Analysis of preferred and common stock accounts of Engineers Public Service Co. (Delaware) as of Dec. 31, 1934-Continued

1 Deduction through redemption, conversions, repurchase, etc.

EXHIBIT B. DESCRIPTION OF FORMATION OF LOUISIANA STEAM GENERATING CORPORATION AND THE CHARACTER OF ITS OPERATIONS

Louisiana Steam Products, Inc. (which name was later changed to Louisiana Steam Generating Corporation) was organized in 1929 by Engineers Public Service Co., to provide the steam requirements of a large oil refinery at Baton Rouge and, in connection with the supply of this steam, to generate and supply electricity to the refinery and to two constituent companies of Engineers Public Service Co. It was a unique undertaking, and the factors leading to its development are reviewed in the following paragraphs.

Standard Oil Co. of Louisiana, a subsidiary of Standard Oil Co. of New Jersey, has at Baton Rouge an oil-refining plant with a capacity of approximately 100,000 barrels of crude oil per day. The initial refining unit was erected about 1910 and the plant has been constantly expanded and improved until at the present time it is one of the largest and most up-to-date refineries for the complete refining of crude oil in the world.

The oil refining process requires large quantities of steam and a considerable amount of electric energy and in the summer of 1929 the Baton Rouge refinery consumed steam at the rate of about 31⁄2 billion pounds per year. Electric energy requirements of the refinery amounted to approximately 60 million kilowatthours per year. Both of these requirements had been furnished by the refinery itself, the steam being generated in 76 small boilers of conventional design in addition to a number of waste heat boilers. Electric energy was supplied by 6 small steam turbo generator units having a total capacity of 15,000 kilowatts.

In the latter part of 1929 the refinery was faced with the necessity of providing for substantially increased steam and electric requirements brought about by contemplated additions to the refinery plant which would bring the steam consumption up to about 6 billion pounds per year.

The electrical transmission system of Baton Rouge Electric Co., serving Baton Rouge, La., and adjacent territory, had recently been interconnected with that of Gulf States Utilities Co., which serves an extended area in the eastern portion of Texas, centering around Beaumont, and the southern section of Louisiana. The generating capacity at Baton Rouge amounted to 6,500 kilowatts and the station site had been developed to about its economic limit. Growth of electrical load west of Beaumont, Tex., and in the Louisiana territory served by Gulf States Utilities Co., as well as that in Baton Rouge, definitely indicated that increased capacity would be required by the combined systems, which would have to be provided either by the installation of additional generating capacity near the eastern end of the system or by additional transmission line capacity east of Beaumont.

The needs for additional capacity for both the refinery and the utilities were, therefore, practically simultaneous, and it was apparent that if joint facilities could be provided which would satisfactorily provide the additional requirements of both industries, each would benefit by the resulting economies with a minimum outlay of capital.

An investigation indicated that it was entirely feasible to construct a noncondensing station, whereby steam for process use by the oil refinery could be generated at high pressure (625 pounds) and passed through turbo generators, thereby reducing the pressure to that suitable for refining processes (135 pounds) and at the same time generating sufficient quantities of electrical energy to meet adequately the requirements of both the utility systems and the refinery. Accordingly negotiations were entered into with the Standard Oil Co. of Louisiana which resulted in the organization, under the laws of Louisiana, of Louisiana Steam Products, Inc. (which name was later changed to Louisiana Steam Generating Corporation) to construct and operate a central station of suitable size and design, and contracts were entered into by Louisiana Steam Products, Inc., with Standard Oil Co. of Louisiana and with Baton Rouge Electric Co., to provide the steam and electric energy required by the Baton Rouge refinery of the Standard Oil Co. of Louisiana, and through the Baton Rouge Electric Co. contract, to provide the requirements of the latter's system for electric energy and provide important additional electric energy requirements of the eastern portion of the Gulf State Utilities system.

In addition to providing facilities for both the utilities and oil refinery, Louisiana Steam Generating Corporation makes another important contribution to the mutual benefit of the parties concerned. In the oil-refining processes large quantities of residuals are obtained, which, while being combustible, are not saleable in any form and the accumulation of these residuals presented a major