TEXT BOOK OF CALIFORNIA WATER AND POWER ACT This Copy No. 196 is loaned to For his personal use To be returned upon request to THE GREATER CALIFORNIA LEAGUE 620 Phelan Building San Francisco CtG,l CuNTE' Page 1. What is the California Water & Power Act and what does it mean (for copy of act see insert pamphlet herev/ith) 1 2. FACTS ABOUT ONTARIO Ontario Hydro's Construction Costs 6 How do the Water Power Resources of Ontario Compare with California? 13 What about Rates Charged in Small Co.. .unities in Ontario, Canada? 14 What of the Economic Accomplishments in Ontario. Canada? 16 California's Growth in Population Compared to Ontario, Canada's Growth 18 What will Become of our Rural Population? 19 What of Prosperity on the Farms under the Hydro Electric C ion of Ontario as Compared with lifornia's Initiative in Power Service? .... 20 Shall we Introduce a Philosophy that Leads toward Stagnation? 23 Is the Murray Report Reliaole 24 COMPARISON OP CALIFORNIA RAT?/, WITH ONTARIO RATES Rate Comparisons between California and Ontario . . Where tbe Money Goes in Hydroelectric Development Californir , 30 4. COMPARISON OF RATES Comparison of Rural Power Coots 32 What about the Coct of Power to the Ultimate Consumer in California? 34 What of Average Power Rc.tes for Various Cities of California? 36 1 I. Page 5. GROWTH OF CALI7CRBXA Comparison of St iC3 from the Last United Census Reports on Electric Plant3 38 The Water and Power Act near, tion of industry 41 6, INDEFINITENESS OF THE PLAIT OUTLINES BY THE WATER - POWER ACT. The Water and Power Act fails to locate or describe projects 44 The Water and Power Act is absolutely silent as to Plan or Polic 45 7- FOLLY OF POWER AT COST Does it benefit ratepayers to pay off the capital invested in public utility service? 46 8. CONSERVATION OF NATURAL RESOURCES Do the Private Pov/er Companies Despoil the Natural Resources of California? 50 9. IMPORTANCE OF SCUND REGULATION AS OPPOSED TO POPULAR REGULATIO: . Importance of Sound Regulation as Opposed to Popul Regulation 52 The Powers and Duties 01 the California Railroad Commission 55 Are the Utility Companies Guaranteed an 8 Per Cent Return under Regulation? 56 10. MEANING OF THE WATER AND POV/ER ACT Effect of Water and Power Act on Taxes 57 11. RESUME OF POSSIBLE RESULTS UNDER THE WATER AND POWER ACT IF ADOPTED. Here is Where the Philosophy of Those Who Fftvor the Proposed Water and Power Act in California Vill Lead us Should it be Adopted. Let us Beware ... 60 II. Page 12. TAX SITUATION The "Tax-exempt" Farce 62 Taxes in California 63 Municipal Ownership and Taxes in Los Angeles ... 65 Effect of Water >..nd Power Act on Taxes .... 66 13. COMPARE THE GROWTH IN LOS ANGELES WITH THE GROWTH E THE BAY REGION. What Proponents of the Proposed Water and Pover Act Say Regarding the City Water and Power for Los Angeles 68 14. CONSTRUCTIVE ARGUMENT FOR THE INTELLIGENT Power Development in the Stcte Has Kept up with the Demands 71 What ahout the Power Shortage in California? 73 California's Magnificent Attainment in Hydroelectric Development 77 Granting All that the Proponents of the Act Cla. What Will toe the Saving Per Capita to the People of the State? 79 How Will the Financing Contemplated Affect the Credit of the State? 8l 15. WHY GOVERNMENT FAILS IN BUSINESS Government Failures in Business — Canadian Railways 83 North Dakota and What Happened 85 16. WHY IT IS IMFORTANT TO PRESER7E THE INITIATIVE AND SELF RELIANCE OF THE PEOPLE BY AVOIDING PATERNALISTIC GOVERNMENT. Why is it Imortant to Preserve the Initiative and Self -Reliance of the People? 88 17. THE STATE OF CALIFORNIA CREDIT AND THE EFFECT OF THE WATER AND POWER BILL UFON THE CREDIT OF THE STATE, THE LOANABLE VALUE OF LAND, AND INTEiJlST RATES. III. Page Shall v/e Suffer o te Credit to be Jeopardized? 89 Effect of the Wa-cor arr 1 Power Act en the borrowing power of the individual manufacturer , merchant, rmer and land owner 91 18. THE INVESTMENTS MADE IN CALIFORNIA IN THE PUBLIC UTILITY INDUSTRY SINCE REGULATION CAME INTO BEING WITH PARTICULAR REFERENCE TO IMMORALITY OF ATTACKING SUCH INVESTMENTS , ETC . Competition versus regulated Monopoly 93 19. ANSWERS TO THE VARIOUS SPECIOUS ARGUMENTS OF BARTLETT, PORTER, AND THE LIKE. Prosperity and growth in Los Angeles not attributable to municipally owned power 96 Municipal Ownership in Los Angeles 99 Comparison of the cost of Electric Service in Los Angeles £.n Francisco. 101 What authority has the Committee 108 20. ACCOMPLISHMENTS OF THE POWER INDUSTRY IN CALIFORNIA UNDER PRIVATE MANAGEMENT. California's Present Hydroelectric Achievements Recognized the World Over Ill 21. DISTINCTION CEN WATER WOHKB BUSINESS, WHICH IS OLDER THAN ROME, AND THE ELECTRIC BUSINESS, WHTCH IS A MANUFACTURING BUSDQ6SS AND ] THAN THIRTY YEARS OLD WITH CHANGES COMING RAPIDLY. The Water and Power Act Contemplates not Government Ownership but Government in Business 112 22. PORTER'S ARGUMENT THAT THE U. S. A. IS THE MOST BACKWARD OF ALL COUNTRIES, THAT OTHER COUNTRIES HAVE ATTEMFTED REGULATION AND PASSED FROM THAT TO GOVERN- MENT OWNERSHIP. What abort tl;e So-called Municipal Power Plant of Alameda? 113 What about the So-called Municipal Fo*er I 1 of Riverside? 115 '.'. Page What abcut the Power Plant of Los Angeles? . . . 117 Should California Imitate the Bureaucratic Governments of Europe? 122 The Tale of the Tail of a Cor.. 123 An example of Deliberate Dishonesty 125 23. SUMMARIZATION OP MR. SI3LEY'S ARTICLES SO FAR A3 NOT COVERED UNDER ANY OF THE ABOVE HEADS. Regarding Mythical Savings 128 California Has Never Had the Condition that Prevail- ed in Ontario to Call for the Formation of a Hydro Commission 13C A V/ell Known Pitfall in Spending the People's Money 132 24. ARGUMENTS FOR THE IRRIGATIONIST . How Will the Proposed Act Affect Irrigation? . . . 135 2^. THE KETCH HETCHY SITUATION. Is State Aid Available for Completing Hetch-Ketchy? 137 26. LACK OF INFORMATION AS TO WHAT PROJECTS WILL BE DEVELOPED, ETC. Who Pays the Losses? 140 27. FAT TERRITORY MUST CARRY LEaN TERRITORY. Why Fat Territory Must Carry Lean Territory . • 141 28. MISCELLANEOUS COMMENTS. Did the Railroad Commission Ever Recommend That the State Go in the Power Business? 142 Comments by Edward F. Adams 146 V. I NDEX A Adam^, Edw. F. Comments by 146 Alameda nicipa?. Plant 113 Power Rates 36 Analysis of F ~oets 31 Authority of Finance Committee Under Act 108 •rage Power Iiates--Cities of California 36 B Bank, Board May Start 3 Beck, Sir Adam Answsrcd 25 Berkeley, Mfg. Growth Compared to L.A. 68 Board, Powers of 2 Bond, Issues, Four Times Present Debt 2 Bonded Debt of State 82 Bonds for Operating Expense ^ Borrowing Power Injured 43 Building Permits, Calif, vs. Ontario 23 Bureaucratic Systems of Europe, Initiation of 122 C California Better Conditions than Ontario 16 Building Penult 3 23 Compared toOutario(See also Prntd Inst )13, 14, 16,27, 34, 89, 129 Conditions Do Not ITeed Improvement 1}0 -m Prosperity 20 K turing Statistics 17 Population Statistics lo Power Bill Savings Since 1908 129 Rates Compared to Ontario 27, 34 Rural Population 19 Savings Deposits 90 Canadian Railway Failure 83 ital Amortized in 50 Years 48 VI. Capitalizing Operating Expense 119 Census on Municipal vs. Private Plants 38, 40 Cities of California, Average Power Rated 3° City Rate3, Ontario vs. California 29 Civil Service Disregard of 147 Ignored 2 imcroial vs. Municipal Plants 38> 40 Committee, Under Act, Authority of 108 Comparison Ontario-Calif ornia( See also Printed Insert )13, 14, 16,27,34, 89, 129 With Municipal Rates Difficult Ho Competition Reintroduced Under Act 42 Competition vs. Regulation 93 Confiscation of Property 3 Consequences of Act Summarized 6° Constitutional Amendment 1 Construction Costs High ° Cost of Government, California 63 Cost of Power, California 3° Costs of Power, L.A. and S.F. 101 Credit of Individual Affected 91 Credit of State How Affected 81 Jeopardized 89 D Dishonest Propaganda 125 Distance Basis of Ontario Rates 1* 27 Distribution, Share in Power Costs 31 Drury, Commissioner Quoted 6,132 VII. Duties and Power of P..R. Commission 55 E Eight Per Cent Guarantee Fallacy 56 Election Necessary to Repeal 1 Employment Without Civil Service 2 Engineering Records — Private Companies 52 Europe, Shall We Imitate it 122 F "Facts for Farmers "--Alleged Misquotation 123 Farm, Use of Electricity in California 32 Farm Development, Ontario va. California 19,20 Farm Rates California vs. Ontario 32 Ontario vs. Calif. 29 Farmer , Borrowing Power Affected 91 Irrigation Affected 135 Farming District, Danger to 3 Farming Interests, High Rate 4 Fat Territory Carries Lean Territory 141 Finance Unsound 3 Five Million Not Enough 4 Flood, Statement of, on Report 25 G Goodyear Tire Co. in L.A. 97 Government Costs, Calif. 63 Government Failures in Business 83 ,85 Government in Business, Danger of 112 Government Ownership Not Contemplated 112 VIII. Hetch Hetchy, Possibility of State Aid 138 h Construction Costs 6 Hom-2 Pates, Ontario vs. Cr.lif. 29 Hoover on California Companies HI Household Rates Unreasonably Lov; in Ontario 27 I Indefinite Character of Act 44 ,45 Indirect Taxation, Principle of 63 Industrial Stagnation Under Act 41 Interest, Taxation to Provide for 2 Interest Rates on Ontario Bonds 89 Investors Discouraged 42 Irrigation, How Affected 135 L Land Owner, Borrowing Power Affected 91 Legislature, No Control 2 Less Not More Government Needed Load Factor Not Considered 64 28 63 Los Angeles Arguments Refuted •gures of Municipal Ownership 99 Growth Not Due to Municipal Ownership 9o Manufactures Compared to Bay Counties O nip and Taxes "5 Municipal Plant }*/ Power Rates 3° .37 .120 Vs. San Trancisco--Co3ts of Electricity 101 Losses, Who Pays Them? 1*° Lowest Rates in California ?1 IX. Manufacturer Borrowing Power Affected 91 to 144 Dangers to 2 Manufacturing Costs cf California Power 30 ManuJ - rowth i.n Calif, Cities 69 -lufacturing Per.:r. itcd 2 Manufacturing Under Govt. Ownership 17 Merchant, Borrowing Power Affected 91 Misquotation Denied- -"Facts for Farmers" 123 Municipal Bookkeeping, Vagaries of l?-7 Municipal Ownership, Los Argeles 96,, 11? Municipal Ownership and Taxes, Lcs Angeles 65 Municipal Plant -ineda 113 Los Angeles 117 Riverside 115 Municipal vs. Private Plants 38, .40 Municipal vs. Private Power Rates 36,120 Murray Report Reliable 24 Murray, Statement of, on Report 25 Mythical Savings in Ontario 128 1 Natural Resources Corserved by Private Companies 50 Niagara—Advantages of Ontario 13 Niagara Rates not Jharaoteris*ic 27 Non-Partisan Experiment in North Dakota 85 Non-Partisan Party Endor et 86 North Dakota Failure 85 Similarity to Bank Experiment 3 X. Ontario Building Permits Compared with California Construction Costs Cost of Farm Power Drury Statement Economic Situation Farm Prosperity Farm Rate 3 High Rates Interest on Bonds Loss in Operation Manufacturing Statistics Need Greater than Calif. Population Statistics Power Bill Savings Less Than Calif. Rate Comparisons Rates in Small Communities Rural Population Saving Deposits Steam Hot Required Toronto Daily Star Quoted Transmission Short Water Power Resources 23 13,14,16,27.34,89.12? 4 6 16 20 32 11 89 11 17 :3 128 27. 3* 14 19 90 13 132 13 13 People's Money Easily Spent Per Capita Saving Under Act Plan Unspecified Political Chicanery, Opportunity for Population--Ontario vs. California Power at Cost Fallacy Power Companies Giving Adequate Service Power Company Achievements Recognized Power Development Demands Power Rates--Cities of California Power Shortage, Explanation of Power Users Bear Ontario Burden Powers and Duties of R.R. Cowmi3sion 133 79 *5 3 18 .4, 141 5 in 71 36 73 27 55 ::i. Powers of Board 2 Present Conditions Satisfactory 5 Private Initiative Important 88 Private Power Companies Conserve Natural Resources 50 Projects Not Described 44 Prosperity, Confiscation of 3 Provisions of Act 2 Public Debt, Calif, 63 R Railroad Commission Did Not Recommend Govt. Ownership 142 Does Not Guarantee Q% 5° Misquoted by Proponents 125 Not Under Supervision of 3* 27 On Post War Rates 75 Powers and Duties 55 TkrL t P ^ California vs. Ontario (See also Printed Insert )27, 28, 29 1 34 For Power, Cities of California 3g High Because Investment Amortized 40 High in Ontario H InSmall Communities High 14 L03 Angeles 37.120 To Ultimate Consumer 33 Unsupervised 3 Record Use of Power in California 71 Records by Private Companies 52 Records in Hydroelectric Development • 77 Regulation, Sound vs. Unsound 52 Regulation vs. Competition 93 Riverside Municipal Plant H5 Rural Population, Ontario vs. California 19 XII. s San Francisco, Assistance for He ten Hetchy 13$ San Francisco vs. L03 Angeles, Costs of Electricity 101 Savings Deposits, Calif, vs. Ontario 90 Saving Per Capita Under Act 79 Seavey, Clyde, Refuted 10 $ Sectional Interests Served *7 Security Holders Imperilled 94 Shortage of Power, Explanation of 73 Small Communities, Ontai - * es * 4 Small Town Rates--Ontario va. Calif. 2 9 Sound vs. Unsound Regulation 52 Spreckels, Rudolph, Answered 93 Steam Plants, Necessary in Calif. ^3 Steam Standby, Share in Power Costs 3 1 Summary of Consequences of Act 60 Supergovernment--Provisions of Act 2 T Tax Free Securities Tax Free Securities and Taxes Tax Free Securities, Menace of Taxation Increased 62 58 4 Taxation to Pay Interest 2, 3 Taxes and Municipal Ownership in L.A. "5 Taxes and Tax Free Securities 62 Taxes Effect of Act on In California 57, 66 63 Paid by Alameda Plant 1J* Paid by Public Utilities &7 Share in Power Costs 3 1 XIII. Taxing Power, Provi -ions of Act 2 Text of Bill (Printed Insert) 4 Toronto Daily Star Quoted *32 Trai QiA.iio vs. California 1 3 1 Power Costs 3 1 U Ultimate Consumer, Rates to 3* V Vernon and Torrence Gro\:t:. Compared to L.A. 97 W Water and Power Bill--Text (See Printed Insert) 4 Water Resources, Confiscation of 3 What it is 1 Whole State Not Served * Wholesale Rates Given in Ontario 28 • oOo- XIV. BREAKING A WORLD'S RECORD IN CALIFORNIA KuiIiIiiik the towcra for 220,000- Mil I tranamiaaion. I ndrr Ihr alimulua of pmatr ownership in California, Ire- mcndou* engineering feat* in Ihr dr\rlopmrnt of power have been acromplmhed. until thia »lalr no! onl» rank* IfaJ in ila nae el i l.ciriritv on Ihr farm and in Ihr average low ratr for power, hut in the aaeeca a» well for thooe I mm all part* ol ihr wnrld who arr inlrrr«trd in Ihr prnhlrm* of high voltage tranamiaaion. In Ihi* «late the limenl In Ions distance tranamiaaion of power w«» worked out and toda> the world'a record in ihu n>ld i» held hrr. I n are no reporta available of pioneering work of thia character which haa been aceoaaa' under government VMMlB| in an> dt»lrirt of the I nilr I Mate*. Reprint from the Journal of Electricity and Western Industry What is the Calif ornia Water a. id Pov/o r Act and What does it mean? This Act is proposed as an amendment to California's constitution, and has "been placed upon the ballot for next November's election by initiative petition. If adopted, the Act "becomes a part of the supreme law of the state. Its provisions are, therefore, beyond legislative control and cannot "be amended in whole or in part except "by another initiative "by the people, submitted at another election. The proposal, then, is not so simple a thing as an act which can be amended at any time but a constitutional amendment. No natter how disastrous or dangerous any of the provisions may prove to be, the legislature is powerless to act. Nothing can be done to "put out the fire", until an election is held and the people vote to amend or repeal . The main purpose of the measure is to launch the state in the business of generating and selling electric power. Let U3 forget all about the question of whether a polit- ical board, without experience or technical requirements, can safely be given supreme power over the finance, management and operation of one of the most intricate and technical industries known, one which is yet in its infancy and which need3 the very highest type of engineering skill and management in its future development and confine ourselves solely to the single query whether the act is so wisely conceived and free from dangerous and unsound provisions as to warrant its becoming a part of the constitution. This question can best be answered by considering what the act does, what the so-called Water and Power Board can do, what the financial policy of the Act is and what its effect on taxation will be: - 1 - WHAT THE ACT DOES 1. It creates immediately on adoption a new State bond issue of $500,000,000.00, and pledges the full faith and credit of the state to the payment thereof, thereby mortgaging every piece of taxable reel and personal property as security for the payment of the principal and interest of these bonds. This new issue is over four times the present total of our AUTHORIZED state bond issues and nearly eight times the present total of our actual state bonded deut. (Sec. 5) 2. It creates a "California Water and Power Board", and places the expenditure of this money in the hands of a quorum of three out of the Board's five members, appointed by the Governor, with full power and authority to spend the money anywhere they wish, any time they wish and in any way they wish, either in or out of the State, without review, revision or control by any legis- lative, executive or other department of the state government. Ho projects are described or specified in the act and the Board's re- quisition for the sale of bonds for projects which it hereafter approves is controlling. The board is, in truth, a super-govern- ment. (See. 7) 3. It contains (l) an express and continuing ANNUAL appropriation from the general fund of the State of such sum as may be needed to pay the principal and interest of the $500 ,000, 000.00 of bonds; (2) a direction that there be collected ANNUALLY in the same manner as other taxes are collected such ADDITIONAL sum as may be necessary to meet the appropriation for principal and interest of the bonds, and (3) a mandate to the fiscal officers of the State to levy and collect these additional taxes. (Sec. 9) This is a permanent appropriation by a CONSTITUTIONAL enactment beyond legislative control. WHAT THE BOARD CAN DO 1. Employ as many engineers, legal advisers, superin- tendents, supervisors, foremen, bookkeepers , stenographers and other employees and pay such salaries as it may determine without regard to present Civil Service rules and regulations. (Sec. 3»J* Here is the germ of a political machine, which is bound to grow and multiply. 2. Manufacture or otherwise acquire any materials, RAW OR FINISHED, used in the power industry, which means that the Board may engage in ANY business, - cement manufacturing, copper ning, and smelting, oil production, railroading, retailing, dis- tributing, etc. (Sec. 3» a & b) 3. Take out of the State Treasury WITHOUT CONSENT of the Legislature or Governor any amount of money needed to pay principal and interest of the $500,000,000.00. The Act compels - 2 - the return of such withdrawals from the State Treasury "by the levy and collection of additional taxes. (Sec. 9) 4. Fix rates for electric service without a hearing, change rates at will and prescribe the terms of contracts for electric service. (Sees. 3 c & 8) There is no provision for review, control or regulation. The Board is supreme. 5- Take away from any CITY, FARMING COMMUNITY or WATER DISTRICT its undeveloped water and power resources, if they are not developed within two years after notice from the Board. (Secl3) 6. Spend all or any part of the $500,000,000.00 outside the State of California, if, in the opinion of the Board, it may be necessary or convenient. (Sec. 3 f & g) 7. Start its own bank, as money derived from the sale of bonds DOES NOT HAVE TO BE paid into the State treasury. A alar experiment in North Dakota resulted in the failure of 28 banks. (Sec. 9) 8. Take possession IMMEDIATELY of any property it de- sires. The Board act3 as judge and jury in its own case and by this AUTOCRATIC AUTHORITY makes the ownership of any property UNSAFE. (Sec. 14) UNSOUND FINANCE AND POLICY 1. Section 7 permits the proceeds of bonds to be sold for the OPERATION and MAINTENANCE of such projects as the Board may deem necessary or convenient, etc. This is just as unsound as issuing bonds for roads which wear out before the bonds are paid. 2. Section 7 also provides that "in order to avoid ap- propriations from the general fund and resulting taxation" NEW bonds may be issued and sold to pay either INTEREST or principal of old bonds outstanding. Taxation is not avoided by pyramiding the State's indebtedness, or by paying INTEREST with more bonds. 3. Section 7 also creates a revolving fund of $5»000, 000.00 and places it at the disposal of the Beard. This fund could be used to conceal a thousand blunders and opens the door to all sorts of illegitimate practices to avoid disclosures of fail- ures and mistake 4. The Act, as a whole, takes away from the people any voice as to when, where, or how proposed projects shall be develop- ed by the Board, the sice of the districts to be served by it, the rates to be charged or terms of the contracts under which districts or communities are to be serve The people are to be suppliants before a political board. 5. If the State is to go into the power business, the only logical course is for the State to undertake to serve the - 3 - entire Stt.te. The bond i~sue of $500,000,000,00 is not nearly large enough to permit service: to the whole State. In fact, the Act i3 drafted so that only portions of the State can be served and those are to be the portions selected by the Board. But AIL the taxable property in the State is liable for the bills. 6. The Act provides that State power shall be sold "at cost", as that term is defined in the Act. "Power at Cost" for rural agricultural and thinly populated districts is an impossibil- ity. The "fat" territories must help to carry the "lean" terri- tories. Agricultural power is sold in California way below its cost. If it were not, agriculture could not use anywhere near the amount of power it now uses in California. "Power at cost" was tried by the Province-owned Hydro-Electric Commission of Ontario. After twelve years, less than one per cent of the power developed was used by agriculture because the cost was prohibitive for agriculture. This was the finding of a Legislative investi- gating committee of the Ontario Assembly under date of November 30, 1920. The result of the committee's report was the adoption of the Rural Hydro-Electric Distribution Act, 1921, whereby a bonus of fifty per cent was granted for power service in rural districts. The bonus is taken out of the Consolidated Revenue Fund of the Province. EFFECT ON TAXES 1. The bonds issued under this Act will be tax-free securities; their proceeds will be used to buy property, which at once becomes tax-exempt and is removed from the tax rolls; the expenses of government go on just the same; the result is increas- ed taxe3 because there is less taxable property to meet the ex- penses of government. 2. The taxpayer must carry an additional burden, while the Board is "getting started", using its $5,000,000.00 revolving fund and attempting to establish a r^oing and paying business. Thereafter, the taxpayer is the guarantor of the skill, intelli- gence and judgment of the Board and its unknown technical staff and organization. CONCLUSION There wa3 no public demand for this Act; it has been put on the ballot by a small group who financed the solicitation of signatures at ten or twelve cents a name; it has been drafted with- out opportunity for legislative discussion or other debate as to its terri3 and represents the judgment of a small coterie, untested by the criticisms of others; tax-free securities are good things - 4 - for the rich, but they are increasing the tax burden of most of us and it seems wi3e to call a halt on the issuance of such securi- ties unless they are absolutely necessary or their issuance is a duty; there is no shortage of power in California and no danger of one; power is cheaper in California than anywhere else in the country; there is a greater development of hydro-electric power here than in any other state and a greater per capita consumption; the power companies in California have been leaders in electrical achievements; they are operating with a lively sense of their public responsibilities and under the strictest regulation; their credit is good and money is readily available to them for their developments. Why then disturb a situation, which is a very good one, by issuing more tax-free bonds to increase taxes and by adopting a constitutional amendment which not only fails to pro- vide a state-wide service but contains many unsound, unwise and dangerous provisions? - 5 - OKTARIO HYTRO'S CONSTRUCTION COSTS Whether power is developed by government or by pri- vate corporations it cannot be sold permanently below cost with- out causing deficits and failure. And whether power be devel- oped by government or by private corporations the work is done on borrowed money and must pay interest on the investment as part of the cost of doing business. Construction costs, there- fore, are an important factor in fixing rates. If construction costs are too high rates must be high. Taxpayers, like any group of business men, invited to put their money into a power or other project, expect from the promoters a reasonably accurate estimate of the construction cost so that they may ascertain v-hether the rates to the pat- rons of the service can be made low enough to attract customers and assure success. Investors induced to go into a business on the representation that the construction cost would be 25 millions are justly displeased if the construction cost ex- ceeds 65 millions. Yet that is what happened in Ontario, Premier E. C. Brury, head of the present farmers' ad- ministration of Ontario, while addressing the federation of business men's associations at Toronto on March 17, 1922, said: "I do not know how much the Chippawa Development is going to cost, llobody knows that. It may be money well spent, but the thing which the Province must have in a public service commission on whose guidance and recom- mendation we undertake the expenditure of great sums of public money, is estimates upon which we oan depend. If we get into the habit of talcing estimates that cannot be borne out, we are running into danger, I do not know that Chippawa is costing one cent more than it ought to cost , but I do know that the Province has been told that it would cost much less than it is going to cost. Do you get my point? "If we are going to have the proper sort of guidance, we must be told in advance as nearly as possible what these great public ventures will cost, so that we can knov; whether they should be gone into or not, "The history of the Chippawa Development is this: On June 23rd, 1915, the Chief Engineer of the Hydro Electric Commission, submitted a preliminary estimate covering the development of 100,000 horsepower at the Queenston site, and ultimate development of 300,000 hor sepower , and said: 'We have estimated that the completion of the above works will cost $10,500,000, or an estimated cost per horse- power of $105.00 for 100,000 horsepower. The estimated annual charge on the above expenditure amounts to $944,600, or $9.44 per horsepower. This capital expenditure in- cludes, in addition to that required for 100,000 horse- power development , the necessary equipment in the Power House and Headworks for an extent ion to 300,000 horsepower. The approximate co3t for 200,000 horsepower will be in the neighborhood of $70.00 per horsepower with an annual charge of less than $8.00. •As regards the expenditure8 on account of the above considered development, I may say that these would be about _ 7 _ oO.OOO to $1,000,000 for the fiscal year ending October 31, 1916; approximately $3,000,000 during the fiscal year 1917; $5,400,000 during the year 1918, and the remain- der in 1919. ' "That was the original proposition for this work to be completed in 1919. "We have been told that the cost of Chippawa was due to its being a war undertaking. Well, it would have been if it had been carried out according to schedule; but not one-tenth of the present cost was spent during war time. The war was over before the thing was seriously undertaken. It may have been planned as a war-time enterprise, but it was not conducted as a war-time enterprise for the simple reason that the war had ceased before the work was serious- ly gone on with or much money spent on it, "In 1918, the proposal to develop 275,000 horsepower had risen to 450,000, and the ultimate cost of developing 450,000 horsepower was given as $40 ,000,000. In 1920 fears began to be felt and an engineer, named Cooper, was called in to make a report, and Mr. Cooper made a report, Mr. Cooper intimated in his report that the cost for 275,000 horsepower would be a little over $65,000,000. Mr. Cooper's report has been vindicated almost to a cent. But what happened? The Commission held that Mr, Cooper's report was not reliable. The Commission sent for other engineers. The Commission placed the facts of the con- struction up to date before the other engineers. Messrs. Stuart and Kerbaugh made an estimate not of #65, 000,000, - 8 - but of v 40 ,000 ,OJJ. The Government was asked to come over for a consultation. I, myself, with Col. Carmichael, T/ent to Niagarr. Falls, and v;e believed, on the word of the Com- mission, that the Cooper estimate could not be relied upon, "At the last session the Hydro Electric Commission submitted an estimate of $55,000,000, some $5,000,000 more than the estimated cost by Messrs, Stuart and Kerbaugh for the completion of the Canal, with five gen- erating units installed. "Last year it became apparent that that cost was going to be vastly exceeded, and the Government became alarmed and took the matter up with the Commission; and what was the explanation? That the cost of cement and labor had gone up. In the Public V/orks Department of the Government they had gone down. We v/ere told also that the steam shove!. I not v/ork. That the haste pro- gram accounted for far more money than was expected. That was rendered a little hard to believe on account of the fact that the haste program had been abandoned away back in July, and, instead of developing power in September, we did not develop it until the Hew Year. We are enquir- ing, and we have enquired and we intend to enquire further, "As I have said, we do not know whether Chippawa has cost too much. I do not know whether that work has not been done as efficiently and economically as it could be done; but, if it has, the public has not received the proper information as to the estimated cost. One cannot get away from one or the other view; and the Government - 9 - intends, and we muat for the safety of the Hydro Electric Development in On tar io, get some sort of an organization ch will not lead us to live from year to year in a fool's paradise, but will tell us the exact truth in re- gard to orojected public undertakings of this nature. I 8 it that that is necessary, if we are to save hydro- electric development in Ontario, "No business man among you would tolerate for a mo- ment estimates such as I have quoted to you, going up without any justification, and with all the suspicion be- hind it that they are intended to induce the public to take up a project which otherwise they might be chary about taking up. That is not the right oort of business. "I believe in public ownership and I believe in the success of public owner ship, but I believe that that suc- cess can only be obtained by the publio knowing, by the Province knowing the cost of the works which are to be undertaken with at least a fair degree of accuracy; and that we must have, V/e intend to find out why we have not had it. That is a position which the Government must take in the defence of public ownership in the province of Ontario. "Unfortunately, • ve another development work which is an example of almost the same sort of thing. Up in the northwest section of the Province there is a great public ownership development, the Nipigon Development. "The people of Fort William and Port Arthur undertook this development. They were definitely promised cheaper po- . e work was gone on with and was to cost between . . 10 . $4,000,000 and , jO.OOO. It has already cost, for a partial development $6,300,000. That is what comes from under -estimating. The people of Port Arthur and Fort William were given rosy figures. They voted for cheaper power; no man votes for dearer power ; hut "because the work was underestimated they are getting dearer pov/er; and they are sore about it, and do you wonder that they are sore about it? Again, it was not a business under- taking. "I am not saying that the Nipigon Development may not be wise, but I am saying that the people of those two cities responsible for it should have been given an esti- mate somewhere about what it would have cost to go into it, and then have been allowed to use their own judgment, "Last year there was piled up a loss which must be added to capital, a loss of about $300,000; and the people of Port Arthur are paying about $21.00 a horsepower for power at cost, instead of some $15.00 per horsepower under private ownership. Under these public ownership develop- ments you cannot look too far into the future. You cannot build a work that is to supply power ten years hence. Under the scheme of 'power at cost' the capital cost must bear the interest charge until consumption overtakes it. In Port Arthur the interest charge is not half met by the cost of the power sold. The remainder of the interest charge is added to the capital account; so that each year, wihout a bit of work being done upon the development, the capital cost mounts up by about $300,000. It is the old - 11 - scheme . I believe in private promotions it is described as the policy of making the dog eat his tail until he gets something else to feed upon. It is probably a sound method and it is certainly the only way in which these charges can be met, unless the Province as a whole is to absorb the loss. But, Mr, Chairman, if the dog has to feed upon himself until he has not only eaten his tail but also half of his body he becomes a comparatively worthless dog; and that is exactly what we fear of such schemes as the Nipigon Power project, built ahead of the re- quirements of its power market. It is the thing which may become apparent at Chippawa if we do not handle it wisely, v/e must handle it as wisely as we can -- other- wise it may become a burden to the people of Ontario instead of a benefit to the people of the Province, That is why the Government has been stepping in and making enquiries. " - 1C - HOY/ DO THE W ATER POWER RESOURC ES OF ONTARIO COMPARE WITH CALIFORNIA ? Nowhere in the world are natural conditions as favor- able for the development of cheap water power as Niagara Falls. Water supply . At Niagara Falls there is available for the power plants a uniform supply of water throughout the r and there are no dry years. In California dry seasons and dry years both require the construction of large reservoirs for storing water to use during these dry pericds. Steam power plants are also neces- sary for this purpose. Power Plants . At Niagara large quantities of power can be developed in large plants conveniently located to con- struction facilities Buch as transportation, equipment, mater- ials and labor . In California with many small streams, a large number of small plants are required located in inaccessible mountain canyons. This means difficulties in transportation of men and equipment, maintenance of large camps, seasonal construction, etc. Trane miss ion Lines . In Ontario the topography of the country, transportation facilities, proximity to materials and labor markets, besides relatively short transmission distances, are all conditions which mako for low transmission costs. In California transmission distances are much greater, lines have to be censtructed in remote regions, and across moun- tains, deserts and marshes. - 11 - WHA T ABOUT RAT 38 CHARGED IN SMALL COLHAUNITIES IN ONTARIO , CANADA V An tza .'..nation of the reports of the Hydro Electric CcamiBcian of Ontario, Canada, reveals the fact that of the B under that service, all of them less than 133 miles -ira Fa] Is, there is one poor little town that pays 20 cents per kilowatt hour. Jrrn that exorbitant price the costs run down thus: Ore town 18 cents; 4 towns 16 cents; 8 towns 15 cents; 28 towns 14 cents; 1 town 13 cents; 22. towns 12 cents; 4 towns 11 cents; 23 towns 10 cents; and 18 towns 9 cents. Where in all California can a situation of exorbitant rates such as this "be found? This is what is "brought about when the fallacious theory of power at cost is introduced. The average city rate in Calif or nia 1 is about 3 cents per kilowatt h^\u? . Taken from the reports of the Hydra Electric C mmission of Ontario, the average city rates of twenty-five c umunities in the Province of Ontario (not maximum rates) the following interesting and astonishing analysis is revealed: - 14 - Comparison of Rates Charged in S mall Communities in Ontario , Canada, from Late3t Report of Hydro Electric Commission • mce in Average rate cent's Town miles airline Population per KWH overland from igara Falls Domestic Commercial Ailsa Craig 123 568 8.4 13.1 Beeton 104 564 8.9 9.4 Brigden 162 600 9.2 9.5 Burgessville 77 200 7.5 9.3 Comber 187 118 500 8.6 9.4 Creemcre 643 ll.l 10.4 Dashwood 131 600 10.2 12.2 Delaware 119 300 11.0 11.0 Dorchester 100 500 9.3 9. A Draytcn 94 706 12.9 13.1 Embr* 93 484 9.2 9.4 Forest 145 1444 9.8 9.8 Grant on 114 300 9.4 15.2 Hensall 124 7^2 8.0 8.3 Hi ghgat e 144 500 9.2 8.3 Holstein 109 350 10.6 7.5 Lambeth 113 500 8.7 10.7 Brydges 124 500 8.9 10.6 Rodney 138 676 10.1 11.4 St. Jacobs 89 500 7.7 8.0 Sunderland 133 600 8.0 9.8 Thorndale 103 400 8.7 9 '1 10.8 Tottenham 95 517 12.7 Watford 140 1300 8.3 10.9 Zurloh 129 600 11.8 13.6 Bear in mind that these are not maximum but average rates. The maximum for domestic users is not published. Charges on the first block are 14 cents or more per kilowatt hour in town after town, and in one case (liarkham) is 20 cents per kilowatt hour. While Hydro's main transmission lines ex- tend to over 220 miles from Niagara a probable reason fox the comparatively moderate distances in the preceding table is that under a "cost" system of rates such towns would have I be charged rates at which olectricity could not be used at all - 15 - WHAT OF THE ECONOMIC ACCOMPLISHMENTS IN ONTARIO, CANADA ? In propaganda sent out by the State Corapaign Committee for California 1 3 Water and Power Act, voters of the State have been deluged with statements stating that should California adopt this Act there will be created new markets for farm produce by attracting population and industry to California as has been the case in Ontario, Canada. Let us see what has happened in Ontario,, Canada, during the 20-year period that the Hydro Electric Commis- sion has been uppermost in the :ninds of the people of that province. In spite of the fact that fabulous claims have been made as to Ontario's f*reat industrial prowess, the fact remains that over this entire period California has outdistanced Ontario in the value of the manufactured products. Not only this, but recent census statistics announced by the Bureau of the Census at Washington show California to have taken eighth place in value of manufactured products among all the great states of the Union, and fifth place in her number of industries. The following figures of manufacturing and industries of Ontario, Canada and of California are emphatic in their emphasis on the wonderful forward progress of California, in spite of the tremendous concentration of industrial effort that has been said to be made in Ontario, Canada. - 16 - -•TURING AND INDUSTRIES ONTi«IO # Year umber Capital Invested Value Product . persons J Employed | 1905 6,163 215,000,000 241,500,000 i 184 ,000 1010 e.ooo 391,000,000 361,372,000 i 239 ,000 ; 1 1915 6,538 947,000,000 580,000,000 244 ,000 1918 15,365 1,503,000,000 1,809,000,000 334,000 w Reference: Canada Year Book, 1920. MANUFACTURING AND INDUSTRIES ALIFQRNIA ## Year Number 1904" "67838 1909 7,659 11914 10,057 •1919 11,943 Capital Invested. Value Product 283,000,000 537,000,000 736,000,000 1,333,000,000 ••••r* • » \. .--■ * nvj m w.-.f * i:;-.-.:-.: - 367,000,000 530,000,000 713,000,000 1,981,000,000 Persons Employed 126,000' 142,000 177,000 297,000 ww Reference: United States Census, - 17 - CALIFORNIA'S GROWTH JJT POPULATION COLLARED TO OJTARIO . CANADA'S GROWTH Quoting in the exact wording from page 3 of a book- let sent out by proponents of California's Water and Power Act, we find the following statement: "California's Water and Power Act will create new markets for farm produce by attracting population and industry to California as it has done in Ontar io, Canada, " It is but to laugh to compare the growth in popula- tion of California with that of Ontario and presume that the voters are so foolish as to think that Ontario's growth in population has been superior to that of California. The facts tell the story. Here they are: Population (Total) California ........... .. r . ...... .............. 1900 1,485,000 1910 2,378,000 t * Estimate ■•»<-■ Ontario 1901 ,182,000 1911 2,523,000 . ■ 1919# 2 , 821 ,000 j References: Canada Census Reports United States Census Reports, - 18 - WILL BBC' : RURAL POPULATION ? Proponents of California's Water and Power Act are loud in their nr oclamations that the passage of this Bill by the voters of California at the next election in November v/ill attract more people to our rural communities as it has done in the Province of Ontario. A great teacher once said: "By their fruits ye shall know them. " Here is a comparison of 20 years' of growth in California's rural communities as compared v/ith a similar period in Ontario, and it is seen that California start- ed out with 707 thousand people in her rural districts, and at the end of 20 years had over a million people in these same rural communities, while Ontario started out with a million and a quarter in her rural communities and actually wound up the 20-year period with a quarter of a million people less than when she started. ■gotu'lation (Rural) tiilliiHi; California ## - 1900 1910 1920 1911 1919# 707,000 903,000 1,095,000 # Estimate d*# All communities under 2500 population ### All communities under 500 population References: Canada Census United States Census Ontario ### 1901 1,247,000 1,195,000 1,000,000 - if PROSPERITY ON THE F ARMS UNDER YDRO ELECTRIC CC ION 0? ON TARIO A3 COMPARED "II TH CALIFORNIA'S IATIVB IN PCTER SERVICE ? The amount of power "being used by the Hydro Electric Power Commission of Ontario en the various systems in the province is 337.170 horse power, and of this only 2500 horse power, or less than one per cent, is supplied to the agricul- tural industry. So found an investigating committee of that province acting under pressure brought to bear by its legis- lature through the dissatisfied farming communities of the province, Compare this situation with the 12,000 farms of California that today have the most wonderful service in the world with a connected load of over half a million horse power, and distribution lines not of 500 miles in length, as prevail in Ontario, but a vast service involving 15,000 miles of rural lines. Here is the way the farm values have increased in California under this service as compared with the situation in Ontario during the period that the governmental ownership idea has prevailed in that province. In 20 years California's crops increased 344 per cent, while Ontario's increased only 240 per cent. Farm Values - Crops ^11 Crops " Ca l'i for n i a " On t af i 6" " " 1900 1920 t 1901 1918 % 132,000,000 i 588,000,000:344 jlOQ, 000, 003 j 376 , 000 , 000 i 240 References: Heaton»s Annual 1921 United States Census. - 20 - Livestock on the farms in this 20-year period in- creased in California 230 per cent, while in Ontario the in- crease was only 51 per cent. Farm Values - Livestock .•s-.-^** m m ^««. mmm *»-*-*v -* * w m ^j--^^ Ontario 1918 324,000,000 -.tin *-. *-.--*------^****x j Itlflftiti • References' ; Heaton's Annua \ \921 United States iv.isub 1900-1920 1900 67,000,000 California i' ..... ......... ......... — ...,«.-..--.- 1920 % | 1901 221,000,000 !230 ;:i29,000,00 51 Implements, on the other hand, which register a pro. gressive type of citizenry, increased in value on California farms 540 per cent, v/hile in Ontario the increase was only 85 per cent. Farm Values - Implements • ornia 1920 21,311,000 136,000,000 Ontario % 1901 1918 540 : 60,000,000 111,000, References: Heaton's Annual, 1921 United States Census 1900-1920 And far:n buildings increased in value 278 per cent in California, Tdth only a 37 per cent increase in Ontario. im Values - Buildings California Ontario X) 1920 % 1901 1918 % '7,000,000 : 291,000,000 : 278 :; 227,000,000 380,000,000 37 References: Heaton's Annual, 1921 United States Census 1900-1920 - 21 - rm value 3 as a whole went forward by the wonderful growth of 342 per cent, as compared to only a 40 per cent increase in Ontario, Farm Value- s 1911 630,000,000 California 1920 ---- . Ontario 2,783,000,000 % . 19 01 1918 342 : 585,000,000 819,000,000 40 Referencer j iton'c Annual 3921 United States Censu3 1900-1920 It is no wonder then that the number of farms in Cali< fornia during this period increased "by 62 per cent, while in Ontario, Canada, they actually fell off 24 per cent. Farm Data Number of Farms California 1920* #"in- 1901 crease 62 )ntario 1918 ' ,500 118,000 References: Heaton's Annual 19: United States Census 19C0-1920 % in- crease 224,000 j 175,000 - 24 - -LL W^ INT?.' Proponents of California's Water and Power Act argue that the adoption of thin r.easure by the people of California next November will attract population and industry to California as it has done in Ontario, Canada. The citation of one out- standing instance is sufficient to show the wonders of Califor- nia's present progress forward, and how idle it is to attempt to fool the people by telling them that the situation in Ontario is superior to that prevailing in this v/onderful commonwealth of ours. Witness the building situation. California today, and for years past, has stood out in marked contrast to all other districts of the world, and in comparison v/ith Ontario,, Canada, a forceful lesson is to be deduced as to what a wrong philosophy in the minds of the people may do in the retarding of construct- ive growth in a community. Here are the figures which show that fifteen of California's foremost cities had a building record of 140 million dollars in 1920 as compared with Ontario's $47,175,000, Surely this little presentation of facts presents a striking in- stance of how mere words presented by the proponents of Califor- nia's Water and Power Act will fail of truthful analysis -when the facts are known. Building Permits 15 Principal Cities 15 principal Cities California Qntrario 1916 54-000,000 20,229,000 1917 51,000,000 17,385,000 1918 35, 000, 000 21,477,000 1919 67,000,000 40,585,000 1920 .0,000,000 47,175,000 References: Canada Year Look, 1920 Bradstreet'c, 1916,1920 inc. • 83 - IS TIPS MURRAY REPORT RELIABLE ? William S. Murray is one of the most eminent electrical engineers in the United States. He conducted the Super-Power Survey for the United States Government on the Atlantic Seaboard between Boston and Washington. He is conversant with Canadian conditions and acted for municipal and provincial governments in a consulting capacity. His partner, Mr. Henry Flood, Jr. was form- erly Secretary-Engineer of the United States Government's Super- Power Survey organization. In August, 1921, Mr. Murray was employed by the National Electric Light Association of New York, to make a thorough study of the Hydro-Electric Power enterprise in which the Province of Ontario is engaged and compare the situation in Ontario with the Hydro-Electric situation in other parts of Canada and in the United States. Mr. Murray and Mr. Flood devoted months to a 3tudy of the Ontario situation and to making comparisons with the Hydro- Electric situation elsewhere in Canada and in the United States, and the result of their investigation has been published in a printed report of several hundred pages. That report demonstrates that many of the claims made for the Ontario Governmental Project are unfounded and that under comparable conditions Hydro-Electric service is better and cheaper in other parts of Canada and in parts of the United States, including California, where the service is rendered by private corporations. Sir Adam Beck is in charge of the Ontario Project. When the Murray report was published he cent a telegram to California, - 24 - accusing Mr. Murray of misquoting the Pov/er Commission and mis- representing and distorting facts. Answering Sir Adam Beck's charges of misquoting and dis- tortion Messrs. Murray and Flood write in response to a letter of inquiry from California: "In preparing our report, we have tried to he more than careful in adhering to the statistics published by the Commission or to statements of record made by officials of the Commission, and as a matter of fact, in respect to the annual costs of pov/er, after the figures were pre- pared, these were submitted to Mr. Pierdon, the Commis- Accour.tant, who had them checked so that he was thoroughly satisfied that they were correct." "From the standpoint of absolute fairness, it is impos- sible to compare costs for electric energy in the Province of Ontario with that anywhere else in the world, because to my knowledge, there is no other place that has a com- bination 30 suited to inherently low construction and op- eratinc costs for both their pov/er production and trans- mission facilities, and in making such few comparisons as we did, we v U M ^c- nn vr\ CJ NO t»- rn O nO O h cJ H C P vw 00 CN- ON ■ ♦» C 1 Or«-iC30 o- Un 00 Tt nO t>. 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Pi "-» •<* CM rH r-t NO * "* O ^ ro O O M 4) H -f t>- NO ^ CM m xtn cj CO C^ 1 1 ^j s O i-4 NO V\rH ro ON CJ Tf CO Vr\ On -^ CO •»-> N H-> rH rH rH ON ON NO O ^t NO O- c O JM 3 a) ON ro CO XTN rH O ON r-t 0> Jh ♦i * * *» • * f*t oj rj O NO NO Tt r-« t>- O M a, H NO NO OJ fi "st vr\ UN. 3 s O Vr\ ^ °. CN. 25 « • • O m r-\ \r\ CM « d > O ♦j 0) c <-t - CO 9 c w ♦» <6 ■ Z -< 0>O *J ?s c A B W »-4 .H --« 4) > 6 4-> rH — 1 XJ «r< -H 4-> O TJ O ■»■> CT *-> 3 a ♦* a (15 V 3 3 a> Pi c c u £ * 6 a> to > H r< H C r. Q. O t) CI JO x: «i> r> «« 3 o» «j e aJ ^ aJ a u (3d 4> C M rH ♦> 4> rH HH rl 3 (Hit* ll A t i •2 «» 3 ^5 oj R^ 3 n) |oS e rH •»-> to ♦-■• 1 3 0$ 03 > 1 X 35 P4 > H H HO < - 40 - THE WATER AND POWER ACT LSBAITS STAGNATION OF INDUSTRY This generation can remember when California was .nly an agricultural state, and had few industries. Today it ranks eighth in the value of manufactured products, and fifth in the number of its industries. That growth is due . nly to the development of hydroelectric power in abundance at low rates. The demand for electric power increases steadi- ly from year to year, and the industrial growth of California depends upon the ability of the pewer companies to satisfy that increased demand. In order to satisfy that increased de- mand the power companies must build construction works to de- velop power ahead of the demand. Thus, in 1922, they are building in order tj have power frr the demand that will come in 1923. But a power company cannot afford to develop power too fast or too far ahead of the demand, because when it has invested large amounts of capital in new construction work it must pay interest on that capital, and the power developed by that capital must be sold in order that the interest on that capital may be paid. If mere pewer is developed than can be sold deficits and disaster must follow. Consequently, the power companies must exercise shrewd business judgment, based on experience, tr develop power fast enough to meet all de- -ds from industry as they occur, and yet not so fast as to tie up capital in idleness and works that cannct pay their way. All new construction work is built on money borrowed by the corporations from the public, and that is why there is a virtually almost continual sal* of new securities by the power companies. Investors buy the pecuvltieo cf power cem- - 41 - FARM irtPROVtMLNTS %i*ts ooo ooo BUILDING CONSTRUCTION 1*200 000000 FACTORY £ QUI PMC NT $ J.+OO 000,000 Mining ttrfoco ooo RAILROADS 4foo.ooo.ooo HIGHWAYS Si . ooo. ooo. ooo POWFff COMPANIES $2,000 000. 000 * put California into the highly technical manufac turing busi- ness of producing and selling hydroelectric power in competlvicn with companies that are now serving the public well at very 1-vw tea fixed by the Railroad Commission. - 43 - The Water and Power Act Fails to locate or describe projects When taxpayers are asked tc vcte bonds for a city hall, school cr other public improvement, they have heretofore been told '.t it Trill cost, what it will look like, where it will be built, when it will be built and who will use it. Ycu may read the Water and Power Act from beginning tc end without gleaning one single morsel of information about any of these vital matters. Five Hundred Million Dollars Vb to be voted fcr power developments, but not one of them is described or located. They .a unknown, unspecified and ur.l coated . They may be inside the otate or outside the state; they may be steam plants or hydro plants; they may be located on White River or Black River; they may involve the purchase and development rf land owned or artfully acquired by a political henchman or his friends; they may be good, bad or indifferent projects, but the tax- payers ire tc have no inkling of the facts until after they vote the money and the all-powerful Water and Power Board is in the saddle and on its way. The so-called Act is not even vague, misty cr uncertain ".bout these matters. It is so silent that the silenoe is ominous. - 44 - The Water and Power Act is absolutely silent as to Plan or Policy. We are asked to vote the very tidy sum of $500,000,000.00 to out the state in the electric power "business. Can all the people of the state be served under the terms of the act and, if all cannot be served, what plan or policy is to be followed? No one knows because the act is silent as to plan and policy. We are asked to sign a blank check and hope for the best. Will the 7/ater and Po-.ver Board buy up all the existing power companies and attempt to do the power job for the whole state? It cannot. The five hundred million dollars, gigantic sum though it i3, will not be enough for this purpose. The operating properties of the existing power companies have cost more than this and represent a larger investment. Furthermore, additional in- vestments in povier projects must be made during the next ten years to meet the needs of the state and keep the present power surplus available for anticipated demands. These additional investments will run from $500,000,000,00 to $800,000,000,00, so that much more than one billion dollars of capital will be needed to serve the state as a whole. The Water and Power Board will have less than half enough to take care of the entire state and must cut its cloth according to its purse. In other words, portions of the state only, and a part of the people only, can be served under the scheme proposed, Will the Water and Power Board develop projects to eon- pete with existing power companies and, by duplicating plants and equipment, seek to serve the same territory and divido the business or get it all? No one knows, because the act is silent and avoids - 49 - the question. Put if the Board should adopt the policy of competi- tion, there wouD d be a long delay before it could secure even half the business of the existing companies; the board would have to compete against the best and cheapest power developments now owned by tho companies with less attractive properties more expensive to operate. In the meantime, there would b? the losses and deficits which inevitably accompany competition of this kind. Will the Water and Power Board build plants and confine itself to serving ter itor; not new served by any existing company? Again, no one knov s , because no plan or policy is de- fined in the Act, The profitable markets are already occupied and the most economic power sites are already owned and developed. If this policy were adopted, the Board would be compelled to devel- op second choice power sites and operate in unprofitable territory, financial loss would be the certain result. The Board cannot serve the whole state; it probably will not face the certain financial loss of competition or service solely in areas now unoccupied. What, then, will it do? No one knows, because the Act fixes no course for the Board. All is left to its wise dis- cretion. But there is just one thing left which the Board might do ( It might undertake to serve sections of the state by taking over the existing companies serving those particular sec- tions and leave the remainder of the state to be served under present conditions. But state bonds must then be used to serve only portions of the state and only a part of the people; all the taxable prop- erty in the state must be mortgaged to secure their payment; all the taxable property of the state must make up the taxes lost by - 4fl - •' . ■ ;:. Y turning tax-paying properties into tax-free properties through state ownership, and no compensating "benefits could possibly come to the taxpayers in the outside sections, because they would not enjoy the blessings of electric service by the state. They would, however, be assured the high privilege of contributing their share of th.j loot taxes and being liable for the payment of principal and interest of the bonds. What sections of the state will be left out and what sec- tions will be "taken in"? "c one knows because the act does not say But one may venture the prediction that it will be "pull and haul" and may the most votes win 1 . - 47 - DOE 3 IT BSirZFIT RATEPAYERS TO PAY OFF THE CAPITAL IL 2 Hi PUBLIC UTILITY SERVICE ? The Water and Power Act expressly prescribes that the hoard shall establish such rates as will provide, in ad- dition to expenses of operation, maintenance, depreciation, insurance, and reserve for losses, funds tr pay the principal and interest of all bonds issued as the sane fall due. In other words, the rates to be established by the water and power board must, in addition to the cost of power, amortize or pay off the investment* That is one of the most unreasonable provisions in the Act. It requires one generation to pay more than cost . for power in order that a succeeding generation may get power at less than cost. The private corporations never require the ratepayers to pay back the original investment. The original investment stays in the business as long as the corporation served the ratepayers. Suppose, for example, a ratepayer's contribution to the water and power board in this surcharge on his rates to pay off the capital investment in the service, amounts in the course of 25 years or 50 years, as the case may be, to one thousand dol- lars. At the end of that time he has parted with his thousand dollars, and his rate has been decreased by interest on that thousand dollars, amounting, ay, to $60 a year. He has a lower rate, but he doesn't own the one thousand dollars. When he dies or moves away from the territory served he gets no further benefit from tht't one thousand dollars. The benefit - 48 - goes to the next Feneration of ratepayers. Suppose, however, that instead of being served v/ith power by the water and power board, he was served during the same period of 25 years or 50 years by a private corporation under such regulation as we have in California. He would have ob- tained during that period power at cost as determined by the Railroad Commission, He would not have been required to con- tribute his $40 or $20 a year, as the case might be, toward the payment of the capital invested in the service. Hence, his rate during that period would have been lower than the rate which he would have had to contribute to the water and power board. If he pleased, he could take that §40 or $20 each year and invest it in bonds of the power company serving him with power , or in any other company, and the money would earn, let us say, 6 per cent, so that when the total saving amounted to one thousand dollars he would have a one thousand dollar bond earning $60 a. year . His rate then would not be reduced below cost, but he would be getting the $60 a year, and he would own the one thousand dollars. If he died he could leave the one thousand dollar oond to his wife or family. If he moved away from the territory served he could take the one thousand dollar bond with him. In other words, the water and power act proposes to mulct the first generation of ratepayers for the benefit of the second generation of ratepayer c. The present system requires each gen- eration of ratepayers to pay the cost of the service which it receives. It doesn't take away the ratepayer s' savings as the water and power board is required to do. - 49 - I& Iffi a? I VAT? PQv^ CQ^gAyi3S 2S2£DJ1 HIS HAilBAL RESOURCES OF CALIFORNIA ? Advocates of the Water and Power Act assert that the State of California must go into the power business in order to prevent the private companies from grabbing the natural re- sources of the State and despoiling the people of their heritage. Pov/er is not a "natural resource" any more than wheat is. Power is a manufactured product. In order to make electric energy it i3 neoessary first to turn a wheel. When oil and coal were cheap steam was used to turn the wheel. In order to make power cheaper by saving fuel the power companies now use the force of falling water to turn the wheel or prime mover. In California where the flow of rivers is inconstant they dam a stream to store the water and thus provide a uniform flow, and then they drop the water through a pipe to a water wheel. The water passes over the wheel undiminished and unimpaired and is then returned to the bed of the stream, A timber company cuts and removes the forests, an oil company drains away the oil, a mining company takes the coal or the metal out of the ground, but a power company takes nothing from the public domain. On the contrary, it conserves the State's natural resources in the true sense, for it harnesses the idle streams and makes them work for mankind. There is no such thing in California as a power com- pany's acquiring water rights or power sites to the public detri- ment. Water rights are nothing except as they are utilised and a power company in California may not utilize either water or a power site, or spend money in developing it, except under permit from the State government and upon a showing that it is necessary for the use and convenience of the public. The statement, sometimes made, that the people give their property rights or natural resources to the power com- panies and are then compelled to pay interest on the value of the property thus given away is a bit of fiction so far as California is concerned since our policy of regulation has been in force. - 51 - IMPORTANCE OF SOUKD REGULATION A3 OPPOSED TO POPULAR REGULATION 1. The power industry is fundamental to western pros- perity. 2. When there is a power shortage it means that all in- dustry is held up. 3. In 1S18, when government restrictions had prevented the power companies from doing the necessary construction work during the previous year, and a dry season caused a shortage of water for power generation, some 15'CO farms were not developed in the San Joaquir. Valley because their owners could not get their applications filled for electric power. This meant some 3,000 buildings which were not constructed and orders for machinery, paint, clothing, etc. lost, which would have come from these 1^00 farms. Thi3 is but a similar thing to what was happening in all industry in all sections of the country, and in Ontario, Canada, the shortage of power was most marked. In California, the vision and daring of her engineers under private initiative publicly re- gulated has made this State world famous in her engineering ac- complishments. Here are some of her accomplishments that dazzle the imagination: (1) The first long distance high voltage transmission in the world. (2) The most gigantic string of high tension power lines in the world. (3) The world's largest system of electric generation. - 52 - (4 (5 (6 (7 (3 (9 do (n (12 (13 (14 (15 (16 The record -breeding high voltage hydroelectric nsraission. The world's greatest electrically operated gold dredge. The world's greatest electrically operated petroleum refinery. The world's greatest electrically operated sugar factory. The world's greatest electrically operated cement mill. The largest high voltage submarine cable. The second longest aerial cable. The most powerful high head reaction turbine. The most powerful high head inpulse turbine. The largest trar.sf orr.er units ever designed. The greatest and largest electrically pumped irrigation district in the v/orld. The most intensive use per capita of elec- tricity existent in the world. Cheapest rates for power in the v/orld. 4. The ability of the power industry to live un to_ its obligations is directly dependent up on the fair attitude of the body regulating r£._tes . 5« It is significant thRt California, with a Railroad Commission recognized as one of the most progressive in the country, has been able to meet its power requirements without difficulty through the entire period of the recent business de- pression. Its demands for additional electric power have grown by 650,000,000 kilowatt hours during the past year and over ♦50,000,000 has been spent during 1921 by power companies to meet - 53 - the increased requirements. 6. This was made possible "because investors had faith in the power companies and in the good judgment and faith of com- mission regulation. 7. Could California have stood out as the most prosper- ous district of the world through this entire period of depression if its power industry had been crippled? Would the situation have been helped by a policy of regulation designed to reduce rates regardless of economic facts -- in other words, was it better to keep the public utilities sound or to make them unsound? 8. The proposed Water and Power Act means a rejection of the principles of sound regulation -- placing rate fixing power again in the hands of those who generate the power - a reversion to the situation which existed in this State before the inauguration of the Railroad Commission. 54 - t:-:b pg.ysRs Atrp is o^ tje C alifornia railroad c. 3ION The Public Utilities Act of California confers upon the California Railroad Commission the following all-embracing jurisdiction, Article 3, Section 31. "The Railroad Commission is hereby vested with power and jurisdiction to supervise and regulate every public utility in the State, and to do all things whether herein specifically designated or in addition thereto, which are necessary or convenient in the exercise of such power and jurisdiction. " In this enactment the Railroad Commission is empowered to establish rates, fares, tells, rentals, charges, classifica- tions, rules, regulations, contracts and schedules, and in every way to supervise and control the power development of California, and express provision is set forth in the enactment that every public utility shall obey and comply with every requirement of every order, decision or regulation prescribed by the Commission, and how well it has performed its duty is a matter of such out- standing accomplishment that the eyes of the nation have been constantly focused upon the success cf regulation in California, and California has constantly been held before economists of the nation as the one outstanding leader in this nature of present day economic attainment. - 55 - r-m UTILITY COMPA SC A±i 8 P3R CEOT R5TURN R5GU LATI0Z-? Under regulation the privately owned public utilities are not guaranteed an 8 per cent return. When the Railroad Com- mission fixes an 8 per cent return, it usually estimates what, in its judgment, the operating and maintenance expenses should be, makes what in its judgment it considers a reasonable allow- ance for depreciation, then adds 8 per cent on the investment in the property in actual use, the total being the amount which the utility is entitled to earn. It then fixes rates which will yield this amount, if the utility does the volume of business the Commission estimates it will do. If the Commission overestimates the business or under- estimates the expenses or the depeciation, the utility will not earn the 8 per cent it is supposed to earn. In 1916 the Railroad Commission refused to allow the Northern California Power Company to earn any return on £1,500,000 invested in water power plants, which in the opinion of the Com- mission had been built in advance of the requirements of the ser- vice. The stockholders, therefore, had to carry the burden of this investment without any help frcm the ratepayers. Out of the return allowed, the utility company must provide for the following: (a) Bond interest, and amortization of bond discount. (b) Pixed charges on property not in use. (c) Dividends to stockholders. (d) A surplus to take care of the risks and contingen- cies of the business, periods of depression, etc. - M - Effect of ; and Po-ver Act on Taxes . There are just three things that happen to the taxpayer if the Water and Power Act becomes a law. F lr3t . He assumes a}l the risks of management by a political board of five nen, given $500,000,000.00 to spend as they see fit. The taxpayer assumes this risk because the act ex- pressly mortgages his property to pay the principal and interest of the bonds. If the political board cannot get the principal and interest out of its business ventures, it will get the money out of the taxpayer. The mortgate on his property makes this certain. Second . It is going to take this political board some time to "get started." A paying business cannot be built up over night. The Water and Power Act gives the Board a revolving fund of $5,000,000,00 for the purpose of "getting started." The taxpayer must pay the interest on this revolving fund until the revenues of the board are sufficient to meet the interest. The act promises that then the board will pay the money back to the taxpayer. But there is no mortgage on the board's property to make this promise good and no one knows whether the revenues will ever catch up. Third . Every time the political board causes a bond to be sold, and spends the money, it will cost the taxpayers of the state more taxes. There isn't any avenue of escape from increased taxes, if the act is adopted. It doesn't make any difference, whether the board is good or bad, successful or unsuccessful. Here is the simple story of the situation the taxpayers face under this so-called act. - 57 - 1. The five hundred million dollars to be derived from the sale of State bond3 will Le invented in v/ater and power enter- prises, all of which will be exempt from taxation. 2. The tax burden upon locally assessable property in California was officially reported to the Legislature in 1921 by the State Board of Equalization (for the fiscal year 1920-21) to be 1.63 per cent on each $100.00 of taxable value of property in- volved. For the year 1921-22 it is likely that the rate will be very close to 2.00 per cert. 3. The five hundred million of dollars which will be so invested in State bonds is now invested in other forms of beneficial enterprises on which taxes are paid. That five hundred million of dollars, therefore, at the present time, is contributing at least 1.63 per cent thereof, or $8,150,000.00 annually in taxe3, all of which will be lost to the public if the five hundred million of dollars be taken out of taxable prop- erty and invested in tax-free bonds, or if the bond money be used to buy property now paying taxes. 4. That enormcus loss of revenue to the State must be made up by the other tax payers* 5. The Light, Heat and Power Companies paid in State taxes alone for the fiscal year 1921-22 the sum of $6,794,538.00. In addition to state taxes, the light, heat and power companies pay approximately $2,500,000.00 annually in other taxes. In the event of the fulfillment of the program of the proponents of the bond issue this revenue would be entirely lost to the State, either through the extinction of existing plants through competition, or through the acquisition by the proposed water and power board of - 58 - property with funds that the bond issue would provide. In the present critical Condition of the State's finances, the inevitable loos in taxes is a very serious matter. The burden of the loss will be shifted to other property and, when the shift comes, it will mean increased taxes to make up the loss. - 59 - HERE IS WHERE THE PHILOSOPHY OF THOSE 'WHO FAVOR THE PROPOSED WATER AND POWER ACT g[ CALIFORNIA WILL LEAD US SHOULD IT BE ADOPTED . LET US BEWARE! 1. The creating of a vast self-perpetuating political machine (hiring and firing are wholly within the control of the five super-governors of the state who may he on the governing hoard ) . 2. The opening of metal mines, cement works, textile mills, machine shops, canneries, laundries, etc. --under state con- trol in competition with private concerns. 3. Cut-throat competition with present power systems. The duplication of transmission lines, distribution systems and generating plants with the ultimate resulting higher costs to the consumer. 4. The abandonment of the principles of regulation and the resulting unfair distribution of power costs between consumer: determined by the particular bias of those in control. 5. The development of the state's resources by that portion of the state which asks for them first — the furthering of the interests of one section of government served at the expense of another which receives its power from private companies. 6. The increase of taxes. Owing to the lesser amount of taxes paid by the district doing away with its public utilit the remainder of the stcte and other sources of revenue will have to bear a larger share. - 60 - 7. The lessening of market value of all private secur- ities placed on the market, owing to the competition of this great block of tax free bonds. 8. High power rates to farmers. Owing to their dis- tance from power sources and the long stretch of lines needed for each farm, costs will grow beyond the ability of the farmer to meet them. 9. The faiir of certain portions of the enterprise to meet required returns , especially during the first few years, and the consequent levying of a tax for payment of bonds and in- terest. 10. Increasing burdens, through the gradual growth of the system — a tendency more and more to spread into related enter- prises, to take up side lines of manufacturing, to control irriga- tion, as well as power. A growing feeling of irritation on the part of certain sections of the state against others who have greedily reached for all in sight and shifted tax burdens from their own shoulders to those of their neighbors. Numerous weak- nesses and failings in the Act, which are not now apparent but which will develop in operation. At the same time a growing power on the part of the controlling board and a great difficulty in bringing about a reform through popular vote. - 61 - 1 TAX-EXEMPT" FARCE. It is estimated that there are approximately $30,000,000,000 •nrcrth of tax-exempt or semi tax-exempt public improvement or govern- nt "bonds outstanding, Taj s means that the income derived from such securities escapes the "burden of taxation which taxable industry and property must make up. Figuring that the 020,000,000,000 is paying the holders pf the bends a return of 5 P er cent, the government is losing the tax en income which it should receive ft cm the greater part of the $1,^00,000,000 these bonds return the holders annually in interest. Industry or agriculture which produced .$1,500,000,000 re- turn annually would be paying a laige part of this amount to city, county, state or federal government through taxes of various forms. Yet this enormous income from bonds slides cut from under paying any part of the tax burden. Here is a logical point to start to reduce the tax bill — discontinue further issuance of tax-exempt securities v.-hich handi- cap private industry in obtaining funds and add a double burden tz remaining taxable property and taxpayers. The so-called California Water and Power Act proposes to add $500,000,000.00 more to the already huge total of tax-free bonds and tax-free property. California is losing right now approximately $20,000,000.00 per annum in taxes due to federal, state and local tax-free bonds. Shall we add another haif-billicn to the tax-free list and keep on until the last lone farm is left in private ownership to pay all tho taxes? - 62 - TAXES IN CALIFORNIA . Every one pays taxes. Some of us pay taxes directly to the city, county, state and federal governments. Some of us pay taxes indirectly in our rent, in our gas and electric Dills, in our railway fares, in our purchases of food ■ and clothing. It doesn't make any difference whether we pay directly or indirectly. The cost is there just the same. We are all galled and sore from the burden. Let's see what has happened in the last ten years in California, 1. The aggregate costs of state, county and municipal governments in California have increased 231 per cent for the ten years ending June 30, 1921, 2. The public debts of California have increased 242 per cent in the same ten years. 3. In the single year ending June 30, 1921, the state and its subdivisions expended $27,559,297 for interest on and re- demption of public debt. Has the growth of the state justified these startling increases and this heavy burden of interest charges and installment payments on public debts? Most emphatically it has not. While we have been increasing our governmental costs within the state 231 per cent and our public debts 242 per cent, our population has increased about 45 per cent and our taxable wealth has increased by not more than 90 per cent. Some authori- ties place the increase in taxable wealth at not more than 60 per cent. Our expenditures and our liabilities have outrun our - 5Z - resources and our grov. Why? Simply because we have been unduly extending the func- tions of government. V/e are getting more government all the time whether we need it or not. Proposals for more boards, more commissions have bobbed up year after year and we have ac- cepted most of the proposals. The boards and commissions demand money, they secure appropriations, hire employees and the costs of government in- crease 231 per cent in ten years'. It is estimated that fifteen million people in the country are on a public pay roll of one kind or another. In California alone, there are over two hundred thousand people con- nected with some government pay roll. It is now proposed to issue $500,000,000.00 of state bonds under a qcn-called Water and Power Act, turn this money over to a political coard of five men with authority to employ as many people as they wish without regard tc civil service rules. If this process keeps up, there will be no room on the sidewalks for the taxpayer. But much more serious to tho taxpayer than his place on the sidewalk is the fact that as our public debts have in- creased, so have our costs of government increased. The proposed $50 J, 000 ,000. 00 bond issue will increase the state's public debt seven times over and the total public debt within the state about two and one-half times. It is time to call a halt. The hope of the taxpayer lies in better and more efficient government. The latter will come only with less gov eminent , not with more government. - 64 - ::ici?al aviasRSHi? and taxes in los angblbs The experienc \ of the City or 1.0s Angeles has been extensively quoted to support tho theory that municipally ovmed utilities supply more satisfactory service and at lower rates than privately owned utilities. A very careful analysis of the Los Angeles situation re- veals the following conditions: 1st, Rates for both water and electricity are now higher than they formerly were under private ownership in Los Angeles. 2nd. The taxpayers have been required to pay $24,353,567 during the past fifteen years to pay fixed charges on public utility bonds, in addition to higher rates for service. 3rd. The interest and sinking fund requirements for water and power bonds for the current fiscal year amount to $3,621,238, of which $600,000 has been aporopriated from water department revenues and $150,000 from power department revenues, leaving $2,871,238, or nearly 80# of the total, to be collected from taxpayers, 4th. There are outstanding at present, bonds issued to fi- nance the City's water and power enterprises amounting to $46,849,80") which, under the present palicy of the city, will have to be paid from funds raised by taxes. During the past fifteen years, and during the current fiscal year, nearly all the interest charges were also paid from tax funds, If the same policy is continued, the tax- payers of Los Angeles are confronted with a burden of more than $90,000,000 during the next thirty years on account of the municipal utility ventures. AND THEY, TOO, WERE PROMISED IN THE BEGINNING THAT MUNICIPAL OWNERSHIP WOULD NOT INCREASE TAXES. - 65 - EFFECT OF WATER AND POWER ACT OK TAXT If the Water and Power Act is adopted by the people the five hundred million dollars to be derived from the sale of State bonds will be invested in water and power enterprises, all of which will be exempt from taxation. The tax burden upon locally assessable property in Califor- nia was officially re sorted to the Legislature in 1921 by the State Board of Equalization (for the f local year 1920-21) to be I.63 per cent on each $100.00 of assessed value of the property involved. For the year 1921-22 it is likely that the rate will be very close to 2.00 per cent. Presumably the five hundred million of dollars which will be so invested in State bonds is now invested in other forms of beneficial enterprises on which taxes are paid, That five hundred million of dollars, therefore, at the present time, is contributing at least 1,63 per cent thereof, or $8,150,000,00 annually in taxes, all of which will be lost to the public if the five hundred million of dollars be taken out of taxable property and invested in tax free bonds. That enormous loss of revenue to the State must be made up by the other tax payers. Viewed in another way, it can be stated that five hundred millions of dollars invested in light, heat and power enterprises would produoe approximately one million kilowatts per installed ca- pacity based upon approximate cost of existing plants. The revenue from one million kilowatts installed would be approximately one hun- dred million dollars per annum (based upon ratio of earnings to in- - 66 - stallation of existing plants) the tax upon which at the percent- age of the gross receipts applicable to electrical companies of $7.50 per $100.00 v:ould be $7,500,000.00 which would represent the annual loss to the State in future taxes if the property were exempt as it would be when owned by the State. The Light, Heat and Power Companies paid in State taxes, for the fiscal ye'ir 1921-22 the sum of $6, 794, 538. 00, which is seventeen per cent of th^ total revenue of the State. In the event of the fulfillment of the program of the proponents of the bond issue this revenue would be entirely lost to the State, either through the extinction of existing plants through competition, or through the acquisition by the proposed water and power board of property with funds that the bond- issue would provide. In the present critical condition of the State's finances, the inevitable loss in taxes is a very serious matter. This computation of loss does not take into account the amount of taxes that the State would have to collect in order to make good possible losses in operation of the projects to be acquired or developed with the five hundred million dollars. - 67 - WHAT PROPON ENTS OF T 7PQBBD W/.TER AMD PQV/ER ACT SAJf REGAPPTNO TH3 CITY AND ?PW?R FOR LOS _ 3S Proponents of the Water ard Power Act are lcud in their statements claiming that because the City of Los Angeles is partially supplied with water and power owned by the munici- pality itself this fact accounts far the manufacturing growth of the southern metropolis during the past five-year period. The City of Berkeley owns neither its water ncr its power, nor does the City of Oakland. Alameda purchases power at whole- sale from a publicly regulated power company and sells it to certain classes of citizens, except in one instance, notably, the supply of power fcr the great shipbuilding interests of that city. Nor does San Francisco own its water supply nor its power supply. if the arguments cf the southern city are well placed, that water and power have had so much to do with that city' 8 manufacturing growth., then the fabulous increases that have taken place in the northern section of the State in manufacturing during the past five years, 1914- to 1919 • which have recently been given out by the United States Census re- ports, are a striking proof of the effects of soundly regulated publio utilities under private ownership which serve these grow* ing ccmrauniti The present flourishing condition of manufac- turing in the centnl portion of the State is well banne out by the Census figures, which are as follows: - 68 - City n Franci Berkeley eland ; Alameda ;Lo3 Angeles facturing Growth jji California Cities 'ue of Oitnut Ou. , L.OOO 28,33.°., 000 134,756,000 25, 440. COO 279, 327, COO Increase 167"ojf" 287. 0# 372. 5£ 813. 0# 170. 0# pital Invited as Shorn "by 1919 Census City San Francisco Berkeley Alameda Oakland L03 Angeles City San Franci sco Berkeley Alameda Oakland Los Angeles Caoital Invested $326 ,398,000 16,565,000 11,312,000 118,882,000 158,361,000 Increase 124 , a 184. 9^ 220. 0# 226. 0% 56. ?r\r.vjv:f Korseuower 1914 1919 61,818 3,503 3,492 18,590 64,665 99,748 7,500 9,306 50,832 94,876 Growth 61. 4# 114. 3# 166. 163. 5% 46.7* Los Angeles Claims In a publication issued by the Los Angeles Chamber of Commerce in 1919 it was stated that the value of manufactured products was $618,000,000. Actually the value was $279,327,000 for the City of Los Angeles, and $413,009,916 for the County of Los Angeles. The five counties around the San Francisco Bay (San Francisco, Alameda, Contra Costa, San Mateo and Uarin) with but 60 per cent of the land area of Los Angeles County produced two and one-third times as much manufactured goods as did the southern county. This is illustrated graphically bel - 69 - Los Anrcles County Land Area 4115 3q, miles ttf ~ . Output 13,009,916 Five Bay Counties Land Area 2464 sq. miles Mfc. Output $970,728,885 - 70 - POWER DEVELOPMENT IH rKI_ .TAi; HAG KEPT UP WITH THE DEMANDS In no state in the Union has the use of power grown to such a point as it has in California. Per capita use has increased over 100 per cent in the last ten years. Today the average Californian uses over three times as much electricity as the average Easterner. Rates are the lowest on the average of any place in the United States. This is oecause the power companies have lived up to their obligations in meeting the power needs of the State. There is installed in all over a million and a half horsepower in steam and hydro service in California. During the past twelve years the pov/er companies of California have increased their capacities as follows: Hp. Installed 1910 383.510 1911 447,010 1912 519,205 1913 586,452 191* 663,852 1915 685,102 1916 716,013 1917 778,338 1918 778.143 1919 804,443 1920 901,656 1921 804,443 1922 1,280,412 Plans are definitely under way to add 1,000,000 ad- ditional horsepower in hydroelectric and steam plants by 1930» This is adequate to meet all demands based upon past rates of growth. Should these be exceeded, plans will be revised. - 71 - Under this support from power companies, the State of California has exceeded practically every section of the country in population, growth and v.ealth. During the past decade its rate of growth was 44.1 per cent, a record exceeded only by Arizona and Montana. This splendid power development is made possible by the encouragement of manufacturing industries in the State of California to such an extent that the recent Census reports place California eighth among all the great states of the Union in the value of her manufactured products, and fifth in the number of her industries. Shall we for one moment tempo- rize with any philosophy that will have a tendency to check the great flow of privately invested capital that is now seeking en- trance into this State? - 72 - WHAT AB ffi POWER SHORTAGE IN CALIFOPJIIA ? During the period preceding June 30, 1920, there had been a temporary shortage of power in California by reason of three conditions, none of which could have been prevented by either private or public agencies or distribution. These con- ditions were: (1) The fact that during the war, the war time re- strictions had prevented the power companies from carrying for- ward their construction work to anticipate the power demands of the future, coupled with the fact that the war itself had cre- ated an unusurl demand for power. (2) Inability, by reason of war time conditions and restrictions, to obtain men or machinery for big development projects in 1917 and 1918. (3) The fact that at that critical period there were three dry years -- 1918, 1919 and 1920. During the war the government refused to permit the building of new plants. There was o rapidly increasing demand due to growth and due to war time needs, but no ability to in- crease plant capacity. Similar conditions caused a far more serious and greater shortage at that time in the Province of Ontario. When the work of catching up began considerable time wa»- ;needed for construction, and it was not until 1920 that the new plants began to come in. That was a few months after the Commission's report. Today the power companies are fully de- veloped and are keeping pace with growth. They are better equipped to carry on development than they ever have been. In 1921 the power companies added to the installed capacity in the - n - State a total of 3^5 thousand horsepower. A larger amount will be added in 1922. The construction program of the California power companies calls for the expenditure of 100 million dollars a year for the next ten years. The Railroad Commission also said in the same letter of transmittal, discussing this temporary shortage of power: "No other one thing is of such vital importance to the growth of the state, from the utility standpoint, as the immediate and comprehensive development of its hydro- electric resources. During the war period development of hydroelectric plants and other power projects remained at a standstill, due to various causes. During this same period of curtailment of power development there was not only a normal growth in the demands for power load upon the utilities' system but actually a material increase in the requirements of consumers. Combined with this fact, and the continued period of low precipitation, a very difficult situation was created in the electric utility business due to the resultant shortage of power supply. This situation was quite successfully met by the hearty cooperation of the utilities and consumers acting in uni- son with the Power Administrator of the Commission. Fol- lowing the cessation of war conditions most of the elec- tric utilities of the state took active steps toward the developing of hydroelectric power early in 1919 . It is believed that California, as a result of this activity, will never again face the serious situation created by the 1919- 20 combination of extraordinary demand with minimum supply." - 74 - And the Railroad Commission in the same letter said: "We believe that there is no matter confronting the state that more profoundly and intimately affects the fu- ture development n.nd well-being of our people. It is urgent that steps be taken immediately whereby a complete investigation of all hydroelectric power possibilities and water storage possibilities for irrigation and other pur- poses, be made in detail and such legislative action be taken as will give to the Commission complete jurisdiction to direct the power developments in the state so that the most good to the public will be had. The problem, put simply, is this: "First, what is the p resent situation in California in regard to water and power developments and needs, and how is the state's welfare affected, not only with reference to the public utilities, but also in reference to the general agricultural and industrial development? Why is the present situation unsatisfactory? "Second, what can be done and what should be done to put to the best use our water and power resources, and at what approximate cost? What will the effect be on the utili- ties and the state's agriculture and industries?" The Commission also said in the same letter of trans- mittal: "This Commission, in carrying out its forward-looking construction program, has, in the past year, found it neces- sary, in view of war-created abnormalities, to meet demands from the utilities for financial aid in the shape of in- - 7S' - creased rates. Constantly increasing operating costs stripped many of the utilities of all semblance of finan- cial profit, threatened their very existence. Every article entering into the operation of electric and gas utilities, electric and steam and water carriers, ware- housing and other utilities, leaped in price. Labor costs advanced, and like that of commodities did not re- main fixed for any appreciable length of time. Regulation, in our opinion, in the face of these abnormalities, stood out as a saving factor. True, utilities rates advanced, but they are under control, with the result that utilities today are selling their product at a price nearer to the prices of pre-war days than any other commodity. With in- dex numbers showing enormous increases in the prices of foodstuffs and materials of all kinds, the cost of utility service has been kept at a point, we believe, well within the term reasonable. Comparisons 3how that against commo- dity price increases of 100,200, 300 and 5°0 P e r cen,t over the prices of normal times, gas and electric utility rates have advanced on an average not more than 40 per cent. There have been exceptional cases where abnormally low, service- destroying, unprofitable rates prevailed, and the Commission found it necessary to bring them up to a reasonable standard, t this percentage of increase was topped, but on the whole, the increases allowed, in the face of unregulated price fixing of materials, etc., stand as fair. These higher rates, in most cases, were designed not to increase the companies' re- turn upon their investment, but solely to cover the increased cost of operation," - 76 - CALIFORNIA'S IIAGNIJICENT ATT . T IN HYDRO ELECTRIC DEVELOPTE \ In length of transmission, in voltages involved in this transmission, in extent of distribution network, in the overcoming of hazards through mountain gorge, acros.- arid deserts and impa-: - able water barriers, the engineers of California have outdistanced the world in hydroelectric achievement. Six of these records are cited as instances of this wonderful acccr-ipla t. prer j • -en of power transmission lines in the world: r , Ore . Mexican Border and up into Nevad. . On January 1, 1922, there was in this interconnec- tion over a million horsepov/er from hydroelectric generating plants and five hundred thousand horsepower in steam generating plants. The largest concentrated block of electric pov;er ever available for public use, made possible by this interconnection. The total annual electrical energy delivered to consumers in this vast interconnection is rapidly approaching four billion kilowatt hours . The highest £er capita use of electricity of any commun- ity in the world: the Western State In one of the states the per capita consumption has reached the wonderful total of 2000 kilowatt hours. The average per capita use in the west is over twice the per capita use of the nation as a whole. The first long , distance transmission line: 20 miles at 10,000 volts from San Antonio to San Bernardino, California. Longest high voltage transmission : 87.000 and 55.000 volts, 539 miles, from Mono county, California, to Yuma, Arizona; Southern Sierras Power Company. - 77 - Highest voltaic transmission ever attempted in the world : Present record of actual operation, 1^0,000 volts, 240 miles, Big Creek to Los Angelos; Southern California Edison Company. The Great Western Power Company has constructed and will soon operate at 165.COO volts, a 200-mile line from its Caribou plant on the Feather River to San Francisco. The Pacific Gas and Electric is now installing a 190-mile, 220,000-volt line from Pit River to the Bay District, which will undoubtedly stand a3 a supreme accomplishment for many years. Proponents of the Water and Power Act point with pride to the attainments of the Hydro Electric Power Commission of Ontario, Canada, and its accomplishments. To those familiar with California attainments little is found in this citation of the Ontario situation to fire the imagination* The facts are that while from 1910 to 1920 the Hydro Electric Power Commission actually constructed and put into oper thing under sixty thousand newly developed horsepower, and have programs laid out for five hundred thousand additional horsepower, those having in charge the interconnected system of California have built and put into service over eight hundred thousand newly developed horse- power and have let major contracts involving a million and three- quarters horsepower for the next 10-year period. - 78 - LNTS . ACT CLAIM WHAT wi __ ^_ gjg | :ats ? If we grant every claim made for the proposed Act, every assertion of capable management, or economical construc- tion and efficient operation, and assume that the Board will be able to obtain the lowest rate of interest so far claimed, the resulting apparent saving will be about as follows: On each $100 invested in Generating Plants: Annual interest $ 5.00 Sinking fund requirements (50-year annuity) .48 On each $100 invested in Distribution 5.00 Sinking fund requirements (25-year annuity) 2.10 Total charges on $200 $12,58 Average rate 6.29# Privately owned utilities require, as a margin of safety, about 1-1/2^ in excess of the cost of money. A publicly owned business may be able to get along with less, say 3/4 of If? .75 Total rate of return required 7.04;"? Maximum rate allowed privately owned utilities 8.00 Saving .96JC Applied to a total investment of $500,000,000 the rcffl 1 ARID annual saving would be $4,800,000. Or, per capita $1.30 The above saving is apparent ind not real as the lower interest rate, if obtained, ffould be in a large measure due to the fact that the State bonds will be tax free. This simply means the shifting of a part of the tax burden from one group - 79 - of taxpayers to another group. The above comparison is in fact entirely fallacious as it assumes that the State could build plants, transmission lines and distribution systems for unit costs as low as the existing investments of the power companies, entirely ignoring the higher costs of every item that goes into such construction, and that the most economical power sites have already been de- veloped. Furthermore, as the bonded debt of the State goes up, the interest rates will go up as it has done in other places. The State cannot expect to borrow $500,000,000 at the same intBrest rates that it has paid for less than one-fifth of this amount , This increase in interest rates will apply to all State bonds issued for any and all public improvements, such as highways, schools, river and harbor improvements, etc. If, for example, the bonds of the Y/ater and Power Com- mission bear interest at 5-1 /2 per cent, instead of 5 per cent as assumed above, the annual saving per capita will be reduced to less than 20 cents, and if at 5.6 per cent it rill vanish altogether. - 80 - how v/ill £h2 fin £ contel'iplatsd affect 3 ^____ 22 223 stab ? There is a limit to credit even of a State. The more the State "borrows the higher the interest rates will be on all moneys borrowed whether for water and power developments, for highways, for schools or any other public improvement. At the rate of growth of population during the last decade, by 1950 the population of California will be 10,000,000 persons, or three times the present population, and in all prob- ability this figure will be reached before that time. Many improvements such as highways, harbor and river improvements, flood control, educational facilities, etc. will have to be provided at public expense, and these will require extensive use of the public credit for securing the necessary funds. The State's borrowing capacity, should therefore be conserved against such needs and not be absorbed by engaging in business ventures which private enterprise and private capi- tal are willing to undertake. The present bonded debt of the Stats is $76,000,000. The $500,000,000 which would be authorized by the Water and Power Act would increase it to more than twice the amount of the present bonded debt of the State of New York, which has an assessed value of nearly four time3 that of California. The bonded debt of the State, the Counties and the Municipalities of California has increased in the last ten years as follows; - 81 - 1911 1921 State bonded debt 5,C77,500 75,124,500 Counties bonded debt 22,655,890 117,197,908 Municipalities bonded debt 35.^73.033 149.611.831 Total $93,906,423 42,fi34,239 Total per capita $39 |96 Increase 146 per cent. There is absolutely no doubt that the issuing of $500,000,000 of State bonds would seriously affect the credit of the State and be reflected in higher interest rates. - 82 - GOVFJ. -"RES IN BJJ -- CANADIAN R YS An unusually striking example of "Government in Business" iz to be found in the railway situation in Canada, and is well worth careful study. In Canada, transportation is supplied almost entire- ly by two great railway systems, one owned and operated by the government, the other by private enterprise. These two systems are suprisingly similar in their general outlines. Both op- ate nearly twenty thousand miles of track, both have a total investment in excess of a billion dollars, both extend from the Atlantic to the Pacific, both serve nearly every important city industrial center and seaport in Canada, with extensions to Chicago and connections with lines in the United States. By far the greater part of the mileage of each is paralleled by the other. The physical conditions of construction, operation and available traffic are, therefore, practically identical. It is in the operating statements that we find the vast difference between public and private ownership. For the year 1920, the last year for which statistics are available, a comparison of the operations of the government -owned system with the Canadian Pacific shows the following results; - 83 - Government Private Canadian Northern Rys Canadian Gov't Rys. Grand Trunic Pacific Canadian Pacific System Miles operated Locomotives Passenger Cars Freight Cars Prt. Hauled-Ton Miles Avg.Rev. ,per Ton Mile Passenger Miles Avg.Rev. ,per Passenger mile Total Cost of Property Revenues, 1920 Operating Expenses Net Earnings Bond and Other Inter( Surplus or Deficit Dividends Added to Surplus 17.197 1,954 1.858 84,308 8,827,812,030 19.306 2,255 2,781 88,057 13,856.607.551 $".00966 $ .01038 925.609.695 1,718,084,609 $ .0290 $ .0282 |l , 289 . 413 . 931 $1 . 105 . 388 , 186 v 126.387.437 156.725.394 227.607.797 184,898,256 30,337.957 1 42,709.641 $ 33.709,209 9,865.458 v* 64,046,166 $ 32,844,083 29.227,277 64,046,166 3. 616. 806 Note: Interest due Canadian Government on advances amounting to ♦233,800,738 not included in above. This interest amount- ed to more than $6,000,000. - 84 - NOhTH DATOTA /ND WHAT HAPPKNKD In North Dakota wheat is the principal crop. Some years ago the farmers of that state were dissatisfied with the manner in which their wheat was marketed at Minneapolis and Duluth. A coterie of socialists, organized under the name of the non- partisan league, capitalized this dissatisfaction politically and promised to relieve the farmers' ills "by putting the state govern- ment in the wheat business and incidental businesses. They call- ed their socialistic program the New Freedom. In the election of 1916 the non-partisan league swept the state and in January, 1917 • its administration assumed control and proceeded to give North Dakota an adult dose of the New Freedom. State grain elevators and flour mills, a state hank, and a state chain of stores were established. All these enterprises failed and the state "bank caused the closing of numerous other banks by suddenly withdrawing deposits of state funds. Scandals developed in the relations between sonc non-partisan league officials and certain banks • A very oppressive political organization was built up. In four years taxes trebled. Yet prior to 1917 the non-partisan league officials were quite positive in their assertion t the pro- ved state enterprises could not fail. They were aa sure of ovitable success as are those .-dvocates of the California Water and Power Act who tell U3 that the taxpayers of Caliicrnia will not be called on to pay any part of the proposed 500 million dollar bond issue for the reason that the business ventures in :ch the money is to be invested will pay for themselves. - W - In 1921. after four disastrous years of the New Freedom, the people of North Dakota recalled the non-partisan administra- tion and restored the state government to sanity. Driven out of power in North Dakota, the non-partisan league has lighted in California and is now preparing to take control of this state. On January 14, 1922, the California branch was organized at Modesto by D. C. Dorman, national manager of the league, and formerly prominent in the I. W. W. , and Walter Thomas Mills, who was socialist candidate for the United States Senate in California in 1916, has been placed in charge of the California organization. Mr. Mills, who is recently from North Dakota, says in his book "The Struggle for Existence": "Those who created the private titles to the earth created those titles and the owners con- tinue to hold them solely by force. But as force is the 3ole foundation of private titles, no such title cun be valid in the face of a stronger force." One of the first acts of the California branch of the non-par tisan league has been to adopt the proposed Water and Power Act as "one of the main provisions of our working program", and to urge members of the non-partisan league to join the state campaign connittee which is supporting the Water and Power Act. In the March, 1922, number of its official lulletin, called "The Hundred Thousand", and published at Berkeley, the greater part of the front page is devoted to an argument ipport of the Water and Power Act, from which the following quotation is taken: "It is difficult to understand how there could be any difference of opinion in regard to the support to be given thi3 Water and Power Act. A very large campaign committee, rerr mg all portions of the state, and all the various useful occupations, is being rapidly organized. - 86 - "If the 2,000 League members would immediately send their names to this State Campaign Committee, as volunteer members of the Committee, and equip themselves with its literature, they would not only add greatly to their effective strength as League workers, but would immediately take their places in an effective campaign now on for one of the main provisions of our v/orking grogram. "Write to the Campaign Committee for the California Water and Power Act, offering to join the Commit- ter, and asking for their literature. Address 905 First National Bank Building, San Francisco." - 87 - WHY IS IT IITORTANT TO PR 3 r TERV3 THE IITITIATI" Aim ssu- i cLiAv ca a? the pecpls ? At no time in hi3tory have so many and such vital problems confronted the world and demanded solution. They cover the realms of finence, of industry, of commerce, of economics and of civil government. Vast and densely popula- ted areas are suffering acutely for the common necessities and comforts of existence, and at the same time the productive en- ergies of the world, capable of supplying them, are either only partially employed or idle. America has grown great, strong and prosperous be- cause the inventive genius, initiative and energy of her citi- zens has been left untrammelec? by government direction and re- straint, because we have had neither autocracy nor paternalism. We need have no fear or autocracy under our political system, but there is a constant agitation and propaganda in favor of measures that will ultimately lead to paternalism. The adoption of a policy of national or state partici- pation in purely business ventures must inevitably lead to the stifling of the initiative, to the hampering of the inventive genius, to the restriction of the energies and the spirit of self-reliance, that have done more than all else to build ur> American civilization. There are many paternalistic countries in the world. Is there anything in their present condition or immediate future prospects that we desire duplicated hero? Canada took a chance with her government railway sycten. North Dakota tried it. Shall California profit by their example? - 88 - S'lAL- '. _ ; _^_ CRE _L-. 10 BE JEOPARDIZED ? Proponents of California's Tv'ater and Power Act in their official literature set forth the following claim: "California's Water and Power Act will not in any way jeopardize State credit, as bond issues are rigidly safeguarded under the direction of a special committee, and issues will be only to extent of assured returns." This same philosophy and idle promise was argued in Ontario, Canada, where the Hydro Electric Pov/er Commission pre- vails, but what today is the result as witnessed in its borrow, ing power , funded debt, and bank savings. The borrowing power of the Province of Ontario stands out in severe contrast to California's wonderful credit situation by comparing the inter, est rates that prevail in the two districts in the period over which the Hydro Electric Po'.ver Commission of Ontario has been in operation. Witness the actual fact : Interest Rat es Bonds of Province of | Of State of Ontario 1910 3.90 3.50 1911 4.00 3.40 1912 4.00 3.40 1913 4.40 3.30 1914 4.90 3.30 1915 4.90 3.40 1916 5.00 3.50 1917 5.90 3.80 1918 6.00 4.20 1919 5.60 4.40 1920 6.60 4.60 1921 6.25 4.50 • - 89 - The savings of the people are reflected in California^ wonderful growth in savings from 1916 to 1920, today totalling $858,122,000, as compared v/ith a striking decrease in savings that has been under way in typical savings institutions in the Province of Ontario, as folio- Savings De-posits # California Ontario 1916 £528,910,000 ! $ 13,520,000 1917 596,325,000 13,633,000 1918 635,681,000 12,177,000 1919 702,533,000 11,400,000 1920 858,122,000 10,730,000 And as a consequence of the operation of the Hydro Electric Commission in Ontario, Canada, we find the funded debt of the Province per capita is $40.51 as compared with the free- dom from debt which the citizen of California enjoys under a funded debt of $14.67 per capita. It is no wonder then that California today, which twenty years ago was quite comparable in assessed valuation with Ontario, winds up this double decade period with an assessed valuation of $4,555,000,000 as compared with Ontario's valuation of but $2,054,000,000, and yet in area the Province of Ontario is nearly twice that of California. References: Annual Reports Supt. of Banks, California - 90 - EFFECT OP THE WATER AND POWER ACT ON THE BORROWING POWER OF THE INDIVIDUAL MANUFACTURER, MERCHANT, FARMER AND LAND OWNER Up to the present tine the State of California has 3old "bonds to procure money only for recognized governmental functions, such as the building of roads and public buildings, and develop- ment of harbors. Taxer have increased, perhaps unavoidably, out of all proportion to tilt increase in wealth and population. The growing tax burden is a serious menace to agriculture and industry, and unless checked will retard the growth of this state. Taxes are a first charge on property and industry. They go ahead of interest due on loans to banks. They go ahead of profits. The difference between high taxes and low taxes may mean the differ- ence between failure and success in California's industrial com- petition with the rest of the world. The latest figures obtainable from the office of the State Controller show that the already authorized indebtedness of the state, the counties, and the cities of California is ♦386,696,304, after deducting the redemptions already made. This does not include the indebtedness of districts. Of that total about 188,458,500 represents bonds of the State. The assessed value of all California property in 1920 was approximately five billions of dollars. If we add the proposed 500 millions of State bonds to the already enormous indebtedness of the State, counties and cities, it will amount to nearly SEVENTEEN per cent of the assessed value of all California property in 1920. That is a mortgage of SEVENTEEN per cent on the assessed value of all - r l - such California property. It is a mortgage placed on your proper- ty "by others. Others, not you, get the money and have the spend- ing of it. Property, agriculture, and industry must pay interest in the form of taxes on that huge mortgage before they pay any other costs or profits. The bonded indebtedness of the state, the counties and the cities diminishes the borrowing power of the farmer, the manufacturer , the merchant, and the land owner because the banks must take into account, when lending money, the prior right of the taxing authorities to collect out of the earnings of farm, factory, chop and tenement, the tax money due them ahead of everybody else. Since the banker lending on the security of any farm or property must count on the earnings of that property to meet principal and interest on his loan, he is compelled to take into account the prior obligations which that property must pay. Consequently, the more the state, the county or the city borrows, the less the individual can borrow. - 92 - c ov ar ii i o:j versu s rsguiai opoly Rudolph Spreckels, v.*ho is President of the Universal Electric and Gas Company of San Prcncisco and the Executive Director and TREASURER of the organization which is support- ing the Water and Power Act, is one of the authors of that amazing proposal. At a recent meeting of the Commonwealth Club held in San Francisco, Mr. Spreckels said that he stood for competition in public utility service, and that competic ion under the present Utility Act is absolutely impossible. In an article written by Mr. Spreckels and published October 22, 1921, Mr. Spreckels correctly said that it was the policy of the Railroad Commission, where competition already existed, to stabilize and equalize rates, and otherv/ise remove compe- tition as much as possible, except in efficiency of service, and where competition did not exist to refuse to allow more than one utility to occupy the field. Executive Director and Treasurer Spreckels also said in the same article that those that place their faith in regulated monopoly will naturally op- pose the Water and Power Act. Mr. Spreckels added: "It is my absolute conviction that the attempt to regulate monopoly is an unqualified failure. " In other words, according to the principal advocate of the Water and Power Act, its purpose is to re-introduce com- petition in public utility service to take the place of the policy of regulated monopoly now maintained by the Railroad Commission. Long experience and observation, as well as common sense, have demonstrated to the satisfaction of the Railroad Commission, - 3? - and to all who have 3tudied the situation, that competition is in the long run waste: d burdensome. It means ulti- mately bankruptcy for one competitor, leaving the other co. - potitor victorious and supreme in the field and free to make the rate paying public pay the losses incurred in the rate war, and in addition interest on duplicated and unnecessary invest- ments. The policy of competition, of course, means doing away with the policy of regulation, because you cannot have regula- ted competition in rates. Years ago, for the benefit of the public, the Railroad Commission adopted the policy of regulated monopoly which se- cures to the public service at cost and honest financing. Upon ir confidence that the State of California, having adopted t sound policy, would adhere to it, thousands of investors have invested r.illions of their savings in the securities of the power co~manies of California. Regulation they knew would prevent their getting more than an ordinary return on their in- vestments, but it would also prevent the wasteful competition which might cause the bankruptcy of their company and the loss of their capital. There are 46 thousand owners of the stock of California power companies and probably an equal number of owners of the bonds. The proposed Water and Power Act, by restoring the old cha- otic competitive conditions, would imperil all investments in California power companies. Its adoption bj the people would be a breach of faith on the part of the State of California to the men and women whose money has been invented upon their confidence . 94 - that the State of California would maintain its policy of regulated monopoly. The Y/ater and Power Act would he as immoral and dishonest as a repudiation by the State of its bonded indebtedness. - 95 - Prosperity and Growth In Los Angeles not Attributable to nlcip&Iljr-owned Power, Proponents of the so-called V/ater and Power Act continual- ly assort that the great growth and prosperity of Los Angeles is due to municipal ly-ov/ned power. What are the facts? 1. The municipal power bureau of Los Angeles never at any time prior to May 1, 1922, supplied more than thirty per cent of the pov/er service in the city of Los Angeles. The balance of the pov/er service in the city prior to May 1, 1922 was sup- plied by the Los Angeles Gas and Electric Company and the Southern California Edison Company. 2. In order to supply less than one-third the service, the municipal pov/er bureau of Los Angeles purchased power from the Southern California Edison Company. In other words, a substantial amount of the power sold and distributed by the city was not power developed by the city but power developed by private enterprise. 3. Since May 1, 1922, the city of Los Angeles has purchased the distribution system of the Edison Company and has now combined its own business within the city with that formerly conducted by the Edison Company but the bulk of the power generated and distributed by the city is supplied the city by Edison Company. Without the achievements of private enterprise, the Los Angeles power bureau could not do the business it is now doing and at date is absolutely dependent upon power developments made by private companies. 4. Prosperity and growth in Los Angeles City are not in any way due to municipal pov/er. This is shown clearly by the - 96 . records of growth of the city in population before and since the bringing in of municipal power. United States census figures show that Los Angeles City had a population in 1900 of 102,479, which in ten years increased by 216,719 making the total in 1910, 319,193, an increase of over 200#. The increase for the next decade 1910 to 1920, was 257,475, making the total in 1920, 576,673, an in r crease of about 80#. Estimates of population by the Log Angeles Chamber of Commerce, which are not very reliable as compared ' United States census, but which may be considered relatively reli- able, show that for the five years previous to 1917 the increase in population was 256,000 or 80^, while for the five years since 1916 the increase has been 115,000, or 20?S. 5. On the contrary, the industrial growth i n Southern California has been outside of the City of Los Angeles, especially in the cities of Vernon and Torrance, where the regular power rched - ules of Edison Company have been in effect . The industrial in- crease in these places has been enormous, not only in the estab- lishment of new industries but also on account of the removal of industries from Los Angeles City to escape the heavy burden of taxes and restrictions imposed upon them by the City of Los Angeles, these companies voluntarily paying the higher rates for power, which they consider to be more than offset by the advantages in having their establishments outside the City of Los Angeles. 6, The City of Los Angeles has an industrial schedule which is a "below cost" schedule made at the time and for the single purpose of inducing the Goodyear Tire Company to loaate in Los Angeles. The City of Los Angeles bought power from the Edison Company at an average oost in 1921 of 1.14£ per K.W.K. Under this power schedule of the City of Los Angeles power is sold for as little as 0.96£ per K.V/.H, , which is further reduced by discounts for off-peak business and high-load factor business. Every kilowatt hour the city sells at les3 than the rate paid to Edison Company is actually sold at a loss. It is this "below cost" schedule at the expense of taxpayers which proponents of the Water and Power Act compare with normal schedules in other local- ities. But in any discussion of the influence of the municipal power bureau on the growth of Los Angeles, the fact stands out that Los Angoles is not the only place in the state which has grown and developed. The entire state has made wonderful pro- gress in the last ten years. The commercial and industrial centres of the northern part of the state have outdistanced Los Angele* in growth. The only difference is that these sections in the North have not advertised as well or made as much (loise about their growth. These sections in the North have been sup- plied with power by private companies and the private companies can claim just as good results with the communities they have served as Los Angeles can show in the last ten years. See census figures on Pages 1 and 2 hereof. - 9ft - MUNICIPAL CWHSrtSHIP IN LOS ANGELES So much interest has been attracted to the experience of the City of Los Angeles in the operation of its raunici pally- owned public utilities, and so many contradictory opinions have been expressed as to the results attained, that an analysis of the records and a concise statement of the facts should be of great value to the public at this time. The City acquired its water system in February, 1902, by purchasing the property of the Los Angeles City Water Company. The Owens River Aqueduct was begun in 1905 and completed in 1913 . Construction of a power system was authorized in 1910, begun in 1911, and the first unit placed in operation in 1917. An option on the city distribution system of the Southern California Edison Company was taken in 1917* under which the Company continued to operate until early in May 1922, when the City exercised its option and took over the prop- erty. Prom official reports published by the City, the follow- ing facts have been abstracted, which give the general results of operation: 1 - Investment: Bonds sold to provide funds: Water Works - $ 42,356,100 Power 22,351,000 Municipal Improvement Dist. 4,990 ,000 * 69,697.100 19.452.383 1.392.179 Reinvested Earnings: Water Department - 18,204,602 Power Department - 1 ,247,781 Assessments on Property Owners: For Street Main Extensions - 263,012 For Service Connections - 1,129,167 Current Indebtedness, Dec. 31,1921 Water Department - 1,655,011 Power Department - 2,351,053 4,006,064 Reinvested Depreciation Reserve -_ 5.106.829 Total Investment - - $99 ,654, 555 2 - Total Interest and Sinking Fund Payments Since 1901 |28, 653.981 Paid from Revenues of Utility Departments - 4,300,414 Paid by Taxpayers - ... $24,353,567 - 99 - 3 - Bonds Retired (almost entirely from tax funds, and included in above) $ 9 » 005,000 4 - The City reduced water rates 1C# on taking over the water properties, the reduction being slightly more, in gross amount, than the taxes formerly paid by the private water company. Bo reduction was made in electric rates. 5 - The reinvestment of earnings of the two utility departments was made possible by requiring the taxpayers to pay 85% of the interest and sinl'.ir.j fund charges on the investment, and if these bad been paid from utility revenues, a substantial increase in rate3 would have been necessary, and very large additional bond ispues required to finance extensions. The Southern Metropolis has built up a splendid property and extensive business, and is supplying excellent service, at rates not materially higher, when all cost3 are included, than had been previously charged by private enterprise. They have performed no miracles, and the record shows that the taxpayers have been required to pay $24,353,567 to carry on the business. The dollar has worked no harder, no more effectively, for the public than it has for the privately-owned utilities, and the taxpayer has paid heavily for the sat tion of municipal owner- ship. * 100 - 'IPARISOE OP THE COST OF ELECTRIC SERVICE IH LOS ANGELES ATO 5 AN FRANCISCO During the fiscal year ending June 30, 1921, the City of L03 Angeles collected from the taxpayers of that City, to pay in- terest and sinking fund charges on bonds issued to build and acquire its water and power enterprises, the following sums: For Water Bonds $1,286,117.23 For Power Bonds 1.341.952.50 Total $3.125, 069. 73 The total assessed valuation of taxable property within the City was $704,559,075., and the income of the City was as follows: From Property Taxes $9,843,326.00 From all other sources except bond issues and utility revenues 4,202.462.00 Total City Revenues ftt. 045,7ttti.00 It appears, therefore, that the tax collections required to pay the annual charges on the City's utility bonds amounted to 32^ of the total tax burden of the City property owners, and to 22% of the total revenues of the City. As the interest and sinking fund charges on bonds are paid from the property tax, it is apparent that the fol- lowing rate of taxation was in effect during the fiscal year: For water Bonds For Water Bonds $.182 per $100 of assessment For Power 3onds .261 per $100 of assessment Most of the water bonds were issued to provide funds to build the Owens River Aqueduct, and are, therefore, partly chargeable to the power enterprise. Ignoring this fact, however, it is obvious that the tax payments, as stated, are very substantial additions to the bills collected by the City for electric service, and in com- paring the cost of such service in Los Angeles with the rates charged by public utilities in other Cities, they should be given considera- tion. In addition to this element of direct costs, the taxes paid - 101 - by the privately owned power companies should also be considered. The City of Los Angeles pays no taxes on its utility property; the taxes paid by the owners before it was acquired by the City have been distributed among other taxpayers. A specific comparison between the cost of electric service in Los Angeles and in San Francisco, including taxes in both cases, is shown in the following typical examples of actual consumers: 1 - Domestic Use: 4 rcom cottage, assessed at $1,250., using 10 kwh monthly. Cocx of :').-•<•-.' i Lou Angeles: Electric bill, c an, 3.2 nos. @ $.60 $7.20 taxes, for Power Bond Charges, $1,250 @ .261 ^.26 Total direct payments $10.46 Reallocated Utility taxes, 1C$ 1.05 Total Cost of Electricity per year $11.51 Cost of same service in San Francisco: Minimum bill, 12 mos. @ $.85 $10.20 Surcharge , 6% .61 Total Cost Per Year 10.81 2 - Domestic Use: 6 room cottage, assessed at $3,000,, using 25 kwh monthly. Cost of Service in Los Angeles: Electric bill, 300 k*h. € $.056 $l6.S0 Taxes for Power Bonds $3,000 ^ .261 7.8^ Total direct payments $24.63 Reallocated Utility taxes, 10JC 2.46 Total cost per year $27.09 Cost of same service in San Francisco: Ilectric bill, 300 kwh. ^ .08 $24.00 Surcharge, 6£ 1.44 Total Cost Per Year $25.44 - 102 - 3 - Domestic Use: 10 room dwelling, assessed ut 07,000,, using 80 kwh monthly: Cost of Electricity in Los Angeles: Electric bill, 960 kwh @ $.056 $ 53.76 Taxes for Power Bonds $7,000 .261 lo . 27 Total direct payments $ 72.03 Reallocated Taxes, 10$ 7.20 Total cost per Year $79.23 Cost of sane service in San Francisco: 600 kwh 3 ,08 I 48.00 36O kwh 3 .06 Zig60 69.60 Surcharge , 6% a. ]3 Total cost per Year 173-78 4 - Apartment Hotel, assessed at £106,900, exclusive of furnitu-e, using 1000 kwh power and 2000 kwh lighting monthly (ActwilConsuwr) Post of service in Los Angeles: Power 12,000 kwh $398.40 Light 24,000 " 924,60 Taxes for power bond charges ♦106,900 Q .261 279.01 Total direct payments 1,602.01 Reallocated taxes, 10# 160.20 Total Cost Per Year $1,762.21 Cost of same service in San Francisco: Combined light and power (actual bill) 1,130.85 5 - Merchant, (tenant) assessed at $20,000 using 1,190 kwh light per month Cost of Service in Los Angeles: Electricity, 14,280 kwh $625.56 Taxes for Pov/er Bond Charges $20,000 3 .261 5?,20 Total direct payments $677.76 Reallocated Taxes - 10J* '7.77 Total Cost Per Year $7*5.53 Cost of same service in San Francisco, Including 6% Surcharge $57*. 7° - 103 - 6 - Small Industrial Plant using 5,0C0 kwh monthly assessed at $25000 Cost of Service in Los Angeles: Power bills for year $1,130.40 Taxes on power bonds $25,000 Q .261 65.25 Total direct payments $1,195.65 Reallocated taxes, 10^ 119.56 Total cost of power per year $1,315.21 Cost of same service in San Francisco: Total bills for year $1,320.00 7 - Large Industrial Plant, U3ing 50,000 kwh monthly, load factor 35#, assessed at $100,000: Cost of service in Los Angeles: Total power bills $6,840.00 Taxes on Power Bonds 261.00 Total direct payments $7,101.00 Reallocated taxes, 10# 710.10 Total Cost for Year $7,811.10 Cost of same service in San Francisco: Total Power Bills for Year $8,778.13 Prom the foregoing it is apparent that, while the rate schedules are lower in Los Angeles than in San Francisco, the actual charges, including taxes paid to carry the investment, are higher in Los Angeles for all classes of lighting service and lower only in power service. As a measure of the overall difference between cost of service in the two cities, the following shows the effect of ap- plying to Los Angeles the rates in effect in San Francisco, and com- paring the totals to the total co3t of service at the present rates. plus the amount of taxes required to pay fixed charges on the in- vestment, as stated by the City Auditor: - | ••• - Coot of Power to Los Angeles at San Francisco ra^es Commercial Lichtinc 107,978,308 Kwh 6 .0569 $6,143,966 Commercial Power 137,678,474 ■ .0215 2,960,087 Municipal St. Lighting 12,084,054 " .0659 _ 796.339 Total 257.740,836 19.900,392 Less Taxes - I 990,039 Net Cost of Electricity at S.F. rates $8,910,353 Cost of Power to Los Angeles: Total Bills for Power and Lighting $8,186,577 Taxes paid for Power Bonds 1,841,952 Total Cost of Power, under Los Angeles rates 10.028,529 Annual saving, at San Francisco rates $1,118,176 To reverse the picture the following indicates the effect on the total cost of electric power in San Francisco that would follow the adoption of the Los Angeles policy: Cost of Power to San Francisco at Los Angeles rates: Commercial Lighting 82,497,411 Kwh .0494 £4, 075,172 ,8r Commercial Power 126,206,409 " .0169 2,132, Municipal Lighting 5,215,468 ■ .0437 227,916 Universal E & G Sales 30,104,991 ■ .031o (Av ) 957.319 Totals 244,024,279 .O31B $7,393,515 Add. taxes to pay fixed charges on investment assessed Valuation $?94, 084,308 @ .261 2,072.560 Total Cost of Power $9,466,075 lual Cost in San Francisco at present rates, revenues of all Companies $8,461,737 Deduct, 3tate, Federal and Franchise taxes - 10% 846,174 Net Cost of Power, Comparable to Los Angeles 7.615.561 Annual increased cost at Los Angeles rates $1,850,512 It does not necessarily follow that the citizen of Los Angeles with apparently lower rates, is able to purchase power cheaper than his neighbors, but rather that he seemingly prefers to pay a very - LOS - considerable portion of his power bill to the tax collector. When the two bills are added together, the total cost appears to be substantially hi than the cost of service under private owner- ship. There is a very ingenious element of psycology indicated in this comparison, Light bills are paid monthly, taxes twice a year. There are, consequently, twelve impressions of lower costs to two of higher rates involved in the application of the Los Angeles policy, and the cumulative weight of these impressions is calculated to keep the citizen, who is both taxpayer and power user, content. It may also be true that the City of Los Angeles, through the exemption of municipally owned utilities from the payment of taxes, is evading a part of the cost of government paid by patrons of privately owned utilities. The Los Angeles policy contemplates the payment of the bonds issued to finance its power enterprise through sinking funds created from money raised through taxes on property. The tax- payers are assured that a gradual reduction in the annual tax burden will follow the payment of these bonds. This statement should be very carefully analyzed by a community contemplating following the example of the Southern city, and the following is suggested as a general statement of the conditions that will exist in Los Angeles when the power bonds are finally p»id off: Total taxes paid to June 30, 1921, account power bond3 I5;385»4°* Bonds to be paid from future tax levies: Outstanding. June 30, 1921 7,351,000 Issued, 1922 H. TOO, 000 Total $26,236,404 Tax Assessment, 1704,599,078 Ratio to Assessment 3.72JC - 106 - This means that the owner of a 6 room cottage, assessed at $3i°00. will be required to make MB investment of $111.60 in the City's power enterprise, and that his annual sacrifice of interest, will, at 8# be .58.93 which he should add to h^s bill for electricity. If he uses 300 Kilowatt hours annually and the present rate of 5*6 cents per Kwh» continues, his total annual bill will be $25.73 or 8,58 cents per Kilowatthour. It should be bornein mind that the cost of electricity will not be reduced by paying off these bonds from tax funds, but rather, that a very substantial element of cost will be transferred permanently to the individual texpayer for the benefit of the user of electric service who i3 not a taxpayer. The Citizens of Los Angeles are paying more for power ser- vice, and more for water service, than they were when these services were supplied by private enterprise. In addition, they have al- ready paid $24,353,567 in the form of taxes, and will be required to pay $46,849,800 bonds as they mature, and most of the annual in- terest in addition, from future taxes. As the interest charges on these bonds will necessarily exceed the principal, the Los Angeles taxpayer is confronted with a tax burden of more than ♦90,000,000 during the next thirty years on account of the city's public utility ventures, in addition to the ordinary cost of munici- pal government, and his rates are higher than they were under pri- vate ownership. - 107 - WHAT AUTHORITY HAS TKS COMMITTEE? Clyde L. Seavey, City Manager of Sacramento is one of the authors and principal supporters of the water and power act. The act provides that the five hundred million dollars of bonds SHALL he issued and sold by the committee consisting of the Governor, Controller, Treasurer, Chairman of the Board of Control and Chairman of the Water and Power Board, as provided in said Act, and the provision made in the act for the sale of the bonds jc- 7) is: "Except as otherwise provided in this article, the committee shall issue and sell bonds only upon the written requisition of the board stating the amount of money required and the purpose for which it is to be used and accompanied by a duly authorized certificate of the board describing the property or rights to be acquired or the project proposed, and stating the estimated cost thereof and showing the same to have been investigated and approved and, in the case of a project, that plans r.nd est- imates therefor, a copy of which shall be annexed to such certificate, have been prepared and adopt- ed by the board and further certifying that, in the opinion of the board, the revenue from the prop- erty or rights to be acquired or from the proposed project, together with available revenues from other projects, will be sufficient to pay within fifty years in addition to other necessary expenses, the principal and interest of the bonds requested to be issued." In other words the Act contemplates that the committee, as distinguished from the Board, shall have no discretion but to issue the bonds when the Board complies vith the requirements of Section 7. Mr. Cer.vcy, in i. icIo published in the Daily Ht of April 22, 1922, makes the arsurtion that - - l "It is thus definitely provided that every essential detail of any undertaking proposed "by the Water and Power Board must be placed before the Governor, the Treasurer, the Controller, and the Chairman of the Board of Control." "The portion of Section 7 quoted", he says, "makes the merits of a project an essential part of the com- mittee's consideration." "The question of whether or not any project would be feasible, whether a thorough investigation had been made, and whether it would pay out in fifty years without taxation, are clearly embodied in Section 7. and the soundness as to each of these details must run the gauntlet of the official judgment of the five members of the committee." A perusal of the whole Act and particularly of Section 7 makes very plain the fact that the committee has no authority to pass judgment upon the actions of the Board in respect to the matters set forth in Section 7. When the Board files the docu- ments specified in Section 7 the committee MUST issue the bonds. Mr. Seavey suggests that "With all details definitely before the Committee, the committee would be in a position to prevent the carrying out of an unwise project or any un- wise or corrupt expenditure of the State's funds. It could refuse to issue the bonds. The Water and Power Board, if it persisted in carrying out a questionable undertaking would then he compelled to resort to Mandamus Proceedings in an attempt to force the committee to issue the bonds, and from any question of the final outcome of any proceed- ings, no one can believe that the members of the Water and Power Board, planning a betrayal of the peoples' interests, would bring Court proceedings against the Governor, who had appointed them, and against the Treasurer, Controller and Chairman of the State Bor.rd of Control. The whole question would be immediately thrown into the Courts, sub- ject to wide spread publicity, and with all re- cords and documents open to the investigation of any citizen of California, as provided in the Act." If the committee should refuse to issue the bonds when the Board has complied with Section 7, the conmittee would be violating the duty imposed on it by the constitutional amendment. - 109 - In other words, in order to show that there is some check on the power of the Board, it is urged that the committee might violate duty and exceed its powers by refusing to issue bonds. The tax payers of California are in a bad situation if they mu3t rely for protection upon the assumption th^.t officials will refuse to perform their constitutional duty. The question, however, is more or less academic because the Governor, who appoints, and presumably will control, through political influence, the Water and Power Board, is one member of the committee and another member of the committee is the chairman of the Water and Power Board. The committee by the way, serves without compensation. Before the constitutional amendment of established the Board of Control of which Ur. Seavey was formerly a member, there was another Board of Control consisting of No one icnows better than Mr. Seavey that the old Board of Control, serving without compensation and consisting of officers who had other duties to perform, did not function as a Board of Control and exercised little or no check upon the expenditures. It was because the old Board of Control made up much in the same manner in which the Committee is composed, under the Water and Power Act, did not function, that the present State Eoard of Con- trol, of which Ur. Seavey was formerly a member, wa3 ere. ted. The committee will be nothing but a rubber stamp for the Water and Power Board. - 110 - CALIFORNIA'S PRESENT Vrtt.lO ELECTRIC ACHIEVEMENTS RSCO.: ) THE Y/CRLD OVER No more eminent authority is o.ualified to pass upon the record "breaking achievements of California engineers in the design, installation, and operation of hydroelectric de- velopment than is Herbert Hoover. In recent months a super- power durvey for the Atlantic Coast states v/as undertaken under the direction of Congress, and in speaking of this pro- posed work in the eastern cities Secretary Hoover called at- tention to the great outstanding accomplishments of California in no uncertain terms, as fellow: • "At the present time California companies are carry- ing current over wires 300 miles long, while the greatest distance contemplated in the Atlantic project is only 200 miles. Furthermore, all of the great California power companies are 'hooked up' so that continuous service — something almost unheard of in the East — is practically assured in California. And that feature, together with economy, makes up the underlying object of a superpower project. Nowhere is power so cheap as in California. " The foregoing is a quotation from a report prepared by Secretary of Commerce Herbert Hoover for submission to President Harding regarding a proposed superpower project in the East. - Ill - THE J AND POWER ACT CONTSik-. . .. fiOJ GOVERNMENT IIBRSHIP BUT G_ --SNT IN BUSINESS Government ownership of natural resources is quite a different thing from government in business. Power is not a natural resource. Like wheat it is a product of labor. Every argument in support of a proposal to put the government into the business of making hydroelectric power in order to conserve our natural resources would be equally valid to support a pro- posal that the State go into the business of raising wheat or into the fisheries. True, one cannot produce hydroelectric power without using water which i3 a natural resource, but neither can one raise wheat without using land which is also a natural resource, and one cannot catch fish without using the rivers, the lakes or the sea v/hich are also natural resources. Conservation of our natural resources means that our public domain, including land, water, trees, fuels and metals, should not be wasted, but should be used economically and sci- entifically in the public interest and for the public service. But the doctrine of conservation does not imply that the natural resources should be utilized through governmental agencies. It implies tonly that they should be utilized under such governmental supervision as the Railroad Commission and the Water Commission provide in California for the protection of the public interest, and such supervision as the Federal Water Power Commission pro- vides when federal property is being utilized. Producing and serving power is a highly intricate busi- ness, quite beyond the recognized functions of government. It is not free from financial hazard. It has been developed in Cali- fornia by private initiative and enterprise to a degree which has made California the loader of the world in the hydroelectric huni riARft- ABOUT THE SO-CALLED MU _T OF ALAMEDA ? The outstanding fact about the Alameda Municipal Plant is that it produces no elacti ic energy. It is a mere distribut- ing agency, and buys its pcver at wholesale rates from the Great Western Power Company, and retails it to residents of the City of Alameda. Formerly it generated power by steam. When the price of oil went up the steam plant had to be 3hut down and the City could not have produced power at rates which consumers would have been willing to pay. If the municipal plant had not then been able to buy eleotric energy from a private corporation it would have been compelled to shut down. The municipal plant buys energy from the Great Western Power Company on a sliding scale, the price going down as the quantity used increases. In 1921 it paid for current, so purchased, at the average rate of 1.144 cents per kilowatt hour. It sold that energy at an average price of 4.67 cents per kilowatt hour. It charged for commercial, residence and private lighting 6.42 cents per kilowatt hour, for power 3,08 cents per kilowatt hour, and for city lighting 2.25 cents per kilowatt hour. There are many communities in Califor- nia, served by private companies, that pay lower rates. In Sacramento, for example, the average rate is 3.49 and the li, rate is 6,37. In San Jose the average rate is 3.41 cents per kilowatt hour. In Oakland the average rate per kilowatt hour is 2,04 cents, although the light rate is 6.63. In San Francisco, the average rate is 2.48 and the light rate 5.74 cents. The foregoing rates of private companies include taxes, both state and federal, which are 11 per cent of the rate. The Alameda plant charges , as an expense, but does not pay taxe3 $ - 112 - but it charges taxes not on the basis on which they are paid by private companies, but as estimated by the City at the City rate on a 60 per cent valuation. In 1921 the City charged against its expenses, taxes to the amount of $5,664. If it had been a private company it would have had to pay actually $18,447. - 114 - AJ ABOUT TliE SO-CALLED MUNICIPAL POWER PLANT OF RIVERSIDE ? We are told in the extensive propaganda put out by the organization supporting the vater and power Act that the State of California should go into the pov/er business because the City of Riverside has made a success of that business. Riverside, like Alameda, is a mere middleman in the power business. It buys all its power from a private company at a low rate. The City of Riverside secures its entire ser- vice at one point at a rate averaging between 1. 07 cents and 1.2 cents per kilowatt hour. it secures power at wholesale at less than cost. It has secured advances for line construction made by consumers which it has never refunded. It does not pay taxes. Like many municipalities operating such services, it has followed erroneous bookkeeping methods. For the fiscal year 1919-20 the Riverside Municipal plant's books show a net surplus of $64,857.31 on an investment of $686, 7J6. 85, or 9.44 per cent, but if taxes and a depreciation at a rate of 3 per cent on the fixed capital were charged against this profit, as they should be, the profit would be reduced to $29,194-. 38, or 4.25 per cent on the investment. This is not an extraordinary showing. The average rate per kilowatt hour charged by the municipal plant at Riverside is 3. 05 cents, and is a fairly low rate, though not so low as the average rate of private companies in many cities of California, and it must be remembered that this rate does not include taxes. The average rate in San Jose, in- cluding taxes, is 3.34 cents, and if we take off the taxes, it - us - is 2.98 cents. The average rate in Sacramento, including taxes, is 3« 24 cents, and if we take off the taxes, it is 2.69 cents. Riverside, like Alameda, has a simple commercial problem serving easy terri+ory. It is not badly managed, cut certainly it ij not better managed than most private companies. Like the case of Alameda it proves nothing with respect to the Water and Power Act. - 116 - OF _^_ AWGELSS? Los Angeles has, by the expenditure of large amounts of money procured by bond issues, developed a municipal water supply which it brings from the Owens River, a distance of 220 miles. ile primarily it iu a water project the water is used to develop power as a by-product and the .Municipal power Bureau sells power in Los Angeles. it supplies about one-third of the power used in Los Angeles. The balance is supplied by two pri- ".e companies. There is no denying that gross under-estimates of initial cost of developing municipal power were given to the taxpayers and vo'ters of Los Angeles when they approved the bonds. They were told in 1912 that 120,000 horsepower would be devel- oped along the aqueduct at a total expense of $7,200,000. The annual report of the Municipal Power bureau on June 30,1921, showed the investment of $10,700,000 with only 72,000 horsepower developed. The municipal power Bureau claims a total profit of ,018,985 ?an governments have gone further in the direction of public ownership and government in business than our country has done. These gentlemen would have us pattern ourselves upon the paternalistic and bureaucratic governments of the old world in the name of efficiency. One who has had experience with the government public services in European countries will hardly content that on the whole they compare in efficiency with pub- lic utility services of the sane class rendered by private cor- porations under public regulation in America. But even though European bureaucracies could point to superior efficiency in service, efficiency is not the sole thing to be desired in gov- ernment. The freedom of the individual is also a consideration. Benevolent despotism may be the most efficient form of govern- ment, but what American wants it? America, and the American character, have been built up under a system which permits to the individual the widest play for initiative, ambition, and endeavor, consistent with the maintenance of order and the pro- tection of the community. Americans have no craving for the intolerable bureaucracy of Europe, however efficient it may be. If we must choose between freedom and efficiency, Americans will take freedom. - 122 - THE TALE OF THE TAIL OP A COMMA. Another glaring instance of the misleading publicity emitted by the propagandists supporting the water and power act is a statement widely circulated in which they charge the opponents of the water and power > v ct with having misquoted the Act in a pam- phlet entitled "Jaots for farmers. " In that pamphlet "Pacts for Farmers" the Greater California League made certain criticisms of the Act and quoted the partic- ular portions of the Act which illustrated and supported the criticisms. The pamphlet did not pretend to print the entire Act. One such criticism was that the Act gives the Board the right to seize any property in the State merely by spying it wants it, ?nd makes the Board the sole and final judge of whether condem- nation is necessary. The portion of Section 14. proving that the Board has a right to seize the property by condemnation and that its decision as to the necessity of condemnation j.s final and conclusive was quoted. The remainder of Section 14, which provides for the payment of compensation for the property so taken by condemnation was not quoted because everybody know? that in con- demnation suits compensation must be paid. But the comment in acts Sot Farmers" on Section 14 specifically staccd * .e Board had to pay for the condemned property. Here is the comment on Section 14 made in "Facts For Farmer; "This gives, the board the right to sei-c ary property in the State , .merely by saying -ts it. There is no review - no appeal. The of the Board is finr It bteps in and pos- session at once. section makes the < ship of any property in the State- unsafe. .;e, the board has to p'V for c but it is the sole and fin of w: demnation is nt ■ - ua - The object of the propagandists supporting the Water and Power Act in their statement on this subject was to create the impression that in "Facts For Farmers" the fact that payment must be made for property seized was suppressed. The foregoing quotation shows that not only was that fact not suppressed but it was expressly stated. In other words the comment on "Facts For Farmers" is misleading and intended to be so. It is significant that tne only criticism of "Facts For Farmers" that the propagandists supporting the water and power ..-• have published is this false charge that the pamphlet "Facts For Farmers" suppresses the fact that condemned property must be paid for. - 124 - &. '■■ "PLE C_ ITERATE DISHONESTY A typical example of the deliberate dishonesty of the propaganda put forth by the staff of press agents and orators employed in supporting the vrater and power act is the intsntional garbling of the railroad commission's report to the governor, dated October 18 , 1920. At page 8 of their expensive 64-page pamphlet the water and power act propagandists say; "STATE MUST AID" "WE BELIEVE THE TIME 13 FAST WHEN THE STATE AS A WHOLE CAN AFFORD TC SIT BY AIT) WAIT FOR THE SPASMODIC DEVELOPMENT OF ITS WATER RESOURCES BY INDIVIDUALS", SAYS THE COMMISSION'S REPORT TO THE GOVERNOR. "THE PROBLEM AS A WHOLE MUST BE SOLVED BY THE STATE AS SUCH, AND IT IS OUR THOUGHT THAT HOW IS THE TIME FOR A COM- PREHENSIVE PROGRAM TO BE OUTLINED. THIS THE STATE CAN DO THROUGH ITS POWER IN THE ENACTMENT OF LAWS AND ITS ABILITY TO AID IN FINANCING.. "This conference was formed of commission representatives and representatives of other States and Federal bodies, to meet the CRISIS caused by water shortage. In 1920 the 3tate was confronted with a situation that threatened the very core of its prosperity. "This work of harmonizing the different viewpoints enabled the people of the State to grasp the situation from a broad point of view, and means, we believe, the ushering in of a new era of water development and con- sequent expansion of agricultural, industrial, com- mercial and other interests. We believe that the prob- lem of the conservation and distribution of water is now, and for the next quarter of a century will be, a most important factor in the development of the State's natural resources. This year's work looms large because of the CRISIS which forced what was felt by some to be drastic measure, but in the future these measures, born of necessity, must be regarded as merely preliminary and preparatory to the greater work. " Reference to the printed volume of the railroad com- mission's report shows that the portion of the quotation printed - 12| - in black face type appears or. 10 of the railroad commission's report while the remainder of the quotation which follows the blackface in the 64-page pan.phiet is printed on page 8 of the commission's report, and in order to make the connection the text has been altered. in other words, the propaganda supporting the act transposes and changes the railroad commission's report with- out indicating that fact. As printed in the 64-page pamphlet with the context and repeated by the staff of orators and press agents supporting the water and power act the garbled and distorted quotations from the railroad commission's report would appear to be an expression on the part of the railroad commission that the State should finance the development of power and water. The railroad commission was not discussing power at all.' It was discussing water solely. But on page 7 of the report^ immediately preceding some of the language quoted in the 64-page pamphlet the railroad commission says: "It is the Commission's firm belief that financially sound utilities, functioning economically and efficient- ly, will successfully carry the burden of California's development. It is obvious that industrial California, agricultural California, can not reach the peak of development unless there stride, a step in advance, utilities carrying service possibilities 'ready on demand 1 . ■ "Such a development, such a service, has been, is and will be the aim of this Commission. It can only be accomplished through the fair distribution of the costs, the fair treatment of utility consumer, utility owner and utility labor. " In other words, by twisting the railroad commission's language, and omitting a vital portion of the text, the mendacious propagandists supporting the water and power act intended to - 126 - create an impression that the railroad commission favored the State's going into the power business, whereas the commission expressly said in that same report that "financially sound utilities, functioning economically and efficiently, will success- fully carry the "burden of California's development." In Baying that the problem as a whole must be solved by the state as such the railroad commission had in mind, as the report clearly indicates, the possibility of the State's prepar- ing and financing a conn v . ehenaive program of water development. That the State is now doing in its survey of the water resources of California and for which $200,000 was appropriated at the last session of the legislature. - 127 - REGARD IMG MYTHICAL SAVINGS Rate comparisons made under any other basis than that of general averages in costs to the ultimate consumer after taking into consideration all the varying factors in- volved are deceptive. This same fallacy in reasoning can creep into the discussion in instances other than rates charged, To give an example of how easy it is to lay claim to great savings when in reality these savings should he credited to the march of progress and invention, attention is called to a statement of the speaker at the Riverside meeting, of the League of the Southwest. In speaking of the rate re- ductions claimed "by the more economic operation of the Hydro Commission, he said: "If the rates are reduced, and the consumer pays less for the service he received, that reduction, I main- tain, is the consumer' 8 dividend, just as much as if a check were handed to him by the municipality each month for the amount of the reduction in his power and lighting bills for the service which he xeceives, and for the cur- rent used for lighting alone, Since the hydro municipali- ties first began to operate, the saving in rates charged over what would have been paid at the old rates amounts to over $38,000,000, and at least $20,000,000 more on power used, or a total of over $58,000,000 paid to the users of power and i the shareholders in the scheme in ten years 1 operation, fiv» of which were fraught with unprecedented difficulties created by the greatest econ- omic upheaval the world has ever witnessed." - L88 - We axe wondering who will lay claim to the fabulous paving in power bills that has been accomplished in California since 1907 when the average rate p4id for power generated was 2.15 cents per kilowatt hour, according to the U. S. Census, vhich rate, according to the same source, was reduced to 1.55 in 1912 and 1.45 in 1917, being raised again to 1.55 in 1921. Using the same line of reasoning of the above speaker it is evident that the people of California have been pr.id in divi- dends in the for.i of reduced rates under the method of utility regulation that prevails in that state the gigantic total of $192,966,000, as estimated in the following tabulation. Yearly Saving Power Generated Rate Saving Dollars j Year in Millions of per Kw. in Saved Kilowatt -Hours Cents 192l" 4,386 .6 $ 26,316,006 : 1920 3,661 .65 23,800,000 • 1919 3,311 .666 22,050,000 •18 3,037 .675 20,500,000 1917 2,783 .69 19,400,000 I 1916 2,356 .675 15,800,000 ! 1915 2,168 .666 14,450,000 i 1914 '25 .65 13,160,000 • 1913 1,901 .625 11,890,000 1912 1,653 .6 9,910,000 1911 1,401 .5 7, . )0 : 19 . 08 .4 4,830,000 I 1909 1,050 .25 2,620,000 08 825 .15 1.C40.000 Total Es tiraated Saving $192,966,000 - CALIFORNIA HAS NEVER HAD THE CONDITION THAT PREVAILED IN ONTARIO TO CALL FOR THE FORMATION OF A HYDRO COMMISSI OH It is safe to say, and indeed it is admitted "by practi- cally every economist who has looked into the subject, that had commission regulation, as prevails in the more advanced communi- ties of the United States today, been in existence at the time of the formation of the Hydro Electric Power Commission of Ontario, that commission never would have "been brought into existence. Twenty years ago the distribution of electrical energy was carried on in the Province of Ontario, Canada, with such inefficiency, such high rates, poor service, and general disregard for the rights of the consumers, that in response to popular demand for relief from thit. high-handed procedure, after many gatherings of various public bodies had been held, the provincial government was asked by the municipalities interested for authority to under- take the development, transmission and distribution of electrical power. Contrast this picture with the present hydroelectric situation in California where the power companies, regulated by the E iailroad Commission, have developed such efficiency and good service, and have so won the confidence of their consumers that their securities arc widely distributed among them, and where reasonable rates have resulted in wider and more general use of electricity than in any other locality in the world. Indeed, it is doubtful if anywhere in the world o found a district where individual init. has received more direct encouragement, and yet where rigid control of public utility service has advanced to so - :3c - high standards. The eyes of the nation have constantly been focused on California in observing her progress in this as well many other outstanding accomplishments. Instead of meeting the unpleasant situation of twenty rs ago by the inauguration of government ownership and its attendant evils, the leaders of thought in Ontario, Canada, might have taken the other course — the stimulation of private initiative in agriculture and industry as has been done in California by placing these great projects under rigid public regulation with reasonable rewards held out for further development. Had this been done, the present day developments in Ontario, Canada--indus- trially, commercially, and agriculturally — should have far exceed- ed their present proportions, for Ontario is blessed with fertile soil, with the world's greatest source of possibilities for cheap water power development and ea~e in power transmission. Also, it la important to note that the neighboring province of Quebec, where cheap water power is not nearly so available, has complete- ly outdistanced Ontario in all fields of economic development. Or, agr.in in ooaparison with the development that has taken place on the American aide, even though steam auxiliaries have been con- structed there at great expense to assist hydroelectric service in the New York territory, Ontario might under properly directed and regulated private initi' txvv. accomplished f . aro than it has. - 131 - A WELL KNOWN PITFALL IN SPENDING THE PSOPLS ' 5 MO'/EY Throughout all time one truism has stood forth un- shattered, namely, that money not one's own is more easily spent , and funds "belonging to the body politic disappear in lavish outlay. Witness what has been going on in the Prov- ince of Ontario, Canada, in what has "been heralded by the pro- ponents of California's Water and Power Act as one to be mod- eled after by the citizenry of California. Governmental officials in Ontario other than the Hydro Commission are viewing v/ith great concern the costs which have increased enormously over original estimated in- vestments involved in the Chippawa development. Quoting as an extract from an address made November 10, 1921, by Premier Drury, of Ontario, before the Canadian Club on the Hydro Radial situation in Ontario, the Toronto Daily Star has the following to say: "The speaker directed attention to the Chippawa de- velopment , and pointed out that in 1915 the scheme launched to develop 100,000 horsepower was to cost $10,500,000; in 1918 to develop the first five unite and make provision fcr 275,000 horsepower the cost was to be over §25,000,000; in 1919 the scheme, fully grown to develop 500,000 horsepower, was to cost $40,000,000. Last spring they were assured finally that to develop five units and to make water prepax. ations for developing the rest of the units that the total cost would be $54,000,000 or $55,000,000. 'I am betraying no secret,' remarked Mr, Drury, 'when I say since then a very serious situation has developed, that the goverrene - 132 - having made all preparations to finance, having arranged to finance the scheme at S?5,000,000, received a most un- pleasant surprise when it was told some few weeks ago that it would have to provide for the completion of the project another $10,000,000. That is very serious, and in view of our experience perhaps we could be pardoned for lacking undue optimism.' ■ This speech of Premier Drury took place on November 10, 1921, and indicates that the government was already thor- oughly alarmed. During the early part of December the newspa- pers began to print stories of an additional $10,000,000 being required, and in a personal interview v:ith Sir Adam Beck in Toronto a week later the writer was informed by Sir Adam Beck himself that the project would cost $80,000,000. On top of this the Hydro Commission, in order to fill the canal to its 18,000 sec. -ft. of carrying capacity, must under international treaty borrow water from some one of the hydro plants already in existence on the Canadian side. To meet this emergency, the commission proposes to take over the Toronto Power Company's plant at a cost of $30,000,000 which must eventually be scrapped in order to supply the water to fill the Chippawa Canal. In its leading editorial comment of December 31, Electrical T.'orld, the leading electrical authority in America, had the following to say, under the caption "Ontario Overshoots *he Mar "This week water was let into the canal cf the largest hydroelectric development in Canada, the Chippawa -Queenston station of the Hydro Electric Power Commission of Ontario. Wonderful in conception, bold in engineering execution and - 13 :'■ - mammoth in the size of its units, the installation stands as a monument to the vision and skill of that enthusiastic Canadian, Sir Adam Beck. tut use of untoward circum- stances it also stand3 a monument to economic folly. The Hydro Electric Commission of Ontario was able to purchase 100,000 hp, from a privately owned utility, the Ontario Power Company, for $9 a horsepower -year , and on the strength of that built up the immense network extending a thousand miles in all directions, frcm Niagara Falls to Toronto on the north, and to Windsor, opposite Detroit, on the west. Despite the fact that its turbines at Queenston operate under a head of ICO feet greater than that available at Niagara Palls, and thus generate one-third more energy for the same amount of water, the Hydro Slectric Power Commis- sion of Ontario cannot manufacture at Queenston, much less sell, a horsepower -year of electrical energy for twice the amount it paid to the Ontario Power Company when the com- pany was privately owned and operated. Thus has the Hydro Electric Power Commission of Ontario, lured on by ambition, fallen into a pit of its own digging," - 134 - D ACT APFSCT IRHIGATIC The Act pro\:'des: "Section 1 - It .is hereby declared to be the policy and purpose of tbe state to conserve, develop and control the water of the state for the benefit of the people- " "Section 3 - The Eoard shall have power: (d) To use the waters and lands of the state (e) To require the reservation of water from appropriation-- (l) To exercise all powers needful for the accomplishment of the parposes of this Article, " The Board is thus clothed with the power, which implies the city of preventing any further appropriation of water in this state by anyone except by the permission and under the control of the California water and Power Poard. There is not a stream of any consequence in California that is not at present under partial use for either irrigation or power, yet very few, if any, are developed to their economic capacjty. virtually all of them are undergoing a progressive evolution, the conservation, appropriation and use of water available from each increasing year by year with the growing deraandsof the territory tributary to it. If the Water and power Act is adopted, this process will-stop through the withdrawal of the water from further ap- propriation, and a hundred thriving communities will find their growth arrested, or even strangled, until the water and Power Board finds it "convenient" or "desirable" to take over the erprises now supplying them with water and proceed with their development. That which is no ilable to such communities as a matter of right, protected by law, will pass under the juris- diction of a State Board, clothed with unlimited powers and discretion, which may act, or refuse to act, permit, or refuse to permit others to act, as it sees fit. IS STATE AID AVAILAI TING K - TC : :~Y? The State Campaign Committee of the proposed Water and Power Act, in a recent circular, stated that "Under the provisions of California's Water and Power Act, State credit may be secured for acquiring transmission lines and distributing system for power from Iletch-Hetchy. n The Board created by the proposed Act is empowered to do this under Section 3 of the Act, which reads as follows; "(h) To acquire or construct for political subdivisions distributing systems for water or electric energy bought from the state, upon terms that, in the opinion of the board will repay to the state rithin twenty-five years the cost thereof with interest. The title to or interest of the state in such systeus shall vest in the political subdivision when paid for. " The conditions under which this power may be exercised are indicated, although not clearly defined in Section 8, which provides; " -- where the rates are intended to provide for the repayment of the expenditures made in acquiring or con- structing distributing systems for political subdivisions, they shall so be fixed asin the judgment of the Board will repay the amount of such expenditures within twenty-five years. The Board may change rates wlien in its opinion ad- visable to meet changed conditions — " Section 13 of the Act reads as follows: o thing contained in this article shall prevent any - I V - political subdivision itself, or in cooperation with other political subdivisions, from developing any water or electric energy owned or controlled by it; but. plans for any such development hereafter proposed shall be submitted to the board for suggestions and criticisms, so that the cooperation cf the board may bo secured, if practicable, for the fullest development of the proposed project. The beard may acquire and develop any such project unless the politi- cal subdivision claiming the same shall have adopted plans and estimates for the development and authorized bonds to cover the cost thereof, or shall do so, within two years after the board shall have notified such political sub- division of its re;.di;iecs to proceed with such development. " If the City of San Francisco desires aid from the Vater and Power Board in completing the Ketch-He fcchy project, it can be obtained only if the construction, management and operation of the project is taken over ty the Board, which will have power to fix and change rates at will until reimbursed for ail costs, at which tine the DISTRIBUTION SYSTEI OFLY will pass into the ownership of the City of San Francisco. The Board has no power to aid a political subdivision in acquiring a municipal water supply. It may aid a city in securing or building a water distribution system, but only if such a system is operated by the Board until paid for, and then only if the Board shall sell water to the city for distribution. And tnroughout the entire process the Eoard will determine the cost, will keep the books, and will fix the rates. The politico-economic faddists who expect to control -138- the proposed water and power Board seem to think that the municipalization of utility property affords them a splendid opportunity for exploiting their pet theories — and it will if they can get by with a scheme like this. - 139 - WHO PAYS THE LOSSES ? Everyone knovs that there are risks in the public utility busineso, and everyone 2 parallel project which has ever been put into operation, namely, that of the governmental development of the water power in the Province of Ontario. Canada. Mr. Sihle> made a personal investigation of the Canadian situation and presents his de- ductions in thi> mt t-rt -t in u series of articles reprinted herewith. business executive, every industrial official, every property owner — in fact. tMf] ill i/m of this state is vitally interested in knowing the facts of this proposed legislation. Compliments of Journal ^Electricity <"»/ Western Industry RIALTO BUILDING SAN FRANCISCO An independent semi-monthly electrical ami industrial publication serving no special interests but devoted to the upbuilding and the development of the natural resources of the West along sound economic lines. ;iiiiiiiiiiiiiin iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiMiiiiiiiiiiiiiiiiiiiiiMiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiMiiiiMiiiniMiiiMiiiiiiiiiiiiiiiir Copyright McGraw-Hill Company of California Publishers of JournaKElectricity western Industry April, 1922 Resume of 10 Possible Results Under the Water and Power Bill — if Adopted 1. The creating: of a vast self-perpetuating; political machine (hiring - and firing are wholly within the control of the five super-governors of the state who may be on the governing board). 2. The opening of metal mines, cement works, textile mills, machine shops, canneries, laundries, etc. — under state control in competition with private concerns. .'$. Cut-throat competition with present power systems. The duplication of transmission lines, distribution systems and generating plants with the ultimate resulting higher costs to the consumer. 4. The abandonment of the principle of regulation and the resulting unfair distribution of power costs between consumers, determined by the particular bias of those in control. & The development of the state's resources by that portion of the state which asks for them first — the furthering of the interests of one sec- tion of government served at the expense of another which recei its power from private companies. 6. The increase of taxes. Owing to the lesser amount of taxes paid by the district doing away with its public utilities, the remainder of the state and other sources of revenue will have to bear a larger share. 7. The lessening of market value of all private securities placed on the market, owing to the competition of this great block of tax free bonds. i. High power rates to farmers. Owing to their distance from power sources and the long stretch of lines needed for each farm, costs will grow beyond the ability of the farmer to meet them. 9. The failure of certain portions of the enterprise to meet resl!itoc art A nthor eta toe (■■dnfpvnitur 1 li i ■ other waters and the generation and use of electric energy and the acquisition, con- struction, completion, maintenance and op- eration of works necessary or convenient for the accomplishment of the purposes of this article ; (h) To acquire or construct for political sub- divisions distributing systems for water or electric energy bought from the state, upon terms that, in the opinion of the board, will repay to the state within twenty-five years the cost thereof with interest. The title to or interest of the state in such systems shall vest in the political subdivis- ion when paid for ; (i) To sue and to be sued, and to exercise in the name of the state the power of eminent domain for the purpose of acquiring any property, or the use or joint use of any property, deemed by the board necessary for the purposes of this article ; (j) To provide itself with suitable office and field facilities, and to appoint, define the duties and fix the compensation of such expert and technical officers, legal and clerical assistants and other employes as it may require, subject to such civil service regulations as the board may provide ; (k) To define projects and to adopt rules and regulations to govern its activities ; (1) To exercise all powers needful for the ac- complishments of the purposes of this ar- ticle and such additional powers as may be granted by the legislature. Sec. 4. The California Water and Power Finance Committee, herein called the commit- tee, is hereby established, composed of the gov- ernor, controller, treasurer, chairman of the Board of Control and chairman of the Califor- nia Water and Power Board, all of whom shall serve thereon without compensation. A major- ity of the committee shall constitute a quorum for the transaction of business. Sec. 5. Bonds of the State of California, not exceeding the sum of five hundred million dol- lars (unless additional bonds are duly authorized by law), may be issued and sold from time to time to carry out the purposes of this article, and the full faith and credit of the State of Cali- fornia is hereby pledged for the payment of the principal of said bonds as the same mature, and the interest accruing thereon as the same falls due. Sec. 6. Bonds herein authorized shall be issued and sold by the committee as herein provided and shall be serial bonds, payable in not more than fifty years from date of issuance, and shall be in such form or forms and denomination or denominations, and subject to such terms and conditions of issue, conversion, redemption, maturities, payments, and rate or rates of interest, not exceed- ing six per cent per annum payable semi- annually, and time or times of payment of in- terest, as the committee from time to time at or before the issue thereof may prescribe. The principal and interest thereof shall be payable in United States gold coin. Said bonds shall be signed by the treasurer, and countersigned by the governor, by his engraved signature and the great seal of the State of California shall be impressed thereon ; all coupons there- to shall be signed by the treasurer by his engraved or lithographed signature. The board shall pay, from funds available to it, the expense of issuing and selling such bonds and the necessary expenses of the committee in con- nection therewith. Bonds herein authorized may from time to time first be offered at not less than par as a popular loan, under such regulations prescribed by the committee from time to time, as will in its opinion give the people as nearly as may be an equal opportunity to participate therein ; but the committee may make allotment in full upon applications for smaller amounts of bonds in advance of any date which it may set for the closing of subscriptions and may reject or reduce allotments upon later applications and applications for larger amounts, and may reject or reduce allotments upon applications from in- corporated banks and trust companies for their own account and make allotment in full or larger allotments to others, and may establish a graduated scale of allotments, and may from time to time adopt any or all of said methods, KhrtuM an v Qiir»Vi Oftir»r> Vtc dc^iYiorl rw it tn Ko in tion or increase of allotments of such bonds shall be made under general rules to be pre- scribed by said committee and shall apply to all subscribers similarly situated. Any portion of the bonds so offered and not taken may be otherwise disposed of by the committee in such manner and at such price or prices, not ti than par, as it may determine. The committee may cancel any of the bonds so offered and not taken and reissue them in different denom- inations. Sec. 7. Bonds herein authorized shall be issued and sold only for the acquisition of such property and rights, and for the acquisition, construction, development, completion, opera- tion and maintenance of such projects as the board may deem necessary or convenient to the accomplishment of the purposes of this article ; Provided, that from time to time upon written requisition of the board the committee shall issue and sell bonds not exceeding in the aggre- gate five million dollars, the proceeds of which shall be placed in the Water and Power Revolv- ing Fund in the state treasury, which fund is hereby created, to be used by the board for the purpose of defraying its expenses, acquiring property, rights, facilities, materials and sup- plies, carrying charges during construction and meeting other costs incurred in carrying out the purposes of this article: Provided, further, that if at any time the revenues from projects shall be insufficient to pay the interest on "and principal of outstanding bonds as the same fall due, the committee, with the consent of the gov- ernor, in order to avoid appropriations from the general fund and resulting taxation, may issue and sell bonds to provide funds required to make such payments of interest or principal. Except as otherwise provided in this article. the committee shall issue and sell bonds only upon the written requisition of the board stat- ing the amount of money required and the pur- pose for which it is to be used and accompanied by a duly authorized certificate of the board describing the property or rights to be acquired or the project proposed, and stating the esti- mated cost thereof and showing the same to have been investigated and approved and in the case of a project, that plans and estimates therefor, a copy of which shall be annexed to such certificate, have been prepared and adopted by the board and further certifying that, in the opinion of the board, the revenue from the property or rights to be acquired or from the proposed project, together with available reve- nues from other projects, will be sufficient to pay within fifty years in addition to other neces- sary expenses, the principal and interest of the bonds requested to be issued. The proceeds of the sale of such bonds shall be placed in the treasury and shall be used by the board exclu- sively for the purposes for which the same were issued. Sec. 8. The board shall establish such rates for service as in its judgment will provide, in addition to the expenses of operation, mainte- nance, depreciation, insurance and reserve for losses, funds to pay the principal and inter- est of all bonds issued under this article, as the same fall due, together with all sums which may be advanced from the general fund and interest thereon as herein provided. Each project, as the same may be defined by the board, shall be charged by the board with its cost, which shall include its proper share as fixed by the board of all expenditures from the Water and Power Revolving Fund and the share so charged shall be credited to such re- volving fund which shall be replenished, to the extent of the amount so credited, from the proceeds of bonds sold to provide funds for the cost of such project. The board shall estab- lish such rates for the service furnished by each project as in its judgment will pay, within fifty years, such cost thereof, and the expenses of operation, maintenance, depreciation, interest, insurance and reserve for losses; provided that where the rates are intended to provide for the repayment of expenditures made in acquiring or constructing distributing systems for political subdivisions, they shall be so fixed as in the judgment of the board will repay the amount of such expenditures with interest within twenty- five years. The board may change rates when in its opinion advisable to meet changed condi- tions and shall always keep its rates as near the amount required to pay such cost and ex- wnsps hk rtrapticfthle. and shall fix similar rates Journal of Klkctkicitv and Western Industry ». All revenues of the board, except proceeds from th« sale of I., ml*, shall be paid Into the •tats treasury and •hall ba applM Ant lo payment of tba expenses of tba board, cost* • lion, msintensnre. depreciation. In.ur- anca and la i m , and Mcond. to In* payment of interest on and principal of laid bond*. If at any tlnw tha moneys In the state trva>- ury appllrabla to tha payment of Intaraat or Principal of said bond*. shall ba InauAViant to isy tha same as It falls dua. monaya shall ba temporarily advanrad from lha ganaral fund for that purpoaa. and thara la haraby approprlatad from tha general fund in tha atata traaaury such •u-i annually aa will ba necessary to pay aurh intaraat and principal, and thara ahall ba col- lected aach yaar In tha aama manner and at tha aama tlma aa other atata revenue la collected •oeh nm In addition to tha other revenue* of tha atata aa ahall bo required to pay tha aama appropriated for paymant of Int ar aat and prin- cipal aa herein provided, and it la hereby made the duty of all officers charged by law with any duty with reirard to the levy and collection of •aid revenue to do and perform each and every act which ahall ba neraaeary to collar* such additional aim. All moneys paid from tha general fund In tha atata traaaury for principal of or intaraat on auch bonds ahall ba returned into aald gen- eral fund out of tha revenues of tha board aa aoon aa the aama become available, together with Intaraat thereon from tha several dates of such advances until ao returned at tha rata of six par rant par annum compounded semi- annually. Sac I*. Out of any money in tha atata traaaury not otherwise appropriated, tba aim of two hundred and fifty thousand dollars la hereby appropriated to ba credited to the board and an equivalent amount ahall ba returned into the general fund in tha atata treasury out of the first monaya available in the Water and Power Revolving Fund. Sac II. Tha committee may establish auch funds In tha atata traaaury as in its judgment may ba required to carry out tha purposes of this article. Monaya herein provided for the board ahall be drawn from tha traaaury by warrants of tha controller on demands made by the board and allowed and audited by tha State Department of 1 In board, lha controller, the treasurer and nlttaa ahall keep full and particular record of all their proceedings this article, and shall transmit to the governor annually a report thereof, not leaa than one thou— d copies of which ahall be printed. to ba by tha governor laid before tha as tur« biennially, and all books and papers ». taining to the matters provided for In thta ar- ticle. • hall at all times ba open to the Inspec- tion of any officer or citizen of tha state. All accounts of rereipta and disbursement, shall ba audited annually by tha State Department of Finance. Sac It. Tba atata and political aabffivudoa* ahall have a preferred right to water and electric energy controlled by tha board aa against pri- vately owned public utilities selling water or electric energy to tha public and no contract or act of the board ahall Interfere with auch pre- ferred right. Aa between those otherwise equally entitled, tha board shall supply water or electric energy to political subdivisions near the source of supply, to tha extant of their reasonable nuns . In prefere n ce to those mora remote. The board ahall not aupply water to a pri- vately owned public utility for the production of electric energy and ahall not aupply directly or indirectly to privately owned public utilities which sell electric energy or water to tba public mora than twenty par cant of tba total amount of electric energy or water under its control, and contracts therefor ahall not extend over a longer period than five years, or be renewed before one year prior to their expiration. Be- fore making or renewing such a contract, tha board ahall publiah a notice of Its intention so to do at least six days each week for a period of sixty daya In at least one newspaper pub- lished and circulated in thla state and desig- nated by order of the board for lhat purpoaa : and at least thirty days' prior notice ahall be mailed to the legislative bodies of all counties and Incorporated municipalities and to Irrigation districts situate within the territory which, in this opinion of tha board, may use auch electric energy. Public utilities taking sucn contracts shall be required to provide tba board wltii standby service at reasonable rates. Sec. IS. Nothing contained In this article shall prevent any political subdivision itself, or in cooperation with other political subdivisions, from developing any water or electric energy owned or controlled by it; but plana for any such development hereafter p r o po se d ahall be submitted to the board for suggestions and crici- clsm. so that tha cooperation of the board may ba secured, if practicable, for the fullest devel- opment of tha proposed project- The board may acquire and develop any such project unless tba political subdivision claiming the aama ahall have adopted plana and estimates for the de- velopment and authorized bonds or made other provisions to rover the coat thereof, or ahall do so. within two years after tha board shall have notified auch political neea to pr o c ess 1 with aura Sac II. la say | easy, as la mala brought by tba board aasjsr tha I ' ' hereof, the determination of taw board that taw taking of tba property I nrrl ais fa. the rasa- plaint la ai n sa a iy far tba ■■rami hereof, ahsJI ba conclusive rrideaee of aach aiiss.llj la any each pr i n asa ll a a tba state may take 1 mfl ate poasaastoft and use of any property recsared for tha purposes of this article, by paying lata the court each smoaat of money aa tha eoan. upon Ave days' notice to tha adverse party, assy determine aa reasonably aHn« (i>dn»l»ftrit «o nun of witor powar on th* American ■nainpownt and rorroundad by eompara- ■dalaium flow I* 1*0.000 mead-tot. but may b* r*dur*d to IM.000 **rond-f*»t. manrv with In* condition* farad In d*v»l- • W*at. tnl to note tliat the Mighborittf prov- ince of Quel>ec, where cheap water power is not nearly so available, has completely outdistanced On- tario in all fields of economic development. Or. again in eomparisou with the development that has taken place on the American n though steam auxiliaries have been constructed there at great penae to assist hydroelectric service in t! York territory. Ontario might under properly directed and regulated private initiative have accomplished far more than it has. • i>m- Results in Ontario This type of thinking in Ontario which is the It of government ownership has resulted in the belief that all related indu -■ nch as electrical manufacturing and the preparation of semi-raw materials neopscarv in const mcti-in should lw> owihil Airplane view of the lntak* of th* Wrlland Riv.. Nota th* comparatively l*v*l character of th* country tariatie of th* Province of Ontario. Compare thi* with mountain and daatrt of our weetern state*. agriculturally in spite of these difficulties to a degree that dazzles the imagination. Let us then trace the progress of the Ontario thinking and follow its development. In 1903 the Provincial Government passed legislation authoriz- ing the municipalities to borrow money and to under- take, individually and jointly, to generate, transmit and deliver power, and also to appoint a commission of three to five men to operate and control the sys- tem. As a consequence of this early activity the year 1906 witnessed the Legislature of Ontario pass- ing what is known as 'The Power Commission A Under this legislation a Hydro Klectric Power Commission was created consisting of three mem- bers, of which Sir Adam Beck is the chairman. This commission has power to acquire by purchase or develop under its own initiative the hydroelectric enterprises of the Province of Ontario, and in addi- tion to undertake such manufacturing enterprises as it may deem proper in the progress of its work. The commission also has power to acquire by pur- chase, or otherwise, and hold shares in any incor- porated company carrying on the business of operat- ing, supplying and distributing electrical Act Gives a Practical Monopoly This act has been amended and broadened from year to year so that today its authority is practically absolute in the Province of Ontario. There is one important difference, however, in the Ontario plan and thp oiiinns*sH Cnlifnrnin Water anrl Pnuar Art Journal of electricity and western industry It is possible in Ontario for the Premier and Provin- cial Legislature to over-ride the Hydro Commission, although at present the Commission is so strongly entrenched in Ontario, it is recognized that it would be an extremely difficult task to bring this about. In California, on the other hand, the enactment pro- poses a constitutional amendment that so establishes a Board of five men in control that only under the recall provision of a two-thirds vote of the Legisla- ture of the state can their hand be stayed. Let us now examine in detail, how power devel- opment for a municipality is accomplished in On- tario. In order to develop power in the Province of| Ontario under authority of this Hydro Electric^ Power Commission of Ontario, a municipality wish-|f ing to join the partnership must by vote of its city council first appeal to the Hydro Commission for data covering costs involved and later submit these findings to a vote of the people for final disposal. This final vote is taken in order to enter properly into a binding contract to insure the municipality's A cross section of the 55.000-hp. units being installed at the Queenston- Chippawa development of the Hydro Electric Power Commission of On- tario. They are the largest units thus far manufactured for hydroelectric development. share of the obligation involved. All municipalities sign the same form of contract and agree to assume the same obligations, the amount of these obligations depending on the service rendered; that is, a muni- cipality located 200 miles from the source of supply must pay a higher rate per horsepower and assume a larger financial obligation than a municipality located only 20 miles from the generating plant and using the same amount of power. While the Hydro Electric Power Commission has supreme charge of the extended development in its care, each munici- pality must elect its own local commission to handle the business of its own local system; all rates for service being fixed by the Provincial Commission. Although the progress of growth of the Hydro Electric Power Commission activities are described by its proponents as being phenomenal, those of us HOHt - INDUSTRY FARM This chart illustrates the difference in cost involved in developing hydro- electric power in California. Compare this with the map of the Ontario development. Heavy investment in giant storage reservoirs, miles of tunnels and ditches and often hundreds of miles of transmission lines, is required in California. familiar with the vast decade of hydroelectric con- struction that has just been completed in California see little in those accomplishments to fire the imag- ination. The facts are that, while from 1910 to 1920 the Hydro Electric Power Commission of On- tario actually constructed and put into operation something under sixty thousand new devel- oped horsepower with a total announced building program of only 500,000 additional horsepower, those having in charge the inter-connected system of California have built and put into service over 800,- 000 new developed horsepower and have let major contracts involving an additional million and three- quarters horsepower for the next ten years' period. The major portion of the Hydro Electric Power Commission's activities in the Province of Ontario seem, on the other hand, to have been devoted to taking over systems already built, and the statement of its growth including these activities is as follows : Number of 19 2 Total Load in Year Urban Muni- Number of Total Number % cipalities Townships of Consumers Delivered in Hp 1910 10 750 1911 26 15,214 1912 36 34,967 31,019 1913 51 7 65,689 45,602 1914 82 12 96,844 76,977 1915 112 • 18 120,828 103,959 1916 166 25 148.732 167.661 1917 179 34 170,916 333,399 1918 193 41 183,987 316,592 1919 208 42 216,086 328,176 1920 217 43 244.388 355,798 1921 232 44 Although Ontario is approximately twice the area of California these two states are comparable in that at the time of the formation of the Hydro Electric Power Commission Ontario equaled Cali- fornia in population, agriculture and industry. When we consider that Ontario had available the largest single source of easily developed power at her very door, and that the development of energy in Cali- fornia is attended with the greatest engineering diffi- culties, the growth of California is nothing short of phenomenal. . Of I'.I.Ki'TKICITY AND WESTKRN INDUSTRY A \i«w of the forehay above the Queenston power hone*, looking toward the American side of the river. Note the ripple stabiliser. • vertical tongue of concrete, situated in the center of the canal where it broadens into the triangular The Great Chippawa Development We come now to a brief presentation of the one great contribution that the Hydro Commission is making to engineering — the Chippawa Development at Niagara Falls. But although bold in conception as an engineering enterprise, its financial return in cheap power is challenged by many noted experts, .md the present administration of the Province of Ontario views with some concern the costs to which the project has mounted as they vastly exceed the original figures involved. To those familiar with present power develop- ment at Niagara Falls it will be recalled that all of the water power development has thus far made use of simply the main falls of the river of some two hundred feet without utilizing the rapids that exist A sklerh c the Intake fall m t ^* . . * VI i tried to ft (i show In*- how water ■»ini eight utiles hesow awaiikMteJ IM ft. of ll lakes Ilea* msaa for several miles down stream. By tapping the waters of Niagara River above the falls and by the utilization of the Welland River, and a power canal eight miles in length, it is made possible to conduct 18,000 sec.-ft. of water to a point below the rapids at Queenston, thus enabling the utilization of an addi- tional one hundred feet of fall over that available at Niagara Falls. From an engineering viewpoint this project is interesting. Not only does the gigantic canal show in its construction unusual skill, but the water tur- bines of 55,000 hp. capacity installed in this plant usher in new records in accomplishment in water wheel design. This plant when completed is de- signed to generate between 500,000 to 600,000 hp. Two units of 55,000 hp. are now in preliminary stages of operation. The Financial Difficulties Coming to the financial aspects of the situation, however, it will be instructive to see how the gov- ernmental officials in Ontario other than the Hydro Commission are viewing the costs which have in- creased enormously over original estimated inve rt ments involved in this Chippawa development. Quoting as an extract from an address made November 10, 1921, by Premier Drury, of Ontario, before the Canadian Club on the Hydro Radial situ- ation in Ontario, the Toronto Daily Star has the following to say: "The speaker directed attention to the Chippawa d*v*J- opment. and pointed out that in 1915 the s ch om s ! ■ — tat . to develop 100.000 horse power wm to coat $10,500,000; in 1918 velop the first Ave unit* and make provision far S7&,000 horsepower the coat was to be over W S. ,000: in 1919 the scheme, fully frown to develop 500.000 horsepower, was to .< 40.000,000. Last sprint they were assured finally that to develop five unit* and to make water preparatioaa for de- veloping; the rest of the uniu that the total cast would ho ♦54.000.000 or ftt.000.000. 'I am betrayiftf no marked Mr. Drury. '«»«» ' •** •*■** "•■.*„! situation has developed, that the go preparations to finance, having scheme at $55^00.000. received a when it was told some few weeks ago that it ,de for the completion of the project aaoti* That is very serious, and in the view of our * 10 Journal of Electricity and Western industry A general view of the vertical section of the Chippawa Canal, showing the level agricultural character of the land through which the canal passes. In the distance is the fill where the canal was changed from vertical to trapezoidal shape in order to cross the gorge at the whirlpool of the rapids. This speech of Premier Drury took place on November 10, 1921, and indicates that the govern- ment was already thoroughly alarmed. During the early part of December the newspapers began to print stories of an additional $10,000,000 being re- quired, and in a personal interview with Sir Adam Beck in Toronto a week later the writer was in- formed by Sir Adam Beck himself that the project would cost $80,000,000. On top of this the Hydro Commission, in order to fill the canal to its 18000 sec.-ft. of carrying capacity, must under interna- tional treaty borrow water from some one of the hydro plants already in existence on the Canadian side. To meet this emergency, the commission pro- poses to take over the Toronto Power Company's plant at a cost of $30,000,000 which must eventually be scrapped in order to supply the water to fill the Chippawa Canal. In its leading editorial comment of December 31st, Electrical World, the leading elec- trica lauthority in America, had the following to say, under the caption "Ontario Overshoots the Mark" : "This week water was let into the canal of the largest hydroelectric development in Canada, the Chippawa-Queens- ton station of the Hydro Electric Power Commission of On- tario. Wonderful in conception, bold in engineering execution and mammoth in the size of its units, the installation stands as a monument to the vision and skill of that enthusiastic Canadian, Sir Adam Beck. But because of untoward circum- stances it also stands a monument to economic folly. The Hydro Electric Commission of Ontario was able to purchase 100,000 hp. from a privately owned utility, the Ontario Power Company, for $9 a horsepower-year, and on the strength of that built up the immense network extending a thousand miles in all" directions, from Niagara Falls to Toronto on the north, and to Windsor, opposite Detroit, on the west. Despite the fact that its turbines at Queenston operate under a head of 100 feet greater than that available at Niagara Falls, and thus generate one-third more energy for the same amount of water, the Hydro Electric Power Commission of Ontario cannot manufacture at Queenston, much less sell, a horse- power-year of electrical energy for twice the amount it paid to the Ontario Power Company when the company was pri- vately owned and operated. Thus has the Hydro Electric Power Commission of Ontario, lured on by ambition, fallen into a pit of its own digging." The question of the actual accomplishments of government ownership in Ontario in the lowering of rates and the development of industry, as compared with the accomplishments of private enterprise in California will be taken up in the second article of this series, to appear in the Journal of Electricity and Western Industry for April 1st. M.,.1 ,,f tho t JolKN'AI. UK hl.M TICK ITY AND WESTERN INIH'STKV 11 Cost of Electric Energy in California Compared with Ontario Public Utilities in California are Making Energy Available to Their Consumers at a Cost Far Less Than in Ontario when Differences in Taxes and Physical Difficulties are Taken Into Consideration IN comparing: the cost of electric power to the people of California and to that portion of Canada rece i v in g power from the Hydro Electric Power Commission it is important to remember that Niagara Falls. combining its continuous flow of water with its large volume, should make the production of continuous power the cheapest for any part of the American continent. Yet the privately owned and publicly regulated electric utilities in California are making energy available to their cus- tomers at costs comparable with those paid for energy in Ontario, notwithstanding the physical difficulties inherent in the development of water power in California. In this connection it would seem especially im- portant to establish the facts pertaining to the dis- tribution of energy to agricultural territory in Cali- fornia and Ontario. In the speech of the personal representative of Sir Adam Beck at the Riverside meeting of the League of the Southwest last Decem- ber, we find the following statement: "We are supplying power to practically all the cities and towns in our Province, all of the larger villages, and most of the small ones, and have already constructed over 500 miles of pole lines to supply rural customers in various parts of the province, and. so great has been the demand for power in rural districts, that at the last session of our Pro- vincial Legislature, an amendment to the Power Commis>ii>n Act was passed, whereby, for the purpose of power supply, the Commission is authorized to divide the Province up into known as 'Rural Power Districts,' the boundaries of these districts being fixed arbitrarily, according to the dis- tance power can be supplied economically from existing power centers, or from lines or power centers that might be estab- li-hed for this purpose The speaker neglected to state that this action on the part of the Ontario Legislature of 1921 had been brought alwut due to the findings of a legisla- tive committee appointed by the Legislative Assem- bly of Ontario to advise concerning a more equitable system of distribution of hydroelectric power and a more unifo rm price, wherein the U>gislative Com- mittee had the following comment to make: "The amount of power !>eing used by the Hydro Elect ric- her Commission on the various systems in the .nice is :>:;7.17n lip., and of this only 2,500 I less than one per cent is supplied to the agricultural unit; When we compare this situation to the "K) farms of California that today have the most wonderful service in the world with a connected load of over a half-million horsepower, which is 13 per cent of the entire connected load, we see how fortu- nate the agricultural communities of California have been in baring the service not of 500 but of 15,000 miles of rural lines. THIS article Is the inond of ■ series of thrrr bused upon a personal investigation bjr Mr. Sibley of the operations of govtrn* ment development of hydroelectric power in tne I'nuince of Ontario. The following arti- cle will deal with a statistical contrast of (he growth of California and Ontario. Comparison of Rural Power Costs To go into further detail, it will I* interesting to compare the cost of electric energy to California farmers as compared to the proposed cost in Ontario, even though the government of On- tario itself proposes to meet one- half the expense of this service. In small hamlets the Commis- ■■!■— a» i iJ sion will now be able to supply- domestic service for lighting, appliances, etc., for $23.00 per year. For lighting homes, other than farms, on highways adjacent to lines, and including use of appliances, the service can be supplied for $39.00 per year. Energy to operate a 3-hp. motor or range, including service for lighting, irons and toasters, can be supplied to a farm house * for $86.00 per year, while a 10-hp. motor, including lighting and appliances, can be supplied on a farm for $220.00 per year. Note what is already being done in California where, it must be repeated, the use of electricity on the farm is unsurpassed. In small towns on one of the great power systems of California the average bill for lighting and ordinary appliance use does not exceed $20.00 per year. For the same class of serv- ice on rural lines the average bill will not exceed $24.00 per year. A 3-hp. motor or range, including service for lighting, irons and toasters, can receive service from a typical power system for approxi- mately $50.00 per year, the minimum charge amounting to $38.00 per year. Service can be sup- plied from this same system for a 10-hp. motor. including lighting and appliance use. for approxi- mately $120.00 per year, the minimum guaranteed being not less than $90.00 per year. It is difficult to get an equitable comparative statement of cost of service to agriculture, indi. and home, since the physical situation in Ontario and in California is entirely different. The major portion of power in the Ontario system is derived from Niagara Falls and transmitted over level coun- try comparatively short distances. In California, on the other hand, the plants are located in the high mountains, often hundreds of miles from the market for the power, necessitating the construction of many storage dams and power houses and long trans- mission lines over extremely rugged country. Fur- thermore, the water supply in California is not continuous, and it is necessary to supplement the water fa power. Then, again, taxes in the state of California are in a large measure raised from her public utilities, while in Ontario the taxes paid by the Hydro Commission are insignificant in comparison. 12 Journal of Electricity and Western Industry I think it may fairly be stated that the building of giant dams for storage reservoirs and the main- taining of steam standby service in California, due to fluctuating stream flow in the mountains, necessi- tates an extra installation expense of from 15 to 20 per cent over the installation expense in the Province of Ontario. And, again, the extra cost involved in the construction of long distance transmission lines over hazardous mountain passes, and the extra energy losses in long distance transmission in Cali- fornia, in comparison with the average short line transmission losses involved in the Province of Ontario, with its comparatively level country, should reasonably involve an additional 10 to 15 per cent cost for service in California over and above the TORONTO BATES COMPARATIVE CITY RATES, ONTARIO AND ELSEWHERE • The only Ontario figures which are given in a form possible of comparison are the city rates. These show that at the present time, both Buffalo across the border and Montreal, the leading city in the adjacent province of Quebec, enjoy lower rates under privately owned companies, than does Toronto under the Commission. In Toronto itself, the rates of the privately owned company in competition with the Hydro Electric Commission are the lower of the two. costs involved in the hydroelectric development in the Province of Ontario. In addition, the state and federal taxes paid by California utilities is between 71/2 and 11 per cent of their gross income and ex- ceeded five million dollars in 1920. In the Province of Ontario only a small fraction of this amount is involved, amounting to less than $115,000 in 1920. In any just comparison of cost of electric service in California, as compared with rates charged in the Province of Ontario, it would seem obvious that California costs of hydroelectric development per horsepower should exceed those of the Province of Ontario by from 30 to 40 per cent, and consequently charges for service might reasonably be expected to be proportionately high. Most of the available power sites in California are scattered along almost inaccessible mountain streams with comparatively small amounts of power available at each site. A comparison of the average California development of around 20,000 hp. with the single development of 500,000 hp. of the Chip- pawa plant of the Hydro Electric Power Commission clearly indicates how unit hydroelectric costs per horsepower in California should at times exceed those at Niagara, from 100 to 200 per cent, depend- ing upon the conditions surrounding the develop- ment. The maintenance of a necessary steam auxil- iary service is a handicap which may double the operating costs in California compared with the con- tinuous water supply of Niagara. A mere comparison of a few rates for power service in the Province of Ontario with a few instances in California does not in any way conclu- sivplv nrnvp rhp nHvnntno-p nf nnp river trip nrhpi- Partisans defending either side of the issue often seek to convince the listener by this method which is extremely dangerous and misleading. The Only Correct Basis of Comparison No individual comparison of rates can be made between California and Ontario since the rate- making methods employed in Ontario have resulted in a widely varying cost of power, placing at a dis- advantage those municipalities which are not near the source of power or near the main lines of the systems. In California it is the aim to equalize costs and not penalize the more distant consumers by pyramiding the cost to them simply because of dis- tance from source of supply. While both in California and in Ontario power is sold to consumers at cost, in California "at cost" include taxes, and a fair return on the investment. In Ontario, taxes are eliminated on electric utility property, excepting land. While the relief from the payment of taxes permits the government elec- tric utilities in Ontario to reduce their costs for power by a corresponding amount, this only results in a transfer of the costs from the power consumer to the taxpayer, whether or not the taxpayer is a power consumer. Despite all these conditions making for cheaper power in Ontario the fact remains that the power rate in California averages equal to or below that of Ontario. The only fair and economic method of compari- son is to take the sum total of electrical energy delivered to California consumers and divide this total into the total money received for this service, No Public Capita! Invested A I Public Expense. Qsm to people of Ontario in rale reductions . ' Gain to people of California in rate reductions, THE SAVINGS TO CONSUMERS IN RATE REDUCTIONS Dividends to the people, according to advocates of the Ontario Commission, may fairly be reckoned in terms of money saved over a given period through rate reductions — and they point to the 68 millions which were saved to the people of Ontario in ten years' time. In California under private companies publicly regulated, the saving amounted to $192,966,000, or something like three and one-half times the Ontario amount. This further is without any investment or risk to public funds. and thus get the actual selling price for electrical energy per unit of energy sold. Next, compare this basic unit with a unit charge for service similarly computed from the Ontario method of development, after allowing for the differences in development hazards experienced in one district and not experi- enced in the other, and a proper allowance for the light payment of taxes in the one community and the heavy payment of taxes in the other. In a recent letter from the chief engineer of thp T-TvHvn Fllpptrin Pnwpv Clnmmissinn nf Ontario. n.u. of Electricity and Western Industry I :im advised that these general figures are not avail- able for Ontario. In other words, the Commission has never gathered this important statistical data. A cartful study of available data, assuming a load factor similar to that prevailing in adjacent terri- tory, both in the United States and Canada, however, reveals the fact that the average charge to consumer on the Ontario system is 2.04c. per kilowatt-hour, (lolivered to the city distribution mains. If the same methods of accounting were used by the Hydro Electric Power Commission as are prescribed t>y the California Railroad Commission, this figure would read 2.33c. Assuming a 25 per cent loss in the city distribution system the average city rate in Ontario to the ultimate consumer is three cents, or over, which is the same general average that prevails in California cities. In California, on the other hand, the average charge to consumer of all energy sold is 1.95c. per kilowatt-hour, or, deducting the amount paid in taxes (which is not represented in the On- tario rate), 1.751/oc. per kilowatt-hour.* The Cali- fornia rate quoted above was obtained from 1921 figures and would be even lower during normal times when industrial demands with their low rates would further reduce the average rate. The average rate which is quoted above for Cal- fornia of 1.95 cents per kw-hr. is computed from the following records of the California State Railroad Commission. Although there are approximately forty companies supplying electric service in Cali- fornia, these companies produce eighty per cent of the power sold in California. •Thu tax-fraa rate baromaa l.»4 nnli par kw-hr. when uln of wholaiato powar »r* not ronaidarad. RATI HAllHnui COMMISSION BSCOKM Calanaar Yaar ltll Kw-hr. Sate* Kavrnu* Pacific Gu u4 EWrtric Company .. 1.021. S20.SS* |21.8»8.044.»2 liraai Wasters Powar Company 340.040.3(1 S.»47.710.7J Joaquin l.l«ht 4% Powar Corporation SlS.7tl.8U &.0M4.7S0.8* Regarding Mythical Savings Rate comparisons made under any other basis than that of general averages in costs to the ulti- mate consumer after taking into consideration all the varying factors involved are deceptive. This same fallacy in reasoning can creep into the discus- sion in instances other than rates charged. To give an example of how easy it is to lay claim to great savings when in reality these savings should be credited to the march of progress and invention. I would call attention to another statement of the speaker at the Riverside meeting. In speaking of the rate reductions claimed by the more economic operation of the Hydro Commission, he said: "If the rates are reduced, and the consumer pays leas for the service he received, that reduction, I maintain, is the consumer's dividend, just as much as if a check were handed to hum by the municipality each month for the amount erf the reduction in his power and lighting bills for the service which he receives, and for the current used for lighting alone. Since the hydro municipalities first began to operate, the saving in rates charged over what would have been paid at the old rates amounts to over $38,000,000.00 and at least $20,000,000.00 more on power used, or a total of over $58,000,- 000.00 paid to the users of power and light, the shareholders in the scheme in ten yearn* operation, five of which were fraught with unprecedented difficulties created by the greatest economic upheaval the world has ever witnessed." I am wondering who will lay claim to the fabu- lous saving in power bills that has been accomplished in California since 1907 when the average rate paid for power generated was 2.15 cents per kilowatt- hour, according to the U. S. Census, which rate, ac- cording to the same source, was reduced to 1.55 in 1912 and 1.45 in 1917, being raised again to 1.55 in 1921. Using the same line of reasoning of the above speaker it is evident that the people of California have been paid in dividends in the form of reduced rates under the method of utility regulation that prevails in that state the gigantic total of $1 California *•/<«>. -2.22* Total *rr3?j+,*o* . Mt.0Sl.tl0 1S.O74.4S0.O0 ybb.m.ru.i n), as esiimaiea in me iohuv n un i b \\ lms nig utnuinin 2.IU.7S4.00S S4S.00S.0IS.U Powar Ganaratarl Rata Sattac la Million* of Kw. Dollar* Yaar Kilowatt-Hour* la Caate .-a,*"! ■■■*fpsx*^,, 1^34 1921 MM .6 mjMjm L9S0 3,661 .66 23400.000 ....*mt-»* 1 TSii LM9 3,311 rW 8tJ8S490 1918 3,037 411 20.500.000 1917 2,783 .69 19,400,000 1916 MM «•.:;. 11449499 1915 2468 rtf* M. 450,060 191 1 | (rj:, .66 1S.160.000 1919 1,901 SM 11.890.000 1!»1J 1.663 .6 9410400 1911 1.401 .6 Tjnai.tx*' 1910 1.208 .4 4430.000 1909 1,060 l»:. I494499 I9M MS .16 1.-40.000 Total Estimated Saving. $192409400 cost or rows* to tsb t ltimatk i cmis ii w Tha inrtfi teat of powar to to* ultimata naojmr la tha rlttoa Oatarlo oar kw-hr. aVtlaan* to tha rite *atrtawtioa a| ilna. hlNm War* araoaatlaa, teathoa* la tha flrurlnc of aaiiiilallua aaal for tha Proalar* of Oatarlo moaV to roafona to laoor la affart la uadar 1 a 1 m il u l un ra aajaUoa. thl. at rara aho ata rwaa 1.1s raate for in •Mtaarla* tola nan to tha roaaianr. Uto a< about thra* raat*. which to Uh> rttto* of California. Oa aaUra aala of powar frooj four torso waaaalai of to I.M caate par kw.hr -1 _# Despite the fact that a dispassionate tion of both rates and service reveals the advantages of the privately owned and publicly regulated Cali- fornia system, in comparison with the government owned and controlled system of Ontario, nevertheless there are those who would bring about similar condi- in California through the adoption of the pro- posed Wster and Power Act. It is most important 14 Journal of Electricity and Western Industry How California has Outdistanced Ontario in Economic Growth A Statistical Comparison of Growth During the Past Twenty Years Indicates that California has Developed Remarkably Under Private Initiative while Ontario Has Been Retarded by Government Ownership PROPONENTS of the proposed Water and Power Act, the initiative measure to be passed upon by the voters of California at the election in No- vember, 1922, cite as an example of the benefits of government ownership the results obtained in the Province of Ontario, Canada, where government own- ership and operation of hydro- electric energy has been in force for the past twenty years. In fact, the proposed California scheme is modeled upon the Ontario plan, the economic sanity of which is questioned by many prominent engineers. The suc- cess of the Ontario scheme is declared to be "phe- nomenal' by its advocates, but viewed in the light of the accomplishments of twenty years and com- pared with the progress of California during the same period of growth, the latter district is seen to have surpassed Ontario in agriculture, commerce and industry. In fact, statistical comparisons throughout the twenty-year period since Ontario assumed the yoke of government ownership show unmistakably the effect of the superiority of private initiative, soundly regulated. Prior to the publication of the 1920 census reports California had never been regarded nation- ally as a great manufacturing state, but the returns showed this state to be the fifth state in number of industrial establishments and eighth in value of manufactured products. From the statistical data accompanying, it will be seen that California, while having less capital invested has a greater value of manufactured products. giniiiiiiiiiiiiiiiiiiiiii iiinniiiiiiiiiiii i : 1 1 1 1 : 1 1 1 iiiiiiiiiiiiiiiiiniiiiiiiiimiiiiiiiiiiiuuiiiiiiiiiiiiiiiiiiiig np HIS article is the third of a series of three I based upon a personal investigation by Mr. Sibley of the results of twenty years of government ownership and operation of hydro- electric power in the Province of Ontario. The two previous articles dealt with physical com- parisons and rate charges in California and j§ Ontario. a iiiiiiiiiiiiiiiiiiiiiiiiiiiniiii niiiiiiiiiiiiiiiii iiiiiiiiiiiiini iiiiiiniiiiiiiiiiiiiiiiiiiiiii mini 3 MANUFACTURING AND INDUSTRIES ONTARIO* Year Number 1905 6.163 1910 8,000 1915 6,538 1918 15,365 Capital Invested 215,000,000 391,000,000 947,000,000 ■ 1,508,000,000 •Reference: "Canada Year Book 1920.' CALIFORNIA :* 1904 6,838 283,000,000 1909 7,659 537,000,000 1914 10,057 736,000,000 1919 11,943 1,333,000,000 •Reference: "U. S. Census." Value Product 241,500,000 361,372,000 680.000.000 1,809,000,000 367,000,000 530,000,000 713,000,000 1,981,000,000 Persons Employed 184,000 239,000 244,000 334,000 120,000 142,000 177,000 297,000 Note on the accompanying chart California's wonderful growth in population as compared with Ontario. California starts the century with 25 per- cent less population and winds up the double-decade with 21 per cent greater population, or over 600,000 more people than the Province of Ontario. No section of country, no matter what its indus- trial progress may be, can endure without develop- happened in the double-decade under consideration? California starts out with 707,000 and in 1920 has over a million in her rural communities. Ontario, on the other hand, had in 1901 al- most one and one-fourth million people in agricultural districts. This number declined to one mil- lion in 1920, a decline of almost 20 per cent. And what are the compara- tive statements of the value of crops in this double-decade period ? In twenty years California crops increased in value 344 per cent, while the increase in Ontario was only 240 per cent. $1,381,000,000 —.tl, 809.000.000. $367,ooo,ooo- $2l5oOQ>000 P □ California Onfario IS 04- 1905 California Onfario / 9 1& & 1-9 VALUE OF MANUFACTURED PRODUCTS A comparison of the number of livestock shows that in California livestock increased in value 230 per cent, while Ontario increased only 51 per cent. A comparison of farm values which is graphic- ally illustrated in the chart on the next page shows that the value of farm implements increased 540 per cent in California and only 85 per cent in Ontario. Similarly, farm buildings increased 278 per cent in California and only 37 per cent in Ontario. A strik- ing increase is shown in land values in California, a percentage increase of 342 per cent, while Ontario values increased but 40 per cent. <2s£°2 ONTARIO CALIFORNIA 1900 - 1901 ONTARIO CALIFORNIA 1919 - 1920 Jfc *i tv i ' i n 1 1 Journal of Electricity and Western Industry During the twenty years under discussion farm.- as a whole — land, buildings, implements, livestock — increased in California l>y :'>:'. 1.5 per cent, with only an increase of 63.2 per cent in Ontario, as indicated by the following tabulation: FARM > A I I k>- IFuKNIA Land TtAal J Implement* '. LWeatork 1000 IN* % 1*01 TOO.JI 1.000 (.4S1.000.000 M1.6 1.001.000.000 •Hrtrrmcr: "Heaton'i Annual 1021." S. On.u, 1000-1020." ONTARIO 1010 U m .0 M .0ll M.2 Finally, what has happened to the number of - in this period? In California they increased California Ontario Crops C H Livestock California i i Ontario D Implements California i : Ontario CD Bui : Idin qs California i i Ontario D Land California \ D Ontario □ 344 240 230 51 640 85 278 37 342 40 l'IK'l\Hl.l IMHKIM IN IIIIN » VI IKS 1*1* OVER 1010 by 62 pat cent, while in Ontario they actually de- . i.M-.d j i par < • And what effect does this method of thinking haw upon the funded debt? California today has only a funded debt of $1 1.67 per capita, while On- tario has $40.. M. >->o -Pe California \ Ontario- ncreasc - J 331.3 632 191* ion 1018 1010 1020 ALL FARM VALIES 1000-1*20 BUILDING PERMITS- IS Principal ClUaa CALIFORNIA S4.000.000 SI .000.000 ■■- 07.000,000 140.000.000 ■Reference: "Canada Year Book 1020." "Bradstreef* 1010 to 1020." li Principal Otiaa ONTARIO IT. HI .000 21.4T7.000 4T.1T0.OOO And all this affects the financial borrowing power of a commonwealth. Note Ontario's 1921 rat* of 6.25 compared with California's rate of 4.50 which has recently dropped to 4.25 per cent. INTEREST RATES Bands *f Pra, lar* af Ontaria Of Slat* af i alifi 1010 1011 1012 1011 1014 1010 1010 101? I01S 1010 1*21 a.00 i.oo 4.00 X.40 4.00 a. 4* 4.40 «.*0 4.00 *.»• 4.00 1.40 0.00 S.M (-•0 XM coo 4.20 %m 4.00 (.00 4-00 0.2S 4-00 ONTARIO PER CAPITA riNOKU DEBT Turning from the farm to building in general. what i- the situation" Fifteen of California's fore- most cities had a building record of $140,000,000 in VX1" compared with Ontario's $17. 17 '..000, and the 1921 record, from such statistics as we have avail- CAuronNiA in ir REST RATES ON STATI BONE It is little wonder then that the twenty-yew period ends with California having an assessed valu- ation of $4,555,000,000 as compared with Ontario's 16 Journal of Electricity and Western Industry In conclusion it is to be remembered that Cali- fornia's remarkable record of accomplishment in in- dustrial, agricultural and commercial growth has been one of marked individual accomplishment. In this twenty-year period California has become noted for her great cooperative selling organizations, yet it is doubtful if anywhere in the world can there be found a district where individual initiative has re- ceived more direct encourage- ment and yet where rigid control of public utility regulation has advanced to such high stand- ards. The eyes of the nation have constantly been focused on California in observing her prog- 818, OOO hp. 1,150,000 h p. 60.000 b p. 50 0. ooo bp. Ontario California Ontario California A dual Hew Construction 1910- I9?0 Actual Planned Construction . IS?0- 1930. HYDROELECTRIC CONSTRUCTION, ACTUAL AND PLANNED ress in public utility evolution throughout this as well as many other outstanding accomplishments. I do not wish to be understood as saying that California has advanced so far that perfection has been reached. Far from it. I fully realize that our great utility companies must be led to higher and higher ideals in service to the public. They must vastly simplify their present rate schedules so that the man in the street may understand how his charges for electric service are determined. The hand of our railroad commission must be vastly strengthened. It must be made the equal in dignity California] £140,000.000 IOO.OOQOOC £0 OOO OOO On Is no— H-5,000^ $47, Fo.ooo.ooo Ltf^ 3 N. ?5 5 5 S 9> and authority of any other judiciary body in our commonwealth. Valuations given to installation and service costs must be most carefully scrutinized by citizens generally, and to this end citizens in local communities throughout the state must be encour- aged to look into and constantly follow rate charges and valuations as they progress. In order to facili- tate this informal checking on the part of our citi- zens, the data and processes by which these valua- tions are arrived at must be made more and more accessible to any citizen. Again, the greatest pres- sure must at all times be placed upon these utilities to force them to exert every effort possible to deliver electrical energy to our citizens with ever- increasing economies in production. Above all, a reasonable financial return must be assured not only to those who invest their money in these enterprises, but that great body of workers now approaching twenty-five thousand in the state of California who are engaged in operating these utilities must be given reasonable reward for initiative, service and skill they display in delivering electric power. Another fundamental objection to government operation and ownership of any enterprise is the tendency to stifle and retard progressiveness and ambition on the part of employes, as well as breed a sense of indifference on the part of the public as to how their enterprise is being conducted. Eternal vigilance is truly the only guarantee of good gov- ernment. Let us not unwittingly place our vast develop- ment problems under a method of control under which it will be difficult for citizens to exert this guarantee of eternal vigilance — under a method that has, to say the least, proven in the Province of On- tario questionable in economic attainment after years of fair and honest trial. But rather let us place California's development under the severest type of public regulation with full play of initiative given to those who engage in this work, and yet with the one sound and sane safeguard of her progress ever ready to be brought to bear, namely, the "eternal vigi- lance" of an intelligent and well-informed public. COMPARATIVE ACTUAL SIZE BUILDING PERMITS— 15 PRINCIPAL CITIES IN CALIFORNIA A o r\^A. nrsr> «-><*ii~> COMPARATIVE SIZE ACCORDING TO ASSESSED t . 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