per cent of the fuel oil consumption of the State (54,000,000 barrels). Moreover, fuel-oil prices have not yet reached a point where coal competition enters, even if no consideration be given to the cost and inconvenience of changing from oil burning to coal burning equipment, a change which would affect railroad operation more seriously than central electric stations.

In Washington and Oregon coal could be more readily substituted for fuel oil, and approximately 1,000,000 barrels of California oil are said to have been recently released in the Northwest by the substitution of coal at the expiration of oil contracts. Both Washing

ton and British Columbia produce good coal in large quantities, but the degree to which substitution will take place depends upon the prices of both coal and oil, and the expenses involved in changing equipment. Shortage of labor is reducing coal output and increasing its price, and thereby raising the price of oil at which substitution will take place. Such price under existing conditions in the Northwest is estimated to be between $1.50 and $2 per barrel, which is close to the present quoted price.

Mr. DOREMUS. You have been speaking of importation from the Rocky Mountain States. What do you mean?

Mr. MERRILL. Coal taken from the Rocky Mountain States into California.

Mr. DOREMUS. Imported from the Rocky Mountain States into the State of California?

Mr. MERRILL. Yes, sir: into the State of California. I was showing that the situation with respect to California oil, so far as the west coast is concerned, could not be readily cured by the substitution of coal.

The fuel situation as thus briefly outlined both affects power production and is affected by it. Increased fuel costs have resulted in increased cost of steam-power production and have made the development of power independently of fuel-that is, water-power development-increasingly desirable; have, in fact, placed a very considerable premium upon water power. On the other hand, the utilization of water power reduces pro tanto the use of fuel and lessens the drain on our fuel resources, particularly and most vitally important, the drain on our petroleum resources. Water-power development is therefore a measure of economy in reducing the operating costs of power development and a measure of conservation in reducing the drain on a fast-disappearing natural resource.

Notwithstanding increased costs of construction and of operation, the demand for power has increased not at a uniform but at an accelerating rate, until, during the past two years, the annual increment in power generated by commercial central stations alone has been form three to four billion kilowatt hours, requiring an annual increase in installation of from one and one-half to two million horsepower.

The first effect upon the electric-power industry of the outbreak of the war was a sharp reduction in the previous rate of increase, this reduction continuing until the close of 1914. From that time forward the tendency has been constantly upward, and the enormous expansion of the industry which has taken place in the last three years is illustrated by the fact that the output in 1917 of approximately 64 per cent of the industry was 61 per cent in excess of the

output in 1914, which in turn was greater than that of any preceding year. The greatest increase is found in the industrial centers of the Eastern and Central States, particularly in New England, where the increase was nearly 80 per cent. Output figures for the years 1914 to 1917, as computed from data published in the Electrical World, and percentage increases by years and for the period, are given in Table No. 4.

TABLE NO. 4.—Annual output of commercial central stations in millions of kilowatt hours and annual increase (per cent), 1914–1917.

The demand for power will continue to increase while war continues, in order to supply power to our constantly expanding war industries, and when the war is over to provide for the extension of public utilities and of the electrochemical industries, for electrification of railroads, and for the multitude of other activities that will accompany the period of reconstruction.

I have a chart here which shows the increase in the monthly output of central stations, plotted from data published monthly in the Electric World. The average for 1914 is here [indicating]. The average for 1917 is 61 per cent above the average for 1914. Mr. FERRIS. That is a table of monthly periods?

Mr. MERRILL. The chart is plotted by monthly periods, but I have taken the total output for each of the two years to get the percentage

increase.

Mr. FERRIS. That chart is indicative of what happened in 1917? Mr. MERRILL. This is 1913 to this point [indicating], 1914 [indicating], 1915 [indicating], 1916 [indicating], and 1917 [indicating]. The chart shows the rising line of production. The top curve [indicating] is for the United States as a whole; this curve [indicating] is for the Atlantic States; this curve [indicating] is for the Central States; this curve [indicating] for the Pacific and Mountain States; and this curve [indicating] for New England.

While revenue from sale of electric energy has also rapidly increased in the last few years, it has not kept pace with the increase in business. While the output in 1917 from approximately 64 per cent of the industry in the United States was 61 per cent in excess of the output of 1914, revenues for 1917 were only 37.5 per cent in excess of 1914. The relation between increase in output and increase in revenue is more apparent when comparison is made on the unit basis. During the four years 1914 to 1917, inclusive, there has been a constantly decreasing revenue per kilowatt hour of power generated, this decrease varying from 8.7 per cent for the Central States to 20.2 per cent for the New England States, and averaging 14.4 per cent for the United States. While a part of this decrease may be due to rate reductions, by far the greater part is undoubtedly due to an increase in the proportion of low-priced power sold-that is, of industrial power.

TABLE NO. 5.—Annual revenue from commercial central stations in thousands of dollars and annual increase (per cent), 1914-1917.

TABLE NO. 6.—Average annual revenue, cents per kilowatt hour, and percentage decreases in revenue of, commercial central electric stations, 1914–1917.

This chart, which is similar to the one shown before, shows the variation in the revenues-that is, gross receipts for the same percentages of the industry and for the same sections of the country from 1913 to 1917. The other chart here [indicating] shows the monthly percentage increases over preceding years. The full line [indicating] is the output and the broken line [indicating] is the gross revenue. Each line shows for every month the percentage increase over the corresponding month of the previous year. Both lines show a sudden break at the end of 1914 [indicating]. Here [indicating] is November and December, 1914. In all instances the curve of increases dropped immediately after the outbreak of the war.

Mr. PARKER. Are the high points of certain months shown on that chart, or just where do they come?

Mr. MERRILL. Those points [indicating] show the percentage for the individual months.

Mr. PARKER. That is, the high points for certain months of the year?
Mr. MERRILL. The high points appear in the winter season.
Mr. PARKER. And it goes up in the summer?

Mr. MERRILL. Yes, sir. That drop in the curve [indicating] shows that in the latter part of 1914 there was a lessened rate of increasea retardation of business-until you get down to this point [indicating] early in 1915 for every section of the United States, and then a sharp upward climb in here [indicating], and a fairly steady increase from 1916 on [indicating]. Below the cure of output [indicating] is shown the curve of revenue.

Mr. FERRIS. The heavier line is the current and the lighter line is the revenue received?

Mr. MERRILL. Yes, sir.

Mr. FERRIS. And it goes up in the winter months, when the demand is greater, and down in the summer months?

Mr. MERRILL. Yes, sir.

Mr. Escн. Mr. Chairman, I would suggest that Mr. Merrill print the charts he has already referred to and all the others as a part of his hearing. It is hard for us to follow the details.

The CHAIRMAN. I suppose they will go in as a part of the hearing. It may require a special order in order to have them printed.

Mr. FERRIS. It will delay the hearings a good deal, Mr. Esch.
Mr. Escн. I think they would be valuable.

The CHAIRMAN. Do we have to get permission from the Joint Committee on Printing?

Mr. EscH. No; I do not think so.

The CHAIRMAN. Then, whatever the witness presents will go in as a part of his hearing naturally without further order.

The CLERK. It takes a long time to get the prints made. That work is done by contract and not at the Government Printing Office. It will delay the printing very materially.

The CHAIRMAN. Of course, that is a matter for the Committee to decide.

Mr. FERRIS. Possibly Mr. Merrill could furnish the plates. Mr. PARKER. I would suggest that the printing be done and that then there be an extra little volume of the plates of the same size. Mr. MERRILL. I have a large number of extra copies of the prints of these charts in letter size, and I can furnish as many as you need

for the commitee, and we can have the tables printed as a part of the hearing.

Mr. EscH. That will be all right and satisfy every condition.
The CHAIRMAN. Let that be done.

Mr. LEE. Are those copies large or small.

Mr. MERRILL. The ones I have here are letter-size charts reduced by photography. They are entirely legible.

The CHAIRMAN. That will be satisfactory, Mr. Merrill. You may proceed. Mr. Merrill.

Mr. MERRILL. No data are available concerning the operating expenses, either as a whole or per unit of output, for that portion of the electric-power industry for which output and revenue figures have already been given. Operating expenses, however, have necessarily advanced as costs of material, of fuel, and of labor have increased. Data secured for a group of more than 300 public-utility companies, many of which are supplying electric power, show that since 1914 a constantly increasing proportion of revenues has been required to meet operating expenses and that this condition was becoming more acute at the close of 1917. During the four years the operating ratio" (ratio of operating expenses to gross revenue) had increased from 62 per cent to more than 68 per cent, the greater part of this increase occurring during 1917. Figures presented in the Electric Railway Journal of February 2, 1918, show similar conditions of increase in operating expense and reduction in the ratio of income to revenues for the allied industry of electric railways, the increase in the operating ratio for the year 1917 alone amounting to more than 4 per cent.

This situation has come about notwithstanding drastic efforts to reduce operating expense and to limit expenditures for maintenance and replacement to the lowest practicable point, with a consequent reduction in the "per cent condition" of the properties. There is little reason to expect that the situation will improve during 1918.

Increases in cost of construction make it necessary at the present time to secure a materially greater amount of capital per unit of development than was required before the war. The increase in operating expenses in proportion to income as reflected in the increasing operating ratio" reduces the security which can be offered when new developments or extensions to existing developments are proposed. To reduce net earnings to an amount which is less than one and one-half times the fixed charges makes it impossible to comply with the requirements of the modern mortgage, and hence to finance extensions, not to mention new developments, by means of bond issues. Furthermore, reduction in net earnings to a point that will not yield a fair return on the property reduces the value of stock already issued and makes it impossible to establish a market for new stock so as to finance by this means. The effect of the increase operating ratio on financing is apparent from the marked shrinkage in market value of the common stock of the leading public utilities. Notwithstanding this situation these utilities must compete with the Government for new capital-a Government that is calling for billions of dollars and that, through its liberty loans and war savings certificates is reaching out to all classes of investors. It is not suffi