V THE UNIVERSITY OF ILLINOIS LIBRARY 385 F5\&e The person charging this material is re- sponsible for Its return on or before the Latest Date stamped below. Theft, mufilation and underlining of books '!1LT°'''"J '*?' disciplinary action and may result m dismissal from the University UNIVERSITY OP ,u,NO,S LIBRARY AT URBANA-CHAMPAIGN -4- O .. APR 4 vdA ■5; 5 I ff •• > ' APRILS ?0 ?5 ' Ci l«.'Uv L161— O-1096 ECONOMICS OF INTERURBAN RAILWAYS mm McGraw-Hill DookCompaiiy Pzi£Cis/iers <^3ooJ^/br Electrical World TheEng^nseringandMming Journal En^eerin^ Record Engineering News Railway Age Gazette American Machinist Signal Engineer AmericauEngjneer Electricliailway Journal Coal Age Metallurgical and Chemical Engineering Power ?r?X7!^,-^';':^;:r?i::!i'i!:iii^;i::«jj»faMiMj'JMtM ^ ECONOMICS OF INTER URBAN RAILWAYS BY LOUIS E. FISCHER CONSULTING ENGINEER, ST. LOUIS, MO. First Edition McGRAW-HILL BOOK COMPANY, Inc. 239 WEST 39TH STREET, NEW YORK 6 BOUVERIE STREET, LONDON. E. C. 1914 Copyright, 1914, by the McGraw-Hill Book Company, Inc. THE . MAPLE* PRESS. YORK. PA CY 01 36^ PREFACE Notwithstanding the fact that there are over 'twenty thousand miles of electric suburban ^_and electric interurban railway now in opera- tion in the United States, of which the operat- ing records are available through the medium of the various State Commission reports, and otherwise, there is Uttle data of actual and proven information so compiled as to be useful . to the great number of persons, residing in •^ almost every community, who are promoting, J' or are encouraging the promotion of, an $ electric interurban railway. 3 The fact that, in almost every instance, j electric interurban railways have proven to be popular utiUties, has caused much develop- ment in the construction of such properties, irrespective of the possible or probable eco- j nomic result incident to their operation, and, d in consequence, many of the undertakings rj have been unprofitable. This condition, which is parallel with that of the early days of steam \ railroad construction, has caused the investing 614034 vi PREFACE public to regard electric interurban railway securities with some suspicion. In view of these existing conditions, it is beUeved that there is a need for a resume of the actual economic results from the operation of the existing electric interurban railways, for the purpose of enabhng the layman to compre- hend the fundamental conditions essential to an economically successful road, and the in- vestor to discriminate between fundamen- tally good or bad electric interurban railway securities. L. E. F. St. Louis, Mo., December, 1913. CONTENTS Page Preface v CHAPTER I Inception and Development op Electric Traction 1 The electric suburban railway — The electric inter- urban railway. CHAPTER II Classifications and Definitions 7 Classification of electric railways — Classification of type of electric interurban railways, also of terri- tories served — Classification of population served — Classification of trafiic sources. CHAPTER III Operating Revenue 16 Relation between "revenue from transportation" and "revenue from other than" relation between ''passenger revenue" and "other than passenger revenue," power sales eliminated — Possibility of general freight business for electric interurban railways — Relation existing between operating revenue and population served — Statistics of revenue of lines productive of earnings from sources I and II — General conclusions concerning revenue from source II — Other statistics concern- vii viii CONTENTS Page ing revenue from operation, sho\\ang slightness of relation between revenue and car miles operated Comparison of electric interurban and steam rail- way revenues — Conclusion. CHAPTER IV Operating Expense 44 Way and structures — Statistics of actual operating expense for way and structures on typical electric interurban railways — Most important primary accounts under way and structm-es — Equipment statistics of actual operating expense for equipment on typical electric interurban railways — Main- tenance and depreciation of equipment — Traffic — Statistics for actual operating expense for traffic on typical electric interurban railways — Conducting transportation — Statistics of actual operating ex- pense for conducting transportation on typical electric interurban railways — Principal primary accounts for conducting transportation — General and miscellaneous — Statistics of actual operating expense for general and miscellaneous items on typical electric interurban railways — Total oper- ating expense — General conclusions concerning the cost of operating electric interurban railways — Taxes. CHAPTER V Cost of Construction 73 Classification of construction of costs — Primary accounts for road construction — Primary accounts for cost of equipment — Primary accounts for general construction expenditures — General con- clusions concerning cost of construction. CONTENTS ix Page CHAPTER VI Economic Relations, Operating Revenues, Operat- ing Expenses, and Cost of Construction ... 99 Hypothetical application of the heretofore estab- lished principles governing o'perating revenues, operating expenses, construction costs — Summary — Modification. CHAPTER VII Concluding Remarks 112 Index 113 1 ECONOMICS OF INTER- URBAN RAILWAYS CHAPTER I INCEPTION AND DEVELOPMENT OF ELECTRIC TRACTION THE first authentic record of a well-con- ceived plan to obtain tractive power by means of electricity dates from the early '50 's, and between that time and the year 1880, when Edison and Field became interested, many attempts were made to work out a fea- sible scheme, but all of them lacked commer- cial value. The real birth of the electrically operated railway, as a practical method of transporta- tion, was in 1888, when Frank J. Sprague equipped a short electric railway line in Rich- mond, Va., which, though crude from the standard of to-day, was successful. Previous to this, at expositions and elsewhere, electric 1 2 ECONOMICS OF INTERURBAN RAILWAYS railways had been built for exhibition and ex- perimentation. The practicability of the electric railway being quickly demonstrated, there became an imme- diate demand for this means of traction, and by the year 1890 there had been about two hun- dred electric railway companies, with a trackage of about 1200 miles, organized in the United States. In England and Germany the work was taken up, and some important installations were undertaken. During the next ten years far-reaching improvements were made in the equipment, and by the year 1902 there were over seven hundred electric railways in opera- tion in this country, with an aggregate total of about 22,000 miles of track — a truly remark- able growth. The Electric Suburban Railway From the electric railway, operating over and along the streets of a city, it was an easy step to the electric suburban railway, which origi- nated in the simple extension of a city line to the suburbs of that city. It was speedily rec- ognized that in the electric suburban railway DEVELOPMENT OF ELECTRIC TRACTION 3 was the solution of the vexing problem of how to remedy the ever-increasing congestion of population within a narrow zone around the commercial center of each of the large cities. With the development of the electric suburban railway came the outward development of the growth of the cities for residential purposes, bringing benefits to those working in the cities so great and far-reaching as to be incalculable. Step by step with the increasing importance of electric traction, improvements in equip- ment and operation were made, the inventor never lagging behind the constructor. The Electric Interurban Railway The next step, the development of the elec- tric interurban railway, was of much greater magnitude than that of the simple evolution of the suburban railway. The problem of the transmission of power over long distances had to be solved, and there were many other ques- tions which the pioneer had to work out. The great minds of the master electricians soon solved the power problem and gave to the world the rotary converter, improved transformers. 4 ECONOMICS OF INTERURBAN RAILWAYS and the transmission of high potential alter- nating current to substations. The earliest attempt at electric interurban railway construction was about the year 1900, and it was not until the year 1902 that the de- velopment became general. The pioneer builders of electric interurban railways were confronted with the problem of deciding whether the tracks of the railway should be built on private right-of-way, or along the pikes and highways. To build the tracks on private right-of-way, across open country of broken topography, to build bridges over rivers and streams, and in fact, to do all of those things in track construction that the steam railroads had done, appeared to them to necessitate the expenditure of an overwhelming amount of money, and they, unfortunately for operating efficiency, adopted the alternative of utilizing the pikes and highways. The early interurban railway was, therefore, in reality an exten- sion of the suburban railway, made possible by the then recent developments in power transmission. The pioneer lines having demonstrated the feasibility and practicability of the project, the DEVELOPMENT OF ELECTRIC TRACTION 5 demand for interurban railways became gen- eral, and later builders began to utilize the private right-of-way instead of the pikes and highways for their tracks, and from that time the electric interurban railway became the popular utility it now is. When carrying passengers between towns it became necessary to carry their baggage, and, from this beginning, the handling of express matter, United States mail, milk and broken freight, was a natural sequence in evolution. In solving the transportation problems which became more abstruse as the mileage of individ- ual roads increased, the electric interurban railway followed the practice of the steam rail- roads, and adopted train schedules and dis- patching systems, and rules and devices for the safety of its operation. As the traffic increased, trains of cars, under multiple control, were operated, and in some instances dining and sleeping cars were added to the passenger equipment. The electric interurban railway policy has always been aggressive in its reach for business, and after acquiring success in the passenger, express and broken freight field, the large earn- 6 ECONOMICS OF INTERURBAN RAILWAYS ings to be derived from the handling of bulk freight, and the interchange of traffic with other roads, was sufficient incentive for some of the larger electric railways to enter the field as general freight carriers. This development has been of recent date, and at the present time is restricted to a few of the largest electric railway systems, and these systems are being operated on the same basis as the steam railroads, and are doing identically the same carrying business, including the interchange of traffic and equip- ment with them. The growth of the electric suburban and electric interurban railways has been wonder- ful, as since the year 1902 there has been constructed, and placed in operation, over twenty thousand miles of track. The devel- opment has been especially active in the states of New York, Pennsylvania, Massachusetts, Ohio, Indiana, Illinois and California, as in these states more than thirteen thousand miles, out of the total of about twenty thousand miles, have been constructed. CHAPTER II CLASSIFICATIONS AND DEFINITIONS THE diversity in the scope of operation of the various electric railways, popularly called electric interurban railways, renders an analysis of their earnings and expenditures, as a whole, unproductive of tangible results. It is therefore necessary to define first what will herein be considered as an electric interurban railway, and second the terms used in the sub- sequent analysis of the fundamental principles governing their operating revenues and ex- penses, and cost of construction. Classification of Electric Railways Electric railways may be divided into four general classes: Urban, Suburban, Interurban and Commercial. ELECTRIC INTERURBAN RAILWAY An electrically operated railway connecting two or more independent distant communities 7 8 ECONOMICS OF INTERURBAN RAILWAYS and organized and operated to carry passen- gers, baggage, United States mail, express and freight in broken shipments. This railway is distinct from an urban or subm-ban railway, in that the latter serves only the inhabitants of a city, or of a city and its suburbs, for the pur- pose of carrying passengers and their ordinary hand baggage. It is also distinct from a com- mercial railway in that it does not do, or under- take to do, a general bulk and interchange freight business. Classification of Type of Electric Interurban Railways, and also OF Territories Served In considering the economic results obtained by the various electric interurban railways now operating, it is necessary to classify the types of roads, and also of territories served, into two general classes — the normal and the abnormal. NORMAL ELECTRIC INTERURBAN RAILWAY — GEN- ERAL CHARACTERISTICS OF Entrances into cities, towns and villages served by franchises over city streets. Private right-of-way outside of cities and villages. CLASSIFICATIONS AND DEFINITIONS 9 Roadbed constructed with reasonable curves and gradients. Track laid with 70- or 80-lb. rail and standard ties, 2-ft. centers. Power house of ample size and constructed for economical operation. Car equipment ample and of modern type. Well constructed primary distributing sys- tem, and overhead, or third-rail, secondary distributing system. Substantially hourly service, with local trains operating alternately with limited trains. Lim- ited schedule practically equal to the local schedule of the competing steam railway lines. One or more broken package freight move- ments each way per day. Rate of fare approximately two cents per mile, with a reduction of from 10 to 25 per cent, when round-trip tickets are purchased. ABNORMAL ELECTRIC INTERURBAN RAILWAY GENERAL CHARACTERISTICS OF No entrance into principal cities served. Constructed on highways. Roadbed of such curves and gradients as to 10 ECONOMICS OF INTERURBAN RAILWAYS constitute barriers to the procurement of a reasonable portion of the available business. Track construction such as to constitute a barrier to procurement of a reasonable portion of the available business. Power house inadequate, and unsuited to generate current at reasonable cost. Car equipment obsolete, insufficient and imcomfortable. Insufficient primary and secondary distrib- uting systems to maintain reasonable voltage for movement of cars. Two hourly, or less frequent, service. No broken package freight movements. NORMAL TERRITORY GENERAL CHARACTERIS- TICS OF A territory made up of cities, towns and vil- lages which are supported by varied agricul- tural, manufacturing or mining industries, and which are free from the fluctuating influences of summer, health or amusement resorts, or other similar traffic-creating centers, and which are also free from serious business depressions due to local industrial conditions. CLASSIFICATIONS AND DEFINITIONS 11 ABNORMAL TERRITORY — GENERAL CHARACTER- ISTICS OF A territory made up of cities, towns, and villages, one or more of which is a large pleas- ure-drawing center, or is in a state of industrial decay due to local conditions, or where the principal industries are of such a nature as to be subject to long periods of business depres- sion, or to prolonged strikes. Classification of Population Served The population served by an electric inter- urban railway, other than its tributary farming population, may be divided into three general classes, as follows: Primary Terminal Population. Secondary Terminal Population. Intermediate Town and Village Population. PRIMARY terminal POPULATION The population of the principal city into which the railway operates. In other words, the population of that city which is of the greatest commercial importance in the sense 12 ECONOMICS OF INTERURBAN RAILWAYS that it is a metropolis for the greater portion of the territory served. SECONDARY TERMINAL POPULATION The population of the other important ter- minals, distinct from the principal terminal, which are also of such commercial importance as to attract business from a considerable por- tion of the territory served, but not to the same extent as the principal terminal. INTERMEDIATE TOWN AND VILLAGE POPULATION The population of cities, towns and villages, served by the line, beyond and between (when there are both primary and secondary termin- als), but not including the primary and second- ary terminals. 4: ^ H« 4: ^ The tributary farming population residing within the territory served by the line is ex- cluded from consideration. In a normal farm- ing territory the value of this population, from the view-point of its traffic productiveness, is reflected in the size and character of the towns and villages which constitute the intermediate CLASSIFICATIONS AND DEFINITIONS 13 town and village population. There has been much importance attached to the density of the farming population, and it has been quite cus- tomary to approximate- its aggregate within arbitrary distances of the Hne, varying from 1 mile to 4 miles. Aside from such estimates being extremely crude, there are such a vari- ety of local conditions influencing the extent of the zone limiting the tributary population that no uniform principle for considering its value on that basis can be established. On the other hand, the towns and villages constituting the intermediate town and village population will reflect all of the characteristics of the farm- ing community that contribute to their sup- port. If such a territory has fertile lands, it will support a greater number of townspeople; if the roads are good in a farming community, the sphere of the commercial activities of the town will be increased and it will therefore have a larger population; and so, likewise, will pro- gressive types of farmers have a bearing on the town in which they trade. Even though a town or village may be largely developed be- cause of manufacturing or mining industries, yet to the extent that the town or village has 14 ECONOMICS OF INTERURBAN RAILWAYS been supported by the tributary farming popu- lation it will reflect with reasonable accuracy the value of the farming population as to its traffic productiveness. Classification of Traffic Sources The traffic created by the population served by an electric interurban railway will be con- sequent to the following general movements: Source I: a. The intercommunication of the popu- lation of the primary terminal and the intermediate population served. b. The intercommunication of the popula- tion of the intermediate centers only. Source II: c. The intercommunication of the popula- tion of the secondary terminals and the intermediate population served. d. The intercommunication of the popula- tion of the primary terminal and the population of the secondary terminals. e. The intercommunication of the popula- tion of the secondary terminals alone (if more than one). CLASSIFICATIONS AND DEFINITIONS 15 It will be noted that the traffic created by ''a" and "b," of Source I, is consequent to the ex- istence of the primary terminal and the inter- mediate population, while the traffic created by ''c," "d" and ''e/' of Source II, is conse^ quent to the existence of the secondary ter- minal population. CHAPTER III OPERATING REVENUE THE Interstate Commerce Commission, in accordance with Section 20 of an Act to Regulate Commerce, has prescribed a classi- fication of the operating revenues of electric railways as follows: General accounts: I. Revenue from transportation. II. Revenue from operations other than trans- portation. Primary accounts : I. Revenue from transportation: (1) Passenger revenue. (2) Baggage revenue. (3) Parlor, chair and special car revenue. (4) Mail revenue. (5) Express revenue. (6) Milk revenue. 16 OPERATING REVENUE 17 (7) Freight revenue. (8) Switching revenue. (9) Miscellaneous transportation revenue. II. Revenue from operations other than trans- portation: (10) Station and car privileges. (11) Parcel-room receipts. (12) Storage. (13) Car service. (14) Telegraph and telephone service. (15) Rents of tracks and terminals. (16) Rents of equipment. (17) Rents of buildings and other property. (18) Power. (19) Miscellaneous. Relation between '^Revenue from Trans- portation" AND ''Revenue from Other THAN Transportation" Very few of the existing electric interurban railways earn an appreciable amount of revenue from operations other than transportation, except through the sale of power. It is quite usual for an electric interurban railway to serve a territory from which considerable revenue 18 ECONOMICS OF INTERURBAN RAILWAYS can be earned by the sale of power, but as the development of this item of earning is very de- pendent on the management of the property, and therefore not general, it will be eliminated from further consideration. Relation between '^ Passenger Revenue" AND ''Other than Passenger Revenue," Power Sales Eliminated The one section of the general accounts, revenue from operations other than transpor- tation, being thus considered a negligible quan- tity in this discussion, there is left the other main heading of revenue from transportation. The most natural question arising in this con- nection is in regard to the relation of the pas- senger revenue to the other revenue, such as that from baggage, freight, express, etc. The following table on this point has been prepared for ten cases indiscriminately selected from normal roads serving normal territories: OPERATING REVENUE 19 TABLE I— SHOWING "PASSENGER REVENUE" AND " OTHER THAN PASSENGER REVENUE " FOR TEN TYPICAL SELECTED CASES Case Passenger revenue Express, freight and other non- passenger revenue Total gross revenue Percentage express and freight to gross revenue (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) $405,979 1,210,170 570,632 823,346 286,185 872,566 930,600 346,205 498,994 197,405 $5,720 77,992 35,923 13,977 28,212 86,467 137,618 59,685 121,574 37,111 $411,698 1,939,521 606,555 858,135 355,077 959,033 1,068,219 405,890 620,568 234,516 1.384 5.597 5.922 1.618 9.855 9.016 12.882 14.704 19.580 15.821 Average . . . $614,208 $60,428 $691,321 8.732 Average on 243,229 miles of steam road in 1911: 631,340,776 2,155,338,840 2,786,679,616 77.344 From the typical cases above tabulated it is apparent that the predominating item in the revenue account of electric interurban railways is passenger revenue. In the present stage of development of such lines, with their limited operations in the express and freight fields, all the other than passenger revenue items compris- ing revenue from transportation are of such little consequence compared with passenger revenue 20 ECONOMICS OF INTERURBAN RAILWAYS that the entire group of revenue from transpor- tation items will be considered together and will constitute gross operating revenue throughout this discussion. Possibility of General Freight Business FOR Electric Interurban Railways The electric interurban railway, as we have defined it, maintains only an express and broken package freight service, yet in the mind of the public there is a good opportunity for it to take up a general freight service. In view of this misconception of the true sphere of the electric interurban railway and the exaggerated ideas of the possibilities for extensions of elec- tric railway activities along such a line it will be well to point out briefly at this point the funda- mental elements that are essential to a road which engages in a general freight traffic. General freight traffic involves the movement of commodities in carload lots in reasonable numbers, with reasonable frequency, from the producer to the consumer, independently or jointly with other carriers by interchange agree- ment. To make such a movement independ- OPERATING REVENUE 21 ently, both the producer and consumer must be served by the line. On the other hand, to carry on such a movement jointly with other carriers involves interchange relations with these carriers in the making of which electric interurban railways are handicapped by the fact that they are mostly parasites of the pio- neer steam railroads in the sense that they serve the same territories by parallel lines and compete to a certain degree for the same traffic. Even though the interchange relations with other carriers exist, still the superior facilities of the steam railroads make it difficult for the electric interurban railways to procure any material portion of the available business. The point may be raised that electric inter- urban railways serving large cities qualify for a general freight traffic in the sense that they have both the producers and consumers of bulk freight in the territory served by them. This is true, but as electric interurban roads gener- ally enter their terminals over the city streets, the producers and consumers of bulk freight can be served by them only through the me- dium of transfer wagons. The steam railroads, on the contrary, almost invariably serve the 22 ECONOMICS OF INTERURBAN RAILWAYS industries over their own switch tracks and thereby place the electric interurban railway at a tremendous disadvantage. On the assumption, however, that an electric interurban railway has a lack of destructive steam road competition and such liberal fran- chises as will enable it to engage in the general freight traffic, still the question of the proper construction and equipment to handle such traffic is not a small one. The movement of trains of freight cars involves a far more elabo- rate power system and diversity of equipment than does the movement of trains of cars of one or two units handling merely passenger, express and light freight traffic. The additional cost of providing the necessary power appliances and freight equipment, together with the handi- caps encountered in procuring any great vol- 'ume of bulk freight traffic, constitutes a barrier against engaging in such traffic which very few of the electric interurban railways have at- tempted to surmount. Some electric railways have developed into commercial railways by engaging in the bulk freight traffic, but they are not procuring such economical results as will lend much encouragement to the promo- OPERATING REVENUE 23 tion of new lines on the theory that the freight traffic revenue can be made a material part of the total gross revenue. Relation Existing between Operating Revenue and Population Served ONLY FROM SoURCE I In tracing out the relation between the popu- lation served and operating revenue, we shall discuss first the case of electric interurban rail- ways having traffic movements arising from Source I, or from a primary terminal and inter- mediate town and village population but no secondary terminal. The following table has been compiled from cases indiscriminately selected from normal roads of this class serving normal territories: 24 ECONOMICS OF INTERURBAN RAILWAYS TABLE II.— SHOWING STATISTICS OF GROSS OPERATING REVENUE OF TYPICAL LINES WITH A "PRIMARY" TERMINAL AND INTERMEDIATE POPULATION, BUT NO " SECONDARY " TERMINAL Case Location Miles of track Inter- Primary mediate terminal town and popula- village tion popula- tion Gross oper- ating revenue 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 (20 (21 (22 (23 (24 (25 (26 Iowa Michigan Missouri New Jersey . . . New Jersey . . . New Jersey . . . New York . . . . New York . . . . New York . . . . West Virginia . Connecticut. . , Connecticut. . , Connecticut. . , Oklahoma Illinois Illinois Illinois Illinois lUinois Indiana Indiana Indiana Indiana Ohio Ohio Ohio 76 16 22 18 15 17 17.6 16.5 12.5 19.3 13 50 11 17 11 19 12.5 14 7 32 23 31 25 25.5 24 53 86,368 13,194 248,341 44,461 8,336 13,298 11,504 37,176 6,420 41,641 13,502 133,605 19,659 13,000 14,548 6,090 22,789 11,456 8,102 24,005 63,933 19,359 69,647 18,266 5,222 364,403 12,071 5,811 3,633 5,506 8,173 11,223 4,040 5,458 8,651 4,589 7,882 9,517 6,213 6,312 4,055 3,191 2,700 5,884 3,926 13,053 4,671 9,701 8,300 10,330 2,227 10,068 $140,120 64,839 88,889 92,146 59,317 99,346 75,023 64,958 77,215 105,394 96,869 52,379 46,732 66,750 41,776 25,516 29,585 54,300 29,175 111,048 70,618 99,200 109,851- 121,109 29,000 104,000 OPERATING REVENUE 25 TABLE II (Continued) Case Location Inter- Primary mediate terminal town and popula- village tion popula- tion Gross oper- ating revenue (27) Ohio (28) Ohio (29) Ohio (30) Ohio (31) Pennsylvania. . (32) Pennsylvania. . (33) Pennsylvania. . (34) Pennsylvania.. (35) Pennsylvania. . (36) Massachusetts 20,387 14,986 46,921 10,136 9,076 1,855 116,577 10,034 12,623 4,788 5,749 8,073 1,556,231 10,223 87,411 5,088 5,474 1,640 6,740 11,794 $142,000 72,984 20,800 106,656 46,376 91,347 108,186 58,430 13,703 58,435 The above statistics indicate: (1) That the length of the road and the amount of the operating revenue have no di- rect relation with each other from which ana- lytical deductions can be drawn; (2) That the size of the primary terminal has no material influence upon the amount of oper- ating revenue; and (3) That approximately the operating reve- nue varies directly with the aggregate of the intermediate town and village population. This is graphically set forth by the chart on page 26. 26 ECONOMICS OF INTERURBAN RAILWAYS 190000 180000 170000 160000 160000 140000 a 130000 S ^ 120000 Q ^ 1 10000 1 100000 a < 90000 I e a I 80000 70000 60000 SOOOO 40000 30000 20000 10000 / A/ / ^ /^7 (^ ■•^J t> / 1 -4 >/ 4 A^ 1^ ©y ® 4/ ¥/ /'-V'* © 4 yfy (2^ ' .e^.r ■c-^^ w -4 © ^ ( Ri 2' ^ ^ W ■y^ j/^ / j^ 1? y> // %/ > >^ © ® ^ l^ Ji ^ y ' / r / C3 ^ OO o> — CM CO ^ "5 Intermediate Town and Village Population OPERATING REVENUE 27 By reference to this chart it will be noted that out of the tliirty-six roads tabulated twenty-one are within the limits of the lines representing an earnitig per capita of inter- mediate town and village population of between $8 and $12, and that all but seven of these cases are within the limits of the lines repre- senting an earning per capita of town and vil- lage population of between $7 and $13. It will furthermore be noticed that the relation be- tween the average earnings of the thirty-six cases cited and the town and village popula- tion is approximately represented by the line indicating $10 per capita of intermediate town and village population. Attention is again directed to the fact that the above deductions are made from the opera- tions of normal roads serving normal territory, and therefore they will be very misleading if applied to abnormal lines or abnormal ter- ritories. It is not intended, however, to imply that a normal electric interurban railway serv- ing a normal territory that is productive of revenue from only Source I will earn $7, or $10, or $13 per capita of intermediate town and village population; indeed, the fact that these 28 ECONOMICS OF INTERURBAN RAILWAYS limits are sometimes exceeded is clearly indi- cated in the chart. It is clearly shown, how- ever, that the earnings, in all probabihty, will vary between S7 and $13 per capita of inter- mediate town and village population and that the general average is approximately $10 per capita of that population. Statistics of Revenue of Lines Productive OF Earnings from Sources I and II Table II and the discussion of it have served to show the relation between population and revenue for electric interurban railways de- riving earnings from Source I only. We shall now consider a combination of Source I and Source II and statistics assembled for railways having a primary terminal, one or more sec- ondary terminals and an intermediate town and village population. The cases in Table III have also been indiscriminately selected from normal roads serving normal territories. OPERATING REVENUE 29 TABLE III.— SHOWING STATISTICS OF TYPICAL LINES WITH A PRIMARY TERMINAL, ONE OR MORE SECONDARY TERMINALS AND AN INTER- MEDIATE TOWN AND VILLAGE POPULATION Case Miles of track Primary terminal popula- tion Second- ary terminal popula- tion Inter- mediate town and village popula- tion Gross operat- ing revenue (1).. . 28.5 (2).. . 32 (3).. . 130 (4).. . 93 (5).. . 40 (6).. . 320 (7).. 65 (8).. . 39 (9).. 41 (10) . . 32 (11).. 82 (12).. 199.5 (13).. 67 (14).. 36.4 (15) . . 26 (16) . . 222 (17).. 150 (18) . . 122 (19) . . 95 (20) . . . 40 (21) . . 40 20,367 8,696 2,723 25,976 7,353 3,150 2,185,283 55,783 35,400 233,650 20,081 26,879 19,359 17,010 2,700 233,650 62,650 112,097 63,933 37,655 7,642 12,687 10,480 5,439 223,928 6,305 4,625 8,981 13,650 7,364 31,297 11,080 1,695 423,715 31,770 14,711 74,419 9,491 12,443 50,217 24,026 4,892 18,266 5,501 6,582 560,663 49,651 74,146 560,663 228,194 36,023 704,428 51,678 39,006 31,140 38,189 13,163 66,950 25,768 2,477 51,678 31,140 4,853 $84,522 118,000 1,210,170 428,456 152,535 1,899,706 257,868 135,748 123,863 306,962 91,219 858,135 207,150 222,110 118,292 1,068,219 1,009,638 664,607 420,690 235,665 247,663 It will be remembered that the general con- clusion derived from Table II was that the 30 ECONOMICS OF INTERURBAN RAILWAYS approximate general average of operating reve- nue for lines deriving their traffic only from Source I was SIO per capita of intermediate town and village population. Using this ap- proximate figure as a basis for an estimate of earnings from Source I in Table III, we can by subtraction arrive at the portion of earnings attributable to Source II in Table III. The last column in Table IV, therefore, shows the per capita revenue of secondary terminal popu- lation. The average distance between termi- nals is also included The statistics in Table IV indicate: (1) That the length of road has in this case, as in the previous case, no relative bearing (from which any conclusions can be drawn) on the amount of operating revenue from Source II ; (2) That the operating revenue from Source II is not governed by the population of the pri- mary terminal; and (3) That the relations existing between reve- nue from Source I and the intermediate town and village population, heretofore shown, do not exist between the revenue from Source II and the intermediate town and village popu- lation. OPERATING REVENUE 31 TABLE IV.— SHOWING STATISTICS OF ROADS LISTED IN TABLE III, BUT WITH REVENUES DIVIDED INTO THOSE FROM SOURCE I AND THOSE FROM SOURCE II • urce sec- opu- 3 § ^^^ 9 ID § a a ^ "^ c3 ^ > * oo 0> O O 03 OPERATING REVENUE 41 From this chart it is obvious that the growth of revenue per mile of line on electric inter- urban railways is not keeping pace with that of steam railroads. It' appears also that the operating expense per mile of line on the steam railroads has not increased as rapidly as the revenue on these Unes. This has resulted in a gradual increase in the net revenue per mile of line derived from steam railroad operation. The growth of operating expense on electric interurban railways, however, has substantially kept pace with the growth of revenue per mile of hne, with the result that the increase of net revenue per mile of line on electric railways has been very little and was less in 1911 than in 1910. One of the characteristics of electric interur- ban railways, the mileage of which has not been extended from time to time, is that the available revenue was quickly developed and that at the end of this period the revenue has increased at a very low rate. This is not especially revealed by the chart on page 40, owing to the influence which the constantly increasing mileage has had on the revenue of the cases used in preparing the chart. 42 economics of interurban railways Conclusion The generally accepted, and doubtless the best, method of determining the probable revenue of a projected line is to apply to deter- minable units of population of the projected line the known unit results obtained by operat- ing roads whose type of construction and method of operation and the general character- istics of whose territory are in all respects similar to and comparable with homologous attributes of the projected road. In using already existing roads to determine the feasi- bility of a projected line, however, care must be exercised in determining the equality of conditions and in making corrections to com- pensate for differences productive of change in the revenue results. In view of previous discussion as to the relation between operating revenue and the population of the territory served, it is obvious, too, that careful considera- tion must be given to the distribution of the population as well as to the amount thereof. The greatest point of interest in the con- templated establishment of an electric interur- ban railway is, of course, the probable revenue. OPERATING REVENUE 43 The final determination of this should in gen- eral be left to those who have expert knowledge of such matters and whose judgment and dis- criminating discernment of the valuation of varying elements affecting revenue is of the highest character. It is possible, however, for the layman by an intelligent application of the rules governing the approximate relations existing between the revenue and the popula- tion served, as heretofore established, to deter- mine, within reasonable limits, the probable revenue that normal interurban railways can obtain in normal territories, and in this way to determine approximately whether the pro- jected line is fundamentally good or funda- mentally bad from the point of view of the investor. CHAPTER IV OPERATING EXPENSE THE classification of operating expenses of electric railways, as prescribed by the Interstate Commerce Commission in Section 20 of an act to regulate commerce, is as follows : General accounts: I. Way and structures. II. Equipment. III. Traffic. IV. Conducting transportation. V. General and miscellaneous. Each of these headings is subdivided into many primary accounts, but for the sake of clearness each group of subdivisions will be taken up separately in the order of the general headings given above. Way and Structures The first general account, way and struc- tures, is detailed by the Interstate Commerce Commission in the following manner: 44 OPERATING EXPENSE 43 Primary accounts: (1) Superintendence of way and structures. Maintenance of way: Maintenance pi roadway and track: (2) Ballast. (3) Ties. (4) Rails. (5) Rail fastenings and joints. (6) Special work. (7) Underground construction. (8) Roadway and track labor. (9) Paving. (10) Miscellaneous roadway and track expenses. (11) Cleaning and sanding tracks. (12) Removal of snow, ice and sand. Other maintenance of way: (13) Tunnels. (14) Elevated structures and foundations. (15) Bridges, trestles and culverts. (16) Crossings, fences, cattle guards and signs. (17) Signal and interlocking systems. (18) Telephone and telegraph systems. (19) Other miscellaneous way expenses. 46 ECONOMICS OF INTERURBAN RAILWAYS Maintenance of electric lines: (20) Poles and fixtures. (21) Underground conduits. (22) • Transmission system. (23) Distribution system. (24) Miscellaneous electric line expenses. (25) Buildings and structures. (26) Depreciation of way and structures. (27) Other operations — Dr. (28) Other operations — Cr. Statistics of Actual Operating Expense FOR Wat and Structures on Typical Electric Interurban Railways Before several of these primary accounts are taken up in detail it may be interesting to ascertain whether any consistency exists in the operating expense for way and struc- tures on various electric interurban lines. Table I has been compiled at random from typical roads now in operation: OPERATING EXPENSE 47 TABLE I. — SHOWING STATISTICS OF ACTUAL OPERATING EXPENSE FOR WAY AND STRUCTURES ON TEN TYPICAL ELECTRIC INTERURBAN RAILWAYS Case Miles of track Expense per mile of track per annum (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Average in above cases Average on 243,229 miles of steam road in 1911, per mile of line.^ > 52 128 83 180 45 170 222 67 122 46 $999 558 794 430 774 474 519 760 426 661 555 1,519 The above statistics clearly bring out two points. In the first place, such a great varia- tion in operating expense for way and struc- tures as is shown by the typical roads cited is quite conclusive proof that we need look no farther for consistency in this item of expense. But the second point, one more ' The statistics for the steam roads in this and the following tables are per mile of line and not per mile of track. In the comparisons it is therefore necessary to make due allowance for such portions of the steam railway mileage as are equipped with more than one main track. 48 ECONOMICS OF INTERURBAN RAILWAYS surprising, is the very great comparative differ- ence between the average expense per mile of track per annum on electric interurban railways and the similar expense on steam roads. While it is obvious that a steam- operated road, moving a great volume of heavy traffic, requires a greater expenditure of money to maintain its way and structures than does an electric road with its lighter equipment and a greatly reduced number of car-mile movements, still it does not seem logical that there should be so great a difference. The fact is that electric interurban railways are undoubtedly making less outlay than necessary for way and structures rather than that the railroads are making more than is necessary. The average age of the existing electric interurban lines is only about five or six years, and a sufficiently high standard of maintenance under such a condition has not been generally adopted. It is quite probable that even the minimum expenditure for way and structures on normal electric interurban railways under average conditions is con- siderably higher than the average amount in Table I. OPERATING EXPENSE 49 Most Important Primary Accounts under Way and Structures If it is true, as intimated in the preceding paragraph, that electric interurban railways on the average are paying less than is advisable for way and structures, a closer examination into what ought to be the limits of expendi- ture under such a heading for average normal conditions would be of value at this point. The various primary accounts outlined by the Interstate Commerce Commission under the general account, way and structures, do not all rank equally in importance so far as the aggregate amount of this account is con- cerned. The expenses of superintendence and depreciation are less than that of maintenance, and the items constituting the bulk of the to- tal maintenance cost on average lines are as follows: ties; roadway and track labor; bridges, trestles and culverts, and sundry items con- stituting maintenance of electric lines. It is obviously impossible to lay down the exact amounts for these several expenses, but as a result of careful study a statement of figures can be made that undoubtedly approximate 50 ECONOMICS OF INTERURBAN RAILWAYS the average for normal electric interurban railways serving normal territories. The average line has 2600 ties per mile and the average life of these ties is ten years. Thus an average of 260 ties per mile of track per year must be renewed, which at an average of 70 cents per tie is equivalent to $182 per mile of track per year. On an estimate, under average conditions, of two men and a foreman to a section of 6 miles, the least cost of roadway and track labor per mile of track per year is approxi- mately $250. The item of maintenance of bridges, trestles and culverts will naturally vary a great deal on different roads but will average at least $50 per mile of track per year. Sundry items constituting maintenance of electric lines, including also the maintenance of telegraph and telephone lines, will average at least $100 per mile of track per year. Although the allowance for depreciation is less than that for maintenance, still it forms an item of considerable size. If we proceed on the assumption that twenty years' use of rail will reduce its value from the cost of new OPERATING EXPENSE 51 rail to the cost of relayer, then one-twentieth of $10 per ton will represent the approximate amount to be set aside to cover the deprecia- tion of the rail. The average electric road uses rail weighing approximately 100 tons to the mile, which then would be equivalent to a yearly depreciation of $50 per mile for rail only. If this is added to the probable depre- ciation of bridges and other structures, at least $100 per mile of track per year will be required for this expense. The sum of the above-estimated amounts is $682 per mile of track per year, which, as we said before, constitutes the bulk of the total cost of way and structures on the average electric interurban line. An estimate of $150 per mile of track for all other items not specif- ically enumerated above, including superintend- ence, is a very low minimum, which makes the least total cost logical and reasonable for way and structures $832 per mile of track per year. The result of our examination, therefore, has indicated the fact that the average mini- mum expenditure for way and structures on normal electric interurban railways, approxi- mately set at $832 per mile of track per year, 52 ECONOMICS OF INTERURBAN RAILWAYS is considerably above the average of S555 for the typical Hnes cited in Table I. Moreover, it is only about one-half of the similar expense on steam railroads. This estimate, be it understood, is by no means radical. It would seem, therefore, that, on the basis of the information in Table I and the above approxi- mate figures, definite conclusions might be drawn in regard to the outlay for way and structures on electric interurban lines, and the two that appear to sum up the case best are these: (1) That electric interurban railways are not now bearing the burden of operating costs under the heading of way and structures that they will ultimately have to bear; and (2) That the actual expense of way and structures on the average electric road will vary between $800 and $1000 per mile of track per year. Equipment The first general account for electric interur- ban railways under the Interstate Commerce Commission system, that of way and struc- tures, having been disposed of, we may next OPERATING EXPENSE 53 turn our attention to the one following, or the equipment account. This is subdivided as follows : Primary accounts: (29) Superintendence of equipment. Maintenance of power equipment: (30) Power-plant equipment. (31) Substation equipment. Maintenance of cars and locomotives: (32) Passenger and combination cars. (33) Freight, express and mail cars. (34) Locomotives. (35) Service cars. Maintenance of electric equipment of cars and locomotives : (36) Electric equipment of cars. (37) Electric equipment of locomotives. Miscellaneous equipment expenses: (38) Shop machinery and tools. (39) Shop expenses. (40) Horses and vehicles. (41) Other miscellaneous equipment ex- penses : (42) Depreciation of equipment. (43) Other operations — Dr. (44) Other operations — Cr. 54 ECONOMICS OF INTERURBAN RAILWAYS Statistics of Actual Opekating Expense FOR Equipment on Typical Electric Interurban Railways The statistics in Table II have been pre- pared from ten cases indiscriminately selected from normal electric interurban railways serv- ing normal territories : TABLE II.— GIVING ACTUAL OPERATING EXPENSE FOR EQUIPMENT ON TEN TYPICAL ELECTRIC INTERURBAN RAILWAYS Case Car miles operated per mile of track per year Expense per car mile Expense per mile of track per year (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Average , Average on 243,229 miles of steam road in 1911, per mile of line 33,756 41,066 25,478 22,149 20,527 19,274 15,856 21,095 18,593 20,460 22,490 SO. 0210 0.0193 0.0224 0.0233 0.0232 0.0209 0.0225 0.0203 0.0202 0.0285 1.0212 $699 790 667 471 476 402 357 428 379 582 $482 1,775 OPERATING EXPENSE 55 The statistics of the expense covered by the equipment account of steam roads, as indicated by the above table, are in no wise comparable to those of electric interurban railways, and the comparison serves only to show the approxi- mate relation existing between them. The statistics in regard to electric interur- ban hues indicate that 2 cents per car mile is the minimum expense for equipment and 3 cents per car mile is the maximum. The expense per car mile will, of course, depend largely on the number of car mile movements. The ordinary electric interurban railway, rendering an hourly passenger service for the greater part of nineteen hours per day, with its additional movements in the way of trail cars, express, mail, freight and work cars, will operate between 15,000 and 20,000 car miles per mile of track per year. The result for roads rendering half-hourly service is approxi- mately double that. Maintenance and Depreciation of Equipment The expenses for maintenance of way and structures and for maintenance of equipment 56 ECONOMICS OF INTERURBAN RAILWAYS on electric interurban railways vary consider- ably in amount. The maximum expense of maintaining equipment in operative condi- tion is reached in a year or two after the equip- ment is put in service. Therefore well- managed lines are now bearing approximately the maximum burden of expense of maintaining equipment, while on the other hand, as stated before, a high standard of maintenance of way and structures has not been widely adopted. This is not the only difference that exists between the two general accounts, however, for the amount per mile of track that must be set aside for depreciation of equipment exceeds that necessary for depreciation of way and structures. The question of adequate deprecia- tion for equipment, however, is at the present time receiving more serious consideration. In general a passenger motor car, costing approximately $10,000, will operate on an average about 50,000 miles a year. On the assumption that such a motor car after operat- ing twenty years will have depreciated to one-third of its original value, then the annual depreciation will be approximately 3 1/2 per cent., or $350 per year, which is equivalent to OPERATING EXPENSE 57 seven-tenths of a cent per car mile. When this amount of depreciation is considered in connection with the minimum expense of 2 cents per car mile derived from Table II, it is evident that we are safe in drawing this con- clusion — that the average expense in connec- tion with equipment, if proper provision is made for depreciation, is approximately 3 cents per car mile, which is equivalent in the case of the basic hourly service to from $450 to $600 per mile of track per year. Traffic The schedule of primary accounts under the third general heading of traffic is as follows : Traffic expenses: (45) Superintendence and solicitation. (46) Advertising. (47) Miscellaneous traffic expenses. Statistics for Actual Operating Expense FOR Traffic on Typical Electric Interurban Railways Table III has been compiled from ten cases indiscriminately selected from normal electric interurban roads serving normal territories : 58 ECONOMICS OF INTERURBAN RAILWAYS TABLE III.— SHOWING ACTUAL OPERATING EXPENSE FOR TRAFFIC ON TYPICAL ELECTRIC INTERURBAN RAILWAYS Case Cost per mile of track per annum (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Average Average on 243,229 miles of steam road in 1911, per mile of line $10 46 38 64 53 61 20 89 114 94 48 234 The above statistics indicate that as yet electric interurban railways have not employed extensive organizations for the purpose of developing traffic. As the electric interurban railway develops into a commercial electric railway the traffic expense will be increased. The question of the proper extent of such an organization, from an economic point of view, depends much on local conditions, but, speak- ing generally, we may say that electric inter- urban railways should maintain more extensive OPERATING EXPENSE 59 departments for the development of traffic than is now the practice. In so far as it is possible to make deductions from the limited figures available in the traffic expense field, it seems that an electric inter- urban railway should expend from $50 to $150 per mile of track per year for the purpose of maintaining an active traffic organization to secure the available business as rapidly as possible. Conducting Transportation Continuing our analysis of the general accounts prescribed by the Interstate Com- merce Commission for electric interurban rail- roads, we find that the fourth heading, that of conducting transportation is subdivided as follows : Primary accounts: (48) Superintendence of transportation. GROUP I — POWER (49) Power-plant employees. (50) Substation employees. 60 ECONOMICS OF INTERURBAN RAILWAYS (51) Fuel for power. Other power supplies and expenses : (52) Water for power. (53) Lubricants for power. (54) Miscellaneous power-plant supplies and expenses. (55) Substation supplies and expenses. (56) Power purchased. (57) Power exchanged — balance. (58) Other operations — Dr. (59) Other operations — Cr. GROUP II — OPERATION OF CARS Conductors, motormen and trainmen: (60) Passenger conductors, motormen and trainmen. (61) Freight and express conductors, motor- men and trainmen. Miscellaneous transportation expenses: (62) Miscellaneous car service employees. (63) Miscellaneous car service expenses. Station employees and expenses: (64) Station employees. (65) Station expenses. OPERATING EXPENSE 61 Carhouse employees and expenses: (66) Carhouse employees. (67) Carhouse expenses. Signal, interlocking, telephone and telegraph systems: (68) Operation of signal and interlocking systems. (69) Operation of telephone and telegraph systems. (70) Express and freight collections and delivery. (71) Loss and damage. (72) Other transportation expenses. Statistics of Actual Operating Expense FOR Conducting Transportation on Typical Electric Interurban Railways Table IV, given herewith, has been compiled from statistics obtained from ten representa- tive electric interurban railways on the subject of expense per car mile and per mile of track per year for conducting transportation: 62 ECONOMICS OF INTERURBAN RAILWAYS TABLE IV. — GIVING STATISTICS OF ACTUAL OPERATING EXPENSE FOR CONDUCTING TRANSPORTATION ON TYPICAL INTERURBAN RAILWAYS Case Car miles operated per mile of track per year Expense per car mile Expense per mile of track per year (1). (2). (3). (4). (5). (6). (7). (8). (9). (10). Average Average on 243,229 miles of steam road in 1911, per mile of line. 33,756 41,060 25,478 22,149 20,527 19,274 15,856 21,095 18,593 20,460 22,490 $0.0855 0.0793 0.1011 0.0895 0.0841 0.0821 0.1057 0.0893 0.1059 0.0845 $2,672 3,242 2,564 1,978 1,702 1,562 1,676 1,884 1,977 1,727 $0.0907 $2,049 3,887 The results per car mile shown by the above roads are surprisingly uniform. The expense per mile of track per year will naturally vary directly with the frequency of the service. Peincipal Primary Accounts for Conduct- ing Transportation The principal items making up the aggre- gate expense of conducting transportation OPERATING EXPENSE 63 are: First — All of Group I, or that composed of the various power expenses. This expense, with the improvement of the art of generating electricity and with the increase in the volume of power generated, has a downward tendency. Second — The wages of employees engaged in conducting transportation. This expense has a slow upward tendency, due to the gradual increase in wages, which possibly compensates the downward tendency in the expense of the power group. The higher expense for wages on steam roads is due to the fact that one of the greatest savings effected by electric opera- tion over steam operation is in the lower wage paid the train crews of electric trains as com- pared with train crews on steam trains. A motorman or conductor of an electric train gets approximately 11/2 cents per train mile operated, while an engineer or conductor of a steam train gets about 3 cents per train mile operated. The character of these principal items and, indeed, all the expenses of conducting transpor- tation, and the fact that there is no deprecia- tion charge, indicate that the operating lines are now carrying the approximate maximum 64 ECONOMICS OF INTERURBAN RAILWAYS burdens under this heading. It is evident from the statistics given above that the average expense of electric interurban Hnes for conduct- ing transportation is about 9 cents a car mile, which is equivalent to from $1350 to $1800 per mile of track per year on roads maintaining a basic hourly schedule. Geneeal and Miscellaneous The last of the general headings designated by the Interstate Commerce Commission for electric interurban railway accounts is that of general and miscellaneous, the primary accounts under which are as follows: Primary accounts: General expenses. Salaries and expenses of general officers and general office clerks. (73) Salaries and expenses of general officers. (74) Salaries and expenses of general office clerks. (75) General office supplies and expenses. (76) Law expenses. (77) Relief department expenses. (78 (79 (80 (81 (82 (83 (84 (85 (86 (87 (88 OPERATING EXPENSE 65 Pensions. Miscellaneous general expenses. Other operations — Dr. Other operations — Cr. Injuries and damages. Insurance. Stationery and printing. Store and stable expenses. Store expenses. Stable expenses. Rent of tracks and terminals. Rent of equipment. Statistics of Actual Operating Expense FOR General and Miscellaneous Items ON Typical Electric Interurban Railways The expenses per car mile and per mile of track for general and miscellaneous items for ten typical electric interurban railways are as follows: 66 ECONOMICS OF INTERURBAN RAILWAYS TABLE v.— GIVING STATISTICS OF ACTUAL GENERAL AND MISCELLANEOUS OPERATING EXPENSES ON TEN ELECTRIC INTERURBAN RAILWAYS Case Car miles Expense Expense per mile operated per car mile of track per year 33,756 0.0169 S561 41,066 0.0461 1,893 25,478 0.0403 1,022 22,149 0.0172 379 20,527 0.0479 887 19,274 0.0392 750 15,856 0.0199 315 21,095 0.0268 565 18,593 0.0393 718 20,460 0.0286 585 22,490 0.0321 $730 287 (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Average Average on 243,229 miles of steam road in 1911, per mile of line Reference to the individual items of the schedule of general and miscellaneous expenses will disclose the cause for much of the varia- tion in this branch of operating expense in the above cases. The item of rental of tracks and terminals must of necessity introduce a very indeterminate quantity, and the other items are also readily seen to be subject to large variations. It will be noted that this OPERATING EXPENSE 67 general account is the only one under operating expense in which the electric roads exceed the steam roads. This condition is probably due to the fact that this account is divisible into much greater mileages on steam roads than on electric roads. While no fixed costs can be determined as applicable to all electric interurban railways, yert from the above statistics it can be seen that an allowance of from 3 cents to 4 cents per car mile for general and miscellaneous operating expenses is adequate for the average electric road, which is equivalent to from $450 to $800 per mile of track per year for roads operating on a basis hourly schedule and using the tracks of other roads in entering terminals. TOTAL OPERATING EXPENSE We have now taken up one by one the five general operating expense accounts, ways and structures, equipment, traffic, conducting transportation and general and miscellaneous, and by means of an analysis of the primary accounts involved we have arrived at the decisive factors in the allowances necessary under these headings for a normal electric 68 ECONOMICS OF INTERURBAN RAILWAYS interurban railway serving normal territory. It would now be well to assemble these various results to obtain if possible a general deduc- tion in regard to the total operating expense of such a line. The complete summary of the statistics for the cases already cited is given in Table VI: TABLE VI.— SHOWING A SUMMARY OF THE ACTUAL GENERAL OPERATING EXPENSES FOR THE TEN TYPICAL CASES BEFORE CITED Per mile of track per year 4.3 a bD O -d ^ to OJ <0 y and ctures S 03 uctin ortati ral an laneo -3 o miles rated a a X u O ^1 3 H Cone transp Gene misce H Total per c (1) $999 $699|$10 $2,672 $561 $4,950 33,756i$0.1495 (2) 558 790 46 3,242; 1,893 6,521 41,066 0.1595 (3) 792 567 38 2,564 1,022 4,984 25,478 0.1965 (4) 430 471 64 1,978 379 3,322 22,149 0.1514 (5) 774 476 53 1,702 887 3,892 20,527 0.1892 (6) 474 402 61 1,562 750 3,249 19,274 0.1696 (7) 519 357 20 1,676 315 2,887 15,856 0.1821 (8) 760 428 89 1,884 565 3,726 21,095 0.1766 (9) 426 379 114 1,977 718 3,614 18,593 0.1949 (10) 661 582 94 1,727 585 3,649 20,460 0.1784 Aver- $562 $482 $48 $2,049 $730 $3,872 $0.1702 age. Avera^ ;e on 243,229 k liles of steam road in 1911, per mile of line $7,957 OPERATING EXPENSE 69 The above statistics indicate that the ap- proximate average expense per mile of track per year for electric operation is one-half that for steam railroad operation. These statistics also show that the average expense of operat- ing the roads represented by the above cases, under the system of accounting now in vogue, is approximately 17 cents per car mile. General Conclusions Concerning the Cost OF Operating Electric Interurban Railways From the preceding discussion of the operat- ing expense of existing electric interurban railways and the discussion of elements of the operating expense not now properly taken into account, the general summary of the approximate operating expense of a normal electric interurban railway shown in Table VII has been prepared: 70 ECONOMICS OF INTERURBAN RAILWAYS TABLE VII.— SHOWING THE ESTIMATED OPERATING EX- PENSE UNDER THE GENERAL OPERATING EXPENSE ACCOUNTS FOR NORMAL ELECTRIC INTERURBAN RAILWAYS Operating account Expense per mile of track per year Way and structures Equipment Traffic Conducting transportation. General and miscellaneous. Total $3,100 $1,000 600 150 1,800 800 $4,350 These figures of $3100 to $4350 for the operat- ing expense of electric interurban railways apply to such as serve normal territories and operate a basic schedule of hourly service. Taxes One other important expense which an electric interurban railway has to meet and which is not included in the operating expense, that of taxes, may well be considered at this point. Taxes vary largely on different roads in different states, as illustrated by the statistics in Table VIII. The variation in taxes per mile of line as indicated is largely due to the fact that the OPERATING EXPENSE 71 electric interurban railway is of modern date and no uniform valuation for the assessment of these properties has been established in the various states. The fact that the taxes on electric interurban railways are considerably below those on steam railway lines indicates TABLE VIII.— SHOWING THE ACTUAL TAXES ASSESSED ON TEN TYPICAL ELECTRIC INTERURBAN RAILWAYS Case State Miles of track Total taxes Taxes per mile of track (1) Indiana (2) Indiana (3) Illinois (4) Illinois (5) Iowa (6) Ohio (7) Ohio (8) New York (9) Connecticut. . . (10) Massachusetts. Average taxes per mile of track. Average on 243,229 miles of steam road in 1911, per mile of line. 58.7 32 406 160 74 222 41 180 21 21 $11,729 3,870 117,147 51,000 9,525 41,312 6,122 29,289 7,511 2,016 $199 121 288 318 128 186 149 162 357 96 $156 448 that the former are likely to have a general upward tendency, until they approximately equal those of the steam railways. As a 72 ECONOMICS OF INTERURBAN RAILWAYS general conclusion it may be stated that taxes on electric interurban railways will be increased, and that $250 per mile of track per year is the minimum amount that can be safely used for estimating this item. CHAP'TER V COST OF CONSTRUCTION THUS far we have covered the salient points in connection with the operating revenues and operating expense of existing electric in- terurban railways and deduced the general prin- ciples underljdng this operating feature for a proposed electric interiuban railway. But the promoter and investor desire to know about more than operating revenues and operating expense. They are also highly concerned in the subject of cost of construction, and we shall now take up this other division of our subject and endeavor to give general estimates that may be of value to a proposed electric interurban railway builder or investor. Classification of Construction Costs Expenditures for the road and equipment of electric railways, as prescribed by the Inter- 73 74 ECONOMICS OF INTERURBAN RAILWAYS state Commerce Commission in accordance with Section 20 of an act to regulate commerce, fall under three main heads: I. Road. II. Equipment. III. General expenditures. Each of these general headings is divided by the commission into detailed primary- accounts, as follows : Primary accounts: I. Road: (1) Engineering and superintendence. (2) Right-of-way. (3) Other land used in electric railway operation. (4) Grading. (5) Ballast. (6) Ties. (7) Rails, rail fastenings and Joints. (8) Special work. (9) Underground construction. (10) Paving. (11) Track laying and surfacing. (12) Roadway tools. (13) Tunnels. (14) Elevated structures and foundations. COST OF CONSTRUCTION 75 (15) Bridges, trestles and culverts. (16) Crossings, fences, cattle guards and signs. (17) Interlocking and other signal apparatus. (18) Telegraph and telephone lines. (19) Poles and fixtures. (20) Underground conduits. (21) Transmission system. (22) Distribution system. . (23) Dams, canals and pipe lines. (24) Power-plant buildings. (25) Substation buildings. (26) General office buildings. (27) Shops and carhouses. (28) Stations, waiting rooms and miscella- neous buildings. (29) Docks and wharves. (30) Power-plant equipment. (31) Substation equipment. (32) Shop equipment. (33) Park and resort property. (34) Cost of road purchased. II. Equipment: (35) Cars. (36) Locomotives. (37) Electric equipment of cars. 76 ECONOMICS OF INTERURBAN RAILWAYS (38) Other rail equipment. (39) Miscellaneous equipment. III. General expenditures: (40) Law expenses. (41) Interest. (42) Injuries and damages. (43) Taxes. (44) Miscellaneous. It is obvious that no fixed rule may be laid down for the amount of money to be expended by a proposed electric interurban railway for any of the above items, and they are so numer- ous and the outlays of the existing companies for them so varied that we shall not take the space here for the detail work leading up to our generalizations. Suffice it to say that as a result of careful study of the cost of construc- tion of existing roads we have arrived at maxi- mum and minimum expenditures for each item that fairly approximate the limits of outlay of a proposed electric interurban railway under average conditions. Taking up each primary account, therefore, under the number given it in the above classification, we shall state only what it covers and our estimated limits of expenditure for it. COST OF CONSTRUCTION 77 Primary Accounts for Road Construction What each primary account under the first main heading of road construction includes and what a promoter may figure on expending therefor is shown by the following : (1) ENGINEERING AND SUPERINTENDENCE I This account covers expenditures for serv- ices of engineers, draftsmen, superintendents employed on preliminary and construction work and all expenses incidental to the work. This item will run approximately 5 per cent of the cost of the work and will vary between $1000 and $2000 per mile of single track. (2) right-of-way: This includes the cost of land acquired for roadbed and all expenses incidental thereto, such as cost of condemnation proceedings, abutting property damages, etc. The cost of procuring right-of-way is entirely dependent on local conditions, and no set rule can be established. The right-of-way will measure 2 acres per mile for each rod in width and a well-constructed line should be 4 to 5 rods in 78 ECONOMICS OF INTERURBAN RAILWAYS width, making a total of from 8 to 10 acres per mile. It may be roughly estimated that the acreage cost of right-of-way will be twice the prevaihng acreage price of the adjacent land. On a line constructed through a farming country in which the land is worth $100 an acre, therefore, the right-of-way will probably cost $200 an acre, or $2000 per mile, for 5 rods in width. (3) OTHER LAND USED IN ELECTRIC RAILWAY OPERATIONS : This covers the cost of land acquired for use in operating the road other than for roadbed purposes. In general, this item of cost is small and is made up almost wholly of the cost of the ground for power-house and carhouse purposes. It may be roughly estimated at from $100 to $500 per mile of track. (4) grading: The cost of grading the roadbed and all things incidental to the making of the roadbed, such as retaining walls, rip-rap, ditches for waterway, etc., comes under this heading. The amount of grading is entirely dependent COST OF CONSTRUCTION 79 upon the topography of the country traversed and the maximum gradient under which the line is built. For a well-constructed line it may be generally estimated that the grading will vary between 10,000 cu. yd. and 20,000 cu. yd. per mile, at an average cost of from 25 cents to 30 cents per cubic yard, making the approximate limits $2500 and $6000 per mile of track. (5) ballast: Ballast includes the cost of material used and the expenses of loading, hauling, transport- ing and unloading along the track. The ballast used wiU vary from 2000 cu. yd. to 3000 cu. yd. per mile, and the cost will vary, with the availabihty of the material, from 75 cents to $1.50 per cubic yard, making the approximate cost per mile of track vary between $1500 and $4500. (6) ties: This heading includes the cost of cross, switch, bridge and other ties, and the cost of transportation, inspection, handling, and pres- ervation, but not the final distribution. Ties 80 ECONOMICS OF INTERURBAN RAILWAYS will run approximately 2600 to the mile, and will vary in cost from 70 cents to $1, making the cost from $1820 to $2600 per mile. (7) RAILS, RAIL FASTENINGS AND JOINTS*. This is similar to the above, covering the cost of rails, rail fastenings and joints, and transportation, inspection and handling, but not the final distribution. The quantity will vary with the weight of the rail used. An 80-lb. rail weighs 126 tons per mile, and a 70-lb. rail weighs 110 tons per mile. The price of the rail will be about $30 per ton. The cost of rail fastenings and joints will be about 11 per cent, of the cost of the rail, so that the cost per mile for a 70-lb. rail, with fastenings and joints, will be approximately $3700 and for an 80-lb. rail approximately $4200. (8) SPECIAL WORK : By this is meant the cost of steam and street railway crossings, switches, turn-outs, etc., including transportation, inspection and han- dling, but not the final distribution. The special work expense will vary with local con- COST OF CONSTRUCTION 81 ditions but will usually be between $400 and $600 per mile of track. (9) UNDERGROUND CONSTRUCTION: This refers only to railways operated by underground electric contacts and therefore does not apply to electric interurban railways. (10) paving: This embraces the cost of labor and material for paving between rails and the outside thereof, as may be required by city ordinances. As electric interurban railways generally operate over leased tracks into cities with paved streets, this item does not usually enter into the cost of constructing roads. If it does enter into the construction expense, the expense will vary in proportion to the amount of paving required. (11) TRACK LAYING AND SURFACING: The cost of distributing the track materials and of constructing the track, together with the cost of spreading the ballast and placing it under the track, are all included herein. This cost will vary from $800 to $1200 per mile of track. 82 ECONOMICS OF INTERURBAN RAILWAYS (12) ROADWAY tools: This heading covers the cost of the first outfit of tools necessary to equip the mainte- nance of way and structures gangs for properly maintaining and repairing the property when it is opened for the handling of commercial traffic. It may be roughly estimated at $50 per mile. (13) tunnels: The cost of tunneUng, material used and labor expended in the construction of tunnels are factors in this account. As tunnels are rare on electric interurban railways, however, this item will not be further considered. (14) ELEVATED STRUCTURES AND FOUNDATIONS: This refers only to companies operating elevated railway systems and does not apply to electric interurban railways. (15) BRIDGES, TRESTLES AND CULVERTS: These items include the cost of materials used and labor expended in the construction of bridges and trestles, both substructure and superstructure, erected to carry tracks over COST OF CONSTRUCTION 83 streams, ravines or the tracks of other railways, and of culverts. The expenditure here depends absolutely upon the local conditions and will show a great variation on different roads. For the general purpose of showing the approxi- mate cost to electric interurban railways, it may be assumed to vary between $2000 and $4000 per mile of track. (16) CROSSINGS, FENCES, CATTLE GUARDS AND SIGNS : This account contains the cost of material used and labor expended in constructing street, road and farm crossings at grade, overhead bridges, viaducts, fences, cattle guards, etc. The cost may be roughly stated as varying between $500 and $1000 per mile. (17) INTERLOCKING AND OTHER SIGNAL APPA- RATUS : This heading covers the cost of material used and labor expended in constructing interlocking and other signal apparatus, com- plete. The outlay per mile will depend entirely upon the amount of signaling installed. As most roads have been constructed without the 84 ECONOMICS OF INTERURBAN RAILWAYS installation of any signal system, however, the cost may be said to vary from a nominal sum to $2500 per mile. (18) TELEGRAPH AND TELEPHONE LINES: By this heading is meant the cost of material used and labor expended in constructing tele- graph and telephone lines, for use in dispatch- ing and other business of the railway. This item will vary in cost from $100 to $500 per mile. (19) POLES AND fixtures: This account contains the cost of poles, cross-arms, insulating pins, brackets and other pole fixtures, also other structures for support- ing overhead transmission lines, and all labor expended in connection with the construction of pole lines or structures. These items will vary from $500 to $1500 per mile in cost. (20) UNDERGROUND CONDUITS: This embraces the cost of material and labor expended in constructing conduits required for underground wires and cables. It does not usually enter into the construction of COST OF CONSTRUCTION 85 electric interurban railways and therefore wiU not be considered as a probable cost of con- struction. (21) TRANSMISSION SYSTEM: The transmission system account is com- posed of the cost of the high-tension trans- mission system, including cables, wires, insula- tors and insulating material. The cost will vary between $500 and $1200 per mile of track. (22) DISTEIBUTION SYSTEM! Here is included the cost of material used and labor expended in constructing the dis- tributing system for transmission of low-tension power, including insulators and connections; track bonding and all labor incidental to the same; overhead trolley Unes, including cost of trolley, guard, span, strain and other wires; the cost of the third rail and all materials used and labor expended incidental to laying the third rail. The expenditure in this case will vary from $1500 per mile (in the case of over- head hues) to $5000 per mile for the third rail. 86 ECONOMICS OF INTERURBAN RAILWAYS (23) DAMS, CANALS AND PIPE LINES: This has reference primarily to dams and canals, etc., for the utilization of water power, which, not being a usual feature in the con- struction of electric interurban railways, will not be further considered. (24) POWER-PLANT BUILDINGS I This covers the cost of material used and labor expended in erecting buildings to be used for power-generating plants, as well as the excavations, gas and water-pipe connec- tions, etc., incidental thereto. The cost here will vary between $15 and $20 per kilowatt of station capacity, which capacity will range from 40 kw. to 60 kw. per mile of track, making the cost of the power-house buildings from $600 to $1200 per mile of track. (25) SUBSTATION buildings: This caption embraces the cost of material used and labor expended in erecting buildings for use as power substations. The cost will range between $300 and $500 per mile of track. COST OF CONSTRUCTION 87 (26) GENERAL OFFICE BUILDINGS : As it is unusual for electric interurban rail- ways to own a general, office building in fee, this cost will be eliminated from this discussion. (27) SHOPS AND CARHOUSES : The cost of material used and Jabor expended on buildings to be used as shops, sheds or car- houses, and on plants for furnishing power for heating and lighting, is included in this account, as well as the cost of construction of oil houses, sand houses and storehouses. This outlay will vary between $400 and $600 per mile of track. (28) STATIONS, WAITING ROOMS AND MISCEL- LANEOUS buildings: This covers the cost of material used and labor expended in the erection of stations, wait- ing rooms and other buildings not heretofore classified. It includes also the furniture and fixtures used to complete these buildings. This cost will run from $100 to $200 per mile of track. 88 ECONOMICS OF INTERURBAN RAILWAYS (29) DOCKS AND wharves: As this item is not usual in electric interurban railway construction, it will not be considered further. (30) POWER-PLANT EQUIPMENT: By this heading is meant the cost of material and labor expended in equipping plants for gen- erating power; the cost of engines, boilers, pumps, condensers and all equipment for gen- erating electric current, and also the cost of foundations for any of the foregoing equipment, switchboards and all fixtures and appliances connected therewith. This item of cost will vary between $50 and $75 per kilowatt of capacity, and as the power requirements will vary from 40 kw. to 60 kw. per mile of track, the cost will be between $2000 and $4500 per mile of track. (31) SUBSTATION EQUIPMENT: Here is embraced the cost of material used and labor expended in equipping power substations and the cost of storage batteries, transformers, rotary converters, switchboard COST OF CONSTRUCTION 89 and foundations therefor. The outlay will vary between $750 and $1500 per mile of track. (32) SHOP equipment: * This includes the cost of machinery and tools used in shops and carhouses, including also boilers, engines, motors and all appliances and tools first necessary to equip the shops. The estimated expenditure for this account is from $150 to $300 per mile of track. (33) PARK AND RESORT PROPERTY: The cost of property for amusement parks or resorts is herein provided for. As this is not an essential to the construction of an electric interurban railway, it will not be considered in this discussion. (34) COST OF ROAD PURCHASED : For obvious reasons this item will also be eliminated from this discussion. Primary Accounts for Cost of Equipment Following out the same plan as given for the cost of road construction, we find that the in- 90 ECONOMICS OF INTERURBAN RAILWAYS formation concerning the primary cost of equip- ment accounts may be classified as follows: (35) cars: This account covers all expenditures for passenger, baggage, express, freight, mail and other cars, from the operation of which revenue is to be derived, and the car bodies, trucks, and all fixtures or appliances inside of, or attached to, the car bodies or trucks except the electric equipment of the cars. Electric interurban railways require from one car for every 5 miles operated to one car for every 3 miles operated. Cars will vary in cost from $4000 to $8000, and therefore the cost of this item will be between $800 a mile and $2600 a mile. (36) locomotives: This means all expenditures for locomotives, including all appurtenances, furniture, fixtures and electric equipment, necessary to fit them for service. As locomotives are not essential to the service rendered by an electric inter- urban railway, this item will not be considered as a necessary construction cost. COST OF CONSTRUCTION 91 (37) ELECTRIC EQUIPMENT OF CARS! This includes all expenditures for electrical equipment and wiring of all cars of whatsoever nature. The outlay for this will vary from $3000 to $5000 per car and from $600 to $1600 per mile of track. (38) OTHER RAIL EQUIPMENT: Herein are grouped all expenditures for water cars, sprinkling cars, sand cars, salt cars, supply cars, and other work cars; also snow plows, sweepers and scrapers. This cost will vary between $200 and $500 per mile. (39) MISCELLANEOUS EQUIPMENT: This account contains all expenditures for horses, wagons, harness, automobiles and other road equipment. As the expenditures under this item are relatively small, the cost is considered negligible and is therefore eliminated. Primary Accounts for General Construc- tion Expenditures The various primary accounts prescribed by the Interstate Commerce Commission for general expenditures in connection with con- 92 ECONOMICS OF INTERURBAN RAILWAYS Btruction are as follows, with our estimate of cost for each item: (40) LAW expenses: By these are meant expenditm-es for counsel, solicitors and attorneys, their clerks and attend- ants and expenses of their offices, together with all incidental legal expenses dm-ing the construction of the road. This cost will run from $200 to $500 per mile of track. (41) inteeest: This includes the interest on the moneys used incidental to, and during the period of, construction but does not include discounts and commissions on securities issued for con- struction purposes. This will vary from $1000 to $2000 per mile of track. (42) INJURIES AND DAMAGES! This account covers aU expenses incidental to injuries to persons or damages to property caused directly in connection with the con- struction of the road and equipment. The expenditure necessitated here will lie between $100 and $200 per mile of track. COST OF CONSTRUCTION 93 (43) T.\XEs: This embraces all taxes and assessments levied and paid on the company's property while under construction. This outlay usually amounts to very little and is estimated at from $50 to $100 per mile of track. (44) miscellaneous: Under this caption are grouped all organi- zation expenses, including the payment of all organization fees, the cost of preparing cer- tificates of stocks and bonds, the payment of trustees' fees, expenses incurred in the disposal of securities, salaries and expenses of executive and general officers of a road under construc- tion and general office clerks, rent of office space, and all items of special and incidental nature which cannot properly be charged to any other account in this classification. The cost here will vary from $500 to $1000 per mile of track. Summary of Construction Costs In the above discussion we have taken up one by one the primary road, equipment and miscellaneous construction accounts and given 94 ECONOMICS OF INTERURBAN RAILWAYS for each one what we deemed to be fair maxi- mum and minimum limits of expenditure for a proposed electric interurban railway under average conditions. It might be to the reader's advantage now briefly to summarize these esti- mates in table form, in order that he may see at a glance their sum total and relative weights. This information is accordingly presented in Table IX. TABLE IX.— SHOWING A SUMMARY OF THE PRIMARY CONSTRUCTION COSTS PREVIOUSLY CITED FOR A PROPOSED ELECTRIC INTERURBAN RAILWAY Accounts Cost per mile of track Minimum Maximum (1) Engineering and superintend- ence. (2) Right-of-way (3) Other land used in electric railway operations. (4) Grading (5) BaUast (6) Ties (7) Rails, rail fastenings and joints (8) Special work (9) Underground construction. . . . (10) Paving (11) Track laying and surfacing. . . . (12) Roadway tools (13) Tunnels (14) Elevated structures and foun- dations. $1,000 $2,000 2,000 100 2,500 1,500 1,820 3,700 400 800 50 4,000 500 6,000 4,500 2,600 4,200 600 1,200 50 COST OF CONSTRUCTION 95 Accounts Cost per mile of track Minimum Maximum (15) Bridges, trestles and culverts. . (16) Crossings, fences, cattle guards and signs. (17) Interlocking and other signal apparatus. (18) Telegraph and telephone lines . (19) Poles and fixtures (20) Underground conduits (21) Transmission system (22) Distribution system r (23) Dams, canals and pipe Unes . . . (24) Power-plant buildings (25) Substation buildings (26) General office buildings (27) Shops and carhouses (28) Stations, waiting rooms and miscellaneous buildings. (29) Docks and wharves (30) Power-plant equipment (31) Substation equipment (32) Shop equipment (33) Park and resort property (34) Cost of road purchased (35) Cars (36) Locomotives (37) Electric equipment of cars. . . . (38) Other rail equipment (39) Miscellaneous equipment (40) Law expenses (41) Interest (42) Injuries and damages (43) Taxes (44) Miscellaneous Total 2,000 500 100 500 500 1,500 600 300 400 100 2,000 750 150 800 600 200 200 1,000 100 50 500 4,000 1,000 2,500 500 1,500 1,200 5,000 1,200 500 600 200 4,500 1,500 300 2,600 1,600 500 500 2,000 200 100 1,000 $26,720 $58,650 96 ECONOMICS OF INTERURBAN RAILWAYS General Conclusions Concerning Cost of Construction The summary in the above table shows that the probable limits of cost for the construction of electric interurban railways are $26,720 and $38,650. These figures clearly indicate the possible wide variation of such expenditures. The approximate average cost of constructing existing electric interurban railways that are in the category of what are herein called normal electric interurban railways was about $35,000 per mile. It is true, on the other hand, that there are a number of roads, also qualifying in many respects as normal roads, which cost less than the minimum shown in the summary in Table IX, due perhaps to the lack of sufiicient car equipment, of power-plant buildings or equipment, or of any other elements of con- struction. Such a low construction cost might all be caused by the company having been sub- sidized by monetary subscriptions, free right-of- way or other benefits. At any rate, the figures for the average case are those given above, and they should prove enlightening to those who are laboring under the erroneous impression COST OF CONSTRUCTION 97 that electric interurban railways can be built for insignificant amounts. We have endeavored thus far to obtain by a study of existing electric interurban railways general figures for construction costs that will be of value to the layman interested in such projects. These figures are not definite, how- ever; they cannot be, for it is difficult to give even an approximate statement with regard to the cost of building a proposed line unless a full knowledge has been obtained of the construc- tional elements entering therein and of the re- quirements for power and car equipment. As in the case of determining operating revenue, it would be best to leave it to a competent expert, of good judgment, to estimate this cost of construction, yet we believe that if the lay- man makes a proper study of conditions sur- rounding the projected enterprise, he will be aided in judging its worth by a reference to Table IX to find out the maximum and mini- mum limits for normal roads fully equipped with the necessary power stations and cars and operating in normal territory. He must dis- tinctly bear in mind, however, that none of these conclusions refers to abnormal lines serv- 7 98 ECONOMICS OF INTERURBAN RAILWAYS ing abnormal territory. In fact, many short electric roads have been constructed with light rail and equipment for astonishingly low costs, but usually the advantage of the low cost of construction has been offset by the high cost of operation. CHAPTER VI ECONOMIC RELATIONS. OPERATING REVENUES, OPERATING EXPENSES, AND COST OF CONSTRUCTION THE prevailing rates of interest, demanded by the investing public, on the securities of electric interurban railways, range from 6 per cent, to 7 per cent., which high rates have been largely brought about by the construc- tion of so many unprofitable roads through ignorance of the fundamentally essential ele- ments entering into such an undertaking. In order to borrow from the investing public the necessary funds with which to construct an interurban railway, the project must show an earning power of a net revenue, after paying operating expenses and taxes, of from one and one-half to two times the amount of the inter- est on the construction cost, to be computed on a basis of from 6 per cent, to 7 per cent. 99 100 ECONOMICS OF INTERURBAN RAILWAYS Hypothetical Application of the Hereto- FORE Established Principles Governing Operating Revenues, Operating Expenses, Construction Costs CASE 1 Under Case 1 it is proposed to construct a normal road from a primary terminal city of 50,000 population through a normal territory to a town of 5000 population 10 miles distant, thence to another town of the same population also 10 miles distant, and thence to a third similar town 10 miles distant. This line will be 30 miles long and will have an intermediate town and village population of 15,000, with no secondary terminal. Under such conditions, as determined in the first article, the earnings from Source I are approximately $10 per capita of intermediate town and village population, or a total of $150,000 per annum. On the basis of the conclusions reached in Chapter IV, because this hypothetical road is short, we estimate the operating expense at the minimum determined for normal roads, or $3100 per mile of track per year, which ECONOMIC RELATIONS 101 aggregates S93,000 per year. The taxes will be approximately the minimum of $250 per mile of track, or $7500 per year. The cost of construction will also be approximately the minimum of the limits heretofore deter- mined, or $26,550 per mile, which is a total of $801,600. The surplus earnings, after deducting the operating expenses and taxes, will be $49,500. The interest on the cost of construction, at 6 1/2 per cent, per annum, will amount to $52,104. This road will therefore fail to earn its interest by $2604 and will fall short of mak- ing its securities negotiable by approximately $50,000. The project, therefore, fails as an economic success. SUMMARY FOR CASE 1 The following summary may be of value in showing in statement form how the deficit in Case 1 is arrived at: 102 ECONOMICS OF INTERURBAN RAILWAYS TABLE I.— SHOWING APPLICATION OF PRIN- CIPLES HERETOFORE DEDUCED TO HYPOTHETICAL CASE 1 Operating revenue — 15,000 intermediate town and village population, at $10 per capita $150,000 Operating expense — 30 miles, at $3100 per mile per year 93,000 Net revenue $57,000 Taxes— 30 miles, at $250 per mile 7,500 Surplus applicable to fixed charges 49,500 Interest on $801,600, at 6 1/2 per cent 52,104 Deficit $2,604 MODIFICATION OF CASE 1 If we estimate that the total intermediate town and village population is 18,000 instead of 15,000, the results for Case 1 will be modified as indicated in Table II on the following page. It will be observed that the surplus earnings, after deductions for operating expense and taxes, will approximately equal one and one- half times the interest charges computed on the basis of 6 1/2 per cent, of the cost of construc- tion. The intermediate town and \'illage popu- lation of this hypothetical road is 600 per mile of track. It may therefore be concluded. ECONOMIC RELATIONS 103 in a general way, that such a projected road, serving a primary terminal and intermediate town and village population only, should have not less than an average, of 600 of intermediate town and village population per mile of track. Inasmuch, however, as the above operating expense and cost of construction were computed at the minimum of the deductions heretofore made, it is apparent that should the elements of construction or operation indicate costs higher than the minimum, a proportionately greater intermediate town and village popula- tion per mile of track must prevail to make such a road a financial success. TABLE II.— SHOWING APPLICATION OF PRIN- CIPLES HERETOFORE DEDUCED TO HYPO- THETICAL CASE 1 AS MODIFIED Operating revenue — 18,000 intermediate town and village population, at $10 per capita $180,000 Operating expense — 30 miles, at $3100 per mile per annum 93,000 Net revenue $87,000 Taxes— 30 miles, at $250 per mile 7,500 Surplus applicable to fixed charges $79,500 Interest on $801,600, at 6 1/2 per cent 52,104 Surplus applicable to dividends $27,396 104 ECONOMICS OF INTERURBAN RAILWAYS CASE 2 In Case 1 we had a normal road 30 miles long serving only a primary terminal of 50,000 population and an intermediate town and vil- lage population of from 15,000 to 18,000. In this case, however, the road will be extended 10 miles farther to a city with a population of 20,000, qualifying as a secondary terminal (Source II). The intermediate town and vil- lage population (Source I) will be 15,000. The total miles of track will be 40 and the distance between terminals 40 miles. As in the preceding case, the revenue from Source I will be $10 per capita of intermediate town and village population, or $150,000 per annum. In obtaining the revenue from Source II, the character of the terminals may be taken into consideration, for the conditions conducive to intercommunication between the primary and secondary terminals will have a bearing on the revenue. It is here estimated that the primary terminal is the capital of a state and the sec- ondary terminal is the county seat of the ad- jacent county. In this instance there is the average cause for intercommunication, and the ECONOMIC RELATIONS 105 average earnings under these conditions can be properly estimated, viz., $8 per capita of sec- ondary terminal population, which gives a total from Source II of S160,000. SUMMARY OF CASE 2 The complete compilation of operating re- sults for Case 2 is as follows r TABLE III.— SHOWING APPLICATION OF PRIN- CIPLES HERETOFORE DEDUCED TO HYPO- THETICAL CASE 2 Revenue from Source I — 15,000 intermediate town and village popula- tion, at $10 per capita $150,000 Revenue from Source II — 20,000 secondary terminal population, at $8 per capita 160,000 Total gross revenue $310,000 Operating expenses — 40 miles, at $4350 per mile 174,000 Net earnings $136,000 Taxes — 40 miles, at $250 per mile 10,000 Net earnings applicable to fixed charges $126,000 Interest on construction cost, $1,440,000, at 6 1/2 per cent 86,400 Surplus earnings applicable to dividends $39,600 106 ECONOMICS OF INTERURBAN RAILWAYS The conditions of service in the above in- stance entailed a greater number of car move- ments than in Case 1, and the operating expenses were approximately the maximum of those deduced in Chapter IV, viz., $4350 per mile of track, or a total of $174,000 per annum. The construction cost in this case would also be higher than in Case 1 and was estimated at $35,000 per mile, or $1,440,000 for 40 miles. This road would fall a little short of pro- ducing such economic results as would qualify it as a commercially feasible project, but if the population of the secondary terminal were 22,000 it would just about so qualify. MODIFICATIONS OF CASE 2 If the primary terminal were merely the county seat of one county and the secondary terminal the county seat of the adjacent county, it is not believed that the revenue from Source II could be safely estimated as high as $8 per capita. If, on the other hand, the primary terminal were a city of 1,000,000 population and therefore exercised a predomi- nating commercial influence over the second- ECONOMIC RELATIONS 107 ary terminal, the estimot^ „<• Source II J.ht hf , """"Ss due to theextreL"fe,J:i— ''^ *° «5, and in -y terminal ZSln A """'''■ f ''"'""'■ ondary terminal ptulal/r' '' *'' ^^" greater distance from fh. '""°^'^ ^ t'^e intercommuntuo^Jr 7e ff"!,'' and a reduction nf fv. reduced, H Should retad ^reiVT '""^^^ fflately $1 per capita for eveTvTo "V^'^f''- creased distance between :;rLmin"a;;^"^^- CASE 3 aary terminal of 50 000 „ ?^ ^^'^ " P"" inediate town and vi,'. ^^P"'^*'""' ^^ mter- and a seconZt 1 ^' Population of 15,000 In Case 3lhle~''°""''«-<>f 20,000. wH^the exce^rtt^r^; £"1 tr 10-m.le extension of the line f7 * ^'"" population and another 10 1,! T "•' '°°'' a city of 20,000 Popul^ oi o'lSr" '" tance to be clflsc:p^ « , suincient impor- terminal, and th fn^^S^^^^^^^ T" '-^ iicermediate town and village 108 ECONOMICS OF IXTERURBAX RAILWAYS TABLE IV.— SHOWING APPLICATION OF PRINCIPLES HERETOFORE DEDUCED TO Hri'POTHETICAL CASE 3 Revenue from Source I — 20,000 population, at $10 per capita $200,000 Revenue from Source II — First, the population of the first secondary- terminal, viz., 20,000, at $8 per capita 160,000 Second, the population of the second secondary terminal, viz., 20,000, at $7 per capita 140,000 Total gross revenue $500,000 Operating expenses — 60 miles, at $4350 per mile 261,000 Net earnings appHcable to taxes and fixed charges $239,000 Taxes — 60 miles, at $250 per mile 15,000 Net earnings applicable to fixed charges $224,000 Interest on construction, $35,000 per mile, or $2,100,000, at 6 1/2 per cent 136,500 Surplus earnings applicable to dividends $87,500 population will be increased to 20,000. The primary terminal is 40 miles distant from the first secondary terminal and 60 miles from the second primary terminal, and the secondary terminals are 20 miles distant from each other. The revenue from Source I, on the §10 per ECONOMIC RELATIONS 109 capita of intermediate town and village popu- lation basis heretofore used, will be $200,000 per annum. As to the revenue from Source II, we have the following items : First, the return from the population of the first secondary terminal, viz., 20,000, at $8 per capita, or a total of $160,000; second, the return from the population of the second secondary terminal. This latter termi- nal, being 60 miles from the primary terminal, will be entitled to an estimate of approximately $6 per capita from the viewpoint of its relations with the primary terminal; and being 20 miles from the first secondary terminal, it will be entitled to an estimate of $8 per capita, an average of $7 per capita for the 20,000 popu- lation, or a total of $140,000. The operating expenses are on the basis of $4350 for each of the 60 miles of track. The cost of construction is $35,000 per mile, as in the previous instance, or a total of $2,100,000. The resume for Case 3 as given in Table IV on the preceding page shows surplus earnings applicable to di\'idends of $87,500, which indi- cates that this hypothetical road is a financially feasible project. J-^ 110 ECONOMICS OF INTERURBAN RAILWAYS MODIFICATION OF CASE 3 The judgment of the expert must be carefully exercised in determining the intercommunica- tion between the primary and secondary ter- minals and between the two secondary terminals. The same general reasoning should be followed as in the modification of Case 2. If the second secondary terminal is a city of 40,000 inhabi- tants, then it will be far less dependent on the primary terminal, and the intercommunication between these terminals will be greatly reduced, while, on the other hand, the intercommunica- tion between the two secondary terminals will be increased. In such a case, the value of the first secondary terminal for revenue from Source II should be increased to perhaps $10 per capita of its population, and the value of the second secondary terminal should be decreased to perhaps $4 per capita in estimating the revenues from Source II. Where the above conditions exist, in addition to the revenue changes the cost of construction, will also undergo modification. Because of the importance of the second secondary terminal and its influence on the cost of construction of ECONOMIC RELATIONS 111 the road by entering a larger city, the estimate for this case wiU be $40,000 per mile of track, or $2,400,000 for the 60 miles. The complete summary under Case 3 as modified is as follows: TABLE v.— SHOWING APPLICATION OF PRINCI- PLES HERETOFORE DEDUCED TO HYPO- THETICAL CASE 3 AS MODIFIED Revenue from Source I — 20,000 population, at SIO per capita $200,000 Revenue from Soiu-ce II — First, 20,000 population of first secondary terminal, at SIO per capita 200,000 Second, 40,000 population of second secondary terminal, at $4 per capita 160,000 Total gross revenue §560,000 Operating expense 261,000 Net earnings applicable to taxes and fixed charges $299,000 Taxes 15,000 Net earnings applicable to fixed charges S284,000 Interest on construction, $40,000 per mile, or $2,400,000, at 6 1/2 per cent 156,000 Surplus applicable to dividends $128,000 This third hypothetical case represents ideal conditions for an electric interurban project. It indicates in a general way the territory nec- essary to the production of satisfactory eco- nomic results. '\ CHAPTER Vn CONCLUDING REMARKS THE foregoing discussion and tables should enable the promoter and investor to see more clearly the economic relations between the operating and construction statistics that we have compiled in the previous chapters, and they should have a better conception of the factors that are necessary for the success of projected electric interurban railways. While the fun- damental elements necessary to an economic- ally feasible road have been determined within approximate limits for simply normal roads operating in normal territory, it is beUeved that the hazard of indiscriminately applying these limits to all cases will be fully reaUzed, and that the necessity of employing expert talent, with mature discriminating judgment, to estimate the probable performances of a projected road is fully appreciated. It is also believed that projected electric interurban 112 CONCLUDING REMARKS 113 railways that to the inteUigent layman do not qualify as economically feasible proposi- tions, under the limits we have set forth, would better be left unconstructed. From the statements made herein the con- clusion may be drawn that a great number of the electric interurban railways now in operation are not the commercial successes they are generally considered to be, and in this conclusion the writer fully concurs. This does not mean that there are not many profit- able electric interurban railways, for there are many such; but this only serves to emphasize the fact that it is suicidal to rush into electric interurban construction unless a proper study is made of existing conditions and the factors underlying success. At the present time there are territories susceptible of developing profit- able electric interurban railways. As the town and village population continues to in- crease, there will be many more such, and the promoter and investor who use the principles obtained from experience in a scientific study of a projected line will most surely and most quickly be rewarded by financial success. INDEX Conducting transportation, classification of prinaary ac- counts, 59 Principal primary accounts, 63 Construction cost, classification of primary accounts, 74 Road — primary account estimates, 77 Equipment — primary account estimates, 89 General Expenditures — primary account estimates, 91 Summary of, 93 General conclusions, 96 Electric railways, classification of, 7 Electric interurban railways, types of, 8 Equipment, classification of primary accoimts, 53 Economic relations, operating revenues, operating ex- penses and cost of construction, 99 Freight revenue, possibilities of, 7 Hypothetical application, case 1, 100 Case 1 modified, 102 Case 2, 104 Case 2 modified, 106 Case 3, 107 Case 3 modified, 110 Operating revenue, classification of, 16 Relation to population served, 23 From source 2, general conclusions, 35 General conclusions concerning, 42 Operating expenses, classification of, 44 Ways and structures, classification of primary ac- counts, 45 Most important primary accounts, 49 115 116 INDEX Operating equipment, classification of primary accounts, 53 Maintenance and depreciation of, 55 Traffic, classification of primary accounts, 57 General and miscellaneous, classification of primary accounts, 64 Total of, 67 Population served, classification of, 11 Passenger revenue as compared to other than passenger revenue, 18 Statistics, table of. Revenues of lines having " Primary " and Intermediate Population, but no "Secondary" terminal, 21 Revenues of lines having "Primary" terminal, one or more "Secondary" terminals and intermediate town and village population, 29 Revenues from sources 1 and 2 divided, 31 Relation between revenue and car miles operated, 37 Actual operating expenses, ways and structures, 47 Actual operating expenses for equipment, 54 Actual operating expenses for traffic, 58 Actual operating expenses for conducting transporta- tion, 62 Actual operating expenses for general and miscellane- ous, 66 Actual general operating expenses, 68 Actual taxes assessed, 71 Estimated construction cost, various primary ac- counts, 94 Steam railway revenues compared with electric interurban railway revenues, 38 Taxes, 70 Traffic sources, classification of, 14 r f /t^-^