To Taxpayers and Investors and to Consumers of Electric Service in New York City

I am glad to have opportunity to discuss briefly the subject which Commissioner Davidson has presented. Everyone wants lower and better rates for electricity, if they can fairly be had. Everyone wants the City of New York to get its electric service at less cost to the taxpayers, if it can fairly be brought about. I should like to say to you that since 1929, these Companies have reduced their prices so as to save the City more than two million dollars a year, and have reduced rates to general consumers more than eleven million dollars a year.

But public utilities cannot reduce their rates just because they want to or because somebody says rates should come down. The City of New York operates a public utility—the supplying of water service—through the same Department of Water Supply, Gas and Electricity which wants now to supply electricity as well as water. The City does not have to pay taxes on its water properties or water revenues in New York City. But still the City found its water rates were not paying the costs of operation, and so increased its water rates to all customers fifty per cent, as of the first of this year. No utility company has increased its rates fifty per cent. Yet the City made this increase in its water rates without the approval of the Public Service Commission, and could do the same thing with its electric rates if it supplied electricity as it does water. The City is levying all sorts of increased taxes upon practically every man, woman, and child, within its limits, to meet the costs of carrying on the many activities of the City government.

These Companies cannot cut their rates, to the City or to anyone else, just because the City wants them cut. No more can the City avoid raising its water rates and increasing its taxes. The matter is not so simple and easy as all that. Rates have to pay operating costs, and some return upon the money invested, no matter who borrows the money put into the property. These Electric Companies have more than twenty-nine thousand employees, for whom employment and the money to meet the payrolls has to be provided. These Companies are a part of the Consolidated Gas Company, which has more than one hundred and twenty thousand stockholders, together with the many thousands of bondholders, who have put more than a billion dollars of actual money into the properties which serve the public, and are entitled to earn a fair return upon their investment but are not allowed to earn it under present conditions. About eighty-seven thousand of our stockholders own less than fifty shares each. Among the larger holders of the bonds and preferred stocks of these Companies are insurance companies, savings banks, and trust estates. The millions of holders of insurance policies that are in part secured by investments made in these securities with the approval of the State of New York, have a stake in this situation, and are endangered by this idea of cutting rates or building duplicating plants. To build, with money taken from taxpayers, a new and competing plant in New York City, when existing plants have ample capacity for all needs, would simply wipe out and destroy hundreds of millions of dollars of actual investments made here in good faith.

To other taxpayers in the City of New York, may I submit this question: The Companies of the Consolidated Gas Company System in New York City pay, for 1934, in Federal, State and City taxes, chargeable to their operations, no less than thirty-eight million dollars a year; and such taxes for 1935 are indicated as no less than forty-six and a half million dollars. If the existing investments in these Companies and their ability to pay more than thirty-eight million dollars a year in taxes are destroyed as now proposed, let me ask what taxpayers are going to be called upon to make good the taxes now paid by the Companies?

My friends, increased taxes are the key to the situation. Some of the taxes public utilities have to be borne by the stockholders; other taxes are legally chargeable as a part of operating the business and rendering the service, and are called operating taxes. This year the operating taxes of these Companies are seven hundred sixty-six per cent higher than in 1914; seventy-eight per cent higher than in 1928. For 1934 our operating taxes are more than a dollar a month for each electric meter in use, although we send out millions of bills for no more than this monthly sum, or for an amount equal to the average taxes alone.

Nor is this all. For 1935, our operating taxes have been further increased, principally by the City of New York, more than eight million dollars over 1934, and more than thirteen million, five hundred thousand dollars over the year 1933. The 1935 taxes of the Consolidated Gas Company System are indicated as amounting to more than $4.50 per share of common stock of the Consolidated Gas Company; the shareholders have been receiving $2.00 per share. The new three per cent gross receipts tax, applicable to operations alone is indicated to amount to twelve and one-half per cent of the operating incomes of the Electric Companies. These Companies do not believe all of these new taxes are valid; they do not believe that properties and investments can be wholly destroyed by taxes which single out public utilities for confiscation. The Companies had no choice but to act to protect their employees, their investors, and the other taxpayers.

So the Companies proposed to the Public Service Commission that they be permitted to add a tax adjustment charge to their bills, to cover the increased cost of operating taxes, for 1935 over 1933. The proposal is that the proceeds of this percentage charge be held as a separate reserve for tax purposes, to be paid back to the customers if the increased operating taxes prove not to be as much as now indicated, but to be paid out as taxes if the increased taxes are sustained. In proposing this percentage charge for taxes, we only followed the same method by which the City requires its two per cent sales tax to be added to our bills to customers.

When we came to file our bids to the City last Monday, we proposed to treat the City as a customer on the same basis as other customers. So we included the increased tax charge as an item applying to our bids. After all, we were dealing with the customer which had itself levied the increased taxes and created the necessity for a tax charge on customers’ bills. The City rejected our bids; and the next development in the situation was a proposal that a municipal competing plant be built with taxpayers’ money—a plant which would duplicate existing plant capacities, cables in the streets, and destroy existing investments.

What is the present situation? The Public Service Commission has suspended our tax adjustment charge, pending hearings. We shall have to prove our case before that tribunal. Meanwhile, the tax adjustment charge will not be on our bill, but the City’s percentage for taxes, the sales tax, will be on our bills. No one has suspended that. If the tax adjustment charge is not sustained as to our bills to other customers, it of course will not be applied to the bills to the City. When we submitted our bids to the City on the specifications which the City had sent out, we submitted separately our suggestions for economies and improvements which would reduce the cost of electric service to the City. Those are still pending, and I hope to work them out with Commissioner Davidson.

These Electric Companies pay the City, for 1934, more than seventeen million dollars in operating taxes, and the City adds more than three million five hundred thousand dollars more to our operating taxes for next year. The City pays us between nine and ten millions of dollars a year for electric service, not fourteen millions of dollars, as has been stated. Our 1935 operating taxes alone amount to more than three quarters of a cent per kilowatt hour.

Our average rate for all the electricity we sell is about 3.8c per kilowatt hour. To the City, the energy charge is a little over three cents.

We render to the City many services not rendered to general consumers, such as replacing damaged lamp posts, lamps and globes, repainting posts, and continuous nightly lamp inspection; services that cost us nearly a million and a half dollars per year.

I understand that Commissioner Davidson estimates that the City can perform these services and in addition, the maintenance of ducts and cables, for about nine hundred thousand dollars per year. If the City will omit their requirement that we must perform these extra services and will let us confine ourselves to our real job of providing electricity, we will reduce our annual bill by one million, five hundred thousand dollars a year.

Could the City save money by building a plant and wiping out the investment in existing plants, could it give the same reliability of service as now rendered, which is unexampled throughout the world?

Last July Commissioner Davidson made a report on the costs of establishing a City plant for the City’s own requirements in the territory the Companies now serve. His total was about one hundred and nine million dollars. That is a large sum of money to add to tax burdens or public debts. If the Federal Government took taxpayers’ money and gave part of it to the City, with a loan of the rest, that loan would have to be repaid some day—by present taxpayers or by their children.

Mr. Davidson figured that the proposed municipal plant could not even match our present rates until about five years after the new City plant began operation. During these five years, it is admitted that the municipal rates would be higher than our own. But what reason has the Commissioner for supposing that our rates in 1938 will be the same as in 1933? We have steadily reduced our rates, and unless American inventors quit inventing, and American engineers become incompetent, there is no reason why we should expect this gradual lowering of rates to stop, when conditions warrant.

The question goes deeper than money. We all seek to recover National prosperity. You cannot promote recovery by making war on the second largest industry in America, and by crippling one of the largest taxpayers in this City. You cannot help along the prosperity of the whole community by destroying the earning power of a billion dollars of actual investments made here, by people in all parts of the world. The deficits on subway operation, the deficits on water supply despite increased rates, are well-known. Their burdens weigh down all real property and every taxpayer. Shall deficits on City electric plant operation be added to the staggering total of taxes?

And what is the American ideal? Has government, has the City of New York, done so well with its affairs—has it managed its utilities so well—that our people want the City to enter the businesses now occupied with private capital? The issue challenges the American tradition, the American form of government. So I hope that both sides may approach the matter reasonably and fairly, for the best interests of all concerned, to the end that this unsound experiment in municipal socialism may be avoided. We all should spare no effort to that end.