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BATON ROUGE, LA., February 26, 1969. Hon. JOHN R. RARICK, House of Representatives, Washington, D.O.

MY DEAR SIR: Mr. William Ditto with Lafourche Telephone Company, Larose, Louisiana, has asked that we supply you with some information about the earn. ings of that company.

It will be noted from the summary shown below that the company sustained sizable losses in 1958, 1960, 1961, and 1962. This was during the period the company was updating its facilities. As a result of these losses, the company had a negative amount in its equity. It was not until the end of 1965 that there was an equity amount on which to compute a rate of return.

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The company had an abnormal profit for 1965, which resulted from some unusual circumstances, viz:

In October, 1964, Hurricane “Hilda" did extensive damage to the outside plant properties. Because of the nature of the damages, much of the facilities had to be replaced. This, however, was not done until 1965. With the permission of the Louisiana Public Service Commission, a large portion of the cost of these repairs was treated as “extraordinary maintenance and retirements” and was capitalized. Consequently normal repair expenses were not incurred during this period.

About the time the work caused by Hurricane "Hilda” was completed, along came Hurricane "Betsy” and virtually wiped out the above-ground plant except buildings and mobile equipment. Hurricane “Betsy” hit the first week in September and there was considerable expense incurred between that time and the year-end. But, again, with the permission of the Louisiana Public Service Commission, large portion of this expense was also treated as deferred charges. This manner of handling such expenses is in accordance with generally accepted accounting principles of the public utility industry. Thus during 1965, almost $400,000 of "extraordinary maintenance and retirements” was deferred.

Another factor contributing to the showing of such abnormal profits in 1965, 1966, and 1967, is the availability of the large net operating loss carryover, and the investment credit on the new facilities which offset all income taxes.

While the company shows what might be considered a high rate of return on equity, it shows a very low return on investment in plant. The return on “rate base” for 1965 was approximately 5 per cent. The return in prior years was considerably less than 5 per cent.

Because of the urgency of the situation, we have made no outside research on earnings of utility companies. We have, however, used some information to which we have access, which purports to have been taken from data compiled by the Federal Power Commission.

This data shows that in 1966 the electric utilities of the country earned a composite return of 13.2 per cent on their common equity. Also, that the earn. ings of Class A and B electric utilities for the years 1962 through 1966 were as follows: Return on average common equity :

Percent 1962_

11. 7 1963

11.7 1963

12. 3 1965.

12. 8 1966---

13. 2

We are presenting on the attached sheets some data extracted from information which we have that is attributed to data compiled by the Federal Power Commission.

We trust that this information will be of assistance to you. If we can be of further help, please let us know. Yours truly,

HAWTHORN, WAYMOUTH, AND CARROLL.

INFORMATION RELATING TO RATE OF RETURN ON COMMON EQUITY CAPITAL ON CERTAIN UTILITY COMPANIES

[In percent)

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Water utilities:

American Water Works (consolidated).
Elizabeth Town Water Co.
Indianapolis Water Co..

Southern California Water Co..
Gas distribution utilities:

Alabama Gas Corp.
Elizabethtown Gas Co.
Gas Service Co.
Northern Illinois Gas..
Pacific Lighting..

Washington Gas Light..
Gas integrated and transmission utilities:

American Natural Gas..
Columbia Gas System.
Consolidated Natural Gas.
Florida Gas Co.
Houston Natural Gas.
Mountain Fuel Supply-
National Fuel Gas.
Peoples Gas.
Southern Union Gas.

Tenneco, Inc.
Electric utilities

Allegheny Power
Baltimore Gas & Electric.
Boston Edison...
Central Illinois Public Service.
Central and Southwest..
Cincinnati Gas & Electric.
Delmorba Power & Light.
Detroit Edison.
Empire District Electric.
Florida Power Corp-
Hawaiian Electric
Houston Light & Power.
Interstate Power.
lowa Power & Light.
Iowa Southern Utilities
Niagara Mohawk.
Ohio Edison...
Public Service Co. of Indiana
Rochester Gas & Electric Corp.
South Carolina Electric & Gas.
Southwest Public Service Co.
Union Electric Co., (St. Louis).
Virginia Electric & Power Co..
Wisconsin Public Service.

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The CHAIRMAN. Thank you very much, Mr. Harris. I would like to get it real clear on the record just who you are representing today, Of course, I know you are president of the Carolina Power & Light Co., but you are not representing them today, are you?

Mr. HARRIS. Mr. Chairman, at the beginning of my prepared statement I made the reference that I appear here today on behalf of the Edison Electric Institute, the national trade association of the investor-owned electric light and power companies, and as chairman of the rural electrification committee of that trade association, I am undertaking to speak for the Edison Electric Institute.

I would say that in addition to speaking for them, the views I have expressed do reflect my own personal views as well.

Mr. HARRIS. No, sir.

The CHAIRMAN. You say it is not a fact, but you must agree that if you are afraid that the electric co-ops are going to some day get the financing that I think they need and you think they do not, if you are afraid they are going to get that financing, you know that if this bank fails with the telephone companies that it will never be considered for the power companies, will it?

Mr. ÌIARRIs. It is not a question of whether it fails or not. I have tried to

The CHAIRMAX. Whether it fails or whether it does not, I am right in saying that if it does fail, that it will never be considered for the power companies, will it? Mr. HARRIS. Well

The CHAIRMAN. That is the most certain way in the world you have got of being sure that you will never be confronted with this kind of legislation for electric financing. If it is a failure for the telephone companies, then you will never hear of it for the power companies.

Mr. Harris. Well, Mr. Poage, if I may be permitted to clarify our relationship on what you have just posed, it is not a question of whether the bank is a failure or not and becomes a precedent. It is not limited just to that. That is one of the points that I have made, and it is not a question of fearing whether the co-ops will be adequately financed. We are together that this program is here to stay. You and I have no disagreement over that.

The CHARMAN. No, we do have a very distinct disagreement about that, Mr. Harris, because you know as well as I do that this service cannot continue to be rendered by the co-ops unless they can—either telephone or electric now-I do not want to get off on the electric phase of it, but this telephone service cannot continue to be rendered either by the co-ops or by the small private companies unless they can get tinaneed somewhere.

Mr. HARRIS. You and I are in agreement that they have rather considerable financial requirements for the future, and we may be in disagreement about where it ought to come from and their ability to pay for it.

The CHAIRMAN. But when you say that it is here to stay, I do not agree with you because I know it is not here to stay unless there is some means of financing provided.

Mr. HARRIS. But I am suggesting a good means for it to be financed.

The CHAIRMAX. Of course, vou suggested anything except what is before the Congress. Anything other than that which we are considering. You overlooked ore rather oovious suggestion for the consumption of further time, and I am much surprised that you overlooked it. Vav e vou interd to bring that up at & later date when we consider sorening eise. Then you might well suggest that we ought to give firmaer consideration to the proposition of just lettirg the existing banks for coccerstives make these loans. That could consume a good dea. ot cime.

V: HARRIS. V. sir. I do not think that is a feasible war of doing it.

The (ERYL. We, it is one way. You are not te trg us now that 3 of chese susrestiers you tèrew out are feasible, are you?

V: HARRIS. I can

The CHAIRMAN. I know. You have given the telephone people a great deal of gratuitous advice without either employment or compensation, but you say you are here to represent the power companies. Therefore, I assume that your interest is as to what this bill might do to the power companies. You will agree that is why the Electric Institute paid your way up here, is it not? They did not pay your way up here simply to come here and philosophize as to how this might affect the Presbyterian Church.

Mr. HARRIS. Well, Mr. Poage, first, I have to say that the Edison Electric Institute is not going to reimburse my company for the expenses. It has been our practice in the trade association for all of us to bear our own expenses. It will come out of the Carolina Power & Light Co.

The CHAIRMAN. But you are representing them, whether they pay your expenses or not, you are representing them. Mr. HARRIS. Yes.

The CHAIRMAN. Now, you do not purport to speak for the telephone companies, do you? Mr. HARRIS. No, sir.

The CHAIRMAN. They are not paying your expenses either, but you did not intend for us to assume that you were going to represent the telephone companies, did you? Mr. HARRIS. No, sir.

The CHAIRMAN. So, then, your representation is that of a power-of a group of power companies, is it not? Mr. HARRIS. Well, this is

The CHAIRMAN. Do you purport to represent anybody other than the electrical power companies of the United States ?

Mr. HARRIS. No, sir. But if in that posture I should bring to you any information

The CHAIRMAN. Oh, yes. Mr. HARRIS. I do not think it ought to be either credited or discredited because of the group for whom I speak.

The CHAIRMAN. I am trying to get the posture in which you appear before us. I am just trying to make that plain. I am not passing upon whether your judgment is good or bad. Of course, your views—you disagree with some of my views and I disagree with some of yours. I am not trying to argue the merits but I am trying to make it clear as to who you represent. Mr. HARRIS. All right, sir.

The CHAIRMAN. Let us get two or three things, then, clear. You do represent the power companies. Mr. HARRIS. Yes, sir.

The CHAIRMAN. You do not represent the telephone companies. Mr. HARRIS. No, sir.

The CHAIRMAN. All right. Now, then, this proposed legislation cannot possibly hurt the power companies unless it is a success, can it? This bill. If this telephone bank bill turns out to be a failure, as you indicate that it will, if it turns out to be something that is adverse to the interests of the telephone companies, then it is not going to have any bad effect on the power companies, is it? Mr. HARRIS. Well, Mr. Poage, that is cutting it a little fine for us.

The CHAIRMAN. Well, I am trying to cut it fine because that is the fact, is it not?

Mr. HARRIS. No, sir.

The CHAIRMAN. You say it is not a fact, but you must agree that if you are afraid that the electric co-ops are going to some day get the financing that I think they need and you think they do not, if you are afraid they are going to get that financing, you know that if this bank fails with the telephone companies that it will never be considered for the power companies, will it ?

Mr. HARRIS. It is not a question of whether it fails or not. I have tried to

The CHAIRMAN. Whether it fails or whether it does not, I am right in saying that if it does fail, that it will never be considered for the power companies, will it? Mr. HARRIS. Well

The CHAIRMAN. That is the most certain way in the world you have got of being sure that you will never be confronted with this kind of legislation for electric financing. If it is a failure for the telephone companies, then you will never hear of it for the power companies.

Mr. HARRIS. Well, Mr. Poage, if I may be permitted to clarify our relationship on what you have just posed, it is not a question of whether the bank is a failure or not and becomes a precedent. It is not limited just to that. That is one of the points that I have made, and it is not à question of fearing whether the co-ops will be adequately financed. We are together that this program is here to stay. You and I have no disagreement over that.

The CHAIRMAN. No, we do have a very distinct disagreement about that, Mr. Harris, because you know as well as I do that this service cannot continue to be rendered by the co-ops unless they can-either telephone or electric now-I do not want to get off on the electric phase of it, but this telephone service cannot continue to be rendered either by the co-ops or by the small private companies unless they can get financed somewhere.

Mr. HARRIS. You and I are in agreement that they have rather considerable financial requirements for the future, and we may be in disagreement about where it ought to come from and their ability to

pay for it.

The CHAIRMAN. But when you say that it is here to stay, I do not agree with you because I know it is not here to stay unless there is some means of financing provided. Mr. HARRIS. But I am suggesting a good means for it to be financed.

The CHAIRMAN. Of course, you suggested anything except what is before the Congress. Anything other than that which we are considering. You overlooked one rather obvious suggestion for the consumption of further time, and I am much surprised that you overlooked it. Maybe you intend to bring that up at a later date when we consider something else. Then you might well suggest that we ought to give further consideration to the proposition of just letting the existing banks for cooperatives make these loans. That could consume a good deal of time. Mr. HARRIS. No, sir. I do not think that is a feasible way of doing it.

The CHAIRMAN. Well, it is one way. You are not telling us now that all of these suggestions you threw out are feasible, are you?

Mr. HARRIS. I think

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