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The foregoing figures completely refute any suggestion of "pyramiding." Particular attention is again called to the fact that in their preparation all "writeups" are excluded.

2. Neither the holding company nor any of its operating subsidiaries has ever defaulted on a dollar of interest and they have not now nor have they had for many years any bank loans. Their earnings at all times have been sufficient to pay a normal return on the securities they have issued. These facts refute the suggestion of issuing securities in anticipation of revenues.

3. Services of an operating nature have always been furnished at cost and since July of 1932 all classes of services have been furnished at cost.

4. Our corporate chart fails to reveal a maze of intercorporate structures. There are no construction companies, no purchasing companies, no supply or appliance companies and we have never had any interest in any such companies. In our case, the only securities held by the public are those of our operating companies and our own three issues, one of bonds and one each of common and preferred stock.

5. The fact that the growth of our system has been due entirely to building up a coordinated system is admitted by the Federal Trade Commission. The only properties that we own today which we did not own in 1907 are properties that have been acquired to add to or to connect up with our integrated systems.

For those who prefer a graphic presentation, there is attached a chart which brings out clearly the statements made herein relative to security issues and values back of them.

I believe a study of the facts and figures presented in this brief memorandum should convince anyone that our financial policies have been as sound as the admittedly sound policies related to the physical side of our systems.

AMERICAN GAS & ELECTRIC Co.,

Geo. W. Tips, President. MARCH 9, 1931.

ENGINEERING AND OPERATING ASPECTS FROM THE AMERICAN GAS & ELECTRIC

Co.'s OPERATING COMPANIES' VIEWPOINT OF CONTINUING AS UNITS OF A HOLDING COMPANY GROUP UNDER THE AMERICAN Gas & ELECTRIC Co.

1. THE AMERICAN GAS & ELECTRIC CO. PROPERTIES CAN BE CLASSIFIED INTO THREE

GROUPS

(a) Atlantic City Electric Co.--This consists of a thoroughly interconnected property serving the southern portion of New Jersey, with approximately 100,000 consumers. This property is interconnected through its Deepwater plant with the Deepwater Light & Power Co. and the latter is interconnected with the Philadelphia Electric Co.

(b) The Scranton Electric Co.—This, too, is a closely interconnected system serving approximately 78,500 consumers in the Lackawanna Valley between Carbondale and Pittston. This property is also interconnected through its Stanton plant with the Pennsylvania Power & Light Co. and other large systems throughout Pennsylvania.

(c) A group of properties consisting of the Wheeling Electric Co., the Ohio Power Co., Indiana General Service Co., Indiana & Michigan Electric Co. Appalachian Electric Power Co., Kentucky & West Virginia Power Co., Inc., and Kingsport Utilities, Inc. All these properties are closely interconnected not only among themselves, but wherever practicable and to advantage, with surrounding companies, and comprise for all practical purposes a single unit, at least insofar as the generation and transmission of power is concerned.

Referring particularly to the third group, this group of properties, whilefeach operated by its own corporate officers, has developed interconnection and centralized generation to a very remarkable state of perfection, so that today not only, the primary generation requirements and their costs of production are obtained with less capital facilities (saving many millions of dollars), than could

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AND ELECTRIC COMPANY AND SUBSIDIARIES

"WRITE UPS" CAPITAL SECURITIES IN THE HANDS OF THE PUBLIC

BEFORE AND AFTER AMERICAN GAS

$ 361,500,000

SAME CAPITAL

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be possible otherwise, but also the day-to-day production of their electric energy is obtained at additional savings running into millions of dollars each year.

Thus, it is estimated that this group of properties whose combined load is peaking at the present time approximately 635,000 kilowatts, is meeting its demand with roughly 220,000 kilowatts less capacity than if they were not interconnected, first, as regards their own facilities; second, among themselves, and third, with foreign companies, and that this saving in capacity among this group of companies, even if each subsidiary company carried out interconnection on its own system to the fullest, still amounts to 110,000 kilowatts, because they are interconnected among themselves and with foreign companies.

If it is figured that the average cost per kilowatt of steam capacity is $100, a commonly found figure, then that saving amounts to, in capital expenditure, & reduction of $22,000,000 figured on the first basis, and $11,000,000 figured on the second basis. This, however, is not the only saving. The operation of the interconnected system has resulted in the building up of a very high load factor and a combined load which is being supplied in the most economical fashion possible utilizing: (a) The most economical steam generation facilities on the system (these furnish at present 77 percent of the load requirements); (b) the hydro facilities on the system (although these provide only 8 percent of the total requirements); and (c) the interconnections (which provide more than 15 percent of the requirements under the peak conditions).

This method of operation results in what may appear off-hand as very small savings in unit cost of power, and this is a fact, but collectively this amounts to several million dollars per year. Thus, it is apparent that since the output of this combined group of properties is in the neighborhood of 3,000,000,000 kilowatthours per year at the present time, a saving of only one-half mill (1-twentieth of & cent) per kilowatt-hour, results in a saving of $1,500,000 per year. Annual savings larger than that have actually been made in the last 5 years. These savings are distributed equitably between the operating companies.

2. THE AMERICAN GAS & ELECTRIC CO. CONTRIBUTION IN THE DEVELOPING OF

THESE SAVINGS

To make this possible it was necessary not only to work out over a period of 20 years, solutions to a series of very difficult engineering problems before the necessary technology for the successful and safe operation of wide-spread interconnected systems became a fact, but also to develop the technique of interconnecting with neighboring foreign companies. In this technique are included all of the phases, including those of a legal, engineering, and operating nature. Thus, the subsidiary companies in the third group of properties referred to on the first page of this memorandum have distributed over their systems 20 interconnections with foreign companies. These interconnections have been utilized to obtain more economically than could be obtained in any other way, proper and reliable service at a lower cost, not only in capital expenditures needed for facilities but also in cost of operation. Repairs, for example, that might without interconnections have to be handled at nighttime or on legal holidays on a very expensive and inefficient basis, are, through the aid of these interconnections, carried out whenever they can most economically and conveniently be carried out. These interconnections have in short made possible the rendering of a grade of service second to none to some 1,400 communities (with an average population of approximately 2,100) comprising the American Gas & Electric system.

In the carrying out of this interconnection the experience of the American Gas & Electric Co. management and of the American Gas & Electric Co. staffs, going back more than 25 years, had to be utilized. Each additional interconnection has been made not only on the basis of the experience gathered in previous interconnections, but has been utilized in turn in many cases to make those previous interconnections more operative and of greater benefit to the American Gas & Electric Co. subsidiaries and their customers.

The possibilities of interconnection have not altogether been exhausted and several interconnections are being worked on at the present time, but the technique of interconnections and their various ramifications are becoming more complex every day. If the subsidiary companies are to continue to reap the benefits of the present interconnections, as well as to develop those additional ones that can be economically justified, it is most vital that the experience and knowledge gathered in more than 25 years of operation of interconnection (i. e., the combined experience of all these interconnections), be kept available for the future. That is possible only under the present relationship between the American Gas & Electric Co. and its subsidiaries, developed over the last 28 years.

The discussion carried out above with regard to the group of properties in West Virginia, Ohio, Indiana, Michigan, Virginia, Kentucky, and Tennessee, applies in a smaller scale to the property located in southern New Jersey, mentioned in 1 (a) and in the Lackawanna Valley, mentioned in 1 (b). Thus, each of these companies operates on an interconnected basis and enjoys the benefits of the large experience obtained in the major group in the efficient generation of electric energy The jointly owned generating station, which makes possible for a small load the benefits of the low capital cost of a much larger plant than would be justified for such a load, and makes possible corresponding economies in operation, has been developed both in the case of Atlantic City Electric Co. and the Scranton Electric Co. Each of these companies has a most modern and efficient steam generating station, of which, however, it owns only one-half, the other half being owned by a neighboring company.

These developments were made possible only because there was the necessary experience available in the American Gas & Electric Co. organization in the method of operating such plants and in the method of obtaining the maximum economies. It is no accident, therefore, that the most efficient anthracite plant in the United States is the plant of the Scranton Electric Co., nor an accident either that the most efficient straight steam cycle electric plant in the world is the Deepwater plant of the Atlantic City Electric Co. The pioneering of the parent company and the experience obtained with its other subsidiaries was made available in the design and construction of these plants just as the experience in the operation of numerous other plants is being made available from day to day to obtain the maximum of efficiency in their operation. This large integrated experience is needed if efficient generation in the present plants is to continue, and if efficient and economical growth is to be provided for the future.

GAS

& ELECTRIC

CO.

3. ENGINEERING ACCOMPLISHMENTS OF THE AMERICAN

ENGINEERING DEPARTMENT

Among utility engineers, managers, and operators all over the world, the engineering accomplishments of no electric utility organization are better, 'if as well, known as those of the American Gas & Electric Co. The progressiveness of the organization and its accomplishments in bringing to a successful actuality centralized high pressure, large scale, electric generation is but one of the things it is noted for. In the field of transmission the intensive research carried out for many years, extending over more than a decade, to bring about the solution of that most pestiferous problem, namely, lightning, is not only known all over the world, but, more important, was carried through with comparatively modest expenditures and with very remarkable results.

Lightning which 10 years ago threatened to disrupt the entire plan of centralized generation and transmission, so essential in the economical serving of scattered small rural communities and medium-sized towns which form the American Gas & Electric Co. system, has within this decade, as a result of research and combined effort, been, while not quite entirely solved, yet sufficiently tamed as to present no serious problem in the day to day operation of the system. It is therefore possible to take on a load anywhere on the system, requiring the utmost refinement in quality of service, without fear of our being unable to meet such high standards of service. Further, the damage accompanying lightning and similar disturbances, has, in the process of solving this problem, been minimized, thus greatly reducing maintenance.

In the field of transmission-system communication the original research and developments carried out over the last 16 years on the American Gas & Electric Co. system are again well known. Other notable developments made more were economical methods of distribution; original and advanced methods of relaying and service protection; developments of faster oil circuit breakers, etc. All of these have contributed to the lowering of cost of the service and to the improving of its quality. In the field of electronics (vacuum tube) development work has been carried out intensively for the last 10 years, all with the idea of finding ways of improving the methods of generation, transmission, and distribution. Highly satisfactory results have so far been obtained but the work is still almost in its infancy. In other directions, such as in the extending of the field of electric service by reducing costs of wiring, original work has been carried out. All of this has enabled the properties to expand the load and reduce rates.

In the same connection work is being carried on at the present time to make possible the electric heating of homes on an economical basis; this is a field of application for electricity which may increase twentyfold the sale of electricity to the homeowners. Definite progress has been made in that field, but a great deal more needs to be done; the work is being continued.

4. CONTINUATION AND INTEGRATION OF EFFORT NEEDED FOR THE FUTURE

It is to be noted in this connection that the work being carried out by the American Gas & Electric Co. for its subsidiaries is being carried out at actual cost and that the cost is allocated among the various companies. This work has resulted and is resulting in annual savings that exceed many times the actual cost of services. Thus, for the group of properties comprising the American Gas & Electric Co. system, during the year 1934 it is estimated that the actual savings over and beyond the value of the services rendered in the form of furnishing of plans, drawings, information, etc., amounted to $1,125,000, against the total cost of such services of approximately $330,000.

Even if it were possible for each of the subsidiary companies to carry out independently, at practically the same cost, the services rendered to it by the cooperative and coordinated group, very few, if any, of the savings mentioned above would have accrued as a result of such work, primarily because it takes the work of a large group of companies, integrated through a single organization, to bring it to the high state of efficiency of the present American Gas & Electric Co. organization. That is a point too frequently overlooked; too frequently sight is lost of the fact that the central organization itself, with its present efficiency, needs for its functioning the field presented to it by all its various companies to continue as an efficient organization. The diversity of problems, conditions, and applications that the combined companies offer are an essential part of the whole, since, frequently it is only one company of the group that has a local condition that permits trying out a particular new or novel idea or development in its experimental stage. Later, when the idea becomes more commercial, many of the other companies are more than likely to find applications open for the newly developed idea, but if the original application had not presented itself, the whole idea would never have had the benefit of trial and development. Thus, the large group of properties helps the integrated and centralized engineering staff and, in helping it, makes it possible in turn for it to help them.

There is still a great deal of work to be done in the future. Many of the problems outlined above, which have already been solved, have obviously not been solved for all time; economical generation of today will not be considered economical generation 5 years hence. The high grade of service today will undoubtedly not be adequate to meet the more complex and complicated civilization and the industrial system that we will have 5 or 10 years hence. Many of our practices today are admittedly unsatisfactory. Thus, it is recognized that cost of transmission is too high and that the field of transmission is limited to comparatively short distances. Distribution costs are admittedly very high and many of the foremost engineers are concerning themselves with this problem. A great deal has been accomplished in general, and on the American Gas & Electric Co. system in particular, to bring these costs down, but the aim is to further reduce these costs to possibly one-half of what they are today. Costs of wiring are too high. This in turn blocks the more extensive use of electric service.

To all of these fields a great deal of research and investigation will have to be devoted. Our subsidiaries, who have taken so leading a part and have done so much to spread reasonable and reliable electric service in the communities in which they operate, hope and will strive to extend this service by reduction of costs. They will thus do their part toward a more extensively and more thoroughly electrified America. But to do all that, they need all the help and all the experience and the integrated effort that has been available to them in the past, and to an even greater extent than was possible in the past. It ought to be clear that tnere is no better way of bringing this about, and that nothing can contribute more toward that end, than the continuation of the relationship that has existed during the past 28 years between the American Gas & Electric Co. and its subsidiaries.

March 6, 1935.

STATEMENT OF John E. ZIMMERMANN, PRESIDENT OF THE UNITED Gas

IMPROVEMENT Co. Senator Wheeler and gentlemen of the committee, I am president of the United Gas Improvement Co. of Philadelphia, an engineer by profession, and reside in Philadelphia where the home office of the company is located.

U. G. I., although said to be the oldest public utility holding company in the country, dating from 1882, was initially conceived and organized for the purpose of the manufacture and sale of Lowe-Water gas production machinery, a then new

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