maximum efficiency and that everything reasonably possible should be done with that end in view. I hope that State and local authorities, where they have not already done so, will, when the facts are properly laid before them respond promptly to the necessities of the situation.”

The “State and local authorities: above referred to have “had the facts properly laid before them: in some 50 personal appeals, and have granted remedies in varying degrees but none sufficiently broad to cover all the exigencies. Even if there was an overwhelming desire on the part of Public Service Commissioners to hear each and every case as presented, the war would be over and most of the companies stranded before they could finish the list.

The fact of the matter is these utilities should be treated as a unit, not as items. Next to the railroads they are the nation’s greatest resource. They furnish a large percentage of the nation’s tuluol, benzol, and chemicals; they braze and blast and smelt its metals; they cook at home and in many places heat more efficiently than coal; they haul 80% of all government employees to ship and office and factory; they relieve railroads of freight and passenger service; they furnish power and light for all the munition plants, cantonments, shipyards and ordnance departments, also water and fire protection everywhere. In short, they are the life of the government and if they fail the war program fails.

These utilities, exclusive of water works companies, have an investment (stocks and bonds) of over 11½ billion, with gross income of 1½ billions. When it comes to net, stock dividends, depreciation, and in many instances bond interest have vanished and they are faced with 225 million of maturing obligations this year, and now extensions, war necessitated, of between 100 and 200 million.

I have before me the consolidated report of 127 street railways for the year ending December 31, 1917, showing that while the gross revenue increased 55 million over 1913 (pre war period) the net actually fell off 11½ million, or in other words, every $1. of new business cost $1.20. In the face of all this the utilities were forced to expend in war requirements 650 million.

Now the question, What can be done? This same Max Thelen, after summing up the situation, as to the duty of State Commissions, says:

“The usual methods of rate making would result in unreasonable delays, short cuts must be applied to meet the emergency conditions.” “Our public utilities must be kept in a sound and healthy condition to be able to meet the existing but also the additional requirements of the War.”

“State Commissions should not wait until the utilities come to them with their pleas for assistance. It is their duty to inform themselves by their own investigation, etc.”

This is good precept but it wont be practiced. While the Commissions might relish some modus vivendi from Washington, they will never take initiative in time to save the situation.

The War Finance Board offers some hope but not enough. They say to such extreme cases as are forced to apply to them “go to your banks for help and we may help them.” The banks reviewing the precipitate decline of net earnings say “We can’t loan on that showing: and the company’s recourse, like that of the Massachusetts Electric of Boston (the longest street railroad in the country) is to petition for a receiver.

This question is important enough, I think, to warrant the serious consideration of the War Industries Board and to appoint a committee to design, if possible, through what avenues help can come. It has been left so long to so many departments that immediate definition is urgent.

If you are in the mood for suggestion, may I recommend the following in order to avert what Mr. John Skelton Williams in his report to Congress epitomized thus: “The breaking down of these corporations would be a national calamity.”

Inaugurate a public utilities department whose duties shall be to synchronize work already done and to give special thought and final recommendations upon such public utility subject as:

1. Relief from all non-essential and unproductive requirements, such as undergrounding of wires, paving, duplication and unnecessary extensions.
2. Consideration of best methods for offsetting the increased cost of service.
3. Some practical plan for relieving the financial burdens of all Public Utilities considered as a unit.
4. Study of rates to be referred ultimately to proper rate fixing authority.
5. Best method of promulgating data in regard to economies of operation, then promulgate it.

Aside from the actual physical loss to the country in crippled utilities, the question of passing dividends on stocks and interest on bonds so widely held by banks, trusts, and individuals is a serious blow to the War Finance Program.

In fine, something must be done and the question is: “Who shall do it?”

Addis M. Whitney,

For

Public Utilities Department

Conservation Division.