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revenues, as that term is used in the annual reports filed with the Commission, were $23,092,676.82 greater in 1922 than in 1921. In 1922 the net operating revenue is reported at $215,268,092.98; in 1921 at $192,176,416.16. Tables showing the operating revenues, operating expenses, net operating revenues of the different classes of utilities appear elsewhere in the report.

The $818,244,553.28 charged by utilities for service rendered was not all charged against California shippers or users of public utility service or products. The figure includes the total revenues of interstate railroads, interstate telephone and telegraph companies and interstate steamship companies filing reports with the Commission. The reports of steam railroads show gross revenues from business within California at $173,932,697.33; operating expenses of $127,210,188.76; and net operating revenues of $46,722,508.57, as compared with $42,199,000 in 1921 and $29,945,000 in 1920. The revenues of the telephone and telegraph companies and steamship companies are not segregated to the various states in which these companies operate. From data on file we estimate that utilities operating in this state charged residents of this state for service rendered, approximately $453,500,000.

During the year ending June 30, 1923, the Railroad Commission authorized the issue of $144,860,030.91 of stocks, bonds, notes and other evidences of indebtedness, as compared with $188,401,250.99 for the year ending June 30, 1922. The decrease amounts to $43,541,220.08. The amount of securities authorized in any one year does not necessarily indicate the extent of the amount of money expended for construction purposes during that year. This, for the reason that the securities may be authorized to be issued for the purpose of financing construction expenditures incurred prior to the beginning of the year, or for the purpose of financing construction expenditures to be incurred subsequent to the close of the year. To illustrate-during 1922 public utilities added to their fixed capital the sum of $142,819,036.79, while the Commission authorized the issue of only $88,677,609 par value of stocks, bonds, notes and other evidences of indebtedness for the purpose of paying the cost of additions and betterments.

GAS AND ELECTRIC REDUCTIONS.

Rates of gas and electric utilities were reduced more than $5,000,000 during the fiscal year by direct action of the Commission, and the level of these rates is now practically the same as before the war in most instances, and not to exceed 10 per cent above the pre-war level in others.

Several major rate proceedings were concluded during the fiscal year, including those of the Pacific Gas and Electric Company, and the Great Western Power Company. These two utilities serve approximately onehalf of the public utility patrons of the state. Reductions were made in the rates of these two companies amounting to $3,000,000 a year.

The Commission also extended to consumers of manufactured gas the benefits of two general reductions in the cost of fuel oil, amounting to 50 cents a barrel, with the result that 632,000 families received the benefit of automatic decreases in gas rates amounting to $2,100,000 in

Patrons of public utilities within the state were saved many millions of dollars in potential charges for service by the reductions made in the rate bases allowed to various utilities. In one instance the reduction in valuation for rate-making purposes from the sum claimed by the utility was $60,000,000; in another almost $30,000,000. Such reductions in the last few years have amounted to the enormous sum of $128,000,000. If a rate of eight per cent were allowed on this amount it would have added $10,240,000 to the amount paid by ratepayers to those utilities.

Important work was done by the Commission in the matter of valuations of public utilities, in so far as the funds of the Commission would permit. The Commission's experts, when available, have checked over the valuations of California railroads made by the Interstate Commerce Commission, and such changes and modifications as they believed. necessary were called to the attention of the federal body.

SPUR TRACK INCREASE.

An outstanding feature of the work of the Commission has been the tremendous increase in the number of applications for permits to construct, maintain and operate spur tracks, with the resultant increase in grade crossings. There were 280 such applications as against 155 during the previous year. This has been due, in a large part, to the tremendous industrial expansion of the state.

It is unfortunate that the limited funds of the Commission will not permit of a more active prosecution of the work of the Transportation Division in its survey of grade crossings, and the study of plans for the amelioration of hazards, existing at all grade crossings in the state.

This work, which was begun in 1916, and suspended during the war, was resumed in the last fiscal year. A total of 1709 grade crossings and separated grades were inspected, making a total of 8927 crossings inspected since this work was begun. All of the 446 grade crossings on the State highways were inspected, including 22 overgrade, and 32 undergrade crossings. It was estimated that the cost of separating the grades at these grade crossings would aggregate $14,044,500.

WORK OF ENGINEERING DEPARTMENT.

The work of the Engineering Department has been molded along lines continually tending toward greater standardization of its methods for handling this branch of the Commission's work. This tendency has been both desirable and necessary because of the reduced personnel of the Commission and the need for meeting continually increasing demands, which has necessitated considerable reorganization of the department. There have been a number of resignations of members of the engineering force, during the year, including the chief engineer and two division heads.

The work of this department embraces the various phases of regulation of gas, electric, water and telephone companies, as well as steam and electric railways. There has, during the last year, been a marked development in the field of operations of these various utilities, together with a trend toward lowered operating costs, which conditions have. brought before the Commission many proceedings wherein decisions have been rendered on rates, and orders made for improvement of service.

GAS AND ELECTRIC DIVISION.

In the field of rate fixing for electric utilities the cases of outstanding prominence have been those involving the rates for the Pacific Gas and Electric Company and the Great Western Power Company. Hearings have also been held in other cases before the Commission involving the redetermination of electric rates for nearly all of the other large utilities in this state. The trend of decisions so far issued by the Commission has been to restore these rates to approximately the pre-war level, this being possible largely because of extensive development of the utilities during the last few years, and the reduction in fuel oil prices.

Hydro-electric power developments have been actively continued by the large companies, and high voltage transmission lines of great length are now being put into operation, which make possible the utilization of vast sources of water power and the delivery of electrical energy through the interconnection of the various systems from the Mexican boundary line to the Columbia River.

The enforcement of proper and safe standards of electric line construction which has been delegated to the Commission has brought forth a very great amount of constructive work. General Order No. 64 has been prepared, and an extensive program of line inspection is now being carried out in order to assure proper safety for electrical workmen. Already over two hundred thousand infractions of this order have been reported by the Commission's inspectors, and remedial measures are now in progress.

In the Gas Division much effective work has been accomplished expeditiously, and without the necessity of formal hearings, through the operation of the automatic method of modification of artificial gas rates with change of oil prices. The abnormal development of petroleum in southern California has made available tremendous volumes of natural gas, together with cheap fuel oil. As a result, gas rates throughout the entire state are now approximately the same as in 1917 and 1918. A number of investigations of the cost of service have been made, and through informal negotiations with the utilities the Commission has been able to have put into effect material reductions of gas rates.

The policy of the Railroad Commission has always vigorously emphasized the matter of good service as a condition upon which compensatory rates should be based. In order that the highest possible standards for gas service might be maintained, and thereby provide the consumers the greatest values, the Commission has taken a leading action in the determination of operating standards for gas companies. The Joint Committee on Efficiency and Economy of Gas of the Railroad Commission was formed several years ago, and has now completed its investigations as to the determination of the most advantageous gas quality. However, in order to continue the valuable work, which was started by this committee, and to further investigate many important problems, which are of value alike to the consumer and the utility, the Railroad Commission has assumed supervision over a newly organized body known as the Gas Research Council, which will be carried on by the

TELEPHONE AND TELEGRAPH DIVISION.

Regulation and supervision of telephone companies of this state has presented to the Commission one of its most difficult problems. Because of the extreme rapidity of growth, particularly in the southern part of the state, and also because of the physical nature of telephone systems, the various companies have found it extremely difficult to keep pace with the demands upon them.

Particularly is this condition true in the city of Los Angeles and immediately surrounding district, where the number of consumers has increased most rapidly, and the extent of the use of the telephone is very great. In fact, the number of calls per telephone per day is higher in Los Angeles than in any other important city on the Pacific coast, and almost double the average for the United States

The present telephone system in Los Angeles is the consolidation of two former companies, with the result that there are at present three distinct types of systems. When it is realized that during the last year more than 28,000 new telephones were installed in Los Angeles city, as compared with 84,000 in the whole state, it is easy to appreciate that many operating difficulties confront the utility. The Commission's Telephone Division has made decisions in more than 1100 informal complaints relative to telephone matters, and of these decisions nearly 90 per cent have been in favor of the complainant.

TRANSPORTATION DIVISION.

During the last fiscal year the Transportation Division has had before it a number of extremely large and important matters, chief among which were proceedings before the Interstate Commerce Commission relative to the unmerger of the Southern Pacific and the Central Pacific Railroads, valuation of railroads, and hearings in regard to the establishment of union terminal facilities in Los Angeles. The southern part of the state, particularly that adjacent to Los Angeles city, has required much attention from the Commission in regard to its transportation problems.

In an effort to improve conditions within that city the Commission has joined forces with the Board of Public Utilities, and the city has approved the making of a special investigation relative to consolidating the local lines of the Los Angeles and Pacific Electric Railways under the management of either one of these two roads, or by municipal operation. Detailed valuations of the properties are now being made under the Commission's supervision.

Because of the recent growth of the Los Angeles harbor the city of Los Angeles has also brought before the Railroad Commission the matter of improvement of transportation facilities in that district.

The matter of the establishment of union terminal facilities in Los Angeles has been before the Interstate Commerce Commission since the California Supreme Court issued its decision that the Railroad Commission did not have authority to order the unification of terminal facilities. Soon after this decision and pending an appeal to the United States Supreme Court on the question of jurisdiction, the city of Los Angeles instituted a proceeding before the Interstate Commerce Commission asking that an order be issued directing the establishment of a union terminal in Los Angeles in conformity with the plans contemplated

by the order of the Railroad Commission. A hearing covering several days was held before Commissioner Aitchison in Los Angeles and the matter was taken under advisement until the United States Supreme Court shall finally determine whether the jurisdiction to make such an order rests with the State Commission or the Interstate Commission.

A proceeding which has attracted widespread attention has been the matter of unmerger of the Southern Pacific and Central Pacific Railroads, as ordered by the United States Supreme Court, pursuant to action taken for the enforcement of the Sherman Anti-trust Act. The Southern Pacific Company made application to the Interstate Commerce Commission for an order authorizing the acquisition and control of the Central Pacific lines by lease under the provisions of the Transportation Act of 1920. Following the receipt of this application the California Railroad Commission made an extended investigation, with particular attention to the effect in this state of granting this application. The Commission's chief engineer and attorney appeared before the hearings of the Interstate Commerce Commission in Washington, D. C., in November, 1922, where evidence in behalf of the Commission was presented. After exhaustive hearings the Interstate Commerce Commission concluded that the unification of the Southern Pacific-Central Pacific lines into one operating system was in the interest of public convenience and ultimately rendered its decision granting the application, subject to certain conditions intended to eliminate the possibility of any future discriminations in the diversion of traffic over this unified system, instead of over competing lines, which normally would share in the flow of traffic eastward. The decision was in substantial accord with the position taken by the Railroad Commission.

HYDRAULIC DIVISION.

There are in excess of 550 public utility water systems in the state which have filed rates, rules and regulations with the Railroad Commission. These utilities range in size from those supplying a few persons to plants which serve approximately 90,000 consumers, the investment in the systems varying from a few thousand to in excess of $40,000,000.

During the twelve months' period decisions were rendered in 205 formal proceedings, and 479 informal complaints involving water utilities were investigated and finally disposed of.

Many of the utilities during the last few years have come to the Commission with applications for increased rates, alleging that their revenues had not increased in proportion to the great increase which had occurred in operating cost due to high prices of labor and material prevailing throughout the country. A year or more ago the cost of both labor and material was declining to such an extent that it was believed that within a short time many rate schedules could be reduced without endangering the financial condition of the utilities.

Experience has, however, shown that the decline in prices was only temporary, and that the cost of operation and construction of water systems is now fully 75 per cent higher than the corresponding cost in 1914 and 1915. From present indications it is impossible to predict any material decreases in the water rates of public utilities for some time

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