Ratios of net earnings to costs.-Total net earnings amounted to from approximately 41.6 percent to approximately 66.1 percent of total operating expenses or costs for the different years covered in the tabulation under the previous title. They amounted, approximately, to 41.6 percent for 1921, 53.8 percent for 1922, 54.1 percent for 1924, 56 percent for 1928, 57.6 percent for 1929, 61 percent for 1923, 61.4 percent for 1920, 61.5 percent for 1927, 64.7 percent for 1925, and 66.1 percent for 1926. Aggregate net earnings for all of the years amounted to 57.8 percent of the aggregate costs.

[8] As compared with these rates of net earnings for the management division, the Commission's report on Stone & Webster Service Corporation, which succeeded the management division, showed net earnings before deduction of Federal income taxes as having amounted to nearly 63.5 percent of costs for the last 6 months of 1929, nearly 63.6 percent of costs for 1930, 36 percent of costs for 1931, and about 33.2 percent of costs for 1932.

[9]

SECTION 5. REVENUES FROM MANAGEMENT SERVICES

Comparative statement, by years, 1920-29.-The following table shows the aggregate revenue derived from management services, together with the amounts of such revenue derived from public-service companies, the amounts derived from industrial companies, and percentages of total revenues for each of the years 1920-29, inclusive:

TABLE 2.-Aggregate revenues derived from management services, by years, 1920-29

As shown in the foregoing statement, all but a small proportion of the total revenues of the management division was derived from management services rendered public service and industrial companies. For years 1920 to 1929 the proportions of total revenue derived from this source ranged from 91.4 percent for 1926 to 96.8 percent for 1920; and the aggregate for the entire period comprised 94.3 percent of the total. Public-service companies yielded the great bulk of this revenue, the yearly average having amounted to 90.2 percent of the yearly average of total revenues. That derived from industrial [10] companies comprised from 3 percent to 5.7 percent of all revenues recorded for the different years, the yearly average for the entire period having amounted to 4.1 percent of the yearly average of total revenues.

Revenues from management services totaled $673,783 for the 7 months of 1920, ranged from $1,226,891 to $2,071,213 for years 1921-28, and totaled $1,076,638 for the 6 months of 1929. For the approximately 9-year period, income from this source aggregated $14,771,066 and averaged $1,626,172 per year. The amounts derived from public-service companies averaged $1,556,303 per year; and the amounts derived from industrial companies averaged $69,870 per year. Revenues from management services rendered public-service companies, 1920– 23. Revenues from management services rendered public-service companies

includes, in addition to such revenues received for services rendered in ac cordance with the standard form of management contract (no. A-937), revenues received for services based upon modifications of the standard contract and revenues for certain management services rendered at specified flat charges, at pro rata cost, at pro rata cost plus a percentage of gross earnings, at a fiat charge plus a proportionate share of the expenses, etc.

During the period from June 1, 1920, to December 31, 1923, the method of ar riving at the monthly charges for services rendered in accordance with the standard form of contract was somewhat different from the method later employed and discussed under the title which follows.

As already stated, the standard form of contract provided for a flat charge at the rate of $3,000 per annum and 2.35 percent of the gross earnings as the fee for management services. The practice [11] during the years 1920 to 1923 was to compute, for each company managed under the standard form of con tract, a rate equivalent to $3,000 per annum plus 2.35 percent of gross earnings; and this was done by taking 2.35 percent of the earnings for a previous 12 months and adding to the result $3,000, then dividing the total by the amount of gross earnings for the same previous 12 months to arrive at the rate equivalent upon which to figure the monthly service charges for the current year. During the early part of the subsequent year an adjustment was made so that the charges for the previous year would be on the basis of the actual gross for that year. The net result of this procedure for computing charges for services was the same, it appears, as under the procedure later used and described under the next title.

For certain groups of companies the gross earninigs of the entire group were used for figuring an equivalent rate to be used for all companies within the group.

The amount billed the managed company each month was based on the gross earnings for the month second preceding the date of billing, and the adjustment later made as referred to above corrected the charges on the basis of the year's actual gross.

In 1920 and 1921 certain of the managed companies that were in poor financial condition were billed for management services a proportion of the total management costs for the period, equivalent in percentage of total management costs as the gross earnings of the managed company were of the aggregate gross earnings of all managed companies. In 1922 and 1923, however, these companies were charged the flat rate of $3.000 per annum, plus 2.35 percent of gross earnings, all minus 33% percent, it having been determined by test that the charges as previously computed amounted approximately to the charges arrived at by the new formula.

[12] The management division did not furnish client companies in the Pacific Northwest with services of a district office as were furnished other client companies in accordance with the standard form of contract. In consideration of this circumstance, special arrangements were made whereby some of the companies of the group were charged a pro rata share of management costs and eight-tenths of 1 percent of their gross earnings, and the others were charged a pro rata share of the management costs. As will be observed in the discussion under the next title, beginning January 1, 1924, the Pacific Coast companies were charged a flat fee at the rate of $3,000 per annum, plus 2 percent of their gross earnings, except that one company, the gross of which exceeded $5,000,000 per year, was required to pay 1.85 percent of gross in excess of $5,000,000 in addition to the charges previously mentioned as apply ing to other companies; and another company, the gross of which did not exceed $100,000 per year, was billed 2.35 percent of the gross without any flat charge. The following table shows the amounts of fees charged for management services rendered public-service companies, and the basis of the charges for each of the years 1920 to 1923, inclusive. The amounts have been adjusted to even dollars.

[13] TABLE 3.-Summary of revenue from supervisory and general services rendered public service companies and bases of charges, by years, 1920-23 1

1 Amounts shown include charges for the current year and adjustments applicable to the prior period. 2 $2,500 applicable to this year was credited earnings in 1925.

[14] The amounts shown in the foregoing table include charges applicable to the current year, arrived at in accordance with the basis indicated, and adjustments applicable to the prior period.

Charges for management service based on a flat fee at the rate of $3,000 per annum plus 2.35 percent of gross earnings comprised from 74.3 to 76.8 percent of the total charges for management services billed public service companies in 1920, 1921, 1922, and 1923. Charges at pro rata cost plus eight-tenths of 1 percent of gross earnings comprised from 14.3 to 18.7 percent of the same totals for those years. Charges at pro rata cost comprised from 3.6 to 8.9 percent of the totals. About eight-tenths of 1 percent of the total for 1923 represented charges at a flat rate of $5,000 per annum plus 3 percent of gross earnings.

The records showed 51 public-service companies as having been rendered management services in 1920; 49 in each of the years 1921 and 1922, and 53 in 1923. The companies that received the service in accordance with the standard form of contract numbered 40 for each of the years 1920 and 1922; 41 for 1921, and 39 for 1923.

Appendix no. 1 to this report shows the amounts billed each of the companies covered in the foregoing summary, and the basis of the charges, by years.

Revenues from management services rendered public-service companies, 192429. The practice of determining rate equivalents to be used in making monthly charges for management services, as described under the previous title, was discontinued on January 1, 1924, and the monthly charges for services rendered in accordance with the standard form of contract unmodified were figured at the flat rate of $3,000 per annum plus 2.35 percent of the gross earnings as shown for the month [15] second preceding the date of the billing. During the early part of the subsequent year, adjustment was made so that the charges for the prior year would be on the basis of the actual gross for that year. Also, companies with gross earnings in excess of $5,000,000 per year were charged the flat fee at the rate of $3,000 per year, plus 2.35 percent of gross earnings up to $5,000,000 plus 2.15 percent of gross in excess of $5,000,000 and up to $10,000,000 plus 1.95 percent of gross in excess of $10,000,000 and up to $15,000,000 plus 1.75 percent of gross in excess of $15,000,000. Companies with gross earnings of less than $100,000 per year were charged 2.35 percent of gross, without any flat charge.

Companies in the Pacific Northwest were charged a flat fee at the rate of $3,000 per annum plus 2 percent of their gross earnings, owing to the fact that the management company furnished no district office service; and companies in poor financial condition were charged the flat fee at the rate of $3,000 per year plus 2.35 percent of gross earnings, all minus 33% percent; or, if located in the Pacific Northwest, the flat fee at the rate of $3,000 per annum plus 2 percent of gross earnings, all less 33% percent.

The following table shows the amounts of fees charged for management services rendered public-service companies, and the basis of the charges, for each of the years 1924 to 1929, inclusive. The amounts have been adjusted to even dollars.

[16] TABLE 4.-Summary of revenue from supervisory and general services rendered public service companies and basis of charges, by years, 1924-29 1

! Amounts shown include charges for the current year and adjustments applicable to the prior period. In the case of the Western United Corporation group of companies (numbering 9, including the holding company, in both 1925 and 1926) the flat rate of $3,000 per annum plus 2.35 percent of gross earnings applied to the group as a whole. Under number of companies, therefore, the group has been included as one com

pany.

3 An unknown but relatively small amount applicable to Lake Charles Electric Co. that should have been included against the 2.35 percent of gross basis, is included against the basis first listed. The amount shown for 1927 against the basis first listed is after a minus adjustment made in 1927 of amount charged St. Charles Electric Co. for the prior year, which amount exceeded the service charge against that company for the year by $1,438.78.

Including St. Charles Electric Co. See note 2.

Minus adjustment.

Covers 214 year period to Dec. 31, 1925.

? Part of service was rendered by Stone & Webster and Blodget, Inc. for which Stone & Webster, Inc. paid $9,370 in 1927, and $9,800 in 1928. The totals shown in this statement include these amounts. 'Covers 1 year period to Dec. 31, 1926.