Mr. LEATHERWOOD. In addition, there is added to the household a ready-to-serve charge, is there not? Mr. CRISWELL. No, not to the household, only to the industries. Mr. HUDSPETH. I do not know whether I correctly got your response to Mr. Hayden's question. You said that there was not a penny paid for that department from the general taxes of the city. Where did you get the money to make up that deficit? Mr. CRISWELL. There is no deficit; there is a profit. Mr. HUDSPETH. Then I misunderstood you altogether in your response to Congressman Hayden's question: I thought you said that was run at a loss. Mr. CRISWELL. No; there was no deficit. The CHAIRMAN. It was so charged; but he said it was not true. Mr. HUDSPETH. Then I misunderstood it. Mr. CRISWELL. Let me say that, with the permission of the chairman, I will file with the committee copies of the last audit of the power, made by Price, Waterhouse & Co., showing the exact status of the power since its inception: and, if I remember correctly, the power made a profit last year of something like $2,000,000. The Chairman. Is it the desire of the committee that that should be inserted in the record? Mr. RAKER. I think so. Mr. HUDSPETH. Yes. Mr. CRISWELL. It is not a large document. The CHAIRMAN. If there is no objection, it will be inserted in the record. (The statement referred to is as follows:) AUDIT REPORT ON LOS ANGELES BUREAU OF POWER AND LIGHT NOVEMBER 1, 1923. THE BOARD OF COMMISSIONERS OF THE DEPARTMENT OF PUBLIC SERVICE OF THE CITY OF LOS ANGELES. DEAR SIRS: In accordance with your instructions, we have extended our examination of the accounts and records of the funds under the control of the bureau of power and light to June 30, 1923, and have prepared and submit herewith the following exhibits: Balance sheet as at June 30, 1923, Exhibit I. Income account for the two years ending June 30, 1923, Exhibit II. Summary of resources available and disposition thereof during two years ending June 30, 1923, Exhibit III. In connection with these exhibits, and generally, we have the following comments to offer: SCOPE OF EXAMINATION The examination was conducted along s'milar lines to that on which we reported under date of February 21, 1922, and is such as is usually made of the accounts of a corporation for the purpose of satisfying its bankers or stockholders as to the authenticity of the annual accounts submitted for their consideration. GENERAL In our previous report we stated that the accounts submitted therewith differed in certain material respects from the accounts maintained by the bureau. Since then, however, there have been placed on the books of the bureau the necessary entries to reflect all bond redemptions made, interest 92265-24-PT 2-5 paid by the city on the several issues of bonds devoted to power purposes, and interest during construction. In addition to this there has been set up on the books of the bureau and charged to surplus the amount of $519,395.84 as provision for depreciation for the period to June 30, 1921. 'All charges similar to the foregoing have been taken up on the books to June 30, 1923, so that they correctly record the income and expense, including full charges for depreciation, from the commencement of operations to that date, and the attached accounts are in agreement therewith. BALANCE SHEET Plants and equipment.—The interest during construction has been prorated over all of the capital accounts to which it applies and is included in the amounts on which depreciation is being calculated. The additions to property accounts during the period under review were verified by examination of authorizations for expenditures approved by the chief engineer of the bureau, inspection of original vouchers, etc., and a sufficient test was made of labor and material charges with pay rolls and warehouse records of material issued to satisfy ourselves as to the propriety of the distribution to the various capital and expense accounts. The net additions for the period under review aggregated $18,475,593.05, as set forth on the attached Exhibit III. The principal item represents the purchase of the Los Angeles distributing system of the Southern California Edison Co. transferred as of the close of business May 15, 1922, for a conideration of $12,043,869.97, representing: Agreed purchase price as at July 1, 1919__ Additions and adjustments from that date to May 15, 1922 (net). Less-Balance of Edison Co. depreciation reserve deducted from purchase price-- $11, 000, 000, 00 1,793, 237. 91 12, 793, 237. 91 749, 367.94 12, 043, 869. 97 The charges in connection with construction work in progress at June 30, 1923, consisted of expenditures as follows: Owens River, four power plants and connecting waterways Reservoir at San Francisquito power plant No. 2--. $1,052, 863. 28 200, 611. 41 360, 125. 28 284, 280.96 85,003. 62 304, 470.29 1, 474, 987. 24 3,762, 342. 08 San Fernando power plant No. 3 was completed and placed in operation in October, 1922, at a cost of approximately $700,000. Provision for depreciation of the plant and equipment has now been made on the books of the bureau for the period from March 31, 1917, to June 30, 1923, on a 5 per cent sinking fund basis, as follows: Reserve provided: Period to June 30, 1921. Year ending June 30, 1922- Less Charges to reserve on account of replacements, etc.: Year ending June 30, 1922. Year ending June 30, 1923. $519, 395. 84 177, 946. 42 624, 770. 37 1,322, 112. 63 $38, 603. 15 340, 136. 10 981, 976. 53 Of the provisions for the two years under review there is charged to clearing accounts later distributed) the amounts of $1,352.60 and $2,741.37, respectively. Since the date of our previous report the engineering department of the bureau has revised the table of lives of the various classes of property. These differ from those tentatively used for the purpose of that report; however, the revised table, the more important items in which are shown below, is the result of a deeper study of the character and condition of the properties and is, we believe, a fair basis on which to compute the provision for depreciation: The charges during the year ending June 30, 1923, on account of replacements and plant and equipment dismantled or abandoned amounted to $551,532.95. These charges were incurred principally in connection with the work of merging and synchronizing the distributing system acquired from the Southern California Edison Co. with the system constructed by the bureau. In consolidating the two systems the bureau has increased the capacity of the old Edison system and has replaced much of the existing equipment with makes and types already standard in its own construction work. Because of the character of this work it is difficult to accurately segregate the charges between betterments and ordinary replacements, hence the distribution has been made on the basis of the average number of services in use during the preceding year applied to the replacement charges of that year with the result that $250,000 has been treated as additional investment and the balance of $301,532.95 charged against the depreciation reserve. This seems to us to be a logical solution of the question and we are satisfied that, if anything, the treatment errs on the conservative side. Construction materials and supplies.-Inventories were taken of the materials and supplies during the year 1923 with the relatively minor exception of scrap materials and materials at certain of the construction camps, included in the balance sheet at book figures of $100,304.85. The inventories are stated at cost and we have satisfied ourselves as to the substantial accuracy thereof. Accounts receivable.-From our investigation the reserve of $50,192.15 provided for doubtful accounts would appear to be adequate. Cash deposit with United States district courts.-This deposit, made in 1922, in connection with proceedings for the condemnation of certain properties in Owens Gorge, has been returned to the bureau subsequent to June 30, 1923. Cash on hand and with city treasurer.-The cash on hand and with the city treasurer was satisfactorily verified in the usual manner. Deferred charges.-The preliminary engineering and similar expense represents expenditures on the following projects, all of which are considered by the bureau's engineers to offer possibilities of future power development. Colorado River: Advanced under contract of February 16, 1922, with E. C. Finney, First Assistant Secretary of the Interior, for preliminary investigations___. $75,000. 00 Other charges... Kings River, cost of surveys, etc. 28, 399. 38 $103, 399. 38 60, 001. 58 50, 255. 84 213,656.80 It is provided in the contract of February 16, 1922, mentioned above, that in the event that Congress shall within two years appropriate funds for Colorado River power investigations and for the repayment of advances made in that connection, the amount of $75,000 advanced by the bureau will be refunded. The miscellaneous deferred charges represent items chargeable to future operations, such as prepaid insurance, etc, and undistributed items pertaining largely to construction work in progress. ; Bonds outstanding. We were furnished by the city auditor with a statement of the bonds outstanding and retired, together with the interest thereon. Bonds were sold during the period as follows: By resolution of the city council the premiums received have been placed at the disposal of the bureau of power and light. Accounts payable.--So far as we have been able to ascertain, all liabilities pertaining to the bureau of power and light as at June 30, 1923, have been included in the attached accounts. The bureau's contingent liability on contracts for the purchase of materials, etc., not delivered at June 30, 1923, was approximately $500,000. We are informed that at the date of our examination certain claims of the bureau against the Southern California Edison Co. were in process of adjustment, but these are not reflected in the attached accounts. The deferred accounts bear interest at the rate of 6 per cent and are payable in six monthly installments, beginning in September, 1923. Unamortized premiums on bonds.-The unamortized premium on bonds is made up as follows: Premiums received on bonds sold during the period under review, as above Against which there has been charged: Interest to May 15, 1922, on portion of 1919 bond monies used in payment for Southern California Edison Co. properties. Expenses of 1919 issue. Balance. Amortized to June 30, 1923. $463, 651, 00 $135, 493, 54 11, 595. 01 147, 088. 55 316, 562. 45 16, 697. 04 Leaving 299, 865. 41 The interest on the monies used in payment of the Edison purchase from the date of the sale of the bonds to the date on which the transfer was effected is analogous to interest during construction and might accordingly be capitalized, but the foregoing treatment is the more conservative. Investment of the city of Los Angeles.-Details of the changes in this account during the period under review are reflected in the attached balance sheet and a summary of the balance at June 30, 1923, is as follows: Payments by city from proceeds of taxation: etc. Bonds redeemed Less-Payments into city treasury by the bureau Surplus arising from operations of the bureau for the period from March 31, 1917, to June 30, 1923 $80, 010. 39 2, 200, 000, 00 4, 112, 525, 50 6, 392, 535. 89 $3, 552, 843. 89 6. 423, 203. 76 9, 976, 047. 63 In accordance with a resolution passed by the board of public service commissioners on May 23, 1922, the bureau has paid into the city treasury the interest and sinking fund requirements subsequent to June 30, 1922, in respect to the 1910 and 1914 bonds, and subsequent to February 25, 1922, in respect to the 1919 bonds. In Exhibit III is shown a summary of the resources available to the bureau during the period covered by the present examination together with the disposition made of these resources. If required, we shall be pleased to discuss further any questions pertaining to the accounts and in conclusion we take pleasure in acknowledging the courtesy and cooperation of the various officials and employees with whom our representatives have come in contact during the course of the examination. We also wish to express our appreciation of the assistance rendered by the city auditor's office. Power plants and connecting waterways, less credit from water revenue fund for construction of joint waterways. Transmission system. Distributing system. General structures and equipment. Construction work in progress. Construction materials and supplies. Accounts receivable: Consumers.. Miscellaneous.. Less-Reserve for doubtful accounts.. Cash deposited with United States district court. Preliminary engineering and similar expense. |