P. S. C., 2d D.

a minimum rate is perfectly just and equitable, the ordinary consumer is entirely unable to grasp the reason, and generally considers it an effort on the part of the company to get something out of him for which it has not delivered anything.

In this case the reduction of rate might be accomplished either by a horizontal reduction of the maximum rate from 9 cents to some lesser sum, or by a percentage reduction upon the existing schedule. Either of these methods would work the grossest injustice to consumers. This fact is very properly recognized by the corporation counsel, who says in his brief:

That the rate should not be fixed by applying a flat or percentage reduction to the rates now charged by the electric company, is so plain as not to require argument.

The truth of this statement is recognized by the respondent, and the Commission has accordingly in the interests of justice and equity been forced to the creation of an entirely new rate schedule. The existing schedule of the company it is not necessary to analyze to the utmost extent for the purpose of pointing out its inequalities and defects. Some of them will be adverted to later.

It is probably best, in view of this situation of the public mind, for the Commission to avail itself of the opportunity to state some of the elementary principles upon which the building of a correct rate depends. The discussion will not be for the benefit or advantage of those who have studied the subject, but an attempt will be made to set forth in plain and non-technical language those principles which are universally recognized, it is believed, by those who have made a competent study of the subject and which must be followed, so far as practicable, in producing a rate which reasonably approximates justice as between the different consumers. No excuse is needed for this clementary treatment of the subject at this time. It must be regarded as an effort to bring before the mind of the public, as well as

00001

Vol. III.

before corporations subject to the jurisdiction of the Com-
mission which have not investigated the matter, a few
principles which must govern electric rates.

An easy comprehension of any subject of this character
is assisted by the use of graphic charts or diagrams.
Diagram No. 1 is a representation of the load and load
curve of the respondent, Buffalo General Electric Company,
on a given day in the month of December, 1912. The com-
pany purchases electric energy from The Cataract Power

Midnight 2 4 6 8

10

Noon 2 4 6 8 10 Midnight
DIAGRAM No. 1-LOAD FOR DECEMBER DAY

and Conduit Company and pays for it upon what is known
as the peak of the load: that is to say, the greatest amount
of current taken by it at any one time during twenty-four
hours is taken as the amount of demand for current for the
entire twenty-four hours. The figures at the bottom of the
diagram represent hours, showing the twenty-four hours of
the given day. The figures at the left of the diagram repre-
sent kilowatts, and show that between 5 and 6 o'clock in the
afternoon of the given day the company was taking a little
in excess of 10,000 kilowatts of energy. It therefore paid
for this amount at the agreed price. It was entitled to

10000

8000

6000

4000

2000

P. S. C., 2d D.

receive that amount of energy during the entire twenty-four
hours without any additional consideration. As a matter of
fact, however, it sold only that energy to its customers which
is shown in the shaded portion of the diagram. That por-
tion of the diagram which is white or unshaded shows the
amount of energy which it might have sold if it could have
found a customer for it, without increasing in the slightest
degree the price which it paid for energy.

Midnight 2 4 6 8

10

Noon 2 4 6 8 10 Midnight

DIAGRAM No. 2-LOAD FOR JULY DAY

Diagram No. 2 shows the same facts for a day in July. That day something less than 8000 kilowatts was taken by the respondent at what is known as the peak of the load, and therefore it had to pay for nearly 8000 kilowatts and would have been entitled to that amount of energy during the twenty-four hours. It was able to sell, however, only that amount of energy which is shown in the shaded portion of the diagram and did not sell that portion which is unshaded.

The foregoing explanation relates to the sale of energy only. The same principle applies to the investment in the plant of the company. Referring to the first diagram, the company was obliged to have a plant adequate to distribute

Vol. III.

among its customers 10,000 kilowatts of energy, and yet during a greater part of the day a portion of this capacity was not called into use nor required to perform the full duty for which it was capable. All of the return for the use of the plant to which the company was entitled for that day would, of course, have to be spread upon the energy sold and which is represented by the shaded portion of the diagram. If that expense could have been distributed upon the entire area of the diagram, on the shaded and unshaded portions alike, the price would necessarily be considerably reduced to each consumer.

These considerations bring into view the fact that the time during which energy is taken by the consumer is of the utmost importance. If he takes it at what is known as the peak of the load, that is to say, at the time when the demand is the greatest, the results to the company are greatly dif ferent from what they are if he takes it at some other time. Account should be taken of this fact in the making of any rate schedule. The results of this important fact should be clearly stated, and some of them are as follows: they are stated in numbered paragraphs for ease of reference:

1. The cost of current to the company is fixed, not by the amount used but by the greatest amount taken at any period during twenty-four hours or by the peak of the load.

2. The capacity of the plant is determined by the greatest amount of energy required by the consumers at any point of time in the year, and hence the cost of the plant or investment required in the business is determined by the peak of the load during the year.

3. Every consumer demanding service at the peak of the load during a given twenty-four hours adds to the cost of current for that day.

4. A consumer who takes current off the peak of the load adds nothing to the cost of the current to the company.

5. A consumer who takes no current at the yearly peak of the load adds nothing to the capacity or cost of the plant.

P. S. C., 2d D.

6. The consumer who adds to the cost of the plant by taking current at the yearly peak should equitably be required to pay a return of some amount upon the investment which has been made necessary solely by reason of his demand for service. This justifies a minimum charge of

some amount.

7. If all customers were on the yearly peak, equity would require that since all must in some manner pay a given return to the company, each should pay that proportion of the whole which his demand bears to the total demand.

8. But the customers are not all on the daily or current peak nor the yearly or plant peak. Hence a method must be devised which will fairly distribute the plant cost of yearly peak between those who are on the peak and those who are not.

9. Every customer should pay all expenses which are incurred solely because he is a customer.

10. As to the daily or current peak, it would not be equitable to require only those who are on that peak to pay all the cost, although it is their demand which determines the amount to be paid by the company for current, since that would result in freeing those who take current off the peak from paying anything. Hence there must be some method devised of making an equitable distribution of cost of current between the various consumers.

11. The burden falls primarily on those who are on the peak on both cases because they are the ones who primarily create all the expense. Hence in order to relieve them, the first thing requiring attention is to create as large a demand off the peak as possible, thus creating a greater number to assist in bearing the necessary expense.

12. The peak both daily and yearly is created chiefly by the lighting load. The power load is largely off peak. Hence it is for the interest of those using current for light to encourage the use of off the peak power as much as possible.