The CHAIRMAN. Mr. Welch, Mr. Lucchetti has a statement which he has asked to be inserted in the record. It is quite voluminous and I will leave it to your judgment.

Mr. WELCH. I think it is an important statement and should go in the record.

The CHAIRMAN. Is there any objection to it? The Chair hears none and it is so ordered.

(The statement referred to follows:)

STATEMENT REGARDING RATES CHARGED BY THE PRIVATELY OWNED POWER AND LIGHT COMPANIES IN PUERTO RICO PRIOR TO THE ESTABLISHMENT OF THE PUBLICLY OWNED PUBLIC UTILITY KNOWN AS THE UTILIZATION OF THE WATER RESOURCES.

In January 1906 the Porto Rico Power & Light Co., registered as a Puerto Rican corporation but owned by Canadian holding companies, started to sell electricity in the territory covered by its franchise at the following rates:

For lighting in the city of San Juan, the capital of Puerto Rico, at 10 cents per kilowatt-hour, and in the rest of its territory outside of the city of San Juan at 15 cents per kilowatt-hour.

These rates for lighting were maintained until late in the year 1928, when as a condition for the granting of the Rio Blanco franchise the Government required that the 15 cents per kilowatt-hour rate be reduced at first to 13 cents per kilowatthour and 18 months later to 10 cents per kilowatt-hour. When the question of the granting of the Rio Blanco franchise was considered and decided the act for the Development of the Water Resources was already in operation and the Government could exercise an effective control on the conditions under which such franchise could be granted.

See sheet marked "R-a" enclosed herewith which contains copy of section 12 of Rio Blanco franchise Ordinance No. 591.

In the year 1930 the rates for lighting became uniform for the whole territory of the Porto Rico Power & Light Co., at 10 cents per kilowatt-hour, and remained at that level until the month of December 1936, when a block rate was established beginning at 7 cents per kilowatt-hour and decreasing with increase of consumption down to 12 cents per kilowatt-hour. Thus, during the 30 years from 1906 to 1936 all electricity used for lighting in the city of San Juan was paid at 10 cents per kilowatt-hour and all the electricity used for lighting outside the city of San Juan was paid at 15 cents per kilowatt-hour, during the 22 years from 1906 to 1928, and at 10 cents per kilowatt-hour during the 8 years from 1928 to 1936. The company's rates for power were also set in the year 1906 at 10 per kilowatthour for motors up to 10 horsepower, with discounts of 10, 15, 20, and 25 percent, respectively, for motors ranging in capacity from 11 to 20 horsepower, 21 to 40 horsepower, 41 to 100 horsepower, and 101 and over.

These rates were slightly modified in October 1910 as follows: Ten cents per kilowatt-hour for the first 300 kilowatt-hours consumed during the month and decreasing the rate for blocks down to 4 cents per kilowatt-hour for consumption from 20,001 kilowatt-hours to 50,000 kilowatt-hours and 3.5 cents per kilowatthour for consumptions over and above 50,000 kilowatt-hours per month.

On August 1, 1914, the rates for power were slightly revised downward with the limitation of 18 hours' service out of the 24 hours of the day. As then set, they remained in force for nearly 25 years until January 1, 1939, when new rates went into effect and are in force at present.

The power rates which were in force from 1914 until 1939 compare with the metered power rates of the Insular Government (Puerto Rico Irrigation Service) which were in force since the government system went into operation in August 1915 until January 1, 1930, as shown in enclosed tabulation marked "R-b" entitled, “Comparison of Metered Power Rates for Low Load Factor Installations." The comparison shows that with the exception of the 5,000 kilowatt hours per month consumption of the motor running only 4 hours a day, for which case the company's charge is about 5 percent below the government charge, all the other 59 monthly charges for the consumptions indicated under the 4,6, 8, 10, and 12 hours use per day, are lower under the government rates than under the company's rates, the difference ranging from about 4 percent below for the 4,000 kilowatt-hours a month consumption corresponding to a 40-horsepower motor used 4 hours a day, to 50 percent below for the 100 kilowatt-hours consumption corresponding to a 2-horsepower motor used 12 hours a day.

The Insular Government Hydroelectric System (Puerto Rico Irrigation Service from August 1915 until 1929 and Utilization of the Water Resources from 1929 to date) also had a flat rate for irrigation and industrial power purposes which was in force from 1915 until December 31, 1938, which set prices ranging from $150 per year per horsepower for installations of 5 horsepower and unde, to $100 per year per horsepower for installations of 50 horsepower and over. This flat rate can be used 24 hours a day, and for installations used longer than 14 hours a day the cost per kilowatt-hour figures out way below the rates of the Porto Rico Power & Light Co. or any other privately owned public utility in Puerto Rico. For further comparison of power rates between those of the Porto Rico Power & Light Co. and those of the government (Puerto Rico Irrigation Service) see enclosed tabulations and curves marked "R-1, R-2, R-3, R-4, R-5, R-6, R-7, R-8, R-9, R-10, and R-11, R-27, R-28, R-29, R-30, and R-31."

The power rates of the Mayaguez Light, Power, & Ice Co., and those of the Ponce Electric Co., prior to the year 1930, were either above or at the level of the rates of the Porto Rico Railway Light & Power Co. For their comparison with those of the government (Puerto Rico Irrigation Service) see curves marked R-16, R-17, R-18, R-19, R-23, and R-24" enclosed herewith.

Prior to the year 1932 the government had not engaged in the distribution of electricity in towns or cities. In those towns located within the area assigned to the Puerto Rico Irrigation Service, the government delivered the electricity at wholesale to municipal franchise holders, mostly municipal governments, for their distribution and retail sale to consumers. For this electricity the government charged from 1915 to 1927, at the rate of 4%1⁄2 cents per kilowatt-hour; from May 1927 until February 1929, 41⁄2 cents per kilowatt-hour for electricity taken from 6 p. m. to 12 midnight, and 3 cents per kilowatt-hour for electricity taken from midnight to 6 p. m.; and from February 1929 until January 1934, 31⁄2 cents per kilowatt-hour for all electricity taken at any time. In 1934 new and lower rates were established which are still in force, designed to permit and encourage the franchise holders to lower their rates to their customers to the same level as those charged by the government in the towns where it retails electricity directly to

consumers.

From 1915 to 1932 the electricity sold by the Government for lighting and household purposes was entirely to isolated country houses far removed from main distribution lines, which required in practically every instance the construction of a branch line and the installation of a transformer to reach and serve each consumer. For this service the rate then available was 15 cents per kilowatt-hour. In the year 1932 the Government found it necessary to begin distributing and selling electricity directly to consumers in towns to which the service had been extended. This put the Government in the business of retailing electricity for residential and commercial purposes. The residential rates which went into effect on January 1, 1932, called for a minimum charge of $1 per month, which comprised the use of 10 kilowatt-hours; the next 20 kilowatt-hours at 7 cents, the next 30 kilowatt-hours at 5 cents, the next 40 kilowatt-hours at 3 cents, the next 100 kilowatt-hours at 221⁄2 cents, and all consumption over and above 200 kilowatt-hours during the month at 2 cents per kilowatt-hour.

Curves shown on enclosed chart marked "R-32" offer a graphical comparison between the Government domestic rates and those of the three privately owned utilities in Puerto Rico. As such rates were in force in the year 1935, it can be seen at a glance how much lower the Government rates were.

On February 1, 1936, the Government put into effect reduced residential rates calling for a minimum monthly charge of $0.50 under which 7 kilowatt-hours could be used without additional charge; and for other monthly consumptions the charges were 8 cents per kilowatt-hour for the first 20 kilowatt-hours; 5 cents per kilowatthour for the next 30 kilowatt-hours, 3 cents per kilowatt-hour for the next 150 kilowatt-hours; 11⁄2 cents per kilowatt-hour for the next 500 kilowatt-hours; and 1 cent per kilowatt-hour for all excess consumption over 700 kilowatt-hours.

The present type of Government rates for residential and commercial uses have been in force since January 1, 1939. For residential uses there are 12 different schedules available for the consumer to choose at will the one which best fits his average monthly consumption. Each schedule consists of a flat rate which allows a specified number of kilowatt-hours per month, and any excess consumed over such allowance is charged at rates which are fixed for each schedule and which are about 2 cents lower than the kilowatt-hour cost under the flat charge. The lowest schedule has a flat charge of 25 cents, allows a consumption of 3 kilowatthours per month and excess consumption is charged by blocks at 7 cents, 6 cents,

1 See enclosed sheets marked "R-e."

and 5 cents per kilowatt-hour. The highest schedule has a flat charge of $5, allows a consumption of 200 kilowatt-hours per month and excess consumption up to 800 kilowatt-hours is charged at 1 cent per kilowatt-hour. The 10 intermediate schedules are spaced as to prices and consumption allowed so as to provide a fairly large supply of electricity at reasonably low cost to the various grades of consumers, and at the same time promote the use of electricity regularly.

This system of rates recognizes the value of the electric service to the consumer as he ordinarily expects to use it and uses it, or rather, has the facilities for using it from month to month, as well as the cost to the utility of rendering such service. It is not based wholly on the haphazard use of kilowatt-hours by the consumer during any one month, but takes into account the cost to the utility of keeping the necessary installation in readiness to supply the kilowatt-hours at the proper voltage and frequency, in other words the satisfactory electric service which the consumer on the average requires every month. It does away with the inequalities at present prevalent in the system of block rates generally used by public utilities, by removing the uniformity in the minimum monthly charges which place on the small residential users of electricity the burden of paying for the fixed charges on the expensive installations which the utility must keep in readiness to satisfy the luxury of the well-to-do who maintain large, commodious residences with lavish facilities for turning on and using electricity when and as they need it.

In studying the adoption of this system and level of rates the Government authorities took into account the following considerations:

"Whereas a study has continually been in progress for the purpose of introducing at the proper time those improvements in the rates for the sale of electricity within the said area of operation of Utilization of the Water Resources, with the end in view of reducing the cost of power to consumers consistently with their disposition and capacity to use power and with the trend of competition from other means for furnishing their power supply, thereby to stimulate an increase in consumption which in turn will produce increased revenues which are needed to maintain the economic stability of the enterprise, and for such purpose and in order to educate the public in the use of electricity that they may persuade themselves to make a wider use of it, decreasing rates of various types have been set from time to time; "Whereas as a result of an extended study and trial of such different rates a new type has been evolved for residential and commercial service which will produce a reduction in the cost of electricity both to the small and to the large users of electricity, and which at the same time possesses the feature of offering inducement to customers for increasing their consumption, together with the advantage of securing for the enterprise a monthly guaranteed consumption commensurate with the quantity of power ordinarily used by the customer which serves to justify as self-liquidating the greater investment required to satisfy the higher demand of the larger consumers;

"Whereas it has been found desirable to set a still lower minimum monthly charge than the 50 cents which has been charged heretofore for residential service so as to reduce the cost of lighting service to consumers of very limited means who habitually consume not more than 3 kilowatt-hours per month, and in effecting this reduction to a minimum of 25 cents per month the opportunity will also be offered to thousands of very poor people both in town and rural areas who need electricity for lighting but who cannot afford to spend more than 25 cents a month to avail themselves of that comfort."

The enclosed tabulation marked "R-C" shows how consumers in the area served by the Government have availed themselves of the above rates to provide their electrical requirements. This tabulation gives the distribution of all residential and commercial customers of Utilization of the Water Resources, according to the rate schedule under which they receive service, the kilowatt-hours consumed during the month of January 1940, and the percentage under each rate schedule of the number of customers and their consumption as compared to total number of customers and total aggregate consumption under residential and under commercial rates.

Further reasons and information throwing light on the suitability of this system of rates to the conditions prevailing in the territory served by the Insular Government Electric System may be found in the attached copy of memorandum which was submitted in support of such rates at the time they were recommended for approval.

In closing let me invite attention to the enclosed sheet marked "R-d" entitled "Tabulation showing quantities of electricity produced and delivered to the system, income derived, yearly and totalized for the period, from the sale of such electricity and average rate paid by the consumers for each kilowatt-hour of

such output." The data contained therein and comments derived therefrom lead to the conclusion that the rates of the Puerto Rico Light & Power Co. during the 21 years from 1918 to 1938, inclusive, were higher than those of the Insular Government System to the extent of charging consumers in the Puerto Rico Light & Power Co. area an average of $263,704 a year or a total of $5,537,780 for the 21 years, more than they would have paid under the Government rates. One would logically expect such results after reading the foregoing regarding the rates under discussion and their comparison.

ANTONIO LUCCHETTI.

GOVERNMENT OF PUERTO RICO,
DEPARTMENT OF THE INTERIOR,
UTILIZATION OF THE WATER RESOURCES,
November 18, 1938.

MEMORANDUM FOR THE HONORABLE COMMISSIONER OF THE INTERIOR

Subject: New rate schedules superseding present rates, effective January 1, 1939. During the last 15 years the Government's electric service, upon the recommendation of the writer, from time to time has changed and revised downward its rates for the sale of its electric power service. These changes were evolved gradually, new and lower rates having been put into effect as market conditions demanded and economic conditions of the business warranted. The aim constantly sought has been to make available as low rates as would bring about a wide and advantageous use of electricity by the public while producing revenues to the enterprise that would cover the cost of rendering the service and produce besides a moderate surplus to provide for a limited amount of new developments and extensions required to maintain the system in condition to meet the growing demand.

As already stated, revisions made in our rates were always downward, each revision leading by stages to the type and level of rates embodied in the various rate schedules submitted herewith.

As expressed in the draft of resolution submitted for approval of the honorable, the Executive Council, a study has been continually in progress for improvement of rates to maintain them in keeping with the trends of the power service market and accordingly to introduce at the proper time those changes found justified from the standpoint of the business and for the sake of offering facilities for the welfare of the public.

At the time the Ponce Electric Co.'s properties and business were purchased by Utilization of the Water Resources a reduction in the rates for residential and commercial service was immediately made in the Ponce area through the application of the rates which Utilization of the Water Resources then had in force in the rest of its territory. A saving of about $75,000 was thus afforded to users of

electricity in the Ponce area. Since that time and having entered a denser and wider field of residential and commercial use of power, studies were intensified to design rates for residential and commercial purposes which would accomplish three purposes, to wit: (a) Reduce cost of electricity to consumers; (b) by such reduction induce customers to increase their consumption; and (c) through increased consumption produce greater revenues to the enterprise.

To bring about these ends there was need of educating the public in the use of electricity and for that purpose certain rates were introduced during the last year and a half designed to persuade the public to make greater use of electricity. As a result of the study and trials made in pursuance of those three objectives, rates for residential and commercial purposes have been evolved which are predicated on the principle that consumers of different classes as regards quantities consumed in a month, can well afford to pay corresponding higher minimum charges and thus earn the privilege of lower rates for the consumption in excess of that represented by such minimum charges.

From the standpoint of the enterprise it is just and fair that these higher consumers should be required to pay a higher minimum charge, in other words, have them guarantee a higher amount of consumption which will justify the higher investment required in generating and distributing facilities to deliver the larger amounts of power.

To illustrate with examples, rate schedule No. 1 calls for a minimum charge of 25 cents a month and for that amount the customer is entitled to a consumption of 3 kilowatt-hours a month. There are some 1,250 customers in the city of Ponce

who habitually use not more than 3 kilowatt-hours a month even though with a minimum charge of 50 cents which they have been required to pay heretofore they are entitled to the use of 7 kilowatt-hours a month. These customers who all belong to the poor class will have their cost of power cut in half with the new rate. A consumer who cortracts to buy power under rate schedule No. 1 will, however, pay more for the power used beyond 7 kilowatt-hours a month than would the consumer who guarantees a minimum charge of 50 cents a month. Likewise, a consumer who uses in the neighborhood of 25 kilowatt-hours a month can avail himself of rate schedule No. 3 which requires a minimum guaranteed consumption amounting to $1.50 a month.

In sum, rate schedule No. 1 is most economical for consumers of less than 8 kilowatt-hours a month but under this rate schedule a consumer will never be able to use power at less than 5 cents per kilowatt-hour no matter how large his consumption may be in any one month.

Rate schedule No. 2 is most economical for consumers of more than 8 and less than 26 kilowatt-hours a month. Under this rate schedule the consumption under the first 10 kilowatt-hours and up to 20 kilowatt-hours, will be at 5 cents per kilowatt-hour while under rate schedule No. 1 such block of consumption will cost 7 cents per kilowatt-hour.

Rate schedule No. 3 is most economical for consumers of more than 25 kilowatthours and less than 87 kilowatt-hours. Under this rate schedule consumers may get as low a rate as 3 cents per kilowatt-hour for consumptions over 60 kilowatthours and up to 100 kilowatt-hours.

Rate schedule No. 4 calls for a minimum of $3.50 per month, entitles the consumer to 100 kilowatt-hours of consumption, and excess over 100 kilowatt-hours is charged at rates decreasing to 2 cents per kilowatt-hour.

Rate schedule No. 5 sets a minimum charge of $5 for 200 kilowatt-hours and all consumption in excess of 1 cent per kilowatt-hour. Thus the 1-cent rate per kilowatt-hour is only available to consumers guaranteeing 200 kilowatt-hours a month. With this type of rates the accepted principle of lower resulting unit cost for consumptions on a larger scale is well established; the enterprise is protected with larger guaranteed consumptions for heavy users of power; and people of small means are favored with a small minimum charge and relatively low unit cost for the service they get.

The commercial rates Nos. 6, 7, 8 and 9 are framed along the same principles as the residential ones and they are of similar type.

A thorough bill analysis made in connection with the study of these rates show that the immediate effect of these proposed new residential rates will be to decrease revenues at the rate of about $40,000 a year for the whole area served by Utilization of the Water Resources, and about $50,000 for the Ponce area alone, but it is estimated that this reduction in revenues will shortly be made up with the increase in consumption and in the number of customers induced by the lower rates and the lower minimum charge of 25 cents which they establish.

The wholesale rates for municipal distribution systems and the industrial and power rates have remained practically the same as they have been heretofore, but they have been rewritten in order to place them under the new series of numbers adopted for the designation of rates and also to improve their construction. Various slight changes were also made to offer some inducement for consumers to increase their consumptions, but those changes will not cause any appreciable reduction in the revenues.

After allowing for the above-mentioned reduction in revenues caused by the lower rates recommended herein the estimated revenues for the immediately following 1-year period amounts to about $1,200,000. The fixed charges for interest on the investment, depreciation of property built or acquired with funds for which no loan was required, amortization of loans made for building or acquiring property, plus operating expenses, will amount for the same period of 1 year to $1,189,000. There is, therefore, only a margin of $11,000 in the estimated revenues above budgeted expenses. Details supporting these figures are given in the attached sheets which give the estimated revenues and expenses for the calendar year 1939.

It is recommended that rate schedules submitted herewith together with draft of resolution for the Executive Council and general terms and conditions applying to these rate schedules be approved and endorsed for confirmation and approval of the Executive Council, to become effective January 1, 1939, superseding all other rate schedules in force at the present time.

Respectfully,

ANTONIO LUCCHETTI, Director and Chief Engineer.