May 21. 1951
I—THE MILL CITI ENTERPRISE
ONE CENT POWER
. • Symbol for Better Living
his exorbitant rates down to that other yardstick for low cost power Bonneville's costs today include about
Address of Pres. Owen W. Hurd
35% for interest, in the near future
will be established.
1 level.
before the
40% of every BPA expense dollar will
Eliminating the Gap
One Cent Power Is Now
Northwest Public Power Association
go for interest. At this rate a jurrp
Technologically Possible
May 7, 1953
On February 4, 1952 Congiessman in interest from 2’z% to 3'2% or a
Practically eveiy urban household John Rankin inserted in the Congres gain of one percent would tesult in a
Recently on a trip East I ran acro.-s
in
the Province of Ontario has avail sional Record a table which showed 16% rate increase.
a newspaper advertisement which read
able an abundant supply of electricity what the average residential rates
It is interesting to note that when
something like this: “Electricity is
at an aveiage rate of about one cent would be in each state if the Tacoma | five private utility companies formed
today’s biggest bat gain. While every
' per kilowatt hour. In fact 42 Ontario rate schedule were applied. Tacoma’s Electric Energy, Inc. to build a b g
thing else is going up, your electric
company is holding down electi ic cities have rates well under one cent residential average rate, of course has ' steam plant to compete with TVA for
per kilowatt hour. Outstanding is the been under one cent for some years. an Atomic Eneigy Commission power
rates. Use low co t electrictiy plenti
city of Fort Willaim with its 35,000 Congressman Rankin found for 1950 . contract, they were very soon able to
fully. Electricity is cheap. The more population.
Power is sold at the a total electric revenue for residential ! sharpen their pencils and finance 95%
you use the cheaper it gets.”
spectacularly low figure of 0.669 cents use of »1,931,695,800 or roughly two ! of their capital requirements by issu
So I looked up the rate schedule of per kilowatt hour or 2/3rds of a cent billion dollar'. If this power had been
ing 3% bonds which were eagerly pur
the utility and found to my utter for residential use.
sold at Tacomas’ rates the saving chased by some insurance companies.
amazement that the first step in the
Within the United States there ap would have been »980,711,179 or a
residential rate schedule was six cents pear to be nine urban electric systems rate cut of 50.7%. . The lates would The time may come when private util
per kilowatt hour and the final or in the Pacific Northwest and nine be cut in half. This is one method ities will sharply reduce and perhaps
in time completely eliminate the use
lowest step was three cents per kilo
more in the Tennessee Valley which of dramatizing at least statisically this
watt hour. If you really go all elec qualify for what Gus Norwood calls gap between the present high electric of common stocks as a source of
tric, you get down to the low-cost the “One Cent Club”. Thus on the rates around the country and what 1 capital. Obviously common stock does
not serve any longer its traditional
power rhte of three cents per kilowatt North American Continent we have | we mean by one cent power.
Un
hour. This is what people in many 60 utilities selling electricity for resi doubtedly an even more dramatic dem purpose of taking, the risks, at least
in the electric utility business. Today
areas are told is low cost power.
dential purposes at average rates un onstration could be made by taking an the holder of private electric common
How can the public be protected der one cent a kilowatt hour.
individual household and showing how | stocks is merely raking in the divi
against this technique of the BIG
The nine northwest utilities are the standard of living can be improved dends. If and when the private com
LIE?
Our systems, by sheer hard
Vera Irrigation District which in 1951 i at no additional cost merely through
work and the most economical man sold energy for home use at 0.81 making available one cent power in panies may become a competitive fac
tor in the electric utility business.
agement have earned the legitimate
cents, Monmouth at 0.82, Salem Elec place of the all too frequent what-the-
A second element in one cent power
reputations which are suggested by tric 0.83, Canby 0.85, Forest Grove market-will-bear-rates.
is taxation.
Not only are private
such expressions as low cost power,
Bear in mind the fact that the aver
0.89, Tacoma 0.94, McMinnville 0.94,
cheap electricity and reasonable rates. Milton-Freewater 0.95 and Grand age American city household was pay electric companies subjected to a great
many taxes, but so also the public and
Several years ago a former president
ing 2.77 cents per kilowatt hour last co-operative systems. High taxes on
Coulee 0.96 cents.
of this association, Ford Northrop,
These 60 low cost power agencies year or 177% overcharge as compared profits of electric companeis are jus
stated our ideal to be the furnishing
have certain common characteristics: with what now appears to be techno tified. The federal corpoiate income
of “the best possible electric service at
in all cases is logically possible.
tax is fair and we should always favor
the lowest possible rates.” Who would (1) source of power
chiefly hydro, (2) area served is ur
Let me explain at this point that I it as a check on private electric com
think that the advertising agencies
ban, and (3) all systems are publicly- am not including in this study any pany profiteering. However, all other
of the private elect: ic corporations
owned.
rural electric rates. Neither the Fed taxes on the electric business should
would steal the idea of low cost power
My purpose in citing these 60 sys eral Power Commission nor the Rural be questioned. In Ontario there are
and apply it to the exorbitant rate
tems is to suggest that their combined Electi ification Administration has no taxes on electricity. This is one
schedules which they are imposing
experience
is conclusive evidence that done its duty in the field of rural of the basic elements in the achieve
upon people in many areas. Yet it is
the electric utility industry has electric rates. FPC publishes no rate ment of a one cent power rate on a
a fact. The companies have stolen
reached the point in its technological statistics for cities of less than 2,500 province-wide basis for urban areas.
our labels. We do not have a monop
development where we can safely ex- population.
This leaves us without Some states do not tax rural co-opera
oly on the expression, "low cost
| pect one cent power for household use reliable rate data on millions of cus tives. Many public power systems,
power.” We do have the goods which
| in favorably situated hydro areas
should go under that label. I think ' where the utility is publicly-owned tomers in the villages and rural areas. however, have permitted themselves to
Unfortunately REA statistics lump all be heavily taxed. In some parts of
the best answer to this problem is to
fand serves an urban area.
consumers of rural electric co-opera the country municipal systems permit
find a better label. For this reason
The next step is to explore where tives as one class. It would appear the diversion of electric system rev
I suggest that we aim at and use a
i it is resonable to expect that steam that in rural areas the national aver enues into the general fund. When
new slogan or motto: ONE CENT
j generation areas will also be able to age selling price of electricity in 1940 such diversions are made, it should
POWER.
get down to one cent. I am convinced was about six cents and had declined be recognized that the impact ulti
By one cent power I mean the after seeing the excellent perform
to four cents by 1950. The Bonneville mately results in higher electric lates
supply of electric service to all resi ance records of the new TVA steam
Power Administration statistics for to their own citizens.
dents in the service area of a utility plants that we have also reached the
1951 indicated an average residential
These two cost elements of money
at an average rate of one cent per technological stage of development
late
of 1.87 cents for rural systems. | and taxation are of a general nature
kilowatt hour. For the purpose of where w ecan expect one cent power
these remarks I am omitting rural in certain steam aieas. Back in 1920 A similar record is revealed in TVA I which lie at the policy rather than
rates, commercial rates, and industrial it used to take three pounds of coal and Ontario statistics. Until more the operating level. At the operating
rates. The aim is one cent power in to produce a kilowatt hour. TVA led and better statistics are available I level are five main cost areas: (1)
would suggest as a conservative objec
the home.
the way at the Watts Bar steam plant tive for systems serving only rural cost of wholesale power, (2) distribu-
Anyone can steal the words “low by getting the rate down to 8/10 of j ateas a one and a half cent average
cost power”, but no one can steal “one one pound per kilowatt hour.
The household rate as compared to a one
cent power” unless and until he cuts national average today because of the cent urban household rate. Neverthe- ,
many high pressure and laige size less I like the motto which appears |
steam plants is about 1.1 pounds per every month on the cover of Rural
kwh.
Furthermore TVA has been Electrification magazine, “One Cent |
locating the steam plants so as to cut Electricity For Every Farm”. This
the cost of coal handling.
Taking motto may sometime be achieved but
into account the advantages which probably it will require a number of
TVA has utilized in its steam plant years.
program, it is interesting to note that The Ingredients of One Cent Power
their cost of power at the bus bar
I have now- stated the problem of
ranges fom 2.3 to 3.9 mills per kilo
the
private power companies’ mislead
watt hour.
Last year the average
cost of power to TVA distributors was ing claims about low cost power and
I have a<h anced the one cent power
4.27 mills.
You and I have often been told slogan as a solution. I have shown
something like this: "Why of course the existence of a wide gap between
you people in the Pacific Northwest the present national average home
can sell power at low cost. You have rates and the one cent goal which is
the tremendous advantage of all that technologically possible. My next task
cheap water power. There is no fuel is to mention some of the elements or
cost.” This expression will be changed I factors which help to make for lower
as more and more people can study I cost electricity.
The first element is the cost of
the economics of TVA steam generat
I
money.
The best answer here is to
ing. In the next five years as TVA
demonstrates its ability to sell great | pay off your debt and stop paying
quantities of steam generated power I interest on it. The next best answer
at average rates under five mills, an- is to get your money at 2% or a sim
ilarly low rate. Obviously the private
Think ol o kitchen where the ronge it o
beovMvl port of the both detign . . . whore
utility method of financing on a basis
ALWAYS
Oren ond cooking top ore teporoto to they
of a six percent rate of return after
Con bo imiolled of the moil convenient
federal corporate income taxes
height and location You con have it with
not result in one cent power.
Thoroadar and thot t not all-lor Thermodoe
The cost of money has a great lev
.59 qt
giver you eaiy cleaning tlainleu tleel, o
erage
in
the
power
business,
especial
telection of cooking topi ond the wonderful
ly when hydro projects are involved.
coolnoit, cleonlinett ond convenience ol
tion expense, (3) customer collecting,
billing and accounting expense, (4>
general administration, and (5) sales
promotion.
It is not my intention to discuss
these five operating areas in detail.
In regard to sales promotion I think
our systems err more in the direction
of not spending enough. Some of the
most progressive utilities spend up to
3% of gross revenues for promotion
of power use. Certainly a minimum
program with a budget of 1% of gross
revenues should be a standard for the
industry.
One justification of this
expense is the necessity for building
load and improving load factor so as
to reduce the unit costs in the remain
ing four operating areas.
This is
readily measurable in regard to
wholesale power rates, but actually
the more important reductions in unit
costs occur in distribution expense,
customer service and general admin
istration. A good working goal for
our sales promotion departments
might be to build up our aveiage home
load to 10,000 kilowatt hours of use
per year, starting with an energetic
promotion of the water heater load.
The Engineer Vs. the Manipulators
The gap between electricity at 2.77
cents national residential average per
kilowatt hour and one cent is entirely
too gross to be ignored. Whenever
there is a wide gap between what is ;
technologically possible as against
what we are accomplishing today, it
is reasonable to expect that a pres
sure will eventually build up to im
prove our present mode of doing
things and to advance toward the
technologically possible. Of course,
it should not be necessary for such
public opinion or political pressures
to develop.
This great disparity
Imagine a Kitchen
THERMADOR
the original bilt-in
Electric Range
5PRED SATIN
automatic • l•Ctrical cooking
1
1
should be a challenge to all utility op-
erators and engineers and they should
feel a deep sense of moral obligation
to effect the economies necessary to
get the average residential power
rates down to whatever is technolog
ically possible in each case.
The problem in the private electric
corporations is the conflict in the
objectives of those who sincerely try
to reduce cost and those who try to
maintain a maximum of profit and
provide the management and handle
the financing. The manipulation at
the top by management, by the fi
nancial interests or by those who
might have control aside from man
agement or finance is never motivated
by the objective of low rates. The
aim generally is a maximization of
profit by means of common stock divi
dends or appreciation, by underwrit
ing fees, by management or other
service fees or by means of a cut on
purchasing or contracting. There are
many ways to milk an electric system.
In the face of all these profiteering
motivations and with a management
staff loaded with men adverse to the
basic objectives of low cost power,
those who would lower rates and im
prove service have an almost hopeless
task in a private utility.
What the electric utility industry
needs is an emancipation of the en
gineer. If only we could take the
wraps off and let him go to work on
the problem of slashing unit costs.
The engineer is basically sympathetic
to the objective of one cent power.
I have said nothing about the per
formance of our state public utility
regulatory bodies.
Perhaps they
should be abolished as the wisest
method of terminating a situation
(Continued on Page 6)
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Farmers lo-op
St ay ton. Oregon
an aBBD s u a a & a a a c b b an KnOBJUOR
A. E. ARMSTRONG. Agent
Phone 1S05