White & Company, shows overhead percentages used by that company as follows: TABLE No. I. Overhead Percentage Used by J. G. White & Company. Hydroelectric divi sion-Construction Sub-stations Electric lines. Steam plants etc. While high percentages for overhead are frequently presented by public utility engineers in connection with estimates to reproduce property new under given conditions, and while, under certain conditions and with reference to certain companies, particularly small companies, it may be necessary at times to allow high percentages in case it becomes necessary to apply the reproduction value theory, the amounts allowed for overhead expenditures in each case must be determined by the facts of that case and by what is found to be just and reasonable in that particular case. In the present case, we have a utility which extends over thirty counties of the state, and the different units of which were constructed in relatively short periods of time, piecemeal, and were promptly placed in operation and promptly began to produce revenue. We have also a company which has a large and efficient organization and which is able to construct additions and betterments, from time to time, at considerably less expense than would be the case with reference to a small utility which has no organization. To say that a utility of this kind is entitled to overhead expenditures far in excess of those actually and reasonably incurred in connection with its construction work, simply because the application of a certain theory— which theory is entirely foreign to the facts of the case-would result in such higher percentages, is of course unfair, unreasonable, and absurd. In the present case the Commission has spent considerable labor in trying to ascertain what overhead charges should properly be allowed. While ordinarily this matter is subject to considerable difference of opinion, it is largely due to the fact that utilities neglect the actual costs and choose to adopt estimates of what overhead expenditures might be incurred if the property were to be reproduced new under entirely different conditions from those which existed during its construction. Little reliable data is available tending to establish the facts in connection with overhead costs. This dearth of information may be explained by the fact that ordinarily no attempt is made by an operating company to segregate administration, engineering, interest and similar charges to construction. Frequently all or practically all of these charges are assigned to operating expenses. In the present case, however, the Commission is fortunate in having available the actual expenditures in connection with the expenditure by Pacific Gas and Electric Company during the year 1913 of the sum of $10,107,643.89 upon additions and betterments. In this connection it should be borne in mind that of the total of $85,285,923.92 claimed by Pacific Gas and Electric Company in Exhibits No. 46 and No. 61 as representing the total value of its entire tangible property, both oper ative and non-operative, the sum of $38,514,781.00 was expended from 1906 to the end of 1913, so that almost one half of the entire value claimed by Pacific Gas and Electric Company represents expenditures made by a going concern, already in operation, under conditions largely similar to those which obtained with reference to the expenditure of the sum of $10,107,643.89 in the year 1913. Of the total expenditures during 1913 for construction purposes, the total amount charged by Pacific Gas and Electric Company on its books for overhead expenditures amounts to $211,862.65, as appears from the following table: TABLE No. II. Overhead Percentages Charged by Pacific Gas and Electric Company to Construction in 1913. It should be noted that the foregoing expenditure includes all expenses generally known as administrative, engineering, legal, miscellaneous and interest during construction, and that the total thereof, prorated to non-landed capital invested in additions and betterments during 1913, amounts to only 2.29 per cent. Attention, however, should be drawn to the fact that the interest during construction apparently includes only interest on working capital and that additional allowance must be made so as to completely cover the item of interest during construction. Apparently, additional allowance must also be made for insurance. Pacific Gas and Electric Company, like other utilities, has apparently charged to operating expenses a portion of the expenditures which should more properly be chargeable to construction. The following table shows the entire general administrative expenses charged to operation during the year 1913, as shown by the books of Pacific Gas and Electric Company: TABLE No. III. General Administrative Expense Charged to Operation for 1913. All Districts-All Departments. Electric, gas, railway, water and steam departments: Total $69,962 17 Electric, gas and steam departments-Industrial department- Total 4-13799 1,438 61 11,635 06 10.599 10 $665,290 57 If the entire general administrative expenses charged to operation in the year 1913 had been charged to construction, and had been added to the amount of $211,862.65, which was the total amount actually charged to construction, the resulting total of $887,153.22 would amount to only 8.77 per cent of the total sum expended for additions and betterments in the year 1913. To assume that the entire expenditures charged to operation should have been charged to construction, is to make an assumption which is very obviously contrary to the fact, for the reason that it is clear that the major portion of the amount charged to operation should properly be charged to that account, for the reason that the Pacific Gas and Electric Company is a going concern, conducting operations in at least thirty counties of the state. The addition has been made simply to show that even under the violent assumption that the entire amounts charged to operation for general administrative exrenses should be charged to construction, these amounts when added to the amounts actually charged to construction would yield a total for all overhead expenditures, except a portion of interest during construction and insurance, which is but a fraction of the amounts claimed by the experts of Pacific Gas and Electric Company in this case in applying the hypothetical reproduction value new theory. I desire now to direct my attention to particular items generally included under the head of overhead charges. It would seem that if one third of the administration expenses incurred during the year 1913 and one half of the legal expenses were charged to construction, at least the proper amount would be so charged. An allowance must also be made. for organizing a construction force. Referring now to engineering and superintendence, the Pacific Gas and Electric Company's annual report for the year 1913 contains the following item: Engineering and superintendence, 1913 (elec tric), $154,587.22. This amount, which includes the entire amount charged to engineering and superintendence under the head of electric construction during the year 1913, amounts to 1.94 per cent of the entire capital expenditures for additions and betterments in that year, amounting to $7,969,891.23. In making allowance for fire and casualty insurance, it must be borne in mind that the plant of the Pacific Gas and Electric Company was almost entirely constructed while the rates for casualty insurance were considerably less than they are at the present time. A demand for the allowance of present rates, while, as a matter of fact, Pacific Gas and Electric Company paid considerably less than present rates is, of course, unfair and unreasonable. The Commission will make an allowance based on the amounts which were paid by Pacific Gas and Electric |