UNlVERSITi' OF CALIFORNIA
AT LOS ANGELES

ELECTRICAL RATES

G. P. WATKINS, Ph. D.

Formerly Assistant Chief Statistician of the

New York Public Service Commission

for the First District

PUBLISHED BY

D. VAN NOSTHAND COMPANY

8 WARREN STREET

NEW YORK

G. P. Watkinb
Washington, D. C.

■ Al/riMOBK, MD., r. s- *•

>«1

A'X\A/3

CJ)

—3

DEDICATED
TO

MY MOTHER

PTIEFACE

This book is aii out^Towth, and in fact a by-product, of the
author's practical work. But it is his purpose to offer more of
explanation and of constructive application of economic principles
than most work of such a nature does, and to go farther into funda-
mental economic questions than most practical men, especially busi-
ness men, arc likely to go.

The standpoint of the writer is that of the economist. This fact
largely explains the amount of attention given to differential rate
theory. Few engineers appear to appreciate the character and im-
portance of the principle of differentiation in rate-making, though
they accord it piecemeal recognition under various other names,
especially in discussions of " value of service." Economists, while
they have given much attention to railroad rates, have interested
themselves comparatively little in the related subject of electrical
rates. Hence, we should not be surprised to find that the subject
has hitherto been handled with too little reference to the composite
character and variable nature — variable, that is, aside from changes
in costs and prices with time — of the unit cost of electricity.

The subject of load factors naturally occupies a large place in the
book, as it does in the discussion of electrical rates generally. In
this connection the writer's emphasis upon diversity and his con-
ception of its relation to the occasion and amount of demand charges
constitute what is characteristic and most important in his view-
point. Engineers too often ignore diversity as an element in rate
theory.

But the writer's conception of the importance of the density
factor — which relates to the other most discussed phase of electrical
rate-making — and of how it should influence the rate schedule is
more distinctly or more largely his own.

The question as to what the average level of electrical rates
should be is not here discussed. Xot only is this, from the point
of view of economics, a comparatively simple question, but under
stable business conditions it is, in practice, a question to be decided

6 Pup:face

with rrferonoo to local conditions and for a particular supply com-
pjuiy. It is true that the instability of business conditions durinj;
and since the War jxives to the matter of ))ri('e levels a very jjrcat
present inijiortance; hut this situation only fortifies the reasons for
not professing to dispose incidentally of a problem calling for inde-
pendent consideration. The subject of relations between difTcrent
rates granted by the same company to dilTcrent classes of consumers,
by itself, requires sufficiently extended examination from a general
or scientific standjioint.

The author lays no claim to being absolutely correct and up to date
in all the technological details that are directly or indirectly in-
volved in the consideration of his subject. If our engineers were
as well versed in economics as in engineering, a mere economist
would have no excuse for undertaking to deal with the subject of
this book.

Grateful acknowledgments are due to Professor F. \V. Taussig
for effective encouragement to complete and publish this book,
which he has seen in manuscrijit at an earlier stage of its develop-
ment; and to Professor Comfort A. Adams, who also has read the
manuscript and whose favorable judgment of it was particularly
encouraging because suggesting that, according to the impressions
of an eminent electrical engineer, the technological implications of
the study are substantially correct. However, not merely on gen-
eral grounds, but also because the manuscript has been considerably
revised and extended since it was seen by these gentlemen, neither of
them is in any degree responsible for the opinions expressed.

The book is an outgrowth of nine years experience and interests
developed in the statistical bureau of a public service commission.
My incidental indebtedness to associates in that work is doubtless
large, but is not susceptible of specification except as regards obli-
gations to Mr. L. H. Lubarsky for the construction — by which I do
not mean the mere draughting — of the diagrams, with the exception
of Diagram III. I have also in a few instances sought and received
valuable information from commissions and put)lic utility com-
panies.

Chapter VII is mainly a reprint, with some additions and minor
changes, of an article published in The Quarterly JourtuU of Eco-
nomics for August, 19 Hi. Several of the diagrams have also been
previously published. Diagram II and Figures 2 and 1 were used

P UK FACE 7

1)}' the writer in an article in The (Jnarlrrhj Jonrndl of Economics
for May, l!)l(i, entitled "Electrical Kates: 'I'lio Load Factor and
the Density Factor." Diagram T and Figure 5 liave ai)poarcd in
annual rejiorts of the New York I'ublit! Service Commission for
the First District, the former in volume III for l!»l.'^, the latter in
volume TTl for 1915.

G. P. W ATKINS.

Washington, D. C,
April 17, 1921.

CONTENTS

PAGE

Preface 3

I. The Peculiar Interest and Importance of Electhical Rates.. 11

II. Types and Elements of Electrical Rates Desciiihed 40

III. The Reimuvrsement of Separable or Prime Co.'-t 83

IV. Cl.'KBs Rates and Rate Differentiation 104

V. Lo.\d-Factor Rates 124

VI. Wholesale Rates and Qiantity Discoints 153

VII. The General Theory of Differential R.ates 191

VIII. Suggestions for a Model Rate ScnmuLE 210

Index of Names 221

Index of Subjects 224

GRAPHIC ILLUSTRATIONS

Di.\GRAM I. Load Curves fob New York City, 1913 17

II. Lo.\D Curves for Chicago, 1901-1911 19

" III. Load Curves for a Large Eastern Industrial Center,

1907-1920 22

Figure 1. R.\te Curves for Initial and Small Consumption 44

" 2. Block and Step Rate Curves 45

" 3. Variation of Aggregate Price with AGGREG.^TE Quantity. 48

" 4. Rate Curves Under Hopkinson and Wright Tites 55

" 5. AcTu.vL Rate Cur\'es illustrating a Thoroughgoing

Applic.\tion of the Quantity-Block Method 160

CHAPTER r

THE PECULIAR INTEREST AND IMPORTANCE OF
ELECTRICAL RATES

Importance and interest of the subject. Nature of the genus of which
electrical rates are a species. Heavy fixed charges generic and the im-
portance of the load factor specific.

The load factor. Thi.s and related terms as defined by the American
Institute of Electrical Engincei-s. Description and significance of the load
factor. Unutilized capacity. Illustration by load curves. Factors of certain
large systems. The load factor an economic matter. Limited applicability
to gas rates.

Further jnattcrs of economic technology. " Increasing returns." The
capacity of generating units. Range of capacity of central stations.
Tendency to centralization. The density factor. Continuous rating and
overload capacity. Qualifications of the significance of ratings. Alternating
and direct current systems. Interconnection of power plants.

The development and importance of electricity supply. The growth of
less than four decades. The hydro-electric element. Comparisons with
other industries. The lowering of average rates.

The problem confronting regulating bodies. Legal precedent and the ad-
ministrative situation not subjects of study in this essay. Laek of estab-
lished administrative policies as regards electrical rates. Adequacy of
powers. Diflfidence of commissions.

To obtain the means of satisfying any and every want by " press-
ing the button " has become proverbial as suggesting the easy
accomplishment of large results. The reference is to actual achieve-
ments and idealized possibilities of the use of electricity. Upon
analyzing the notion with a view to determining Just what is
implied, one finds an underlying assumption of elaborate material
equipment and adjustments in preparation for " pressing the but-
ton." The ease achieved presupposes heavy investment in fixed
capital as well as invention and engineering contrivance. This
situation is characteristic of the use of electricity. Payment for
such use must reflect these conditions. The utilization of energy
from a waterfall a hundred miles away in preparing one's break-
fast — perhaps eaten early and by electric light — on the table by
turning on the current for an electric percolator, toaster, etc., pre-
sents a problem in the adjustment of the payment for the services
involved that is incomparably more complex than is, for example,
the payment of a servant to prepare the breakfast in the kitchen
and place it on the table.

11
2

13 Klectrical Kates

Electrical rates and railroad nitcs are species of the same genus.
The latter have constituted one of the most discussed economic and
administrative problems of onr time. Electrical rates having the
general character indicated, if they have also outstanding peculiari-
ties of their own, should be of great economic interest.

Heavy investment of fixed capital, both absolutely and in pro-
portion to total capital, is, according to many economists, the
principal explanatory key to the general problem of differential
rates. Others emphasize the possession of monopoly power by the
enterprises in question. But in either case the economic similiarity
between an electric central station and a railroad is evident. The
business of electric supply ranks very hiijh in respect of proportion
of fixed capital employed and is likewise a monopolistic public
service, hence it presents the underlying conditions productive of
complex and dilTerential rates. When account is taken of the rapid
obsolescence of electrical apparatus, for which due allowance must
be made among carr}^ing charges, it is possible that the proportion
of revenues that must be devoted to fixed charges in tliis broader
sense is higher for this particular class of public-service enter-
prises than for any other. But for present purposes it suffices
merely to mention this point.

The great distinguishing characteristic of electrical rates, how-
ever, is due to the load factor. But the significance of the load
factor is in turn dependent upon heavy investment of fixed capital.

The Load Factor
The load factor is_the ratio of average to maximum demand.
For a more formal and authoritative definition the reader is referred
to the Standardization Rules of the American Institute of Elec-
trical Engineers, which cover also several other terms more or
less distinctive of electricity supply of which use is made in this
book.* The load factor is of general economic interest as well as
of peculiar importance for electrical rates.

' Following are varfouv deflnitlonR as quoted from the Standardization Rules, edition
of 1016. Occasional coinnient of the writer is put in bnu-ketH.

The Load Factor of a machine, plant or nystcm. The ratio of the nvcraRo power
to the maximum power durinif a certain period of time. Tlic average power Ik tnlcen
over a certain pcrlcxi of time nuch an a day, a month, or a ye«r, and tlic maximum la
tal(f--n nil the avemge over a hhort interval of the maximum load within that period.

In each caw?, the interval of maximum load and the period over which the averafr«
if taken khould be definitely upecifled, iuch a« a " half-hour monthly " load factor.

Intehest and JMroHTANCE OK Elkcthical Kates

By lo ad is inoaii t th e; kilowatts carricMl Ijy a j)owor station or
gcncratoror ot her machine, or the kilowjitt.s required by a coiib u-
m er or group of consumers. Kilowatts, though primarily a measure
of capacity, in this connection serve to measure tiie rate of output
or of consumption of energy. Thds^te of output at a given time
corresponds to the utili zed capacity, or the load, at that time. S^

j7ite__QJLxuttjiu tof one kilowatt k e pt up d uring one hour gives a
quantJty_of__Qutput of one kilowaU hour. . So, in order to arrive

'"STnie average output (or averageload ) of some specified power

The proper inten'al and period are usually dependent upon local conditions and upon
the purpose for which the load factor is to be used.

riant Factor. The rat io of. the ave ra^rp ]qj,,\ );q the, ratprl capacity of the p ower

^ plant, that is, to tho^ggrogate ratiiip> of the generators. [This conception is familiar

in the gas inrfustry under tiie name capacity factor and the idea is of general economic

applicability and significance. Doubtless the Standards Committee wishes to make

the term specific, "capacity" having too general a reference.]

The Demand of an Inxtallatioii or Si/stem is the load which is drawn fro m the source
of supply a^ i ;ne 7p^'V'"Pr terminals averaged over a suitable and specified interval of

time. Demand is e.xpressed in kilowatts, kilovolt-aniperes, amperes, or other suitable
units. [It is inevitable tliat " demand " will be used also in the economic sense, mean-
ing the quantity that will be taken at a specified price. The phrase " average demand "
relates both to this and to the above conception.]

The Maximum Demand of an histall ation or Si /i^tClP ^'^ the gi-p ^test of all the demands

It is determined by measurement, according

tha t have occurrod during a given nerio d
ta specifications, over a prescribed time interval. [The change made in this definition
in 1916 leaves it in principle the same, but the previous wording — which was " greatest
demand, as measured not instantaneously, but over a suitable and specific interval,
Buch as ' a five-minute ma.\inium demand ' " — is interesting for its negative emphasis.]
Demand Factor. The r^tjg of the maximum demand of any system, "<• pjirti "^ °

-ietaL connected load of the system, or of the part of the system, under
consideration.

Diversity Factor. Tl; £_ratio of the sum of the maximum nower demands of tha s ub-
rfiviKJqnf! nf any system or parts o f a system to the ma-xJTmrftl dema nd of the w^)nl B rvs-
_te^_OiUQt.^e part of the sy.stem liMST tionglflgfationr measured at the point ofsupp Tv-
"TAd individuaTcoti yuMiei, uf wur SeT has nondiversity factor! But he may be said to
have a diversity in relation to the combined peak, which may be considered propor-
tionate to the difference between his demand at the time of the combined peak in
question and his individual peak, or else to the ratio between his rate of consumption
then and his average rate of consumption. The second is the more significant point
and is important enough to have a name of its own. Diversity ratio seems to be
appropriate.]

Connected Load. The combined co ntinuous rating of all the receiving apparatus on
consumers' premises, conu^Jt M.uiJ lu tliiTsystem or part of t he system under consideration.
Power Factor. The ratio of the power [cyclic average of the products of current
and voltage in an alternating current circuit, as indicated by a wattmeter] to the volt-
amperes. [Chiefly of technological interest.]
The terms load factor and diversity factor were both current in various senses before
(and to a considerable extent since) their official recognition and definition by the Ameri-
can Institute of Electrical Engineers, the former in June, 1907, the latter in June, 1911,
by action of its Board of Director.s.

Aa supplementary to the definition of load factor adopted by the American Institute of
Electrical Engineers, the following rules of the Association of Edison Illuminating Com-

Electrical Kates

station for ii voar it is only noccssary to divide the kilowatt-hour
output for the year hy STUO, llu* nunihor of hours in the year;
vhiih gives one term of the load-factor ratio.

The other term is the highest recorded output for some hrief
interval — live minutes, fifteen minutes, or lialf an hour, or pos-
sihly longer. Sometimes the instantaneous max inmm has b een
used, bu t the AiTKTtTTm Tji gtitlTI co^ .hjlec trical i^gincera_d isap-
')->ro\Ts~This. d oubtless because the capacity of a gencp Ltor-im^a
brief intgrvaTls much greater than its continuous rating, so th at
the tech nical and economic signific a nce of a l oad factorJiased upon
an instantaneous m aximum, probab ly the result of a brief fluctua-
ti<ni of tli e load, is less than where the load for some app reciable
i.uforvii1 i< t'^^"" It should perhaps be noted that the latter sort
of maximum load is strictly the average kilowatts for the interval
in question, though of course measured integrally, instead of being
derived by an arithmetical operation upon a series of measure-
ments, that is, l)y " averaging.'*

The load-factor concept has been developed in connection with
the electric-supply industry because of the fact that electricity
must be generated at the moment of consumption and cannot be
'* manufactured for stock," even a few hours ahead. In manu-
factures, goods are made in anticipation of need, and are stored
until consumers are ready to buy and an economic demand for
the goods results. In the gas industry storage is possible, though
the capacity of gas holders is seldom more than one day's sujiply.
In electricity sup ply stora^ is not y et ecanoiHJ ^ally p racticable.
The energy mu'srije_generated at the moment of tlemand7~~~Accord-

panies, adopted on recommendation o( its Committee on Load Factor in 1914, arc of
intereiit. Proceedings are not published.

(a) Unless deflnitoly stated to be otherwise, the period for which the load f.iytu r is
calcul ated phoulj by take n as o ne year.

(b) In calculatiiiR the load factor of central station systems the consumption of
energj' "hould be taken as of the calendar year ; the maximum demand should be token
M the average of the maximum load of the winter in which the year beffiiis and of the
winter In which the year ends. Should the maximum load occur near the middle of the
calendar year, that load should be taken as the maximum demand of the year.

(<•) Fur <etitral Ktatinn^ calculations the niaxiiniiin load should be taken 08 the

!ie year It is suKKeSli-a fllSfl Ifiat the lialThour

highoKt half-hoOr average load durT

time intervals d« WKcn always to fJllPIKl irrer the clock half-hours.

(d) Fur indu.-.triul pDWi'r service calculations the maximum demand should, unless
definitely htate.1 to be otherwise, be taken us the highest h.ilf hour average load during
the i>erifKl. DilTerent time interviiN varjing from one hour to the insUintaneous de-
mand may, however, be specified for Industrial power and for railroad service, depend-
ing upon tbo local conditions and the characteristics of the cpecial service.

Interest ani» Imi'oktaxce or Elkc rmrAL Kates

ingly grates and boilers must l)e designed so that the quantity
of water vaporized can be doul)led on a moment's notice, and the
generators must be able to take care of rapid changes in the load.
Irregularit y of ec onomic dcma iul and its concentration upon peak
lioursaret 1 l o re fore very £ nst] Y nnd — regni rc special at tention ia
rate-making. A qualification is necessary, however, with refer-
follie overload capacity of generating and other equipment,
available for brief intervals of time. Some degree of operating
elasticity is obtainable in this way. But the carrying of an over-
load for any considerable period of time causes a destructive over-
heating of the machine.

The operating problems occasioned by the peak load are, how-
ever, of comparatively small general bearing. If engineers and
managers were not able to meet them they could not retain the
business. At the steam end, devices have been perfected to permit
of greatly increasing almost instantaneously the amount of water
vaporized, and the adaptability of generators to variations in the
load has also been greatly increased. So far as sharp and sudden
peaks increase operating costs, the costs should of course be re-
covered, if possible in the rates charged to consumers responsiljle
for them.

The more_Jundamental aspect of the importaiice^f the load
factor t o the electrical company i s^ the necessity of providing a
p't gnT'suffic iont to meet maxi mum demand. ^Vfost of the time the
capacity of fne" plant is utilized only to a small extent. A con-
sumer who takes energy almost exclusively at the " peak of the
load" requires generating capacity proportionate to the rate of
supply necessitated at that time, for which capacity there may be
no use at other times. A consumer whose demand is entirely " off-
peak," on the other hand, requires no additional ])lant capacity
and imposes no fixed charges attributable directly to him. It is
obvious that the same kilowatt-hour rate for both is not prima
facie equitable.

Loadcurves- are the b eet ^means of indicating tl ie character o|
the va riation of _ the load for d iffe rent companies and TnTF erer/t
peTiodsl The diurnal variation most readily lends itself to graphic
relJfeseiitation, though there is a characteristic seasonal variation or
cycle that is of scarcely less importance, and there is also a weekly
cycle. Following are diagrams illustrative of the character of

If) Electkical Rates

diurnal loail curves. The first compares winter and Kumnier diur-
nal curves for several New York City companies; the second shows
the development of the curve of the Commonwealth Edison Co.
of Chicago tlirough a series of years; the third shows the develop-
ment from 1907 to date of the load of the electrical .tsystem of a
representative P^astcrn industrial center.'

Diagram I shows the comi>;irative variation of the load for the
two largest electrical comj)anies in Xew York City and for the

• The sporial use of the por c-cnt index pliin in the ounes o( all three of theae load dla-
rram.1 callR for brief explanation. It is choson as the boKt meann of nhowing rom{iarative
variation of electrical loads. In preparation for plottin);, the Rgvrt for the average load for
the 24-hour period Is divided into each of tlic hourly (Di.tirrania I and III) or h.-ilf hourly
(UiaKTum II) valueo in the series of data for the particular company or year. The quotiei^ta
(per cents) thuB obtained are plotted nl)o\e and below a »nenn axis, which reprcKents unity
or the average (the divisor). The value of a unit of the scale is therefore different for each
curve and the curves do not show kilowatt.s. The emphasis is upon relative (per cent)
variation from the a^erage instead of upon absolute chaiiKes.

The curves are merely a special type of arithmetical curve, being referred to a 100 per
cent axis, regardlesn of the absolute value of the KC'rie!<, instead of to a zero ba«e. F.ach
curve varies above and below ita own axis. Ordinary arithmetical curves, if more thaa
two or three in number and reprosenting magnitudes at all diversified, cannot be compared
to advantage with reference to their relative variation. The relative range of variation —
of which the load factor is a function — is what is .•.igniflcant in the above curve*. The eye
can readily grasp resemblances and differences in this respect, as it cannot when all these
curves are drawn to the same arithmetical scale. If the re uler is interested in statislii-al
graphics, he should compare the above Diagram II with the representation of the same
facta by curves drawn to a single ordinary arithmetical scale in the Report it> the Com-
mittee on Ga-s, Oil and Electric Light (Chicago City Council) on the Investigation of the
Commonwealth Edison Co., May, 1913, p. 22. There the relative variations are distorted
and made difficult or impossible of comparison.

These curves possess in large degree the propeiiy that is the special advantage of logarith-
mic curves in that they express relativity. But they are at the same time more readily
und^-rt>tood by the layman who has not enough u-se for the latter to furnish him with the
neccssarj' incentive to learn what they mean. It is importJint to note that in the per cent
index curves the relativity in question applies as between the various curves, but not a«
between parts (equal intercepts on the ordinates) at different heights of the same curve.
In other words, the 10 points between 120 and 13(l p'-r cent are not relatively of the sani*
ligniflcance as the 10 points between 80 and 90. In a logarithmic curve, on the other hand,
there is true relativity ax between its parts, so that, for example, the graphic value of U»e
10 lolnts between 80 and HO Is equal to that of the 1.'. points between 120 and IS.*). Hut
the oJiistancy of the reprehcntation of equivalent kilowatts for Uie parts of thp same cur^e
U probubly an advantage of the per cent index curve Us<-<1 as It is in tliose two diagrams.

If one were to attempt to draw-in the zero bam-s for the per cent index curves (especially
In II and III), the result would he merely confusing. To omit the base would be very bad
graphic practice for ordinary arithmetical curves, hecaute in such a case the area between
the curve and the base line is primarily slgniflcunt and the course of the cun-e Is signiflcant
only because It shows the development and vari.ntlon of that area. So far as the same
principle applies to tlir«« per cent Index curves, it is the variation of the area between the
cune and th* axis tluil is significant. Hut where the zero bnne is eqviidlstant fmm each
of the axes of ief.-ien<^'. the i ITe. t i» much like that for logarithmic cunes. In the latter
ca^ the zero ba*« is Inflnitely distant to that tho ix.Kltlon of the curves in relation to each
other cmn b« ahlfted vertically at will with a view to better comparison.

SCALE FOR
5UMMER WEEK

Diagram i

Summer and Winter
Average Variation of Load

New YORK City

SCALE ron

WINTER W££K

A. M.
6 A

NOOI^

10 II 12 I

p. M.

280
270
200
250
240
230
220
210

ISO

160

130
120
110

100
90
80
70
60
50
40
30

■rr-^

"■<*

PER CENT INDEX

LOAD CURVES

\
\

SHOWING 2A-H0UR VARIATION

N.Y EDISON iNCL.UNITED ELECT.

A. AVER. 4WEEK DAYS. DEC. 191!

B. .. - - JULY 1913

C. .. - - .. DEC. 1913

BROOKLYN EDISON

D. AVER 4WEEK DAYS. DEC. 1913

E. •• 5 •• MAY 1913

}\\

'. \

•

.^s

l\\

FLATBUSH GAS

'//

*>c

\'-;

F. AVER. 4WEEK DAYS. DEC. 1913

G. " 5 •• •• JULY 1913

. /2f/i

hi\

\ '

— — <

1— ^

f.....

\
1

yy'

/ /

\ \:

» '

*..

' /

i ^

N\N\TZf

1 j

/\weeV<\

'■ 1

;

\M--

...Im

•..,

,•'

\
\

1
i

1
1

\mp-.

1
1

1
i

P-_

Ifi

■ ■9

'/(

1 ^.

7
/

••'

'• 1

\
\

"7f

^■>

••'

■

•..

,•

.^'

.s-

'^V

1 1

1
1

\
\

"^1

^■^V

..-.

/^'

..E_

-•,

\
\
\

• II

\
\

/
/

^.^

■■^'

',\

\
\
V

1
1 1

)M^

lER

\ /.' wee:k

\ \

p_.

1 1
1 •

'ill

1
/

fl-

;

"X.

■^v

/ .'

■V

1
1

..«?..

.6.

•

7-
/

/..

••■'

•..\,

— '--

210

aoo
i»o
lao

170

leo

IftO
140

130
120
110
100
90
60
70
60
50
40
30

12 I 2 3 A

5 6 7 e 9 10 II 12 I 2 3 4.

A. M. NOON

5 6 7 e 9 10 II 12
P. M.

18 Electiucai. lUii-a

electrical department of a comparatively small gas-elcctriiul com-
pany ' serving an outlying district. Two associated companies are
com!)ino(l in the case of the New York Edison curves because sup-
plied by the same generating stations. Eor this system, moreover,
a 1911 as well as a 1913 curve is given, because of the acccBsion
meanwhile of the large Third Ave. street-railway load, the efTect
of which upon curve C as compared with curve A is interesting.

For present purposes the slightest suggestion of the significance
of the dilTerences between these curves is sufficient. The lato -
afternoon winter pc jik of the New York Edison is a point that
attracts attentioiu__The_£iUuLlii>n in this respect appears to have
been "much iniproved h y thr nddi ^ d rnilwMV l-ind/ but is stil l not cer-
tainly better than that^ fJlxeUkooklyn lulison, despite the heavy
dayliglit load of tlie former comjiany. On the other hand, the
latter company has a relatively more important night and early
morning load from street lighting. The Flatbush curves are inter-
esting representatives of the variation of an almost exclusively
lighting load, including a considerable proportion of street light-
ing. High develoj)ment of the daylight load is the noteworthy
feature of the New Y'ork Edison summer curve.

The curves of Diagram II are based upon data for a series of
eleven years for a single company, namely, the Commonwealth
Edison of Chicago, which has shown a remarkably rapid rate of
growth. This gro\\liiJiH'. \mvu Ijrought about largely with direct
reference to &^l)taining tiie benefi ts ofJiverTrtrnition. The per cent
index cun'es facilitate the comparison oi' results obtained as ordi-
nar}- arithmetical curves fail to do. It is hardly necessary to say
that the scale is more condensed in Diagram II than in Diagram I,
so that the same degree of variation would be represented i)y flatter

* TbU diagram i* ali>o to be found, with accotnpaii.vitig diNoushiun and diitii, in the 1913
Annual Keport of tbc New York Public Service Conimiiuiion fur the First Diiitrlct, vol. Ill,
p. 72. For pur[io(e« of refcrt'tice in relation to the absolute iiuantltieii reprexented In
Dla^am I, the fullovving flifureH of (4 or t> duy) uveiaife 24'hour output in kilowatt houni
are given: .New York Kdison. winter. 1011. 1,7U2.183 ; 1913. 2. .'.44. 733 ; Hummer, IB13,
1.081,2^0; Brooklyn Kdioon, winter, 627,H7r> ; kumnier, 876,090; Flatbuidi (iax, winter,
2i.8H3 ; nummcr, 13.370.

* The drinaiid of the Tlilr<l Ave. lullwdy nvfitcm, the uri-riMion of which um-cuhtd for mo»t
of the inrreaae In energy dl«tribute<l by the New York Kdiiion between 1011 and 1913, In
addition to havin;; the uauuI favorable cburarteriittirjt of a iitr«M< rnilway. in alw favorably
affected aoniewhat by tlie amount of kloroKebattery opcraliou In tbii group of companiea.

Diagram ii

Average 24-HouR Variation of the Load. 1901-19

COMMONWEALTH EDISON CO. OF CHICAGO

20 ElIX-TKICAI. IvATl-^

cuncs in tlie second case.* The average day's output for each of
the years in the scries is shown on the face of the diajxrain as well
as imlicated hv the arrangement of the axes along an aritlniietical
scale.

The ehan;,'e in the character of these Chicago h'lid curves has
been gradual and not more marked in the later tlian in the earlier
years, although it is during tlie later year8_t hat the increase i n
energ)- supplied has l)een so large. The relative importance of the
'lofeiToon load hj\R jr''<^Mltly increiisccTand that of the evening load
greatly decreased. In fact the 8 o'clock evening peak ha.s become
in etTect merely a part of the slope of the late afternoon peak
occurring at 5 : 30. The height of this peak above the axis has
remained substantially tlie same throughout the i)eriod under con-
sideration. These figures do not appear to indicate any great
improvement in the average diurnal load factor during the ten
years. In fact, as computed for 1901 it is 59.8 per cent, and for
1911, G3.3 per cent. The change in thc time of the peak j^ ^pgr-
linpg nf tbe greatest gcn crnT7i(rniiicance In 1901 it came at 8 P.
M. ; 'in 191 1, at o : 30 P. M. In view of the fact that the data are
year-round averages, it would appear that the overlapping of light-
ing for commercial purposes upon power uses during the compara-
tively few short days must result in a peak much more pronounced
than apj)ears in the average values plotted. The evening lighting
load should show a nearly constant maximum the year round.
The kind of lighting that constituted the peak at the earlier date
is now nearly all off-peak, even on the showing of the curves as
they stand ; and, for the reason just mentioned, at the actual peak
season in winter the diversity of this class of business would doubt-

• Per c«iit Index variations are properly rcferrfd to an axis. While location of the two
axe* <lraw-in in Diagram I in rolation to each other is merely a matter of (fmphlcal con-
venience, in Diajfnim 11, the relative lix-atioii of the axes in Kiifiiifi< ant roiireseiitlng. a< it
doe«, tbe cumparalive mujfiiitude of the load of the Conimonweiilth EdiKon Co. In itn ifrowth
from year to year, and iilmilarly an rejfanln Dinirrani HI.

Thr three net* of cun-en arc not dirw-tly comparable with each other at to their ci^lB-
cane* in detail bw-ause the baalc data arc dllTcrcnt in character. Diagram I exhlbilinu aver-
ug* variation for a few hoinoi;eiie«uii <iayH, cxrliidlnir Satiirduyi, Sunduy* ami hi>llilay«, and
DIairnim 11, average variation for the whole year, obtained, however, by taking every eighth
day ln*teud of every day, while tbe data of Diagram III arc for iilnglc day*. Tbe daU of
Diagram II are aluo for half hourly, tnKteail of hourly, IntorvalK.

•The curvew ore »<jinrwbat ronfunliigly mlxi^l ut tbe lower part of the diagram — a defect
from the i>fjlnt of view of graphic*. Hut thin i« pn-ferred either to aacrincing Uie dUpoal-
tlon of tbe Bxe« along an arithmetical scale or to reducing the range of variation indicated

by • glVT' f>«»r rrrtt.

Interest and iMrouTANCE of Electrical IUtes 21

less appear mure inurkcd.' In Imt fow cities, it in true, would this
situation be so highly (Icvelojii'd or aflvancod by IDll as in Chica^^o.

It appears that the annual load factor grcatcly improved, hav-
ing been raised from 29.3 per cent to -J 3.5.* The difTerence between
this comparison and that of diurnal load factors is df)ubtlcss due
to the fact tliat the improvement_iu th e variation of demand h:\A
been seasonal more than diur nal. In fact the superiority of power
IS more'niarked in tlie latter than in the former respect. This point
is not suHiciently empliasized in most load-factor discussions, per-
haps because load curs'es usually represent merely the diurnal
variation. The large influence of the taking-over of the street-
railway load by the electrical company is a very important element
in the latters improved load factor. Street-railway load factors
appear to be in general somewhere around 50 per cent, or at any
rate above 40.

Diagram HI is on the same general plan as Diagram II and
probably fairly represents recent tendencies in the development of
the load for large and progressive electrical systems that are in posi-
tion to obtain and take care of a good deal of industrial business.
It differs from Diagram II in showing data for single days instead
of averages for many days. It also relates to the December peak
condition instead of to the average for the year. It is therefore not
affected by the different character of the curve in summer, as the
averages used in Diagram II are. Thus it shows conditions only
at the critical time when loads are heavier and peaks greater. The
day of maximum output is considered rather more representative of
conditions than the day of the highest peak, though, of course, the
two are often identical.

The general technique of construction and the use of per cent
index cur^'es is the same as in Diagram II, but the variation of the
load is shown by hourly instead of half-hourly intervals. The axes
are arranged according to the scale of the kilowatt-hour output on
the December days in question. The result is not essentially differ-
ent from what it would be if the axes were arranged according to

' Of. the New York Edison curve for December, 1911, in the diagram on page 17, above.
The same company's 1913 cune is much improved by its having meanwhile taken on the
Third Avenue street railway sj-stom.

' Chicago Keport, p. 22. In the diagram there shown annual load-factor per cent* arc
put alongside arithmetical diurnal curves in a way that conveys a wrong impression.

Diagram hi

Variation of the Load on December Maximum Output

DAYSJ907-I920

Electrical System of a large Eastern Industrial Center

AM N 3 O N

; 3 4 5 6 7 fl O 10 II li I

I I I I I I I I I I I I

EACH
100 X
AXIS

SEMTS
M/ZHAXXi

LOAD
•^DAY

iQid

1920

|9I9

1917

1916

I9l5

1913

PER CENT INDEX CURVES

1914
I0I£

I9ri

1910

Qo'SCAll

'o« AXES

12 I 2 3 4 5 6 7 »J ■:* 10 II 12 I 2 3 4 ^ 6 7 6 9 lO l( l2
A M NOON P M

Interest and Tmi-ohtanck of Klkcthical Katks 23

the scale of yearly outputs, and the method used has some advantages.
But it is siirnincant iliat the yearly ()ut[)ut has in fact, on the whole,
inci'ca.«('(l sonicwhai more since IDT-i (Uk; period for which sur-h data
are at hand) than tlir DccciulxT niaxinuini day's output, which fact
indicates a <;;ain in evenness of ficasonal di.'-trihution as w(dl as in
December daily load factor.

This diagram brin<]^s down to date th(^ c((in[)arisons made in
previous diagrams. In the character of the devehipmcnt ^hown,
even more than in the period covered, these curves doubtless overlap
the development at Chicago, because the Chicago company was a
pioneer in this kind of expansion. But the company to which the
data of Diagram 111 relate has probably made more use of industrial
opportunities than some. Indeed, similar possibilities are not open
to companies serving the smaller population and industrial centers.
It is worth noting that the 1019 curve shows a degree of reaction
due to the decline of some war activities. The company does not
supply })owcr to tlic local street-railway system, though it does serve
one interurban railway of relatively small importance.

The marked improvement in the December load curve in the 13
years covered speaks for itself. The daily load factor on the hour-
interval basis for the December day used may be computed at 48
in 1907 as compared with 63 in 1913, and 88 in 1920. The greater
the industrial demand, also, the earlier in the day comes the peak.
The industrial and similar demand accounted for roughly one-half
of the total output of the year in 1912 and for two-thirds in 1920.
Annual load factors on the hour-interval basis were 45 in 1912 and
56 in 1920.

In this connection it is worth mentioning that some of the large
hydro-electric plants have achieved load factors above 80 per cent.*
Comparable with a 1916 load factor of 43.20 for the great Chicago
company are the following figures for certain other urban supply
systems: X. Y. Edison and United Electric 38.30 (but the basis
is not correct unless the Xew York & Queens Electric L. & P.
peak is included) ; Public Service Electric of New Jersey, 39.82 ;
Detroit Edison, 47.80; Philadelphia Electric, 35.6; Cleveland

" Below is a table showing yearly load faoters in per cent transcribed from the issue of
the Electrical World for March 29, 1919, rage 033. The Commonwealth Edison's load
factor for 1916 is given a.s 43.20, presumably on a slightly different basis from that used
in the previous reference in the text.

24 Electrioal Kates

Electric 111;:., •!-'>■«; Kdison of Hoston. ^3.7'^; EdiBon of Hrooklyn,

38.1. The proportion (»f railway load nn»l of power for nmnufao-

LOAO rACTOM OF THE LAIIOMT OENClUTINa BTSTBUS IN AMKKICA

(Incl«id«t all companlea in the Unft«d .'^UtM and Canada havlnir yrarly outpuU In exoiM
of 100,000,000 kilowatt hours; arranged in order of output in 191R.)

1018

Date of Load

STRtPin 1919 1017 peak factor

Niagara Fallf Power. . 80.04 88.87 Apr. 8 8J 1

Ontario Power 86.80 91.5 Dec. 18 81.9

CommonwcMlth Edison of Cbiongo 43.20 44.0 Dec. 2 43.6

Mont:»na Power 84.r)0 73.0 Nov. 21

Sba\» inepan Water & Power 50.00 60 4 Sept 24

Montreal L. H. * P 70.8 Dec. fl 68.0

N. Y. Kdison 4 United Electric 38.,'?0 39.2 Dec. 11 88.2

Pacific Gas * Electric 02.20 61.6 June 4 88.1

Toronto Power • 68.40 84.0 Dec. 8 81.9

Public Sen ice Electric 39.82 40.2 Dec. 5 48.9

Detroit Edison 47.80 50.4 Dec. 13 61.8

Southern California Edison 56.04 54.4 July 12 54.6

Philadelphia Electric 35.60 40.0 Dec. 6 47.6

DuquMne KIe<trio r>2.30 54.0 Dec. 6 61.9

Buffalo General Electric » 57.00 52.7 Nov. 22 84.4

MisKiasippi River Power Co 54.30 03.0 Mar. 8 61.8

Cleveland Eleot. I llR 45.80 45.0 Nov. 22 48.88

Utah Power & Light 67.80 72.5 Dec. 27 74.83

Tennessee Power 67.00 73.41 Dec. 11 67.6

Pcnnnylvania Water k Power 61.80 68.6 Feb. . . 84.2

Great Western Power 02.65 71.13 Aug. 12 68.0

Con.sol. G. El. L. & P. of Baltimore 59.10 62.4 Nov. 7 84.9

Puget Sound Tract. L. & P 61.80 64.0 Dec. 20 65.4

Consumers Power Co 46.0 Nov. 21 46.8

Elec. Co. of Mo. & Union Elec. L. & Pr 43.10 4C.fi Nov. 26 49.1

AUbama Pr 51.07 56.7 Dec. 19 51.5

Winconsin Edison and Milwaukee El. Ry. & Lt 39.00 44.0 Nov. 20 43.0

New England Power 44.00 48.0 Dec- 18 <8.0

Mlni.eapoUs General Electric 44.90 46.16 Nov. 1 53.8

Ediwn Elect. Illg. of Boston 33.72 StJ.l Dec. 6 86.0

Brooklyn Edison .3H10 37.5 Dec. 11 37.5

Portland Ry. L. ft P .4»t.:.0 49.0 Dec. 23 62.0

Sierra ft San Franrihco Pr 49.44 J"'y 1« '^'•'

Georgia By. ft Power Nov. 8

Michigan Northom Power 74.40 76.7 Dec. 24 79.4

Rorhe«ter Ry. ft Lt 4100 44.0 Nov. 22 42 8

Washington Water Power 00. 80 58.5 Nov. 20 6r..l

Great Northern Power .4HS0 51.5 <* '

Adirondack Electric Power . .4140 43.1

")^ Nov. 8 ft 39.6

J Jan. 23

Potomac Elect. Power :;(i lo an o.i ivc 20 410

Virginia Ry ft Power 4 4 .'.4 47 39 l)rc. 18 .'.2 8

Southern Sirrraa Pr. ft NevadaCallfoniia Power 06 50 66.3 Aug. 6 65.8

TolHo By. ft Lt 42.20 40.4 Drc. 4 45.7

Southwestern Pr. ft Lt 43 00 46.0 Srpt 26 44.6

Empire Dl'tlrirt Elrri. 49.70 62.4 Srpt. 6 514

8otith«m Power ... .... .... ■ . • •

Interest and Imi'outanck of Electrical RAT^:8 25

turing has most to do with the difrerencos. A coniijuny witli a large
proportion of hydraulic prime-movers, also, will usually have rates
that especially encouraf^e industrial and off -peak uses and will he
likely to have a corrosj)ondingly high load factor.

It should be noted that in tlie three diagrams above presented
the peaks and depressions are snioothod-out somewhat by the char-
acter of the data (average kilowatts for considerable intervals)
and the method of construction (oblique straight lines between the
average points). On the other hand, the deleterious elTects of an
overload upon generators, etc., are not immediate, hence a time-
lag in the response of the curves to changes in the load is not inap-
propriate.

As will appear in the following chapters, the load factor is
essentially an economic rather than a technological matter. The
output of an electrical company is obviously determined by the
needs and wishes of its consimiers. Its maximum output is also
determined by its consumers. It is the business of the company
to be ready with the supply when it is wanted. If an electrical
company seeks to increase its load factor, it must operate through
the motives and habits of actual and possible consumers, in other
words, not through internal organization and management, but
through selling policies and rate schedules."

It is worth noting that the date of the maximum within the jear has an effect upon the
computed load factor in the case of a rapidly growing company. Allowance for this can be
made, wl>en data for successive years are at hand, by reducing the maximum (or increasing
It, if it occurs near the beginning of the year) in the ratio of the elapsed time after the
middle of the year to the time (approximately one year) between the two maxima respec-
tively within or closest to the year for which the average kilowatt hours are taken.

*' Too exclusive attention to diurnal variation is doubtless responsible for a misapplica-
tion of load-factor principles in connection with gas rates. Where the gas holders will
contain nearly or approximately one day's supply, which is the usual situation, it is obvious
that the operations of the company are but little affected by the time of day when most gas
is consumed, er whether 10 per cent or 30 per cent of the day's consumption is taken between

6 and 7 P. M. The seasonal \ariation, on the other hand, as between the highest and the
lowest monthly average per day, will be decisive in determining the necessary investment in
production plant. Hence, if gas companies were to adopt load-factor rates, the reference
should be to the seasonal, not to the diurnal, variation, and the maximum demand should be
determined by the greatest average use per hour during a day or even longer period. But
load factor principles have been applied by the Consolidated Ga.s Electric Light & Power
Co. of Baltimore in its gas rates for industrial uses (Hopkinson tj-p*^) on the basis of the
greatest number of cubic feet usrd in any one hour (C Rate Research 372), and for domestic
use (Wright type) on the room basis. The latter is practically a density-factor rate. For
the first class the rate is further qualified with reference to diversity as follows: "For
installations in which the use of gas is considerably less between the hours of a P. M. and

7 P. M., during the period from October 1st to the succeeding March 1st, in eaeh year,
than at otlier times, the specified demand upon which the rate is ba.sed may be taken u

2rt Elkctimcai, ir^TKS

Further Matters of Economic Technology

The central-station industry is or nhoulii i)i' an object of study
cspociall}* intorcstinjj to those who are concoriiod witii technologi-
cal economics, not only because of the load factor, but also because
of the unusual importance in this connection of the so-called
principle of " increasing returns," othenvise referred to as " the
economy of large-scale production," " the density factor," etc.

The highly capitalistic character of electricity supply has already
been mentioned. The fixed investment per unit of service and per
eniplovee is probably not exceeded in any important branch of indus-
try. It suffices for present purposes to make the statement thus
qualifiedly, and it is not possible to do much better. The fixed-
capital accounts of large and successful enterprises arc not of so
determinate significance as to make comparisons on that ba.sis
certainly worth while, and satisfactory " physical " valuations for
various classes of corporations are not as yet comprehensive enough
to afTord the facilities for an adequate statistical study by such
means. The significance of the great proportion of fixed capital
cost in the total cost of electricity supply will appear in various
connections in the succeeding chapters.

the measured rate of vse occurring during any hour between the said hour* in the «ald
winter months; provided that the demand shall in no event be taken as Iom than one-half of
the maximum measured rate of use at any other time, the use under such condition* btiug
cLissed as non-peak." (Schedule K, describing the rates referred to, is printed In full In the
Hej><>rt of the Differential Rates Committee of the National Comint-rcial (.i.m .\fc.ociatlon
for 1917.) It hhould be noted that the demand is specified in the contract, subject to
revision upon mea.'-urement. Moreover, the company may at its option give permliwlon to
exceed the determined maximum rate of use. It is probable that the Intent of such ratei
is concerned with the density factor at least as much as with the load-factor, and the
effect may be substantially that of quantity-block discount* The schedule In question xtu
accepted by the Maryland Commission. A gas rate accepte<l by the Illinois Commission alio
provides for a demand element ba.sed on a 30-minute or (optionally) a 5 minute interval
(9 Hate Hesearch 295-0).

The fact that the Baltimore company distributes by-product g«« has an evident
bearing upon its Interest In stimulating the demands of large consumem. It it not
apparent how this fact would affect particularly the hour* of the day within which
the gas might bent be supplied.

It would doubll<-»H be possible to work out a reasonable scheme of customer, output, and
capacity cotiM and cliarges for a gas utility. The distinctiveness and Importance of thr first
element In c<»st cannot be gainsaid. It Is also true tliiit cost analysis will easily Identify the
last of the three elements. Hut this is true of any branch of manufacture employing con-
ildTable rtxed capital. And as to the method of distributing the manufacturer's fixed cost
or pawing It on to conaumers, the straight rule |>er unit of output, moilined by quantity
dlwxiunU, I* tho one generally Indicated. The heavy loading of a gas plant depends more
upon quantity Uken than upon time of day. One might, reasoning fmm this one ground,
rr,n<Iude (contrary to fart) that (piantlly discounts will be in practice more Important In
the gis than In the elwtrical field. A quantity block rate varying per unit of meter
••apadty (that Is, per light), supimrtcd by well considered rules as to meter Installation.
would meet the requlremenU of the gas-iupply iltuation better than a true load factor rata

Interest and Importance of Electrical Rates 27

The large and lately iiiucli increased size of electric generating
units is another significant fact for the economist. Turbo-units
of U0,000 kilowatts, and larger, capaeily are getting to he common-
place." In l(S8l the so-called " jiimho '' Edison dynamo had a

"The report of tlio 1919 N. E. L. A. Coinmittw.' on Prime Movcrn (Convention proceed-
in(!:K, Technical volume, pp. 1017) conUiins a Rununnry of LarKC-UnIt IniitullationK, a» of
May 1, 1919, from whicli the following is drawn. Some of these are trariKi)oration com-
panies. With cross-compound machineK havin^c two and three prime movem and generatoni,
the complete machine Ib considered as a unit.

Per cent

of total

Capacity of capacity

largest unit in '.JO.ow

, * > kva. and

Per cent larger
Kva. of total units

Buffalo General Electric 38,889 30.8 100.0

Consolidated Oa.s Elec. L. k P. (Baltimore) 20,000 24.5 4B.1

Boston Elevated Railway 35,000 28.5 28.5

Edison Elec. Illg. (Boston) 30,000 21.0 21.0

Alabama Pr. (Birmingham) 33,333 23.1 41.6

Edison Elec. Illg. (Brooklyn) 30,000 24.7 42.8

Brooklyn Rapid Transit 30,000 21.5 30.6

Commonwealth Edison (Chicago) 35,300 7.1 45.7

Cleveland Elec. Illg 31,250 15.0 72.1

Union Gas & Elec. (Cincinimti) 25,000 29.0 59.3

Northern Ohio Traction (Cuyahoga Falls) 22,222 33.2 66.3

Detroit Edison 45,000 23.3 54.4

Pennsylvania R. R. (Long Island City) 21,100 27.1 52.7

Twin City Rapid Transit (Minneapolis) 20,000 30.8 30.8

Moliue Rock Is. Mfg 20,000 39.6 39.6

Interborough Rapid Transit (New York City) .. .70,000 18.0 65.8

New York Edi.son 30,000 10.5 38.8

Public Service Elec. (Newark) 35,000 13.2 39.6

United Elec. Lt. & Power (New York City) 25,900 20.7 52.8

Philadelphia Elec 35,000 12.5 55.0

Narragansett Elec. Ltg. (Providence) 47,500 55.5 78.9

Duque.sne Lt. (Pitt.sburgh) 47,200 28.1 28.1

N. Y. Central R. R. (Port Morris & Yonkers) . . .20,000 33.3 33.3

Reading Transit & Lt 25,000 100.0 100.0

Union Elec. Lt. k Power (St. Louis) 25,000 30.1 30.1

United Elec. (Springfield, Mass.) 20,000 44.4 44.4

Toledo Ry. & Lt 23,500 26.7 52.0

Worcester Elec. Lt 20,000 46.5 46.5

Wheeling Elec. (Windsor, W. Va.) 30,000 43.5 87.0

The ratios show the extent to which reliance is placed on a single machine.

To the above list should be added, as having generators of 30,000 kilowatti or more in
place or ordered by the end of 1920, the Niagara Falls Power Co., the Hydroelectric Com-
mission of Ontario, the Pacific Gas and Electric, and probably others. Moreover, further
large machines have been ordered by a number of the companies above listed.

In an article in the Electrical World for Jan. 17, 1920, page 132, Mr. F. D. Newberry, of
the Westinghouse Electric and Manufacturing Co., sums up the dc^•elopment of large gene-
rating units as follows: Before 1912 the largest unit was of 8000 kilowatts capacity. In
the five years 1914-1918 units of 20,000, 25,000, and 30,000 kilowatts became a5 common
as units of 5000 and 10,000 kilowatts had been during the preceding five years. In the
last two years tliere has been a noticeable slowing up in the increase in the size of units.
Few single-shaft units larger than 30,000 kilowatts have been purchased.

28 Elkcthkal Hatics

capnrity of 100 kilowatts; and in 1S!)8 the largest generator built
or building was of UJOO kilowatt?." In contrast with the stations
of several hundred thousand kilowatts capacity, there are now in
operation, at the other extreme, numerous small stations with
generators of 100 kilowatts and less.

The economic significance of the above comparisons depends
upon the relation of cost of energy to the si/.c of the generator.
In a recent scientific discussion of this subject," a general rule as
regards original cost of apparatus has hern formulated as follows:
" If the speed remains constant the cost per kilowatt will decrease
by approximately 65 per cent for an increase of 10-fold in the size
of the unit." As to operation, the same authority says, " Operat-
ing costs increase with decrease in size much faster than do fixed
charges." " We arc not here concerned with the scientific exact-
ness or the extent of applicability of such a formula. Even if
rather rough, it senses emphatically to point the moral of the
great importance of large-scale production in the electrical indus-
try'. It should be noted, moreover, that it is not safe to depend
upon a single generator for too large a fraction of the totiil demand,
hence large generators are not available for the small stations so
much as may appear." Comparison of the capacity of such large-
size generators as those above mentioned with that of various
classes of power plants are interesting in this connection.

The Wisconsin Commission " publishes statistical data as of
1916 for 185 central-stations enterprises. The largest one has
a capacity of 44,030 kilowatts; the next largest 15,500 kilowatts;
6 others have capacities of more than 5000 kilowatts; 18 have
capacities of as much as 1000 but not as much as 5000. Of the
remaining 159 stations only 17 have 500 kilowatt* or more capacity.

" Paul M. Linc)ln in Proiidential Addreas, 1015. A. I. E. E. Proceedingii. page 1485.
Cf. aUo th« d'-vtlopment In irtzes of generator unit* for the Commonwealth Kdlnon Co., of
Chicago, aa rejKirtrd by Mr. Insull in the Journal of the .\mcrl<-an Society of M<'<-hanir«l
Knglnecra, .Nov. 10, 1010, page 847: In 1887, 100 kw. ; In 1002, SiOO ; In 1003, 6000;
In IttlS, S.'i.OOO. The Commonwealth Edison waa a pioneer In thla de\'elopmcnt, but has
lately been surpassed by others.

" Paul M. Lincoln, Helatlon of plant sUc to power co*t. 1013 A. 1. E. E. Proceeding*,
page 1030.

" Page 1041.

" Dlfllcultles U> be met In Intnwtlng one fourth of the loiui to a slngl* machine are dls-
russed In the report of the 1010 N. E. L. A. C.ommltf<-e on Prime Movrra. Compiire this
with the ratio* of the Mw-ond r-ojumn of the table In the footnote nl pace 27. above

•* T'-nth Annual Report of the Railroad CV>mmlwlon of Wi/<:onhln (year ended .June 30,
1010), page* 676, 6R5, 508, 508-001, 000 000.

Interkst and I \ii'()in'ANf"E 01' ?'lectrical Hatp:.s 20

Tho Xeu' Y'ork Second District ("oniinissioii, which ha.s juris-
diction outside New York City," puhlishos data including station
capacity for 122 central station enterprises. Of this total 12 have
capacities of 5000 kilowatts but less than 20,000 ; and 9 have capaci-
ties of 20,000 or more. Of the remaining 101, 40 have capacities
under 500, IS from 500 to 999, and 37 from 1000 to 4999.

In Illinois, where combination should be expected to have more
effect on the size of electric power plants than in most states, of
100 public-utility plants reporting in 1916," 59 iiad a " maxi-
mum " capacity of less than 500 kilowatts and SI others had a
capacity of less than 10,000, leaving 7 of larger capacities.

It is evident that, from an engineering viewpoint, most elec-
trical plants operated as central stations, or performing a public
service, arc small plants, comparable with isolated plants as to
conditions and methods of operation rather than with the big
alternating-current generating stations that send electricity over
miles of high-tension cables to numerous substations from which,
through the distribution system, consumers are supplied. The
tendency to centralization in electricity supply means the dis-
placement of small generating plants by more or less distant
sources of supply. Whether the small plants are operating as
central stations Avith a small distribution system supplying their
immediate neighborhood is not of much technological significance.
How far the process of centralization may go depends, of course,
upon the economies of large-scale " production " — which are con-
spicuous in the case of electric generation — and upon the cost of
transmission. As to the latter cost, whatever it may be absolutely,
the possibilities of meeting it depend upon dcnsHy of demand.

In considering large-scale production, it is necessary to have
clear ideas as to the signijScance of " density." In general, the
greater the amount of productive capacity, of both capital and
labor, that can be applied economically at a given place, with
concentration of management and unity of organization, the smal-
ler will be the unit cost for the resulting enlarged output. This
fact is obviously true for manufactures generally and is commonly

"Atuiual Report for 1917 (year ended December 31), vol. IV, pages 66, 126, 181, 200,
218.

" niinois Public Utilities Commission Statistical Report for the year ended June 80.
1016, page 795 S.

30 Elkctiikal Katics

referred to as the " ntlvnntnge of lar^c scale production." It is
true for the railroads, where it is referred to as tlio tendency to
" increasing returns," that is, increasing profits under the same
rates, resulting from the growth of traffic on a given line. In
this case, since tlie service cannot he disconnected from the plant
and sent to the consumers, trallic must grow up adjacent to the
plant in order that density may develop. The situation as regards
electricity supply is similar to tlie second case in that the service
has to he rendered in connection with the distrihution system. As
regards the size of the electric power plant, on the other hand,
the situation resembles that of a manufacturing enterprise, but
the electrical power-maker must supply his own " transportation "
system. The relation between the load factor and the density factor
has been discussed by the writer in another connection."

Since the capacity of generators and otlier electrical equipment
plays so large a part in the economics of electrical enterprises, it
is worth while in this connection to devote a few words to the sub-
ject of rating. Standard rating is "continuous rating,'' that is,
rating according to potentiality for steady and uninterrupted out-
put at highest efficiency for an indefinite period. In general it is
the decline of efficiency, occurring when the capacity of a machine
is forced, that limits the rating. For electrical apparatus, how-
ever, the tendency to an injurious rise of temperature is the limit-
ing factor. But if the excess load is only momentary or is not
continued for a considerable time, any temperature rise, which is
by nature cumulative, is soon counteracti'd and no harm results.

In other words, an electric generator ordinarily has considerable
overload capacity. This fact has an important bearing on the sig-
nificance of the load factor. The peak that is of fundamental tech-
nological and economic significance is the highest average demand
for an interval of time, perhaps 30 minutes, or more or less, not
the highest instantaneous demand. It is commonly the pnictice
of manufacturers of electrical equipment to guarantee certain
overload capacities for limited periods under specified conditions.

If the relation of the overload capacity to the continuous rating
of a generator varies, the economic significance of the latter is

••Article In the Amcrlran Ecoiiomlo Review for nrrpml>cr, lOlfi, mtltlefl, A Third
K«rtor In the VarUtion of Productivity: TJvi Load Factor, page 7.'.8, nri>cclBll.v the flrrt
Met Ion.

Interest and Importanck ok Electuical Rati-:s .''1

evidently subject to some qualificiitioii. It is possible llmt recent
develo{)ment8 in the construction of large generator units tend
to cause the absorption of some former ovcrlcad capacity in the
continuous rating. The newer turbo-units are built with refer-
ence to easy ventilation and rapid cooling. The continuous rating
thus in efTect absorbs some of what would otherwise be overload
capacity and the relative overload capacity is correspondingly re-
duced. In the case of a company with quickly rising and receding
peak demands, it may therefore be necessary to have a larger
reserve capacity. On the other hand, the elasticity of the carry-
ing capacity of turbo-units and the development of devices for
the rapid raising of steam on demand ought to mean greater
facility in dealing with peaks, such as might make it possible to
dispense with some of the reserve capacity formerly needed to meet
such demands. In one way this increased operating elasticity of
generators — the fact that their efficiency does not vary -greatly
within a wide range of loading — tends to put the moderate-sized
central station more nearly on an equality with the large one, since
fewer and larger generators can be used if it is less necessary to
provide for varying the capacity in use by switching in or out
additional machines. In the matter of reserve capacity, an elec-
trical company often finds it economical to keep in operating con-
dition for standby and supplementary service some of its obsolete
and othcn^ise superseded equipment. Where certain machines
are required to be used only 90 hours a year, a very low degree of
operating efficiency can easily be counterbalanced by the increase in
fixed charges for up-to-date equipment.

It is said that American plants tend to utilize overload capacity
in dealing with peak demands to an extent unknown in foreign
practice. But the fact may rather be that American manufac-
turers of generators have in the past been inclined sometimes in
effect to increase the overload capacity by understating the regular
rating. It appears, at any rate, that the standard American rating
practice would ordinarily assign to a generator a somewhat lower
rating than European standards. This general situation serves
to remind one that it is not merely in the field of the social sciences
that basic statistical quantities are approximate rather than exact.

A. C. turbo-units are most accurately rated in kilovolt amperes.
Not only is this unit somewhat different from the kilowatt, but its

32 Electrical Kates

relation to the latter is somcwiuit variuhle. The nature of the
ditToronoo is indicated in the definition of the power factor given
above." What the matter amounts to practically may best In? illus-
trated to the non-technical reader hy way of a somewhat stretched
analogy with the conditions of wat^'r distribution. If the utiliza-
tion of water from a system of mains required that the water be
kept in motion past a given point of consumption at about a given
rate, then the water would be distributed through " circuits " pro-
viding for a return current to the central source of sup]ily. And
if only a certain percentage (say 80 per cent) of the water coming
to the service pipe of a consumer could be obtained by him, then
the amount of water kept circulating through tlie distribution sys-
tem would have to be one-fourth greater than would be necessar}'
if the consumer could t^ke 100 per cent. Pipes and pumps would
also have to be correspondingly greater. This is about the situa-
tion when the power factor enters into consideration in electrical
supply. Generators and oilier apparatus have to be larger (in the
ratio to the power factor of its complement) tluin would otherwise
be necessar}\ That is, for a power factor of 80, equipment must
be of 20/80ths, or one-fourth, greater capacity than for a 100 per
cent power factor. The power factor relates to alternating-current
equipment and the figure varies according to whether machines
are under light load or full load."

There appears to be a substantial consensus of opinion among
central station men that the power factor is not a rate problem,
though an e.xtra charge or penalty for a power factor below 80 is
considered a suitable means of regulating the installations and
practices of consumers. A considerable number of companies have
recently specified in their power rates a standard power factor and
included a scale of surcharges for low power factors."

There are various differences between alternating-current and
direct-current distributing systems that are of much economic as
well as technological importance. The use of the one or the other
system in a particular district is due to historical developments as

• Note on pafje 13.

" Methrxli of mraiuring Uie power ftrtor, or eKtlmatlng It, for u»e m a mte element, ar*
dliru««-<J by Will Brown In the F.lcf-trlral World for Dec. 28. 1018. poitr« 1220 21. Dnwlly
attempt* are made to regulate tho power factor dlrwtly. Injitead of charging for low power
factoni.

■a count of the 1920 N. E. L. A. Hate Hook »howf 23 companies with power factor
penalty clauaea.

Interest and iMPoiiTANf'K ok Kijcthicsj, I.'\if^ .13

well as to the rcquironients of prcHcnt economic and physical tech-
nique. P'ven if it were possible, however, for the writer to deal
successfully with the dilTerences in question with due regard to the
numerous engineering; principles and problems involved, there is
no necessity for that in the present connection. Whether the
energy delivered is alternating-current or direct-current should
not 1m^ allowed to afTect comparative rates except under some such
conditions as the following. If the central-station company is in
position to give consumers an option as to which form of electric
energy they will take, then the company may be permitted to
charge more for one than for the other, in conformity with any
experienced diflference in cost. Or if any considerable numl)er of
consumers, on good grounds, prefer one to the other, then the
company may be allowed to make the supply conditional upon an
extra charge for the extra costs incurred by reason of such prefer-
ences.

One of the most important developments in the electric-supply
industry of recent years — a development much stimulated by the
War — is the interconnection of generating plants. This is done
partly as insurance, in order to make immediately available new
supplies of electric energy upon the breakdown of a station ; partly
for the sake of operating economy, to make possible the substitu-
tion of purchased energy for low-load periods (especially for the
smaller or older plants), thus involving load-factor considerations
and the preferential and intensive use of large generating units ;
and, finally, in part with direct reference to taking advantage of
diversity, through exchange of energy, so as to reduce peaks and
load factors. In New England and on the Pacific Slope, the idea
has been practically applied over considerable areas. Extensive
further projects are being discussed. One proposal is to make
transmission systems common carriers under the law in order to
promote the development. There are said to be no insuperable
engineering difficulties in the way of tpng together the whole
industrial area of the North Atlantic states. A further step would
be generation (so far as from coal) at the pit's mouth. Comprehen-
sive developments of this nature, however, would encounter difficul-
ties in obtaining adequate water supplies for condensation. Of
course any plan of interconnection includes hydro-electric plants
at considerable distances from consuming centers.

3i Eleotkkai. Katiw

The Development and Importance of Electricity Supply

Central-station olorlrii' supply as a i)U.siness ontorprise dates from
about 1880, arc lighting in this country having been initiated a
little earlier, while incandescent lighting came a year or two later.
Substantially its entire history therefore comes within the life of
the present generation.

The United States Census of Central Electric Light and Power
Stations provides material indicative of the present and prospective
importance of the industry. The following data are for commercial
and municipal stations combined,** the latter class being a relatively
unimportant contributor to the total :

Total income

(lOOO's of Kilowatt rating Output of itatlont
Tear dollars) of generators (lUUU's of kw. hn.)

190S 8'). 701 1.212.235 2. .107,051

1907 1".'>,642 2, 70!), 225 5.862.277

1912 302.273 5.165,439 11,569,110

10-ycar per cent iiicrea^ie 2.'>2.7 S26.1 361. S

1917 526,894 8,994,407 25,438,303

10-year per cent iucaasc 200.0 iSZ.O SSS.9

The rate of growth and the present magnitude of the central-
station industrj' speak for themselves. But these ligures relate
only to electricity supply as a separate public-service enterprise.
To the output for 1017 above given may be added 7,'MO,50:^ thou-
sands of kilowatt hours for energy generated by the power plants of
electric railways and 561,784 thousands for electrified divisions of
steam roads, etc.,** for which the economic technology of the genera-
tion and use of electric current is much the same as for central
stations. Indeed there is a tendency towards the operation of
traction systems with central-station power, which thus makes the
terms and conditions of their supply a part of the electrical rate
problem. There remains the numerous private or isolated plants
in factories, oflice buildings, etc., similarly to bo considered in
this connection. The aggregate output of such plants is of course
unknown, but it appears to be comparable in magnitude to the
central-station product."

"Central EIrctric Mght and Power HUtionii and Street and Electric Kailwiirf, 1913
(publU)tcd, IBIC), p 20, Table 5; Central Electric Light and Power Station*, 1017, p. 23,
Table 8.

»• Page 88, Table 31, of the Coiuiua of Electrical Induitrlen, 1917: Electric Rnllway*.

■Cf. p. 1C8 a., below.

Interest and Imi'outanck of I-Ilkci imc \i, I.'atks 35

The growth of tho hydro-electric element iji the total capacity
of central stations is of no less ])ermancnt economic importance,
though of comparatively incidental interest in the present connec-
tion. This devclopmont involves correspond in^^ progress in the
technique of electrical transmission. Measured on the ha-sis of
output the importance of water power in comparison with other
sources would he shown considerable greater.

Morse power of prime moverB—

/ « V

Otlur than

Year hydroelectric Hydroelectric Total

1802 1.400.-176 438.472 1.845,048

1907 2,749,101 1,349,087 4,098,188

1912 .5,060,813 2,409.231 7,530.044

1917 8,659,482 4.277,273 12,930,755

At to the comparative rate of growth of the electric supply
industry, it is hardly necessary to say that no other class of public
utilities and practically no other branch of industry shows for
the available 10-year comparison a comparable relative increase.
Eailroad freight car mileage, which happens to be the available
index that can be carried back most satisfactorily from a recent
date, increased from 14,194 millions in 1903 to 21,035 millions in
1913, or 48 per cent for the decade."'

The greatest rates of increase shown by any of the most impor-
tant branches of manufacture in the United States for the decade
1904-1914 were for automobiles with a 1788 per cent increase in
the value of products and automobile bodies and parts with a
3724 per cent increase. Industries or groups with value of
products exceeding $100,000,000 in 1914 numbered 56. Electri-
cal machinery, apparatus and supplies, with a 138 per cent increase,
is conspicuous among these. Indeed, besides automobiles and
automobile parts, only food products (259 per cent), rubber goods
(255 per cent), cement (240 per cent) and fertilizers (171 per
cent) exceed it. For all industries the 10-year increase in the value
of products was 64 per cent. These ratios are comparable with a
10-year increase for central stations of 253 per cent in " income '*
and 361 per cent in output. The direct comparison of value of
products as between the various branches of manufacture and elec-
tricity supply is hardly fair to the latter, however, because electrical

"* Interstate Commerce Commission: Statistics of Railwava in the United States, 1913,
p. 46.

36 Elixtuical lUxiia

rates have been j^oinp: down tlocidedly while the census doi-nde was
one of a very considerable rise in prices for most products. It is
safe to say that electricity supply has had a rate of growth that
puts it in a class by itself among important industries, with the
one exception indicated."

Such comparisons of rates of increase need to be supplemented
by comparisons of absolute magnitudes. The total earnings of
central stations in the Ignited States in 1912 (calendar year) were
302 million dollars and in 1917, 527 million. In l!)i;j (fiscal
year) the railroads of the country earned 3125 million dollars,"
or ten times as much. But in 1888, the year of the first statistical
report of the Interstate Commerce Commission, the railroads
earned only 911 million dollars." At that date they had back of
them twice the length of years electricity supply had in 1912. As
to comparative valuation of property, the latest available C^nited
States Census data" show estimates as of 1912 of 16,119 million
dollars for railroads and their equipment and 2099 million dollars
for privately owned central electric light and jwwer stations.

The comparison of income and output as sho^\^l above at page
34 gives the following averages per kilowatt hour: In 1902, 3.52
cents; 1907, 3.00; 1912, 2.61; 1917, 2.07. These results are not
good average prices, since doubtless something besides revenues
from sales is included in income and the output figures include
duplication from inter-company sales as well as losses. But it
is a fair conclusion that average prices declined by more than one-
fourth between 1902 and 1912 and by nearly one-third between 1907
and 1917. ^faximum prices available to small consumers may
have declined nearly as much. The results indicate at least the
strongly dynamic condition of the industry.

As to costs of construction and equipment — which are now sub-
ject to large allowance for price changes afTecting metals especially,
due to the War — it appears that generators cost 20 cents per watt
in 1882, 2 centi? per watt in 1898, and less than A a cent in 1915."

" DaU from Abrtract of Uic Ccrucua of Manufncturt-i, 1»M, pag«* 20 7.
" SUtUtica of KalluavR, 1IM8, p. 48.
* HUtUtic-a of Railwa.v*. IHNH. p. 17.

■* U. H. Durpaii uf the CVnouii : Kalmatnl Valuation of Natlorml Wpalth, IHOOIBIS (dated
Ittl.'.), Table 2. p. 15.
" Paul M. Lincoln, in l(«i:i, A. I. K. K. I'mceedlnga, pogi' 1400.

Interest and iMPoiiTANrE of KLErTHirAL Rates :J7

The Problem Confronting Regulating Bodies

The proseiit work deals with the economics of rate-njaking, not
with the legal and administrative aspects of the problem. When
the decision or opinion in a case before a court or a commission
is here cited, it is not with reference to establishing a legal rule,
nor to forecasting an administrative policy. The legal situation
should progressively conform to the requirements of economic fact
and principle. But the existing and prospective relations between
these two orders of phenomena are not of primary economic interest.

However, what the attitude of regulating bodies is will be indi-
cated as occasion arises. Commissions with undoubted power to
regulate electrical rates have now been at work in the states of
New York and Wisconsin for more than a decade and in numerous
other states for shorter periods. Still it can hardly be claimed that
there has developed a clear-cut body of commission opinion on this
subject. The statement needs qualification with reference to the
Wisconsin commission, which has contributed its share;" but the
creation of such a body of quasi-legal principles and applications
as is referred to implies a convergence of judgments and precedents
from a variety of sources or states. In fact few commissions have
even followed the leadership afforded by Wisconsin. This situa-
tion is perhaps partly due to doubt as to the possession of adequate
powers, but more fundamentally to the diffidence of commissioners
when confronted with a subject so complex, both theoretically and
practically, as that of electrical rates."

" The writer commented on certain leading opinions of the Wisconsin Commission in a
note in the Quarterly Journal of Economics, Fcbruarj-, 1913. The Commission accords full
recognition to the load factor though unduly inclined to assume that differentials thus devised
correspond to separable costs. The law of Wisconsin is unusually specific and adequate in
this respect in its grant of powers, as appears in the following extract (National Civic
Federation's compilation of public-utility laws, 1913, p. 249) : " Commission shall provide
for a comprehensive classification of ser\ice for each public utility and such cla.ssification
may take into account the quantity used, the time when used, the purpose for which used,
and any other reasonable consideration. Each public utility is required to conform iU
schedules of rates, tolls and charges to such classification."

"The conservatism of the Massachusetts commission is illustrated by the following quo-
tations from its opinion in tlie case of the Edison Electric Illuminating Company of Boston,
Mass. Board of Gas and Elect. Lt. Commissioners. 24th An. Rpt (1908): "Unless a cus-
tomer can seriously consider generating his own electricity, the value to him of each kilowatt
hour furnished by the company has no necessary relation either to demand, quantity or length

o' use If all the customers of the company were dependent on it for a supply, it

is believed that there would be little occasion to discuss or attempt to ju.stify differential
rates, and that a uniform meter rate, determined by reasonable operating costa and a fair
return on the investment reasonably necesaarj- for the public convenience, would prevail

±92299

88 Elkctrical Rates

The various puhlic-sorvice comniission laws t'xplii-ity confer the
power to fix at least maximum rates. It is also the unquestionaltle
duty of such commissions to prevent " unjust " discrimination.
As to princij)les of difTerentiation the laws are naturally silent,
though the power to j>rescril)e classifications (one mode of dilTer-
entiation) is sometimes definitely conferred.

But it would seem to he unnecessary to confer express powers in
relation to ditferentiation. The power to prevent discrimination
is the power to fix the limits of differentiation and to determine
what sorts of differential rates are permissible. What are " sub-
stantially similar circumstances and conditions'' from the view-
point of economies, with regard to the company's affording maxi-
mum service to the public at a minimum unit cost, is the gist of
the matter. If there is any advantage in differentiating, it is to
be presumed that a company will utilize to the full the opportuni-
ties left open to it. If the commission has not the power to fix
and prescribe every detail of a rate schedule, that situation may
sometimes involve administrative inconvenience. But even if com-
missions deal only with principles, leaving business details to be
worked out by the companies concerned, they should be able in
the long run to control and determine the modes of differentiation.
For example, a commission could proliibit plain wholesale or quan-
tity discounts exceeding a certain range per kilowatt hour as dis-
criminatory, and thus compel the electrical companies to find other
and more reai^onable methods of reaching the large consumers —
whether by load-factor rates or density-factor discounts — tliat are
less open to the suspicion of being mere concessions to bargaining
power. The commissions have ample power to deal with this (pies-
tion, but they have not fully exercised it. The power to determine
what shall not be done is in such cases a sulTuicnt, and perhaps
the surest, way to find out what is best to do.

It is unnecessary, and it would be ungracious, to establish by
citation of page and line the point that commissions have been
diffident in dealing with electrical rates. Opportunities to deal
comprehensively with the subject have not been so very numerous.

unlvenally. It mmjr be conceded that, If a uniform rate prevailed, there would be ioine un-
prnfltaljlr (.nutoineni " (pp. 43-44). The Idia rniphu)il7.p<l In an intrrntinfc variation (or
pcnenilon) of the %-alue ofacr^ k-c thcur}-. Its application would not promote inAxImum
•rrvtc* to tb« public.

iNTERRST AND IMPORTANCE OF ELECTRICAL RaTES 39

The commissions, like the courts, seldom go below the surface of

economic questions. And differentiation in rates, especially in
the less familiar forms it is likely to take in electrical rate-making,
is not a simple matter. As regards the bearing of the load factor,
moreover, the lack of satisfactory means of recording the variation
of the load until ver}' recently has been an obstacle Ij clarification
of facts and policies. The large controlling or guiding powers
of public-service commissions have only very recently (except in
Wisconsin) been exercised comprehensively in relation to electrical
rates.

CIIAl'TKR II
TYPES AND ELEMENTS OF ELECTRICAL RATES DESCRIBED

Indesrribiihio varirty and romploxity.

The rate xrhrdulr. Tlip distinction brtwcrn light and power rate*.
Wholrsjilo, hiKh-trnsion or primary, and breakdown rates. The various
rate elonionts defined. Difference between energ>' and demand charges
most important.

The energy or kilnipatt-hoin charge. Three initial qvialifiors. Gradua-
tion according to quantity con.sumcd. The step method of size classifica-
tion. The block method of variation. The latter differs from ordinary
wholcs;ile price making. Former more familiar to tlie public; needs limit-
ing provisos. The .so-called straight-line meter rate.

The (i( mand ehorgc. The definition of demand. Not to be merely iden-
tified with the consumer's individual maximum. His requirement at the
time of the s>'stem peak most important. The Hopkinson rate — two
charges. The most general type of load-factor rate for large consumers.
The Wright type of rate. Common for .small consumers, the demand
being generally estimated. Difference from Hopkin.'^on rate well illus-
trated by curves. The Kapp rate. Load-factor rates defined.

The determination of mnTima and of the conjonnation of the consumer's
load curve. The technical situation as regards demand metering. Esti-
mated "active connected load" as a .substitute for the actual maximum.
"Convenience" lighting. Room and floor area bases. All thc^e methods
applied in conjunction with Wright rates. Considerable arbitrarines:*.
Element of averaging in dr'tirmining the maximum. In effect a discoimling
of the individual maximum for divei>'ity. Bearing of overload capacity
on the proper interval for which to take the maximum. Meter develop-
ment in relation to existing practices. A public interest involved in load
records for largo consimiers. Variety of sub.s-titutes for maximum metering.

Flat, brrakdou-n. and off-peak rates. Brief characterization of each.
Definition of the flat rate. Small cost of watt-hour metering makes the
flat rate chiefly of hi.storical importance. Revival for high-etriciency light-
ing and for limited demands. Breakdown and auxiliary ser\-ice for isolated
plants chiefly a matter of insurance. The guaranty feature of some rates.
Off-peak rates an important application of load factor prmciples, though of
limite<i availability.

Initial or service charges. Nature and basis of this rate element. Meter
and consumer charges. Effect upon the variation of the average rate.
Meter charge naturally grafluated. The minimum bill method Iran scien-
tic and not in its nature a reason for lowering the kilowatt hour charge.
Legal obstacles.

Lamp renrwah. Free renewals common. Needed allowance \n compar-
ing lighting and power rates. Effect of high-efficiency lamps upon com-
pany policy. Differentiation in charges for tungstens. Company control
not necessarily best. ,•«♦'•

The. coal claruie and sliding-scale charges. A re»«ult of the Wars mcreas-
ing the cost of coal. Its form and the extent of its use. Applied to large
ronsumf-nt only. Relation to efTicicncy. The analogous wage clause. Per-
manence of coal clauses.
40

Typiis and P^lements of Eliccthk ai, IJaiks U

Further points and the uncovipU trd task of dr.vnjition. ( 'omplcxity and
varipty of cloctrirul rates ina(ic<iuiitcly net forfh in tho forrKoinR iM'ction/i.
The siirchargp. Tho prompt-payment fliscount dispowd of. The output
rate. Special contracts. Optional rates el.scwliere dificufwed. Still much
experimenting.

To describe existing electrical rates is a necessary incident of
the present work. Familiarity with their characteristics and idio-
syncrasies cannot be assumed. Any sort of descriptive review must
ignore much actual variety and complexity. The complexity, how-
ever, will be evident even in such a brief survey of outstanding
points as is undertaken here. Occasional critical comment, in the
discussion of the " demand " charge especially, is mingled with
the description.

The Rate Schedule

A rate schedule is constituted by a variety of rates applicable to
different sorts and conditions of consumers. Each such rate may
in turn be variously compounded, graduated and limited.

Tlie distinction between lighting and power rates is universal.
But the tendency is to make of the former a so-called general rate
applicable to all consumers to whom the various other, and presum-
ably lower, rates are not open. The power rate then becomes a
concession from the general rate, obtained where the energy is used
by motors. So with other rates. The designation " lighting rate "
is obviously inappropriate where much electricity is used for the
various consumers' appliances, including motors, that may be sup-
plied from the lamp sockets of a small consumer. A distinct power
rate usually means the installation of two meters for many con-
sumers. But, even though the power consumption be separately
recorded, in the case ot a rather large consumer for both light and
power (like the landlord of an apartment house with elevators to
run and corridors to light) the quantity discounts obtained where
the kilowatt hours consumed in the two classes are combined may
more than compensate for the concession otherwise obtainable
under a purely power rate.

The so-called wholesale rate is also distinguished in rate- sched-
ules, though the best practice will graduate the general rate into
the wholesale rate without any sharp break. The wholesale rate
refers to low-tension current supplied in large quantities and will
ordinarily not include lamp installation and renewal, this matter

42 Elkctuical Kates

being attended to bv the consumer as a separate transaction, wliether
with the lii,Miting ct)m|iany or directly with the nuunifa. tur.T (.f,
or dealer in, lamps.

A large electric supply company may find some coii>unu rs pre-
pared to take high-tension current in large quantities, themselves
transforming it with their own apparatus on their own premises.
A high-tetiswn rate — or priman/ rate, as more generally named —
is naturally lower even than the low-tension wholesale rate, the
energ}' being in this case, so to speak, the crude or incompletely
manufactured product.

The breakdown rate is something entirely dilfcrcnt in nature
from any of those above-mentioned, having to do chiefly with the
insurance of private plants against entire stoppage of the supply
of electric energy in case of accident. Hence it is usually char-
acterized by a heavy demand charge.

There are various other rates of less importance, and somewhat
special in their nature, based upon peculiarities in the business
of one or another class of consumers. These, however, consist of
rather slight modifications and new combinations of the rate ele-
ments presently to be mentioned and involve a concession to some
particular use of electricity — such as for signs, storage batteries,
and refrigeration — or to some occupational class of consumer. It
should be added that, where a consumer may be eligible for more
than one rate, it is the prevailing, and the only reasonable, prac-
tice, to give him the most favorable one open to him.

By rate elements are here meant the arithmetical factors by
which the actual siggregate amount charged a given consumer is
computed. Rate classification is a different matter, though the
rate elements are often made to subserve the same purpose. Rates
are high or low, or (more generally stated) vary in one direction
or another, according to the way in which the rate elements are
apjjlicd. Sometimes it is convenient to name a class rate by the
method of its computation. This should not obscure the fact that
the distinctiveness of a rate curve, or of the variation of the charge,
is one thing, and the arithmetical methods by which a particular
cune is obtained are something (piite difTcrent.

These various rate elements are: Kilowatt hours supplied; time
of conHum{)tion ; " senieo," or the mere fact of being a consumer;
" demand " in a somewhat special sense, or maximum demand,

Typks a\i» r'l.KM i:\rs oi' I'.i i:ci kit ai, IIatms 43

referring to kilowuUs of gc'iioralin;,^ and (liotril>uliiig capacity
needed to meet the largest requirements of the ooiiHumer; con-
nected load, as a working suhstitute for individual demand not
actually determined ; meter or number of meters used, perhaps
with some degree of graduation according to the size of the meter.
The ways in which these factors are used and combined vary
greatly, and sometimes the elements appear under names not above
mentioned.

The most important difference among the rate elements is that
between kilowatt-hour, or energy, charges, and demand charges.
This di (Terence is closely related to the distinction the economist
makes between " variable " and " fixed costs." But the emer-
gence of demand charges as separate elements in electrical rate
schedules is due to causes characteristic of electric supply, rather
than to the very general distinction between necessary running
expenses and expenditures for carrying and maintaining capital.

The Energy or Kilowatt-Hour Charge

The fundamental rate element is the kilowatt hour. Indeed
the charge may be computed entirely on the basis of kilowatt hours
consumed. If there is an unchanging rate of (say) ten cents per
kilowatt hour without qualification, the result is a straight kilo-
watt-hour rate, or a straight-line meter rate. But the rate may be
qualified as regards initial consumption and there may be quantity
discounts available for large consumers.

The initial price may be raised by a meter or a consumer (or
"service") charge; or by the collection of a minimum amount
billed whether the consumer takes energy enough to owe this
amount at the usual rate or not. This subject is dealt with in a
later section. The effect of both of these qualifiers upon the
charge per kilowatt hour for initial and small amounts of electric-
ity is best shown by way of curves. The accompanying Figure 1
explains itself. The variation of cost on account of the small con-
sumer may without hesitation, merely on general grounds, be
affirmed to conform more nearly to the type of rate curve when
there is a consumer or meter charge than to either of the other two
shown in connection with it.

Klkctricai- Kates

The kilowatt-hour cliarge schloin remains level at the rate avail-
al)le to tlic pninll consumer. It is grnduated, pn'sunial)ly for each
rate claiv*;, according to quantity consumed.

The lowering of the rate where large quantities are t^iken may
be clTected by simply cla^Jsifying consumers by size, that is, accord-
ing to volume of consumption per year or per month. This means
that, for example, a con.sumer taking 250 kilowatt hours a month

■9

«
R

A
16

E
M

t1
C
12

T
II

E
f»

—

r-\

1 — 1

Fig. 1

nil"

AVERAGE RATE CURVES

INITIAL AND SMALL CONSUMPTION |

— ^

\
\

■«>»,

"iM

.1.

■""i

— -

T I I 1 1 r 1 1 > 1 1 1 1 1 1 I 1 1

. I. STRAIGHT METER RATE OF ID CENTS PER KW. HR

n. SAME BUT WITH $ 100 MINIMUM MONTHLY BILL

.RATE 6i CENTS PER KW. HR. PLUS A CONSUMER

CHARGE OF 50 CENTS PER MONTH
1 1 1 1 1 1 1 1 1 1 1 1 1

Kl LO|W

Z J .4

kTfr

H OU

R S

« Kl

P
H

a—

l«

•

will pay a nine cent rate on all his consumption, where one taking
only 10 kilowatt hours will pay ten cents. This is the step prin(i[)le
of graduation.'

A much better way to graduat<> the kilowatt-hour rate is to
retain the original rate on a fi.xcd initial block, decrease the rate
on the next additional block of a prescribed quantity, compute at
a bit less a third additional quantity, and so on, as the size of the

' Accoriling to the t«rtiilii<ilo(ry of the Rate Resenrch Committee of the N»tlon»l Electric
Light AMOclatlon, Convenlloti |.r.Me<>»llnKii, 1U12. vol. 1. p. 1«9. An exrellrnt dcflnltlon
from the 1917 .N. K. L. A. Rntc Bwk (p. 0) U an follown: " The lenn ' utrp ' liidlrafe« that
a r«>rlalri xp^vlflefj prire t>rr unit In rharurd for the entire ron«umptl<>n, Uie rate dependlnif
on the particular step within which the total conaumption falla."

Types and Ei.emknth of Eleotkical Rates

consumer increases. The comparison between these two modes of
scaling do^v^l the rato as tlie quantity of energy consumed increases
is best sh«wn graphically as in the ac(omi)anying Figure 2, where
the average rate curve resulting from a " block " * scheme is com-
pared with, the corresponding blocks and also with steps that would
appear to give something like the same general efTect.

The nature of the block method is effectively as well as curi-
ously illustrated in the so-called "one-cent sale," by which the

- 1

Fifl.^ BLOCKandSTEP gUANTITY UlSCOUNTiJ 1

AND Kt-JjUU intJ MVCKMUC rtMICO

> , 1 1

•••.

'•--....

****'*••

B.I

HI ncKS R' riCM avpR rai

rES

FREE ZONE CUT

1 1

nPF —

Site's

1 1

K 1 LOW ATT

IV) ISOO

HOiuRS PElR II^ONTIH
750 llOOO 1250 !l500 11700 I'OOO

»50

Hj-potbetical data of Fi(^res 2 and 3.
Quantity Block Rate

Rates per month per kilowatt hour.
Step Rate (by coitstimcr size-cUisses)

Up to 2.0O

cents

Less than 250

10 cents

251- 500

From 250 to 7nO

9 "

501- 750

750 " 1250

8 "

751-1000

1250 " 2000

7 "

1001-1500

2000 " 3000

6 "

Over 1500

More than 3000

5 "

purchaser may obtain two of an article on sale by paying one cent
more than the nominal price of one. In fact, of course, he pays,
for example, 13 cents a jar for two jars of jam, and not 25 cents
for the first and 1 cent for the second. In the sale of electricity,
similarly, the true rate is the average for whatever quantity is
taken within the bill period. The fact that the rate varies con-
tinuously, instead of by well-defined steps, should not be allowed
to confuse the issue.

It is significant that, in graduating the rate to meet the expec-
tations of large consumers, the electrical companies encounter a
difficulty that docs not occur with ordinary wholesale prices. If,

' According to the terminology of the Rate Research Committe« of the National Electric
Light Association, Convention proceedings, 1912, vol. 1, p. 199.

46 Eleothical Rati-s

for examplo, 7 cents por kilowatt hour is an appropriate rate for
a consunior taking H>0<) kilowatt hours or more a month, and -U
cent5 per kilowatt hour for a consumer taking 10,000 kilowatt
hours or more, the ordinary commercial practice would be to state
the rate in that way; just as one rate is quoted per do7:on, and a
rate proportionately less per gross. But in that cai^e there would
be consumers taking somewhat less than 10,000 kilowatt hours
who would pay somewhat more than those taking just that quantity
or a little in excess of it; so that at a certain stage a consumer
would have the incentive to use more energy in order to reduce
his bill. Although, as will appear presently, this problem can be
dealt witli by a proviso to the efTect that a consumer taking not
more than 10,000 kilowatt hours shall pay not more than $450, such
a device still leaves a free zone for the consumer just under 10,000
kilowatt hours, where he can use energy without increasing his
bill. Hence the more general solution is to frame the schedule
on the so-called "block" instead of the "step" principle. By
this method the large consumer pays for an initial block at the
same rate as the small consumer and for successive further blocks
at decreasing rates, so that the average rate varies continuously
with the size of the consumer.

The step method of making quantity discounts is perhaps favored
somewhat by the preference of the public for a definite and uniform
price per unit. This preference may find unintended expression
in the rate practices of a manager or he may consciously choose
the step method with reference to simplicity and to wiiat the pub-
lie considers a fair price. A large consumer understands the rate
better if he pays six cents for all the energy he purchases than he
does where he pays ten cents for a first block, nine cents for a
second, and so on. This feeling is due only in ])art to his reluc-
tance to exercise his arithmetic. It is partly due to the fact that
the ordinary wholesale prices with which he is familiar in other
fields are of the step type. But, though cost per unit declines as
quantity consumed increiujcs, for electricity supply it certainly
docs not decline after the manner indicated by the step method.

The points where the rate changes from step to step may be safe-
guarded by limiting provisos, to the elTcct that the consumer of a
quantity equal to or greater than that at the edge of the step sliall
pay not less than the aggregate amount called for by the rate at that

Typks and Elements of Electrical Rates 47

point. The cirect of such provisos on the curve is nhown in Figure
2. They remove the incentive the step mclhfxl offers to confiuniers
in certain situations to waste energy in order to pay less money, hut
there remain free hlocks or zones under such a schedule where the
consumer pays nothin;:^ for additional energy taken. Such a pro-
viso cuts oir what would otherwise he a block or zone supplied at a
negative price and makes it merely gratuitous. These free zones
or negative-price zones may be made of no importance only by
having the steps so small and numerous as greatly to increa.se the
comj)lcxity of the schedule. Hence the block type of rate is pre-
ferred as the more equitable method of effecting quantity discounts.'

The various commissions, as well as the Kate Research Com-
mittee of the National Electric Light Association condemn the
step type of rate.*

The effect of the two methods can be compared to good advan-
tage by means of curves designed to show the variation of aggre-
gate quantity with aggregate price, as well as by means of cun-es
of the demand type famihar to economists and already employed
in Figures 1 and 2, Curves of the first mentioned type are presented
in Figure 3. Hypothetical quantities the same as those used in
the preceding figure are employed. In this case the effect of the

* " Increment rate " seems to have been the Wisconsin Commission's term for the quantity-
block rate.

■• The summary statement of the 1916 report of the Committee on Public Utility Rates
of the National Association of Uailway Commissions is as follows: " Such [step] schedules
have been dis;ipproved by various state commissions and they should be super,se<led by block
or other proper form of schedule." Proceedings of the 28th Annual Convention, 1916,
p. 103.

The Illinois Commission specifically condemns the strp rate as *' objectional and dis-
criminatory at the points whTe the steps occur " (Belleville v. St. Clair County G. & E. Co.,
(P. U. R., 1916B 24, CO). The same Commission in a latter opinion says: A go-called
Btep rate of itself is inherently discriminatory in character. P. U. R. 1917E 210. Like-
wise the Oregon Commission, P. U. R. 1918D 683.

The development of the rate schedule of the New York Edison Company in this respect
is interesting because of the conspicuousnc^s of that company in the matter of pure quantity
discounts. Prior to 1911 free zones and limiting provisos were characteristic of the rates
offered. The revised schedule thereafter eliminated them from all except the wholesale rate,
■where such a free block (in 1912) appears for consumption between 781,250 and 833,333
kilowatt hours per year. The purpose evidently was to put the wholesale rate beyond this
point on the straight 3-cents per kilow.ntt hour basis. Only by some such means can a
strictly block rate be brought to a fi.xed level. (The other possibility is a proviso to the
effect that the average rate shall not go below a specified price, say 2 cents per kilowatt
hour — which looks invidious.) In the 1915 schedule the block principle is applied in all
strictness to the wholesale rate. There is therofore no free zone and nobody gets as low
an average rate as that scheduled for the largest block. Any increa.se in consumption
therefore continues to lower the average rate slightly in approach to the rate for the
last block as its mathematical limit.

Electiucai- Kates

presence or absence of a limiting proviso as to aggregate price is
not indicated because it is scarcely appreciable on tlie scale used.
The indicated irrc^oilarity of the stop method con of course be
made negligible by increasing the number of the sti-ps and reduc-
ing their width, in respect to both quantity and price. The step
curve is noticeably irregular, if the steps are as large as one cent.*

JUiO

I 1
. Fig. 3

/ARIATl

)?«

$17!

$«

1 \

AGGREGATE PRICE

WITH

Afir:Dcr:flxr hiiantitv

•- M

X ..

^^~

,.-'*
-•''

% n

. BL(

DCKS

STE

PS....

% 9U

BOTH SERIES
BUT WITHO

AS IN FIG. 2
UT CUT OFF

?V)

9U AN

poo

TITY

7S0

woo

LOW ATT
1400 |n»

zooo

Ho'u R S

av) i«oo J7»

1000

•The 1917 N. E. L. A. lUte Hook (y. .'>) liiviiies motor rates into thn-o <l;i.>*o!i : .'<traiKht
line, Step and Block. A nominally struisht line rate, however, is not KiK'iiifliant If Uie rate
■chedule providen for other rates and rate clakMfi such that, for example, only small llichting
coiMumerfi, of a sire that would leave th'-m within the first hloek of nn ordinary bhx-k raU.
•re in fact nerved under it. Often, too. the rate desi-ribed as strniKhtline i« Bubjcct to
quantity dincounU which make it, m analytically examined. Klmply a step rate. The follow-
ing Ubular »Utement nhowii what Ih called a " Straight line Meter Rate" in Uie Rate Book,
alao its tranalation into «tep tennx.

10 cti. per kw. hr. subject

to the following <|uan-

tlty ditcountii

10%

on bilU

to 110

•• 16

ir.

" 30

" 60

•• 76

3.'.

.. ..

•• 100

.. ..

100

and over

tp rate exiietly

correspon
mer site

Jlng-

rates bv consu

classes a* follows

10c. up to 10 kw

. hrs.

Oc. for 10 to

100 kw.

hm.

8J " 100 "

160 •■

8 " 160 "

300 ••

7i " 300 '•

600 "

7 " 600 ••

760 •'

rtj •• 750 "

1000 "

fl over

1000 '•

Under »och cireiimsUno«i the straight-line rato is not fundamsnUlly slgnHicant an<l the
term h*s not even much drsrriptlve value. One fourth or more of the 40 or more reUil
lighting rates claj»e»l as " strsight-linB " in the 1017 Rate Hook are, on the fare of the
•rbedules, not In subsUnce such, being Bubje<t to quantity dIsrounU (sometimes nominally
prompt payment discounts), or alternative to optional rates of a dlflt-rent character, or
subdivided by occupational cla»«e«. etc.

Types and Elements of Ki.kctiiical I{atks •}!)

The Demand Charge

According to the definition of the Standards Committee of the
American Institute of Electrical Engineers " The domand of an
installation or system is the load which is drawn from the source of
supply at the receiving terminals averaged over a suital)le and speci-
fied interval of time.'' Although the word ''interval" suggests
a short period of time, there is nothing in the nature of the idea to
prevent the use of the term " demand " with reference to an aver-
age of conditions for the aggregate of days and seasons that mako
a year. In this way the idea would then connect up with kilowatt-
hour consumption and with the ordinary conception of economic
demand. But the term " load " connotes a hurden put upon the
electrical system, which depends upon the time when the energy
is taken, and thus upon the conformation of the curve of consump-
tion, or upon its valleys and peaks, more than upon the average
of economic demand for, or consumption of, kilowatt hours. If
the rate of supply necessitated for a brief interval — whether at
some unexpected time, or regularly during each day at dusk, or
during each year at the time of the winter solstice — determines the
burden upon the electrical company, then the load and therefore
the " demand," in the meaning of the word that is critical or
essential for electricity supply, is constituted by one or another of
these peaks, or by an average for the peak interval. The signi-
ficance of the averaging suggested has to do with the elasticity and
overload capacity of generators, and does not imply that an average
of varying conditions is technologically or economically equivalent
to actual fluctuations for any considerable length of time.

'' Demand " is therefore commonly understood as referring to
maximum demand or maximum load. Whether the former or the
latter phrase is used depends upon one's viewpoint as relating to
the consumption end or to the supply end of the transaction. The
maximum demand is the greatest occurring within whatever longer
period may be under consideration — a day, a month, or a year.
But as the term demand is used, the word '' maximum " may often
be understood before it. A reference to demand rates and demand
charges carries this implication.

However, especially for rate-making purposes, not enough has
been said when the demand has been identified with the con-

60 Electrical K.\ti:s

sumor's mnxiniiun. The niattiT of fundamontal importance is the
burden put upon the generating equipment and the distribution
system. If the maxima of a group of consumers do not coincide,
the burden is less. If the maximum of one consumer comes at a
time when the central station's load is small, it may be that his
maximum is a result of the favorable conformation of his load
curve and is the opposite of a burden to the electrical company.
Especially if we have in mind the demand charge, it is obvious that
the reference should be to the requirement of the consumer at
the time of the station peak rather than to his individual maxi-
mum. The acceptance of the consumer's maximum as the measure
of the burden put upon the generating and distributing system is
a pitfall of much electrical rate theory.

A consumer's '' demand,'' when spoken of in relation to a kilo-
watt or demand charge, is properly thought of as the generating
and distributing-plant capacity which his consumption makes it
necessar}' for the company to provide. Taking it for granted that
the consumer's individual peak is the best index of his demand
implies that the kilowatt capacity required to supply him is equal
to or proportionate to his maximum. This assumption ignores
diversity. For purposes of rate-making diversity must be taken
into account. The consumer's requirement, whether high or low,
at the time of the station peak, not merely his maximum regardless
of the time when it occurs, must be considered. The individual
maximum should be treated chiefly as a point of departure in rec-
koning the consumer's demand. The conception of a demand
charge should not be allowed to be dissociated from the idea of the
amount of fixed capital an electric-supply company is required to
furnish on account of the individual consumer or class of consu-
mers whose rate is in question. These remarks are a necessary
preliminary to the review of actual " denumd " charges.

The demand charge may be constituted in various ways. The
question as to wlu'thcr or not it is to be considered of the nature
of a demand charge defjcnds upon its purpose and function, not
upon whether it explicitly makes use of the consumer's maximum.
The charge may be based on the consumer's maximum, upon Iii.s
connected load or some derivative thereof, or upon his " simultane-
ous ** demand : and it may be collected explicitly as such or by way

Tvri.s AND Elements of Electrical Rates 51

of varying the kilowatt-hour rate aroonlinff to load-fartor fon-
siderations.

Let us consider first the ppocics of (h.-niaml cliargo tliat is lj;i>f'd
directly on the consumer's niaxiniuni. The »onil)ination of this
with ;i kilowatt-hour charge yields the familiar two-charge rate,
the consumer paying so much per month or per year for each kilo-
watt of his maximum demand as a separate charge additional to
a correspondingly lower kilowatt-hour charge for energy used.
Wholesale rates and power rates are commonly constituted in this
way; but seldom ordinary lighting rates. Such a contract may
provide, for example, for a charge of $24 per year per kilowatt of
maxium demand and in addition 4 cents per kilowatt hour. In
honor of its inventor,' this is often denominated the Hopkinson '
rate.

While the writer knows of no instance of a rate schedule where
the consumer's "demand" for the purpose of computing a rate
under such a schedule has been directly defined otherwise than
as his individual maximum — indirect elTects of methods of esti-
mation are another matter — without regard to its relation to the
system peak, there is nothing in the nature of the Hopkinson plan
that would thus restrict it. The " demand " might be defined as
the consumer's requirement at the time of the system peak, or any
conceivable modification of such a method might be employed in
connection with this rate type. So interpreted, the Hopkinson two-
charge rate is a thoroughly logical application of economic analy-
sis. That its inventor did not himself more carefully analyze the
meaning of demand is attributable to the pioneer character of his
conception. He speaks of electricity supply in relation to light-
ing needs only, as was natural at the time he wrote. The " di-

• See his Presidental Address to the Junior Engineering Society, 4th Nov., 1892, on the
Cost of Electric Supply (from the Transactions of the Junior Engineering Society, vol. Ill,
part 1, pp. 1-14), in Original Papers, by the late John Hopkinson, vol. 1, Technical (Cam-
bridge University Press, 1901), pp. 25t, 268. The paper is also printed in The Electrician
(London), vol. 30, p. 29. The greater part is ali^o reprinted in Rate Research, vol. 2,
1912, pp. 23-28. John Hopkinson was a noted technologist and professor of electrical engi-
neering in King's College. London, who died in 1898.

' Bi)th the Hopkinson rate and the Wright rate (described below) are not only commonly
80 called in England and the United States, but it appears are al.<w> known hy these names
in other countries. (Cf. Gustav Siegel, Die Preisstellung beim Verhaujc Klektrifcher
Enrrfjie, Berlin, 190G.) The Rate Research Committee approves the usag? in question,
especi.illy as regards the name Hopkinson, as appears in Rate Resf«rch, vol. 2 (1912-13),
p. 160, though the terminology there suggested is not very clearly presented. Both designa-
tions are regularly employed in the N. E. L. A. Rate Books.

58 P^LECTIUCAI, Hatf-s

vcrsity factor '" it apiH'ars, wiu? m)t hroaihod or dolined till elec-
tricity supply had jijrown to somothing like its present importance.*
On the other hand, the term "load factor" was used by Hopkin-
son. in the 181t2 paper referred to, in a way to imply that his public
was familiar with it.*

It should be noted that the demand charj^e as well il>< the energy
charjie under a Hopkinson rate may 1k^ of the block form. This is
slightly less usual for the former than for the latter element.

The Hopkinson type of rate is the most generally employed rate
for large consumers, both light and ])ower. It is recommended
for such use by the Kate Research Committee of the National Elec-
tric IJght Association."

Another method of taking account of " demand " — one not
uncommonly applied to small consumers — makes the computation
of the aggregate price depend specificially upon kilowatt hours

• But Hopkinson (p. 201) shows a clear conception of its conditions and effect

» Hopkinson's paper contains a passiige of interest in relation to the history of the term
and the be^inninifs of the Hopkinson type of rate. He says (p. 2.S0) : " The term ' load
factor ■ proposed by Mr. Crompton is as constantly in the mouths of those who are inUrestod
in the supply of electricity, as volt or ampere or horsepower. The importance of the time
during which a supply of elet-tricity is used was so strongly impressed on my mind years
ago that in 1883 I had introducd into the Provisional Orders .... a special method of
charge intended to secure some approach to proportionality of charge to cost of supply."
The cUuM referred to is quoted (p. 261) as providing for "a charge which is calculated
partly by the quantity of energ>' conUined in the supi)ly ami partly by a yearly or other
rental depending upon the maximum strength of the current required to be supplied."

R. E. B. Crompton, it appears, introduced the term " load factor " in a pa|>er on th«
•ubjeft of the cost of elettricity read before the (British) Institution of Civil F.iiglneerii
on April 7. 1891, published in its Proce««ling8, vol. CVI, p. 2. The term is there described
as the ratio of actual output to what the output would be if a plant or engine were worked
continuously day and night at full lowd for the same period ; but the ratio to maximum load
l« what is actually treated. For the economist the ambiguity is not unlmiKirtant. even
though the l>est way of defining and detennining the magnitude of the maximum may not
be clear. The relation of the average to the miiximuni load i» entirely an Konoinlc question.
The relation between maximum ileiuand and rat<M capacity, on tlie other hand- though the
two may •om'-timeti be e<iual and should tend towards iM^uality — is entirely a technological
question. »o far as it is n«Te<te<l by the edlciency of the different slj!e« of operating unlU,
and also largely kuch, so far as having reference to the need of providing reserve mparlty
for future gT'rwth and for, possible emergent^' requirements.

"In the following terms (Convention pro<»e.|ings, 1012, vol. 1, p. 180): "The Com-
mittee agrees unanimously in re<-onimen<ling that all large customers be charge<l on •
schedule making sitparate and distinct demand and •iiergy charges. They reoognl»e, how-
ever, that th<T^e ore local cf.ndltions under wlilili quantily dlscounls. or a straight line or
block rate lrivt)lvltig quantity, lu-em desirable." On may infer from certain remarks in th*
dlwnjwlon of this r'lji'irt that the last sentence is largely a comeimion to the views and
practices of the New York Kdl«in (V>. Tlve lOlfl re|.ort (Conxentlon prt>cee<llngs. lOlfl,
general vol.. p. 214) says: " W» note the aImo«t universal use by cotmumers of large sire,
• nd the lnrT»-ased use by power consumer* of m>-dl\im and even very small slie. of that
form of rate which makes sei.arate and dl«tinct dnnand and enrrgy charges, which use was
ttiiAniroously recommended in the 1U12 report."

Tyimcs and Elemknts of Electhkal Hatek r)3

consumed, but by way of a kilowatt-bour t-barj^'o tbat varies witb
reference to bours' use of tbe consumer's maximum. If, for
example, tbe maxinnnn is determined at one kilowatt, tben the
aggregate price will l)o computed at tbe rate of, say, 12 cents for
tbe first 30 kilowatt bours in a given montb, plus 6 cents for
furtber consumption from 30 to 60, plus -1 cents for kilowatt bours
in excess of (50 taken in tbe particular montli." It sbould l)e noted
that tbe gradation is on the block principle. Such a rate is prob-
ably more acceptable to the public than the Hopkinson type, because
it appears to be merely a modified kilowatt-hour charge and does
not require the combination of two charges independently com-
puted. For the maximum demand — which even now it is scarcely
practicable to ascertain definitely for each individual — some substi-
tute considered representative of this quantity is usually employed
in applying this type of rate. The irregularity of tbe downward
gradations in tlie illustration above used is typical. It is evident
that tbe scheme is intended to tax the short-hour user and encourage
long hours' use, the latter sort of use being considered, on load-
factor grounds, less costly to the company."

The introduction of this scheme was due to Mr. Arthur \Vri<:ht."
It is more recent, but the writer believes cruder, than the Hopkin-
son method. But the scheme has the approval of tbe Wisconsin

" This tj-pe of rate may also be expressed by way of percentages of a determinate " monthly
maximum consumption," for example, the first 6 per cent at 9 cents, next 6 per cent at
6 cents, all in excess of 12 per cent at 4 cents.

" ThQ 1917 N. E. L. A. Rate Book's definition (p. 9) is as follows: " The term ' Wright
Demand Rate ' applies to that method of charge in which a maximum price per unit is charged
for a certain amount of energy and one or more reduced prices per unit are charged for the
balance, on the block principle, in accordance with a schedule based upon the use of the
maximum demand."

" His historically most important paper Cost of Electricity Supply, was printed in The
Electrician (London), in 1896, vol. XXXVII, p. 538, and is reprinted in Rate Research,
vol. 2, pp. 359, 376. A more elaborate discussion by him, entitled " Some Principles Under-
lying the Profitable Sale of Electricity," is contained in The Electrician, 1901-2, vol. XLVIII,
pp. 347, 378, 430. Mr. Wright is also known as the inventor of a tj-pe of maximum demand
indicator. His choice of the t\-pe of rate to which his name is applied was evidently based
on practical grounds, chieily with reference to the maximum price per unit fixed by law,
and he considers it merely alternative to the Hopkinson tjT>e. and a way of applying Hopkin-
son's ideas. While the so-called Wright t>-pe aa now generally applied tends to disregard
diversity, Mr. Wrighfs own conception of rate-making is not open to this criticism. In the
earlier article cited he proposes discounting the demand charge on the b.vis of the diversity
factor of the company's consumers as a group, and returns to the subject in the lator one.
Moreover, in his application of this tj-pe of rate at Brighton, maximum demand indicators
were used, instead of the basic demand being estimated.

5t Elkctbicai, K'ates

ami otlior {oniinissions, including New Vdik, Second District,"
and has lon^ been the most generally employed load-factor rate.
Altlu»iigh its fundnnuMital charactoristic is tho incorjmration of a
demand charge, it apj)cars to bo distinct because tiie metliud con-
stitutes a complete rate without requiring the combination of two
charges.

The advantage of this metliod is ai)pnrcntly duo to tlie fact that
the consumer pays so much per kilowatt hour. Kilowatt hours
appear to be all he has to pay for. There is no double charge. But
let us see, on the other hand, whether the resulting variation of the
rate confoniis substantially to the variation of cost and whether
the plan moots the requirements of a reasonable and just demand
charge. In comparison with these matters the advantage of palliat-
ing the demand charge is not worthy of consideration."

It is evident that tlie Tlopkinson rate gives a rate curve that
varies continuously or by imperceptible gradation in the same way
that cost may be supposed to \&vy. The Wright rate does not
yield so smooth a curve even after the initial block is passed. This
difference is illustrated in Figure 4, As a result of the level rate
for the initial block, it is evident that the consumer with less than
one hours use per day has his demand charge (or what is in effect
that) reduced in proportion to his decreased use. This is in glar-
ing contradiction to the whole theory of the demand charge. It
may be defended, it is true, as a means of encouraging the small
consumer. Its effectiveness in this direction, however, is indirect
and partial, for it confuses the small consumer with the short-hour
user. Not only are these two far from being the same, but the
failure to distinguish them is contrary to load-factor principles.
The small consumer is pro ianlo just as much entitled to benefit
on account of a good load-factor as is the large consumer. It is
true this criticism applies in theor}' only to the lower end of the
scale whore graduation of the rate ceases.

•• In lh» DufTalo ra«*, Fuhmiann vii. the UulTiilo Oncral Klrotrlc Co., d*clilf<l April 2,
1613. Thr opinion U not only in lUoK worthy of fxntninntlon but aluo of Intorriit u relating
to cnCTTfy from Nlairani FalU Inntcfld of from a utoam r<>ntral Klation.

** In a nit» whrnlulp the Wright type oft«*n apprnn rxtrrriiply rompUnitrd. ThU la due
to thi" lti({riilou» <lrv|rc« rtnplnyivl to arrive at a miltahle rutinir of thn ronmtnrr'ii premUea
wllh refcretK-e to what Khali c'on«tllute the " demand " to which hl» " hour» ' une " relates.
All the conmjmer nee<l mntider U the extent of (he block for whirh he payi the hlffheiit rate.
Doubtleu the latter'* undenttandInK li much Inw itniined by (hU method than It would by
the varying re«ult« of an actual meaxurement of hU maximum.

Types and Klemi:nts of Electrical Rates

On the other hand, the disappearance of the demand charge
whenever there is no consumption within the hill period may be
claimed as an advantage of this type of rate. This placates the
consumer, but again is indefensible on load-factor principles. It
would seem to be wiser in the long run to educate the consumer
to the meaning of some kind of demand or service charge. A
qualification of this point is necessary, however, with reference to
the possible combination of a minimum monthly charge" with
the Wright scheme. Even then the rate curve remains decidedly
irregular. But a rate schedule must deal with averages, not indi-
viduals, and simplicity of computation may properly be deemed to

<3|
C

12
T

II
S.

7
R

\
\

^ia4^

COMPARATIVE

VARIATION -

\il

F AVERAGE RATES UNDER \

ft. ^.

_ HOPKINSON fl) TYPE

WRIGHT (ni

^b""*^^

— -—

~-^ztr!

=^rr:

4
W.
3

2
H

1 1

n. FIRST HOURS USE OF MAXIMUM 10 CENTS PER KW. HF

^■^

2!Lt> HOURS USE 6 CENTS; ALL OVER 2. 4 CENTS. 1

(HOURS USE (PER DAY) OF MAXIMUM | I

outweigh in importance a considerable degree of irregularity in the
curve.

The blanket nature of the Wright type of rate appears in the
facts that it may be framed with reference to meeting some of the
requirements of a consumer charge and that the ba.>^ic demand ele-
ment may easily be modified with regard to diversity. This quality
or possibility holds in another respect not yet noted. We shall have
occasion later to discuss the density factor as a proper determinant
of rates. In this connection it is necessary' only to mention the
fact that the Wright rate has some relation to the density factor in
that it favors an intensive use of the connected load. But this fact
is only indirectly and in part correlated with the intensive use of
the distribution system, which is the foundation of the impor-

** This is a meUiod favored by the Wisconsin Commission.

50 Electrical Hatful

tancc of the density factor in relation to electrieal costs and rates.
On the room or floor-area basis, the Wriglit rate becomes more
properly a density-fa(>tor than a load-factor rate. Witli a measured
maximum the result is dilTerent in this respect."

A type of rate that should be mentioned in this connection,
though it is historical rather than present practical interest, is one
involving the use of an attaihment that specially registers any
consumption occurring during the station-peak period of (say) two
hours, which is charged for at twice the ordinary rate, Tlie device
was invented by Mr. Gisbert Kapp, now or recently professor of
electrical engineering in Birmingham University (England). It
appears to be practically obsolete. The adjustment is not fine, but
the method is noteworthy for giving the consumer the full benefit
of his diversity. The most important practical difficulty seems to
have been in keeping the clock-work accurate so that the double
rate is applied at the right time."

All the various types of rates discussed in this section arc
referred to by the writer as load-factor rates. They are also known
as " demand rates." A load-factor rate is one that either contains
a demand charge as one of its elements or in some other way
explicitly makes the consumer's load factor, or his relation to the
company's load factor, a determinant of the price paid for electric
service. In addition to the types already mentioned, off-peak rates,
and possibly flat rates — both of which are discussed in a later sec-
tion — belong in this class. Together with breakdown rates, these
constitute a miscellaneous group with load-factor characteristics,
but of such restricted or special applicability as to leave them only
an incidental place in general rate theory."

" Tlie chArge for tin- (IrNt bl(xk of a Wri(fht r:ito ih often called Uie primary rate, that
for the next the trcondary rate, with |)o»mibly a trrtiary foHowinK The trnnit are rather
too Krneral to be entirely appropriate to im<h um> and are not free from objc^^^tlon when
appIiH to the bUK:k method generally. " Primary " In electrical rate uwiKe refers also to
• rate for uiitranifomje<l energy. And the " necondury " charR* it merely a rate element,
and In fa/-t ne\er on actual rate, under Uie block principle.

•• W. E. Bumand. In an article In the Klectrlcal World In 1012 (vol. LIX. p. 2fll) entitled
IxTW Rate* and the Development of Central Stitlon Srrvlre. miKlfeiilii the une of a two rate
meter controlletl from the itatlon and with the hlichor rat* dIaU made to operate only at
times of extended peak load, perhap* occanloned by a ktonn. and not merely at lome regular
hour. The article U well thouRht out with due reward to diversity, the need of a nervlc-e
charife. and tK>«»lbllltlMi of liberal u«e by umall conkumom.

*» Th" 1017 N. K I.. A. Hate Hook (p. f>) enumerateii four kIniN of " ilemand " raten. ax
follow.: Klat. Wriitht. Hopklnm.n. and the Doherty or three charKe rate The lent l<i nlmply
a Hopklnmn rate plus a consumer charge and therefore l» not a new uperirn of demand rate.

Types and Elements of Electrical Rates 57

The Determination of Maxima and of the Conformation of
the Consumer's Load Curve

The method of (k'terniininf^ the amount of the demand charge,
and even the distinct recognition of the load factor as a rate ele-
ment, is, of course, conditioned by the state of the art of recording
the amount, and the variation, of the load imposed by a consumer."
Tolerable demand indicators showing the approximate amount,
but not the time, of the consumer's maximum have been used more
or less for thirty years. But meters showing the variation of the
load by making a continuous printed or graphic record of watt
hours consumed during successive brief intervals have been per-
fected only comparatively recently.

As a consequence of this situation, most load-factor rates have
been based on estimate and assumption as regards their distinc-
tive element. Even when the consumer's maximum has been deter-
mined (though roughly) by an instrument, its relation to the
company's peak has still been dealt with by estimation, classifica-
tion, and averaging, all applied more or less arbitrarily. In the
case of large consumers, the " maximum " has often been specified
as a part of the contract l)etween company and consumer and
has had little traceable relation to actual maxima. But the com-
pany has been able to protect itself by inspection of the consumer's
premises, by limiting switches, etc. For small consumers, various
classification schemes have been used, especially in conjunction
with the Wright type of rate. The use of maximum demand indi-
cators has not been general in this country, though the number of
such instruments in use appears to be greater than the number of
those that present a continuous record of load conditions.

though for descriptive purposes it may well be desirable to distingfuish it from others In
this group. The flat rate belongs logically, but not historically, in the group, since load-
factor considerations, though important, among others, in occasioning its present use, had
nothing to do with its origin.

Among the various devices for introducing the load-factor element into raten, the tabular
form and the graphic form (Schenectadj', N. Y.) perhaps deserve passing mention in this
connection.

'" Rate practice and measurement technique reciprocally influence each other. In an
article in the Electrical World of Februan- 1, 1919. H. W. Richardfion speaks of " an
increasing tendency to rocogiiize the ju.stice of differential rates, which inditxites that a
measured demand is as essential to-day as the watt-hour basis of charge was years ago"
(page 219). Notes on Demand Meters (the article from which the above extract is quoted)
is an excellent summary of the situation.

68 Electrical Ivates

It is charaotoristic of the Wright rate ixa we in America know
it, that the consumer's maximum is determined l)y ajjplying some
scheme of co-eflieients to his connected load, in lieu of direct deter-
mination of the maximum hy way of a demand indicator or other-
wise." Under such cir-.-umstances the method of detenuining the
" active connected load " is as much matter for public regulation
as is the fixing of the kilowatt-hour rate itself. The Wisconsin
Commission meets this situation by prescribing comprehensively
how the active connected load is to be determined by occupational
classes and by a scale of percentages varying with the volume of
consumption. The application of a demand charge to all sizes of
consumers, it appears, must come to this. Demand indicators
have not been found satisfactory for such use. A demand charge
for the small consumer, therefore, is based on his connected load,
not actually on his maximum load, except so far as very recent
improvements in metering have already been applied in a way to
change the situation."

There is an obvious and familiar objection to this practice in
that it tends to cause the consumer to cut down his connected
load and dispense with sockets that are only occasionally used.
This does the electrical company no particular good, since its
distributing system and probably its generating plant cannot
therefore be made of appreciably smaller capacity. The consumer
inconveniences himself without resulting gain to the company. It
is significant that engineers call the lighting connections that are
only occasionally and briefly used — which are therefore likely to
be dispensed with when the consumer's hill depends partly on the
extent of his connected load — "convenience liglitiiig.'' Such
lights affect the consumer's maximum either not at all or only
inappreciably. For these reasons connected load is not a good
basis for a demand charge. Nor is the situation much improved
by applying a varying scale of percentages to get the " active "

. estimation, bown-er, U not eocntlal to tKc Wrl)(lit t%|ip of ralr> nor in conformity
v.:n, \itf i<ietiM of the ptyjliiwr for whom It li iiaiiu-il.

*• Hut a mere mrtrr nito <lo«^ not mrot thr nwiN of the iltuatinn. The 1017 r<>port
of the Committee on I'ublic L'tlltty Itiiten of the National AHao<-latioii of Ilnilway Com-
mlmioneni nay*: "A (tralKht meter rate per IciloMult hour in flafrrantl}- unfair In that
It tlnn not ifivc the Ionic hour u»er hU clue, i. r., it <Iom not provide for the mrwt linpor
lant diflercnc* In co»t of electricity." 1B17 Convention Proceedlngn, p. ittO.

TVPKS AND Kl.KMKNT.S 01* KlF.CTRICAL HaTES TiO

load." Some companies will soal sockets and omit them from the
count on a consumer's request.

An important and commonly used method of dealing with the
situation just mentioned is the basing of the primary charge
under a Wright rate, or the demand charge under a Ilopkin.son
rate, upon floor area or number of room.s — both subject to ingeni-
ous adjustments — instead of upon kilowatts actually installed.
This leaves the consumer free to install as many lights as he
wishes. In practite the room basis may be so dealt with as to
verge towards the taxable-value method mentioned below.

All these expedients amount to using a consumer's capacity fac-
tor in place of his load factor. This is objectionable on general
or theoretical grounds. Maximum demand has no definite func-
tional relation to capacity — for consumers no more (presumably
much less) than for central stations. Nevertheless such expedients
may be practically satisfactory.

It is doubtless partly because of the tendency iiiider this type
of rate to restrict the extent of one's connected load that a table
for computing connected loads, the Wisconsin Commission's, for
exam])le," will show a markedly descending scale of per cents accord-
ing to the size of the connected load of a consumer of a given
occupational class. This, however, is not an altogether satisfac-
tory expedient. It amounts to giving the large consumer a very
considerable quantity discount. This may not be objectionable

^ The rates adopted (or accepted) after an interesting investigation and report by Chicago
in 1913 are of the Wright type for small consumers. But they provide for direct d'-temiina-
tion of the maximum by demand-indicating devices for consumers having a connected load
of as much as lA kilowatts and for smaller consumers on reques-t. This is an important
point of superiority over most Wright schedules.

•* In the Madison case (4 W. R. C. R. 746-749) the Wisconsin Commission varies the resi-
dence lighting ma.ximum on the basis of active connected load quantitatively by fixing it
at 60'%- of total connected load for 500 watts rated capacity or less, and at 33JTf for any
connections in excess of 500 watts, and similarly it varies the power active load ax follows:

Installations under 10 hp. and one motor used, per cent active, 90

" " " " 2 or more motors, " " 80

" from 10 up to 20 hp. irrespective of number motors, per cent active, 70

" 20 " .'.0 " " " " " " " CO

" 50 " 100 " " " " " " " 55

" " over 100 " " " " " " " 60

The last three cla-sses are to be rated 70 per cent for le^s than a yearly contract baste.
There is in this schedule the possibility of a mere quantity discount of one-third in the kilo-
watt-hour element in the charge.

The essence of this method is its use of an estimated " demand factor " as defined at pa^
IS, above.

60 ElECTKICAL \l\TES

intrinsically, but it certainly is objectionable when it appears
under false colors."

One noticeable feature of the methods of determination of
demand in use is the large degree to which measurement or test
or the connected load basis are used alternatively at the option of
the company, and sometimes apparently with reference only to
the compan/s employing the method that yields the highest
figure. But enough companies are actually using grai)hic meters
on large consumers to show the practicability of recording impar-
tially all the facts."

An important phase of methods of dealing with demand relates
to what we may call the statistical character of the basic maxima.
The annual peak is not an average of maxima, but the maximum
among daily maxima. When it comes to the actual peak day, the
peak will in fact be determined in a way to make it, not the greatest
instantaneous load, but the highest indicated or recorded average
load for an appreciable interval of time, perhaps thirty minutes.
The purpose of rate-making will ordinarily be better sen-ed by
such an average peak than by the indicated instantaneous maximum
or the 5-minute or other brief peak. Thus the maximum, even for
the Hopkinson rate in its proper form," is really the average rate
of consumption during an interval of time.

*• The Wfsconnln Commlgsion'i Bchcdulea exhibit the wcakncKses of the Wright tj-pe-
Former Commiiaionor Halford Erickson may be contiidored to havn been itn Rpokesman In the
matter of rate Uieory. His general public utterances on the 8\ibject are therefore eKpwiaHy
Interepting. In an address on Electric Lighting and Tower Rated published In the May.
1914, numl)er of the AnnalM of the American Academy of Political and .'vjcial Science,
volume LIII, p. 373, he fully recogtilres the iniportame of divernity. The clawiflcation of
conirumeri with reference to average diveriflty i« there considered an adequate method of
dealing with it. But this method asKume* tliat the <onKumer himself cannot be Induced to
take thought about lf«id factom and deserven no better nito If he does. Certainly the atten-
tion of large connumcni to such matters not only can b' exi>e<itcd but Ik worth cultivating.
In a dli>cux,ion of IUte« for Elc<tric Current by Commliuiioiier Erlcknon, of earlier date
(Paper read l>efore the Wiw-onnin Ele<trlcal Awioclatlon, April 11. 1009), the mibjeot of
dlvemity in not mentioned. However, In a mor*- recent opinion of the Comml»«lon iiigned by
him (City of Neenah y. Wii«x>r«in Tr. L. II. * P. Co., P. U. 11. lOK.A .180) the diver.lty
factor l« referred to bji " the mont ImporUnt feature of public utility ratemaking."

••The California Cotnmlmilon Kayn that where a conttvimor ha« an option to have (and pay
for) a demand Indicator he nhould be advined by the company of omdition* thnt may point
to hU cxerrUltig the option. He San Joaquin IX. it Pr. Corp., P. U. H. 1017K 411 The
td Dirt. N. Y. CVimmimilon nay* that In order to prevent discrimination d^nmnd meter* iihould
be Inatalled for all cotummem with demand nit««. He I,<K-kport L. 0. * P. Co., P. U. R.
loihc m:>, 740.

*' Ilopklnton hlm«elf upeaku of the demand charge an baAed upon a y<Mr/|f peak. Cf. the
for.tnote on p. r>2. alKTie. Wriglif^ ejpre»iilon» tiUn are clear a.* fo tlie annual peak lieing
what U really algnllWnt. Indeed In The Klertridan, vol. 48, p. 879. the »econd of the

Types and Elements of Electrical Rates 61

But in the Wrif^lit type of rate the principle of averaging is
usually given much broader scope, in particular where the maxi-
mum is a matter of classification and is assumed, not measured.
The '' active load " is fixed for a class of consumers while the actual
maxima vary greatly from consumer to consumer as well as from
month to month. The consumer under such a rate has no motive
to keep down his actual peak. Of course, because of diversity,
the actual individual peak may be of little significance.

The degree to which the averaging of maxima among consumers
classed together may properly be carried, supposing that it will
be done, depends mainly upon the importance of the diversity fac-
tor. The diversity factor for a group of small consumers, in
particular residence lighting consumers, is especially large. In-
deed, it is obvious that the greater the number of consumers taken
into account and the briefer their peaks, the greater will be their
diversity factor. Hence the larger the class or the more diverse its
composition, the less the significance of the individual consumer's
load factor in the making of the rate, or, if the actual load factor
of the individual be made basic, the greater the necessity of dis-
counting it in computing a fair rate. According to this reasoning
the small consumer's load factor is relatively less important than
the large consumers, even after the two have been " reduced to
a common denominator" by the aggregation of enough small
consumers to weigh equally with the large one as regards quantity
of energy taken.

Not only in taking account of load-factor conditions by way
of class-average rates, but also in the averaging of a number of
peal<s of the same consumer, there is contained an element of
concession to diversity. But, from the viewpoint of proper recog-
nition of the diversity ratio** as being equally important with
the individual load factor, such practice is crude.

It is generally agreed that the maximum that determines a
demand charge should not be the instantaneous maximum but
rather the average for some interval of time, and a ;)0-minute

1901 articles, he refers to the " futility of comparing anj-thing but annual results." Doubt-
less it is the application of the so-called Wrieht rate to small consumers that leads to its
being put on a monthly basis, since the amount of the bill in such a ca.'e must be definitive
for the period for which collection is made — though whether collection should not be made
less frequentlj- is a pertinent question.
^ See Chapter V, p. 128 ff., below.

62 lOLECTItlCAI, 1?ATKS

interval has boon recommended by representatives of the electrical
companies as a rof^uliir standard." Demand indicators are usually
*' time-lajipod " so that the eircct of a load is cumulative and a
maximum that does not continue for some minutes is considerably
less than fully rof::istered.'* The relation of this situation to over-
load capacities is obvious. If it were satisfactory to accej>t the
individual consumer's ma.xinnun demand as the final determinant
of a demand charge, the proper width of demand to be ai)plied for
the various classes of consumers would be a higlily important rate
question." Not only overload capacity but the economic and tech-
nical availability of the storage l)attery as a source of direct-cur-
rent supply for a .short time would have to be considered.

It has already been stated that the method of determining
demand is as im])ortant an object of rate regulation, at least in
principle, as is the kilowatt-hour rate itself. But a satisfactory
method has not been easy to find, or has only recently been made
so by imj)rovements in load-recording meters, hence the situation
as regards demand charges and load-factor rates has been confused
and confusing — not least confusing to public-service commis-
sioners — and refractory to regulative treatment.

The subject of demand meters pertains to electrical engineer-
ing rather than to economics. A non-technical judgment as to
their availability will naturally rely chiefly on the fact that meters
adequate to the registering of all the facts needed in order to apjily
load-factor rates are in common use for large consumers. The
optional rates of various companies indicate that a great extension of
the use of such meters for medium-sized consumers is economically
practicable. That they are not more generally or universally used
for large consumers may be due to the greater interest of managers

••Cf. p. 14, alxnc, latter part of fi>otiiot^.

"An Impravrd typt of " |i>Karithnii<- " hiHit-ktoraup inctfr 1h diM-iuihod in a papor on Untn
and Hate Makinjc. by I'nul M. I-lnroln. 1016 A. I. K. E. l*rocp«>.lli»jrii, paK«" 217:. ^214. In
the l'ro<-c«lln|c» for February, lOlK, In a pop*r on The C'hnrartcr of the Th'-rmal Storajfr
I>enian'l MHcr (paKr« 1471(1R), the wiiiip author Knyii that, in rontraM with Ihr lilock-
Intrnal meter, hl« typo " (cl»e^ the true hratlnc rtTe< t that flxm the nirA- of e«|uipnient and
th«Tref'ire rout that nhould l>r n«wi.«e<l ninilo'it the nutotm-r." On the other hand, the meter
that Intivrate* kllrwatt hourn for hrief interxaU of time whiih in the ifeneraily ac^-epted
tyt>e— not merely rejjluterii tlir i>«-ul<, hut rej-ordu thn fuiU an to <livcr»ity.

"The •uhject of Uie " Kne«-t of the Wlilth of Maximum I)i-mand on Hale MakiriK " h»n
htm dlnninM-d hy I/fniln A. F"'r(ru»"n in a paper Ij^fore the Awforlatlon of Kdl»on Ill<iminatin({
Companled (1011) whirh l« prlnt*»l In part in fl Hate Ileseanh 323, 889. He favorn the
SOmlnutfl Intenal. Cf. aliw the quotation from the 1014 rr<>ce«dlng» of the AMOciation of
Editon lllf. Cos. in the (ootnot« at p. 14, above.

Types and Elemknth of VAS.crnicMj Hates f)3

in exercising more freely all the bargaining power they posecss
in order to overcome the competition of the isolated plants. If
so, it is a specific pulilic interest that load-registering meters be
installed for all large consumers. It is also a general public inter-
est that as niiuli knowledge as possible bo available as to load-
factor conditions experienced in dealing with various cla.«ses of
consumers."

Aside from the matter of expense — in regard to which the situa-
tion may be met by leaving the small consumer out of considera-
tion — the chief problem is apparently how to make the clock's
share in the working of the meter entirely reliable. Frequent
inspections are expensive. It ought to be possible to solve the
problem for a tape-using meter by providing for registering on
the tape the receipt of an impulse sent from the central station at
a specified time each day. On this basis the record could be
adjusted with entire fairness and practically unimpeachable accu-
racy. The sending of such an impulse over the distribution sys-
tem would be entirely practicable and would in no way interfere
with the ordinary function of the wires."

In addition to those discussed, there are many other ways, all
more or less arbitrary, of obtaining a substitute for the consumer's
maximum instead of measuring it. The first report (1911) of

" The type of meter which in the opinion of the writer has most economic significance
is the one classed and described in the report of the Committee on Meters, N. E. L. A., 1914
Convention proceedings, Technical vol. p. 22 f, as an interval maximum-demand instrument
of predetemiinod time interval with record of the time at which maximum occurred — which
may be either a printometer or a graphometer. The decisive advantage of 8uch a meter
consists in its enabling diversity to be taken into account to any desired extent, while the
individual maximum also is shown. Where the readings are integrated for specified periods
of time it is possible to obtain the average maximum for any desired time intcnaJ. The
recording of instantai>eou8 fluctuations, however, so far as desired, is not provided for by the
printometer. If diversity were not in question the matter of the duration of the peak might
perhaps be dealt with to better advantage othenvise than through an internal meter. The
limitation upon overloading to meet a peak demand depends upon the time during which the
overload is carried, since the overheating is a cumulative effect.

** U. S. Patent No. 1.181,427 (May 2, 1916) was granted for an invention of which the
following is a part of the specification: "The object of this invention is to provide for
operating electric signals available for street or other fire alarms, ambulance calls, tht
sync/ironijifij; of clocks and other purposes, over ordinary electric lighting networks or
power mains, or conductors which are also used for supplying electrical energy in the district
or for tramways, and in such way as not to interfere with the ordinarj- operation of the said
light or power mains," etc. Circuit-breakers and limiting switches could be operated in
the same way from the central station, so that the hours of use for any grroup of consumer*
could be adjusted at the will of the management and diversity assured wherever legitimately
expected.

Gi Elkctiiu Ai. 1{ati:.s

the Rate Kesoanli Coniniiltcc of the National Kleitrie Light Asso-
ciation ** enumerates the po^:sibilities as follows: Measurement of
the demand by instruments; frontage of premises; valuation of
premises; connected load in kilowatts or sockets; number of rooms;
floor area; cubic contents; ground plan area; constant per custo-
mer, etc." The Committee's own expressed preference was for
floor area, whether used directly or reduced to number of rooms.

The assessed value (or, in the English phrasing, " rateable
value ") basis is of special interest to the student of economics. No
instance of the employment of this method in the TTnitcd States
has come to the attention of the writer, but its use in England
appears to be not uncommon, where, however, it is generally
optional as well as restricted to a small class of consumers, especi-
ally private residences. Some of the other methods also may have
been influenced by the ability-to-pay principle of taxation as well
as by load-factor considerations.

In some of these developments the original Ilopkinson theorj'
has become obscured. The situation is in part explicable, how-
ever, as due to the mixing and fusion of other species of differ-
entiation with such as have reference to the company's load curve
or to taxing peak consumers. Indeed, the Wright type of rate, in
the form in which it usually api)ears, is, as has already been noted,
rather a density-factor than a load-factor rate."

Flat. Breakdown, and Off-Peak Rates

There remain two other theoretically interesting modes of rate-
making which have reference to the load factor. One, the flat
rate, may be described as charging only for demand and not for
energ)-; the other, the on*-pcak rate, allows no cncru^v to be taken
at the company's critical peak time and accordingly mak(>s the
kilowatt-hour rate low for times when consumption is allowed.
The breakdown rate is related to the lirst and in elTcct is (or should

»* Cofivn.tlon imxTMxIltufii, 1011, vol. 1, p. 318.

••The 1010 Hcj-ort c.f Uic Ulllcrcntinl lUlwi Comnilltw! of Uie National Ooinnicnlal Oai
A*>ocUtlofi rrf<T» to tlil* rrmilt nn "a new t>i>n of rate which attempt* to «lmi>)lfy the
Mtltriate of demand, by ha»liij{ tU" (lirTprcntlullun In the nite upon other i-<iiwl.lrrutioiui.
vhich reflret rathrr Ihan mrasurr dcmund I Italic x, the preiwnt writer**), •mh ui> the num-
l^r of r«rxiiU<l«-«. th" nuinlirr of r«oni» In the houite, or the area of llf»or upaco actively
oocupled, and we luiv»» a rate which haa all the appcHrumes of a drmand rate, hiit U In
rvallty a »erle« of meter or quantity rate* with dlm-ouiiU ba.-x-tl upon quantity." PagM
S9S0 of App«tidlx I, Th« Development of Electrical Katea.

Types and Elements of Electrical "Rates 05

be) principally an insurance premium for facilities Bufficient to
.suj)ply a given (Icniaiid without much reference to whether elec-
tricity is actually required or not.

A flat rate may be defined as one in wliich the charge for a given
consumei-^s installation varies only in proportion to elapsed time.**
For some classes of business a company may prefer to make a rate
of so much per year per unit of connected load, thus being enabled
to dispense with the metering of energy used. This practice is
not indefensible in the case of a hydro-electric plant, but is other-
wise nearly obsolete." It amounts to covering all costs by the
demand (or, strictly, connected-load or connected-apparatus)
charge. But of course the peak is not necessarily the only con-
sideration taken into account in fixing the charge, any more than
energy consumption is alone considered in fixing a purely kilowatt-
hour rate. Hence the flat rate is not solely a demand charge stand-
ing by itself, but it is that essentially." Indeed the flat rate is
older than the load-factor concept. But its use in the early stages
of the development of electricity supply was due to the absence of
inexpensive and reliable devices for the measurement of electric
energy. Street lighting is still mainly supplied at a price per lamp
per year, as it was in the beginning, but the hours of lighting are
a part of the contract. Sign or display lighting is frequently fur-
nished under a flat rate with similar stipulations.

At present kilowatt hours consumed can be determined accu-
rately and inexpensively. This being so, wherever the energy as
such is an important element, even if a minor one, in cost, it
would seem that, if the quantity taken is optional, it certainly
ought to be metered in order to prevent waste."

» A straight-line meter rate is sometimes incorrectly called flat.

»' The flat rate is the prevailing type of water rate. The various bases adopted are strik-
ingly like those enumerated above as substitutes for a measured maximum in electrical rate
making.

» The Massachusetts Board has approved flat rates for the summer business of the Vinej-ard
Lighting Co., where the brief seasonal demand in summer is responsible for almost all costs.
9 Rate Research 200.

"The following (from the N. E. L. A. 1915 Convention proceedings, Commercial volume
p. 347, remarks of Mr. Harmon) reflects the experience and judgment of one manager:
" We found there was no device that we could put on, with the exception of an interrupter,
that would prevent people from putting on heaters in the winter when our load was
heaviest. We had in all about 5 years experience with flat rates and are now putting in
meters."

6f, Klf.i Tim Ai, Hatks

The rctusons why tho Hat rate is more appropriate for a hydro-
electric plant than for a steam central station are almost ol)vious.
Fuel consumed varies substantially ju-r kilowatt hour and the fixed
investment is in proportion less for th.' .-team ])liiiit. I'.ut flat rates
may increase the troubles of the watcr-powcr plant during periods
of low water or inadciiuate stream flow.

The increasing dominance of the tungsten lamp and high-effi-
ciency lighting, even in very small units, tends to reduce the
relative importance of kilowatt-hour cost in the total— the situation
in this respect resembling the case of hydro-electric supply-
hence there is a tendency to favor a greater emphasis upon the
demand charge in some form or other. The lamp situation has,
in fact, revived the interest in fiat ratrs, at least as applied to the
small consumer.*"

It appears to be entirely practicable to limit the maximum of
Buch consumers through the circuit being broken automatically
upon excess-demand. From tlu> mechaniial device adopted to
accomplish this, the name " limiter rate " has recently come into
use.** However, it is not practicable by such means to limit or
restrict the time of day when energy is used. On the other hand,
such procedure is entirely feasible for certain classes of large con-
sumers — in fact, the current may be switched on and otf by tho
company. Sigii lighting, which is frecpiently the sul)je(t of a
special rate, may be so dealt with.

An isolated or private electric plant will occasionally need cen-
tral-station service (1) in case of interrujjtion for any rea.son,
(2) in order to supplement its own generators at times of special
demand, or (3) for auxiliary service at intervals of light load. In
the second case the central station is called on for aid in lak-

**Th« •rcorid report of Uie Kate IletM-un-li ConuiilttPc qiiiiUnpilly re<"oinniendi» a flat rate
for concumera whone inaxlmuin will (all brtwwn 100 and 300 wattM (N. E. L. A. Convention
pr<jcee<llnipi, 1B12 vol. 1, iu>. lOS, 1»7). With rrferenoe to tlir problem prex^ntrd by hl(fh-
efllflmry lamp* thli malntiiitui nlmpllclty by golnjf from one cxtrpine to the other, that 1*.
from a pure klUrtratt hour rat*- to a pure demand rate. TIkr l»in report (Convention pro-
f»edlnff», genl. vol., p. 222) reonnmenda a rontrolled Hat rate nn an option only. In the
1920 .v. E. I.. A. Hate Ii<»ilc (p. 12) the ultuatlon in dcH< rlbed a* follow*: "Several yearn
•so It wai )>ellevMl that the Klat Demand UuU' khould not be UNcd. but recently thU type
of rate ha» a«ain come Into uae for Mnall renlderu-e runtomerii."

•' The IlUnoU Commlolon h*» nanrtlnnwl aurh ralen. nt Hmt experlmenUlly (<n r«i Central
Illlnola I'lib. Serr. Co.. I'. V. It. lOlOlJ U; al»<> H Hatr Horan-h in.'>) and later i« an
•vUblUhnd prartlr* (\0 Hate Heiwarrh 102). aervlre b<lng rmi.lpred through a 100 watt
limltcr for 11.00 • month.

Types and Klemexts of Electiiical W.vvv.s G7

ing care of a briot' pi'ak that probably comes at about the time
of its own peak. But the auxiliary service may be during the
night, at times when there is not eiiou;]^h demand to warrant the
presence of an engineer at the isolated plant. In relation to pos-
sible interruption of service the function of the central station i.s
that of insurance. Under this conception, payment may be justly
exacted without the central station Ijeing called on at all. The
kilowatt-hour ciiarge for the supplementary service can not prop-
erly be expected to be low, while for auxiliarj' service it can be.
But an electrical company is specially disqualified for fixing rates
for breakdown service — it may even be disposed to refuse the ser-
vice altogether — because the isolated plants are competitors. The
case is one where a demand charge is appropriate. This fact is
generally recognized in the making of breakdown rates. Since no
load curve is in question, the limiting switch is sufficient to keep
the customer within the demand he pays for.

The guaranty feature of some wholesale rates is worth men-
tioning in this connection. In effect it insures the company a
certain income from a particular consumer. This should be super-
fluous for the company, and if it affects the consumer at all, the
effect upon him is undesirable, since it may cause him to waste
energy wiion it appears his consumption will not otherwise
approach closely to the amount corresponding to his guaranteed
minimum. With reference to wholesale rates it is an application
of the minimum-bill principle where there is no excuse for it on
account of initial costs to the company, and where, if it means
anything, that must be because the rate is not properly graduated
between wholesale and retail consumers. It is worth something
to a competitive manufacturing enterprise to be able to book
orders for months and years ahead. The monopoly position of a
public-service enterprise gives it this advantage unsought. Only
in the case of a consumer who takes enough energy in proportion
to the total supplied by the company to make it proper to attrib-
ute an appreciable part of the plant specifically and directly to
his service, instead of his demand being lost in the general mass, is
the guaranty feature justifiable. The withdrawal of the ordinary
individual consumer cannot as such affect the calculations of the
management. His action is significant only in a representative
sense and is a matter of merely statistical consideration.

68 Electrical Kates

Special ofT-pcak rates under wliiih ciirront eaniiot l)c taken dur-
in<j certain specified hours, atconipanied by devices prcventinp such
consumption, arc an occasional feature of rate schedules. This is
not only a thoroughly load-factor type of rate, but it fully recog-
nizes diversity as beinc^ quite as inijiortant as long hours' use, since
the rate is planned with reference to the company's, not the con-
sumer's peak. Once provision is made for protecting the com-
pany against use at peak hours — and it is entirely practicable to
prevent a large consumer from taJving energy during any specified
period — this kind of rate offers no difllculties as regards the deter-
mination of load-factor and diversity characteristics of consumers.
But of course it is of ver}- limited applicability."

A method of dealing with rates generally that is based on a
closely related idea, by which a higher rate is charged for certain
specified peak hours than for other times, either through a device
to make the meter register faster at peak hours or through separate
registration, has already been mentioned."

Initial or Service Charges

The initial or service charge is related to the demand charge,
and may to a degree have the same purpose and effect. The latter
is sometimes described as a charge for readiness to serve, but it
depends upon the character of the consumer's requirements rather
tlian upon the mere fact of his being a consumer. The purposes
of analysis and description require the recognition of tlie distinc-
tively initial charge. This and the demand charge are both pro-
portioned to time, not to consunii)tic)ii. The demand charge, how-
ever, varies with kilowatts of maximum or connected load or
something similar. The initial or service charge is not necessarily
graduated. It is founded upon the cost and advantage of being
connected with the system, connection here referring to operating

•Tb« 1920 N. E. L. A. Rate Book ihown rntoii for 300 rompaniM. of which num»HT
• count khowi ■Ixjut 38 with <»fl pi^k ralm or off peak fllnroutit*. Thr dlntinctlnn i( mainly
a matter of a kitmltrr or liUrountnl clr'tiiuriit clmrKc In conaidpratlun of no power or 1mm
powfr b«lnjc Ukrn at •prclflfl prak houra for cfrtnln wlnUr montha. In a few ranffa the
ntn la a l'»w «tralKlit meter rliarup. In uotne cum;* the provlnlon U elaiitlr ami api)^^! to
■UKXPtt BiJaptJitlun of houra of comruinptlon. In the N. E. L. A. 1015 Convention prorec<Jlnitii,
Commercial volume, p. 361, Mr. Freeman irppak* of a contract entered Into with an em-
ployer ail a result of the latter'* ha\lii|{ rearrani;e<l working hours for hU plant ao a* to end
them at 4.30 I*. M. Such practice U probably not uncommon.

** 8ee page 60, above.

Types and Elements of Eleotrical Hates 69

expenses involved in kocpin;; in touch with the consumer and
ascertain inf:^ how much he consumes, as well as to the cost of pro-
viding street-connection, wiring, etc. Only an out-of-the-way
consumer supplied under special conditions, however, is likely to
be charged according to the expense or the length of the physical
"service" connecting his premises witli the distribution system.**

There are two standard modes of introducing this clement into
a rate, one the consumer charge and the other the meter charge.
The minimum monthly-bill proviso is another rather half-caste
method of accomplishing something like the same thing. These
have been mentioned above as modifiers of the kilowatt-hour charge.
They are still to be considered on their own account.

The consumer charge is a fixed amount per montli to be added
to the kilowatt-hour charge for the same period. It is designed
to provide for certain expenses incident to the service of the
consumer which are independent of the amount of energy he takes.
They comprise the expense of reading meters and billing and col-
lecting amounts due, including energy losses in the meter,** also
carrying charges for the separable investment made on behalf of
the individual consumer. This charge, like all rate elements, is
based upon cost-analysis, but is distinguished from the demand
charge as having reference to operating expenses more than to
fixed charges. The most important practical objection to it is
that it tends to scare away small consumers and thus restrict the
business of the electrical company.

With a consumer charge it is evident that the average rate per
kilowatt hour used becomes very high whore, as may happen dnr-

** Usage is not definite and settled as regards tlie meaning of the term " service charge."
hence the alternative " initial charge." as used above. An early definition by Mr. Arthur
Wright (1901 article, p. 348) is contained in the following: "The cost of maintaining
the neces-siiry service lines, meters and attending to consumer*' accounts, comi)laints, and
collecting the revenue. Thc-^e Service Costs are roughly proportional to the number
of consumers."

The " readiness-to-serve " charge is clearly a demand charge. Doubtless because of the
resemblance between the two terms and because of the need of shortening " readiness to
serve," demand charges in general are commonly called " service " charges. Of course the
service charge properly so called does not relate to the amount of service. It is equally true
that the kilowatt-hour charge does not relate directly to the amount of scnice (i. e., of
actual or potential benefit furnished). For lighting uses, however, there is available a true
service unit — or as near to one as physical measurement can come — in the candle hour. For
power uses, on the other hand, the available units relate almost entirely to mere performance.

** The energy lost in the meter coils is not unimportant rel.itively to the amount con.sumed
by a small consumer. On the other hand the consumer pays for losses in bis own installation.

70 Electhical IUtks

ing vacation time, almost no electricity is used. Tiic consumer,
it is true, jiays at tiie high rate for an inappreciable amount of
energy (or in fact f»)r something else), and his bill is consequently
very small. l>ut peoj)le object to paying other than a constant
unit price, and especially to paying something when they get noth-
ing, and they are not willing to admit that mere '* readiness to
sene" is a service, or that reading (or attempting to read) the
met^r and collecting the bill are services to the consumer. From
the point of view of the company, therefore, even apart from public
prejudice or legal necessity, it is well not to be too exacting in the
matter of a consumer charge. For the later reaches of an average
rate curve that shows the variation of average cost and price with
quantity consumed, that is, for large consumers, the initial con-
sumer charge has no appreciable effect.

The meter charge has practically the same basis and effect as
the consumer charge, e.\cej)t that it provides for some degree of
graduation according to the number of meters a consumer may
have and also according to the size of the meter. Since the meter
capacity is to some extent an index of the " active '' connected load
of the consumer, this feature assimilates the meter charge to the
regular demand charge. But it is not to be expected that the
graduation by size will take account equally of kilowatts of capacity
regardless of their position in the scale; that is to say, a 10,000-
watt meter will not carry a charge 20 times that for a aOO-watt
meter, but more likely one in proportion to the comparative i-ost
of the two meters. Another importimt ditFerence to be noted is
the fact that the administration of the meter charge is a simple
matter and it is apj>licable with ease to small consumers, while
the straight and strict demand (harge is administratively imprac-
ticable except for large consumers. The fact that the meter charge
is based largely on operating costs has already been mentioned,**

A minimum charge of (say) $1 per month serves the purpose
of a consumer charge, though without precision, and it allows the
consumer without further charge to take a return in kilowatt

*• A well-known ftly adviM-aU of roini)l«rx ratrii, Mr. Henry I>. Oohrrlv, In a jiapsr
»ntltlH KqulUhl*. rnlform an<l CVmipetltlv* llalm, read bffurc the Nallonal Klwtrlc I.lirht
Aatoclatlon In 1900 (Convention prort^dlnKi. IBOn, p. 2H9), propourd both a nrrter and a
coruumrr rhant« In addition to d<^iand and enrrgy rharKM, makhiK four rlrrnonU. In
Utrr writlnfi b« conibln«a tb« fumirr two, th« rc*ult being wtuit U often railed the three-
cbarg* imit.

Types and Elements of Electrical Rates 71

hours, if lit' will, thus liumoring his prejudices." It is thus like
the guaranty feature above mentioned (page (57).**

The adjustment is not nearly as scientific as under either the
consumer or tlie meter charge, as may be observed on inspection of
the comparative curves of Figure 1. Correct adjustmcnc, however,
is largely a question of averages, as has been remarked. But this
method has one important disadvantage from the viewpoint of
the public as compared with the others, that is, the adoption of
the minimum-bill proviso affords no ground for a lowering of the
initial kilowatt-hour rate. The meter charge, on the other hand,
(and likewise the consimier charge) is definitely enough an ad-
ditional charge reasonably to carry with it such a reduction. A
reduction at this point encourages more liberal consumption by
the small consumer, which is just what the company needs. Econ-
omy of kilowatt hours on the part of small consumers means no
corresponding saving to the company and a rate system that speci-
ally encourages it is an obstacle to the profitable free utilization
of electricity by the public.

Legal obstacles to the use of any form of initial charge fre-
quently prevent a scientific adjustment of the rates at this point.
Tlie form of the Wright type of demand rate has been affected by
this situation. The legally or contractually established maximum
rate per kilowatt hour is similarly effective against the minimum
charge, the consumer charge, and the meter charge. Sometimes

■*'' In the Ashtabula Gas case the Ohio Commission says: " A minimum charge implies that
it will be absorbed in the rate in case a certain amount of gas is used." 11 Rate Research
281. The Massachusetts Board marks a sharp contrast between the meter charge and the
minimum charge, as in the following from its 2.')th Annual Report (1909). page 38: " It
may be conceded that strong arguments exist for a meter rent or service charge, but they
are not the arguments which support the imposition of a minimum monthly charge. When-
ever a meter rent or service charge is imposed, it appears to be as much for the express
purpose of raising a definite revenue as the price per kilowatt hour for electricity consumed.
On the other hand, the facts show that, as a revenue produocr, the minimum monthly
charge is almost a negligible factor, and this leads to the conclusion that its value is negative
rather than positive." A Mas,sachusett8 legislative enactment of 1913 in effect authorizes
a minimum charge of not more than $9.00 a year by providing that there shall be no meter
rent if the consumer uses electricity in a year to the value of $9.00. 14 Rate Research, 24-25.

* The special emphasis of the New Jersey Public Service Commission on the guaranty
function of the minimum charge as of primary importance appears (in re Xewton Gas &
Electric Co. P. U. R. lOlfiA .'>32) in its "approval of a scheme of minimum charges, not,
however, based on the cost as reflected by the varying demand of different customers, but so
desigrned as to prevent the curiosity seeker from inflicting a burden upon the company, and
sufficient in amount to compensate the company for the costs of maintaining and reading
meters, bookkeeping, collecting and the general costs which are more or less proportion«t«
to the number of customers."

f% ELECTRirAI- "RvTFi?

there is a specific provision npiin?t any meter rental, which, pince
it is directed at the fomi rather than the suhstance of the charge,
is easily avoided, unless the lanjjrnap' of the law is very compre-
hensive. A legal or contractual maximum per kilowatt hour
directly destroys or mutilates a minimum charge.

If the fixed maximum rate is high, however, initial charges
may be adopted which are elTective only to raise the general rate
to the maximum for small consumers and are entirely ineflFective
at no consumption. For example, if the maximum is 15 cents and
the general rate available to small consumers is 8 cents per kilo-
watt hour, a minimum charge of $1.00 a month is effective in
raising the rate from S cents for 13 kilowatt hours a month ($1.01)
to 15 cents for 6 2/3 kilowatt hours ($1.00) or less, 4 kilowatt
hours being chargeable at not more than GO cents, etc. It should
be noted that under this arrangement there is a free zone between
6 2/3 and 13 1/3 kilowatt hours a month. The illustration sup-
poses that the minimum charge is on a strict monthly, not annual,
basis, or, in other words, that the portion of the $1.00 collected in
excess of enough to cover the consumption at 8 cents is not appli-
cable for kilowatt hours consumed in another month that are above
the reach of the miniimim charge as applied to that month sepa-
rately. The latter sort of charge, though collected monthly, may
actually be a per year minimum of $12.00. Tiiis point is dealt
with in the next chapter in discussing the grounds for preferring
the meter charge.

Contractual maxima based upon agreement with a municipality
have been interpreted as referring only to the output charge, thus
not preventing the establishment of another charge serving a
different purpose alongside of and supplementary to the former.**
Such an inUtrprctation of the law when it has been applied to
statutory maxima and franchise grants, as (listinguislicd for ordi-
nary contracts, has been defeated in the courts." However, such
a charge may be put into clTect as part of an optional rate which

•Thu» Ui» Ohio ComniU»lon, In the Llmt N.iturul (;aii Company cue. .Tune 2. 1019. njvk :
" We «lo not vCTie that a rcodlneM-tonen* chanro I" « chance for icm." 16 Rate He-

M>arrh 342.

••The New York Court of Appeals In dpallnjr with miMin do«lNl.mii of the 2ntl. DUtrlrt

ruMIc Servlre C>imml»»lon.

Types and Elements of Electrical Rates 73

the consunior may chooso in plarc of being Bcrvoi] at the legal
maximuni." Surh a method will probably leave a con.'^iderable
number of small consumers served at a straiLdit kilowatt -liour rafc

Lamp Renewals

The supply and renewal of lamps for a lighting consumer is
still in many cases covered by tlic regular charge per kilowatt hour."
Even in these cases, however, for large consumers the rate is made
without lamps, leaving the consumer to purchase them indepen-
dently. Other than standard lamps are, of course, purchased,
but usually, if purchased from the electrical company, at a special
discount to customers that are entitled to free renewals, since such
lamps take the place of standard lamps that would otherwise have
to be supplied.

In comparing lighting and power rates allowance must be
made for the fact that lamps are not needed in the latter case.
Inspection of a company's schedule will usually reveal what it
believes (or prior to war increases in cost believed) to be the
equivalent of the lamp."

The development of high-efficiency tungsten lamps of small
sizes which cost somewhat more than the standard carbon so that
their original supply and free renewal cannot be treated as matters
of course gave rise to an interesting situation. Their general
adoption, without an increased use of much higher illuminating
powers, portended a very much reduced revenue from small light-
ing consumers, wlio were already alleged to be unprofitable. Hence

" Substantial effect of the method of the New York Public Sen-ice Commission for the
1st District in the case of the New York k Queens Electrical Light and Power Company,
1917 N. Y. 1st Dist. P. S. C. R., 87.

" According to the 1917 report of the N. E. L. A. Committee on Lamps, 61 per cent of
companies reporting to it handled lamps only as merchandise.

" The 1911 schedule of the New York Edison Company allowed to conmmers under the
general rate (which included lamps)) who took above 1500 kilowatt hours a month one-half
a cent per kilowatt hour if they wished to supply their own lamps. Many large consumers
did not avail themselves of this option. Since May 1, 191.5, the kilowatt-hour charge does
not include lamps, for which a separate contract at the rate of one-half cent per kilowatt
hour is offered. This commutation basis seems to be the one usually adopted in all parts
of the United States. Such lamp scrxice was discontinued by the New York Edison Company
on July 1, 1918.

74 Elkcthicai- Hatks

they were often supplied to consumers at rates that cnrouraged
the usp of the Inrij.T, instead of the most Kuital)le. candle powers.**

It is quite evident that a company that supplies a GO-watt lamp
free and asks prices for the smaller sizes that increase as the size
diminishes is not sellinj: lami)s to its consumers on ordinary mer-
chandizing principles. It has in view its revenues per kilowatt
hour rather than direct comi)ensation for the cost of the lamps.
That the consumer should ho olTcred such ostensihly large induce-
ments to use lamps of hiudi illunminating power is not the hest
way of adjusting the business to the new conditions. On the other
hand, it is not easy to determine in just what respect the company
should proceed ditTerently. A 5(')-candle-powcr unit may he most
suitable where very bright illumination is wanted, but it does not
appear that the discouragement of the use of small tungstens
where a liright light is not wanted is justifiable on general eco-
nomic grounds, that is. on the basis of a difference in fi.xed cost
for a given period of service as between the tungsten and the
carl>on-filament lamp."

The expressed desire of prominent central-station men to con-
trol the sUuatwn as regards the supply and renewal of lamps is
doubtless in part due to a justifiable wish to prevent the use of
technically unsatisfactory connected appliances. But tliey would

••The price lUt of the New York Ediiton Company for plain (not frosted) Mazda
(tungsten) Umpi as of January 1, 1017, wan an follows:

Additional CharKc

Lamp und'-r Lamp Scr- N w-nalfi

Wattage vice Agpccmcnt Trice

10 .17 .22

16 .16 .S8

10 .H M

S5 .10 .IS

40 .0,'. M

60 Frro ,ta

60 Frre .20

100 Kro" .fi8

160 y^"' "7

S60 Frre 1.42

400 Free 2 64

600 Free 2.70

The Commonwealth Kdlton Co. (Chlraito) rrnt* (or lately rente<l) tiin(r»ten lnmp« at »o
mu/h a month Inrtead of nelllnjt them, In a way to exert a similar Inllucnce upon the ime of
low waltajfe hlith rm. lei.ry ll(rlitlnir unlU. But many rompanle* are now aupplylnK tunKntens
of 40.waltJ) »« rejfiiUr retirwaU.

" In fa'-t the tunir»len now han a longer life in iienire, under ordinary rondllion)., (Ii-in
the old carbon. filament lamp.

Types avd Ei.kmfa'ts ok Eleothical Rates 75

also he not nniiafiir;illy disfmsod somotimes to ubc such control
to (lisoournf^o the uso of tlic most oconomical pnor^^y-ronHuniing
devices. Kato pcliedulcs should not he porniitted to reflect such a
policy. Whore lanip service is included under the lighting rate
the tendency appears to ho towards a sort of compromise hy which
consumers will ol)tain lO-watt tungstens free hut not the 25-watt
lamps that correspond more nearly, as regards candle power, with
the old 50-watt gem lamp. The suhstantial displacement of other
types by tungstens has already, in 1919, hecomc an accomplished
fact." The next possible development and problem relates to how
far the gas-filled lamp will come into domestic use."

It is possible that the recent emphasis upon the benefits of dif-
fused and indirect lighting — the newer ideas of " illuminating
engineering" — may be in part due to the not entirely disinterested
influence of the electrical companies. Instead of such makeshifts
and subterfuges, what the situation calls for would seem to be an
explicit recognition of other than kilowatt-hour costs in the rate
schedule.

National efforts to further fuel economy during the World War
gave the coup de grace to the carbon-filament lamp, so far as its

•* The following comparison — which is condensed from a UMe in the 1915 Report of the
Lamp Committee of the National Electric Light Association, Convention proceedings. Com-
mercial volume, p. 249, with 1918 figures added from page 237 of the General volume for
1919 and 1919 figures from the volume for 1920, p. 41 — shows the approximate distribution of
domestic incandescent lamps sold (exclusive of miniature) as affected by developments
during 12 years. The figures are for sales by the manufacturers.

PER CENT DISTRIBUTION OF TOTAL SALES

Type 1907 1914 1918 1919

Carbon 93.27 7.1l"l

Gem 5.88 22.36 J "^ '

Tantalum 75 ....

Mazda 10 70.58 89.0 93

Total 100.00 100.00 100 100

Corresponding figures are given for intenening years. Ch.inges for carbon and Mazda
lamps are uninterruptedly in the direction shown, the latter first exceeding 50 per cent in
1913. Tantalum lamps rose to a maximum of 3.57 per cent in 1910 ; and gem to one of
33.59 in 1912. The 1916 committee expected the introduction of the 50-watt Mazda to
increase greatly the sales of this tj-pe. The production of gem lamps was discontinued
entirely early in 1919 (p. 237 of 1919 report) and the committee exptxrted the decline In
the use of the c.irbon lamp to be more rapid tlian before, in view of the possible develop-
ment of a specially sturdy type of tungsten lamp.

'■ Of the tot.nl tungsten lamps sold in 1918, 142.000,000 were of the vacuum t.vp** and the
remaining 24.000,000 gas-filled. The former increased 8.5 per cent in number over 1917
and the latter 37 per cent (page 237 of the 1919 report). In 1919. 16.8 per cent of all
tungstens sold were of the gas-filled type (page 43 of the 1920 Convention volume).

76 Electrical Kates

manufacture and use for ordinary lighting purposes arc concerned.
Manufaiturcrs agreed not to make such lamps and distril)uting
electrical companies not to supply them, except under special con-
ditions. Hence the tungsten is now standard throughout the
country.

As a result of the War there was ali-o a tendency toward dis-
continuing free lamp renewals of any sort, partly as a means of
economy and a war-emergency measure.

The Coal Clause and Sliding-Scale Charges

Indications that the World War has left its marks upon electri-
cal rate practices have already heen noted. The most conspicuous
instance of such effects, and an intrinsically interesting contri-
bution to rate making methods, is the " coal clause." It is some-
times a " fuel " clause, where oil is used.

The rapid increase in the price of coal during the winter of
1916-1917 lead to amendments of high-tension and large power
rates on the part of various companies looking to a sliding scale
for the kilowatt-hour charge dejx^uding on the price of coal. The
policy was considered important enough to be a subject of dis-
cussion in the 1917 Eeport of the N. E. L. A. Rate-Eesearch
Committee. In cases noted (among the earliest) several com-
panies advanced the rate the equivalent of 0.35 of a mill per kilo-
watt hour for each $1.00 advance in the price of coal above $3.00 ":
another adds 1 mill for each $1.00 above $2.25" another, 1 mill
for each $1.00 above $^t.00." We are not here concerne<l with
reasons for the differences in the ba.«e, due to local and other con-
ditions.

Before the beginning of 1 '.»!!), ius .^hown by the 1010 issue of the
N. E. L. A. Kate Book, at lea.st 55 companies in various cities Inul
such coal clau.scs.*' According to these, for each increase of a
given amount (or sometimes a given per cent) in the price per
ton over a specified price, the rate per kilowatt hour is increased

■ New York F.<ll»on rider to ■djunt hltth teiwlon rote, April 1, 1017 ; uliio Hrookljn Kdlxon
rider efl«Hlve June 30 ; and New Vurk k Qureiui, uliiillarly. eicrpt that tlie Inrrf-aB* la
0.376 mllla.

••CJereUnd Elertrlc Illuminating Companj', high tension A. C, 11 IXaio Rew^rch &1.

"Fall River Electric Light Oompanjr, Power rate, Elcririral World. Majr 6. 1017.
page 8^7.

" A count of the 1020 Rate Hook »h<iw» thin number nubwtantlally unchanged-

Types and Elements of Electrical Rates 77

similiarly by a specified fraction of a cent per kilowatt hour. The
increase per ton tliat is operative to increase the rate is usually 10
cents or 25 cents, but it varies from 1 cent to $1.00, the per kilo-
watt hour increase in the rate of course varying similarly. The
ratio between the two of course is dilTerent according to the locality
and the cost of coal. The method of computing the average cost,
including the period to be taken, is usually carefully specified.
Sometimes it is provided that the actual additional coal cost per
kilowatt hour shall be computed from the accounts of the company
and shall constitute the rate increment. Most of the coal clauses
provide for a decrease in the rate for decreased coal cost on the
same principle as for an increase. In some cases the starting
point, that is, the basic coal cost per ton, is not the same, leaving
a neutral zone for the application of the old fixed rate. The basic
cost may be for so many heat units (per 1,000,000 B. t. u., for
example).

Coal clauses are not applied throughout the rate schedule. They
are applied to rates for primary power, less often to large power
rates, and sometimes also to general power or small power rates.
In one ease only railway power is affected. Occasionally the appli-
cation is to all consumers taking above a certain number of kilo-
watt hours per month. A general lighting or a general light and
power rate is rarely affected.**

•» The New Jersey Board rejected a clause adding one per cent to all consumers' bills for
each 10 cents advance in the cost of coal, on the gn-ouiid that the increase was not proportional
to fuel cost. 11 Rate Research 361-2 ; P. U. R. 1917F 205. The same Board shortly after
accepted a § mill per kw. hr. clau.se for municipal lighting. P. U. R. 1918B 589.

The general use of the coal clau.se is hardly defensible. Fortunately it is also practically
unknown. The Rockford Electrical Company, in its application to the Illinois Public Utilities
Commission, stated its reasons for making the clause effective for power rates only sub-
stantially as follows: 1. Cost of coal is a much more important factor in power service,
hence the operating margin is more affected ; 2. Power consumers resorting to other sources
still pay the increased cost of coal, while lighting consumers have other available re.sorts ;
8. Power consumers have enjoyed the lowest rates per kilowatt hour, hence should first
feel an increase of operating expen.<ie8. 12 Rate Research 10. But the Illinois Commission
disapproved the proposal (P. U. R. 1917F 196) on general grounds, as involving varjing
rates from month to month instead of their being " known at the time the sen ice is
rendered " and implying a delegation of the Commission's power to fix rates. The Missouri
Commission has disapproved coal clauses on similar grounds (P. U. R. 1919A 593). Like-
wise, the Michigan Commission (Electrical World, Feb. 12, 1921, page 391). For the
position of the Peimsylvania Commission, see page 79, below.

The 2nd. Dist. N. Y. Public Service Commission in a decision relating to the Rochester
Gas & Elect. Co. (a gas case, P. U. R. 1921A 415) saj-s: " Underlying the rate provisions
of the Public Service Commissions law is the principle not only that rates shall be reasonable
but that they shall be published and to such a degree stable that the consumer may know

78 ELECTIilCAl, l?\Ti:s

T)n' 1!'I7 rop<^rt of the N. K. !>. A. Hate Kcsonrch Committee
rpoommpiidod that, if available, tlie price data of a local coal ex-
change 1)0 used in place of average costs per ton." Hut it implied
that such a basis will scbbmi lie available. The policy recom-
mended would tend to put the burden of bad purchasing policies
upon the company and, on the other hand, give it the benefit of
special skill in this direction. It is sound. There would doubt-
less also be a considerable advantage as regards ease and objectivity
of the methods used in deriving the increase per kilowatt hour.
The Kate Research Committee also says that, if the rate is above
a certain minimum, the coal clause should, as a matter of course,
provide for a scale of reductions corresponding to the increases.
I>uring the period within which the coal clause has been developed,
however, such a provision has not been of jiractical interest, hence
its absence need not be attributed to unfairness on the part of thn
companies.

The idea underlying the coal clause is that of a sliding scale of
prices varying with costs. But the familiar sort of sliding scale
works in the other direction, wages for example being made to
vary with prices. The coal clause in this respect is analogous to
cost-plus-a-per-cent contracts — which are not generally conducive
to economy and efficiency. It has the characteristic weakness of
that scheme, in so far as it does not distinguish high cost due in
part to mistaken purchasing policies, or low costs due to special
efficiency, from such costs as are due to uncontrollable market
conditions only.** The suggested use of coal-exchange prices would
obviate this objection, if not so seldom practicable. However, the

In ■dvujcc the price to him of tlie s*n Ice to bo n-iidorcd." Uence, it deoldM adverwly a*
to the applt'-ation u( variable rate*, althouKh the applicution of a cool clauKp to large
electric-power roiuiunien, who are able to calculate pxpensoii, is not <'Oiiiildi're<l objetiionable.
Id December. 1B20, the three lanjext New York City ele<trical companiea announced their
Intention to extend the application of a coal claunc to all coimumem. Trobably thU policy
la more due to the need of additional rexenuen than to any conviction of the intrinnlc
(ultablllty of thii rale device to coniument of Rmall Hir.e. An injunction oppeart to tuiT«
b«^n obUine«l a^aliikt thin measure (Klrftrlial Wt.rld, Mch. 19. li)21. p. 075).

•• 1917 N. K. L. A. Convention proceixilnipi, Keticral volume, i^agr* lh3-4.

•* Tlie Public Utilltle« Coniniliuilon of the ni»trift of Columbia, on September 3, 1020,
while grantinf Increaaed mte« to the Potomac Klect. Power Co., rejected a proponed coal
clauae for wbolxaale contracta. The Commiiuiion uyi It " li convlnc***] that the company it

entltle<l to an inrreaae in revenue, due principally to the Increane In the crwt of coal

A coal ctaute «uch a* that lugKntted . . . . U objectionable inanniuch a* thnre In leM incen-
tlv* to aeciire cool at the moat ndvantageoiii price when It i« known tliat the coiit, whatever
it may b«, la automatically p««*ed on to the conmimer."

Types and Elements of Electrical Rates 79

cost theorists of the commisiiions will not be frightened by Buch
a considoratioii and, indeed, its bearing on the coal clause is
comparatively unimportant.

It is of interest to note that one company (Metropolitan Edison
of Reading, Pa.) adopted or proposed to apply a wage clause,
eflFective September IG, 1918, applying the above discussed princi-
ple also to this element in cost." The basic wage rate is the aver-
age hourly scale in efTect Aug. 1, 1918. Rates for electricity are
to increase one-half of one per cent for each one cent per hour
increase in wages, and similarly for decreases." Increases or
decreases are to be ascertained monthly and to be the basis of next
month's charges. The analogy of the above to the ordinar}' coal
clause is practically perfect. Its application to all rates, not merely
the power rates, is logical, though it would be pertinent to examine
carefully into the variation or absence of variation in the share
of wages in total cost for each of the different rate clauses. No
other wage clause has come to the attention of the writer, hence
its mere mention in the present connection as cognate to the coaJ
clause.

There are questions of public policy involved in such a wage
clause, involving the fixing of prices to be paid by consuming third
parties through an agreement between employers and employees,
that need not be discussed here.

Coal clauses have been in large part war or war-prices emergency
measures. One might therefore suppose them to be a passing
phase of electrical rate-making." Such is not the view of the
writer, nor does it appear likely that the public service commis-
sions will in general adopt that position." The coal clause contrib-

•• 14 Rate Research 211. This device does not appear to have continued in use.

•• The method is inaccurate unlesK the per cent refers to a constant base rate.

" Thus the Pennsylvania Public Senice Commission has said that coal clauses " should
be superseded by more definite ratos carried into the tariff schedule." State Belt Elect.
Ry. Co. V Pennsylvania Utilities Co., Aujrust 12, 1919. 16 Rate Research 13. But in
another case it refused to abolish .in existing coal clause. P. U. R. 191 9F 635. In a later
case it says coal and labor clauses should be eliminated. P. U. R. 1920B 380.

" Compare the following e-xpression of the Committee on Public Utility RatM of the
National Association of Railway and Utilities Commissioners: "It is suggested that in
order to save the utilities from the frequent necessity of coming to the Commission ai
increased costs of materials and labor may make it necessary, that percentage Increases or
decreases based on unit cost increase or decrea-se for fuel and for operating labor would most
aatisfactorily meet this situation where the various State ComraLssions have adopted uni-
form cost accounting for the public utilities." Proceedings of the 30th Annual Convention,
1918, page 217.

80 Elkctrical Bates

utes a desirable element of flexibility to revenues and involves a
better adjustment of rates to fuel eost* where the margin tends to
be close. Attempts to make the ronl clause penernl, however except
as a temp<^rary substitute for generally higher rates arc to be
judged differently.

Further Points, and the Uncompleted Task of Description

The actual complexity and variety of existing electrical-rate
schedules is no more than suggested l)y the foregoing description
and comment." When the rates themselves have been deciphered
there sometimes remain to be considered various riders, applying
especially to wholesale contracts, which often affect the variation
in tlie price charged for electricity.

The use of a per cent surcharge for all rates (or even for selected
rates) does not affect the rate structure and calls for no discussion.
This device has been adopted by companies and commissions as
an emergency measure, either with the expectation that prices
would shortly recede so tliat it could be withdrawn, or as a means
of immediate relief pending a general upward revision of" rates.
Its employment for all the rates of a company — unlike that of the
coal clause — may be taken to imply that existing rate differentials
are acceptable, or at least tolerably satisf actor}'.

A noticeable element in rate schedules that is not discu.ssed,
because not distinctive of electrical rates and not in its nature so
much a price-making as a payment-compelling device, is the prompt-
pavment discount. In all comparisons of rates this discount can
be properly disposed of by deducting it and making the comparisons
on the net basis. The delayed-payment penalty, which is com-
paratively rare, is in principle the same, but this eliminates itself
from comparisons.

The absorption of the prompt -pa} incnl discount into the regular
rate, or the extra-provision for it where tliere formerly was none,

•Tb« U»tr nent-Mtch Commlltn* of the National KIrdrIc IJjfht AiWH-latlon liaH Iven for
KTRir llm* orruplrd with the roin|illatlon ■ml iitaiiilardiuitinn of clwtrlralrat* fortn« and
•ciwdulM. It* annual r^xirU, iiulillahrd in the CVinvcntlon procor<lln(r«, toRcthiT with the
prr|o<ll<-«l Hat* H««*n h, l»*iji-<l under lln dlnH-tl.-n and d<notod In »lmllnr matfcm. Inrludlnif
■tMtra'-t* rif artlr'Ira and d«Tl«|iin». oflrr a (crmt ratiK** of mat/rlnl for thr iitudy of rate
throrj and j-mrllr^. Still more ImimrtJint l« the N. K. L. A. Hnlr Ilook (anmial from 1P17)
and lt« mipiilrnirtil*. f-otilalnlnj In rr>ndrn««H| form thr clin-trli-al ratr (ifhp<lulo« In force In
praf-tlr*lly all rr)n«ld«nililr nlwd rlllr* In the l*nlt«l Statp* and Canada. 8tatcni«nita made
In thU »>ook an rrjpird« the deirree of prcvalmrc of rarloua rate types and practice* have
b««n made to conform to tlie data ther« ^ven.

Types and Elements of Electrical Rates ^^

has lately sometimes boon employed as a means of increasing
revenues.

It is of interest to note that sometimes the prompt-payment
discount, so called, becomes in fact, through an increase of the
percentage for the larger demands, a quantity discount. Since
the commercial credit of the larger consumers is presumably bet-
ter than that of the small ones, and the cost of collection less for
the former, and since the prompt-payment discount is a collecting
and credit device, such a use of it is in cfTect false labeling.

A type of rate seldom used and difficult to classify, but economi-
cally interesting, is the ''output rate," under which a consumer
(who is of course a manufacturer of some sort) is charged accord-
ing to his units of output for processes using electricity, as, for
example, an ice-making plant according to tons of ice produced.
Kilowatt hours per ton of ice, it should be noted, are not constant
but vary greatly with the load and capacity factors of the ice
plant. This plan introduces the ability-to-pay element into some-
thing resembling the energy charge. In this respect it is like
the demand charge based upon assessed value of premises," and
not unlike certain ways of applying the Wright type of rate.

The device of optional rates — not only a precautionary aid to
experimentation, but if skilfully used, sometimes an important
means of self-classification — is discussed later in considering class
rates."

Special contracts between a public utility and individual large
consumers, though having a term of years to run, have been held
by the courts to be a part of the rate stnicture and subject to
revision by public utility commissions. Such a consumer may
be entitled to special consideration, rather than to specific per-
formance under the contract, if he has made expenditures and
commitments adapting his premises to central-station service or
done anything involving a consideration for the contract.

Most of the details that might receive further attention are not
important, in the sense that they are not to be reckoned with as
permanent elements in the electrical rate situation. It has been
the plan of this chapter to emphasize what has shown itself to be

" S€€ page 64, above.
" Page 114.

g2 Electrical Rates

permanent anil what contains promise of further development.
But there is a clanger of misroproscntntion in thus picking and
choosing, even whore one attempts to he fairly comprehensive."
The evidence of what is to come that is alTorded hy the recent or
present dominance of one or another method or practice among
the leading electrical companies ought, so far as possihle, to be
set before the student in full for such use as he can make of it.

There is still much experimenting with new rate devices to be
looked for, and it will he a long time before there is substantial
uniformity of rate types throughout the country. Inertia, if noth-
ing else, will long preserve the remains of present fundamental
differences between the rate schedules of various companies. But
the general tendency henceforth will doul)tless be toward simpli-
fication and at the same time toward uniformity.

" Brief descriptive data showing the slpiiflcaiit (act* about the rat* schedulet o( the mort
Important electrical companies in the United States p^c^ented in tabular form would be
highly valuableu The dilflcultlc8 of such Ubulatlon are not few. The N. E. L. A. Rate
Book meeU the need to some extent. Where differentiation is so Important, averages (or
consumer classes are worth little. Indeed, comparisons o( such averages might serve well
to Illustrate the limiUtlons upon their Bigniflcance. On the other hand, the reduction of
tb« facts to tabular form Ih essential (or convenience of comparisoa

CHAPTER III
THE REIMBURSEMENT OF SEPARABLE OR PRIME COST

Importance of separable or prime cost. Only two rate elements closely
related to it.

Output cosl — the kilowatt-hour, minimum. Inexactness of any separation.
One cent per kilowatt hour ordinarily more than separable cost. The
residual method of analysis not applicable. The kilowatt-hour element
most likely to be heavily loaded with general costs.

Consumer cost or initial cost o] service. Relation to extension and to
intensification of use. Taxing the adjacent class for initial cost. Relation
to a low kilowatt-hour charge. Proper amount of a con.sumer charge.
Rural extensions. Comparison with gas. Possible limitation upon the
combined rate. Politics involved in the maximum rate. Lamps a special
question.

Lamp efficiency in relation to the service charge. Recent great progress
in lamp efficiency. Slowness of the adjustment of rates to this situation.
Carbon filament lamps are economically obsolete. Discontinuance of free
renewals desirable. The general employment of a service charge would
largely solve the problem.

The meter charge the preferable form of service charge. Best especiall}'
when there is no demand charge, as is proper for the small consumer. Meter
capacity actually a fimction of demand. Graduation of the meter charge.
Encouragement to liberal use of kilowatt hours. Prevention of discrimin-
ation against the intermediate class. The annual basis of the usual mini-
mum charge objectionable. No question of meter rent. A two-charge rate
is not complex.

There are certain costs so definitely caused by the service of this
or that consumer that any system of charges at all conformable
to sound economics or to ordinary sentiments of justice will obtain
reimbursement for at least these costs from the consumers immedi-
ately involved. The preceding review of electrical rate elements,
if not common knowledge of the theory and practice of rate-making,
will suggest that general carr}'ing charges for fixed capital are not
among these separable costs. Such expenditures are made as part
of the general outlay necessary to the undertaking and are only
secondarily or ulteriorly to be considered in determining whether
a particular customer or class of customers is worth having. They
are not a part of the prime cost directly due to the service of a
specified individual or class.

From among the rate elements above passed in review, it is easy
to select two that relate especially t. the reimbursement of separa-
ble cost. These are the initial or service charffe and the kilowatt-

g4 Electhicai. TJatka

hour ihargo. As regards tho latter, however, since it is likely to
bo tho prineiinil feature of any .<ort of rate, it usually provides for
much more than separable cost, sometimes, indeed, for all cost and
profit For this reason the upper limit of the magnitude of the
separable kilowatt-hour element in cost, not to speak of average
separable kilowatt-hour cost, cannot be inferred from actual rates
unless tlie other elements are othenvise provided for.

Output Cost — The Kilowatt-hour Minimum
In order to determine the amount of the separable kilowatt-
hour element in cost by a formally correct scientific method, it
would be necessar}' to find for a given plant under usual operating
conditions the extent and character of the variation in unit cost per
kilowatt hour in relation to the variation of the total quantity
supplied. Such an investigation would give the separable or
variable cost per kilowatt hour. In order that the figures might
have general scientific interest, however, it would be necessary to
compare results obtained in the same way for many ditlerent
plants. The degree of adjustment of equipment to operating con-
ditions and resulting degrees of ctTiciency obtained constitute one
important element in the problem. Such a ditiicult statistical
(and possibly in part experimental) study has never been made.
When obtained the conclusions would be subject to various quali-
fications. Furthermore, such a study is not indispensable, since
an approximate or probable minimum figure will serve sufficiently
well the purposes of rate-making where the kilowatt-hour element
will be used to carry much besides the separable kilowatt-hour
cost, as it practieally always does.

If it can bo shown that one cent per kilowatt hour will (or would
Ijefore the War) more than provide for all strictly sei)arable kilo-
watt-hour costs, it is evident that the essence of the problem of
electrical rate-making — at least for the great majority of con-
samerH, in fact all but the very largest — is found not here, and
probably not in any other aspect of separable cost, but in difTer-
entiation. But it is not difTicult to show that actually one cent
per kilowatt hour will take care of the kilowatt-hour separable
cost under ordinary' cinuniKtances, with a qualification only as
regards the distribution element in cost, wiiich might have to lie
minimal rather than t}'pical.

Reimbdbsement of Separable or Phime Cost 85

A sizeable and well-managed electrical plant not unfavorably
located has production costs less than one cent. Total operating
expenses per unit may go above two cents, but that includes main-
tenance, which is mainly of the nature of a carrying charge, and
also most of the consumer costs, as well as such general expenses
as are variable per kilowatt rather than per kilowatt hour. A
modern and cfTicicnt street-railway power plant not unfavorably
located does not show expenses (even with maintenance in some
cases) for power operation, including distribution, as high as one
cent per kilowatt hour. Power is commonly sold by electrical
companies to street railways and by street railways to one another
at less than a cent a kilowatt hour, even where there is no separate
demand charge. Most rate schedules of large electrical com-
panies contain rates providing for sales to very large consumers of
certain blocks of energy at one cent or less per kilowatt hour,
though this commonly holds only for the later blocks under a
scheme of quantity discounts on the block principle and is pre-
sumably supplemented by a demand charge. These, and similarly
low off-peak rates, doubtless show something above separable kilo-
watt-hour cost. There are also cases of step rates dropping to one
cent or less.

Coal clauses in various rate schedules carry as mathematical
implication a definite kilowatt-hour cost for fuel. Derived normal
fuel costs are, or for the earlier coal clauses were, 1 to 4 mills
per kilowatt hour. In general fuel accounts for more than two-
thirds or about three-fourths of production expenses in a modern
steam plant. It is doubtful whether any other element in cost
varies as definitely per kilowatt hour, though a qualification is
necessary, even as regards fuel. The most liberal allowance for
such elements could scarcely raise the total generating expense
to more than a fraction of a cent, if at all strictly computed as
separable and as variable per kilowatt hour.

Altogether it is evident that, if all other expenditures could or
should be otherwise reimbursed, it would be quite consistent with
the fullest regard for separable kilowatt-hour cost if the kilowatt-
hour element in the rate were computed at as little as one cent per
unit. Load-factor considerations and capacity costs are another
matter, having no relation to the kilowatt-hour separable cost that
is under consideration here.

95 Elkcthical Rates

However, the above comparisons are based mostly on beforc-
tbe-war conditions and are subject to qualification on tbat account.
But if it bo necessary to modify the conclusion so as to miikc the
figure less than 2 cents, instead of as little as 1 cent, per unit, the
general perspective is not essentially changed.

It should bo noted by way of caution that neither the kilowatt-
hour nor any other element or part of cost is determinable by what
may be called the method of residuals, which consists in separat-
ing or apportioning by some means the costs attributed to certain
other elements (or to classes of consumers) and then assigning
what is left to the kilowatt-hour clement (or to some residual
group of consumers). This procedure calls for mention here
because, among the various rate elements, the kilowatt-hour ele-
ment is usually, and doubtless in general correctly, treated a? the
residual rate element, that is, as the one most suitable to take care
of costs not otherwise apportioned. But one's attitude towards
this residual method cannot be so tolerant when it is applied to
load otherwise unapportioned costs upon a residual class of con-
sumers, that is, upon the small consumers. This is commonly
the outcome of the " increment cost " argument. It is not safe
to compute what would be the additional cost of taking on a
large consumer and give him a rate barely in excess of such cost.
The analvsis should deal with classes in any case. And the " with
and without" test is logically just as applicable to those already
sen-ed — whose consumption may also be in the balance in certain
respects — as to additional business. The whole question is one
of taking advantage of elasticity of economic demand and the
'* increment cost " argument cannot be confined to a particular
individual or a particular situation without tending to cause unjust
discrimination.

As to the reasonable ground for burdening the kilowatt-hour
charge wh^n in doubt, the practice may be referred to the greater
readiness of the consumer to pay in proportion to service rendered.
The preferences or the prejudices of the consumer are an impor-
tant factor in determining what the trafiic will bcnr.* Our coii-

• Tb« following rxptrmrm Ihr cllffrrrnt view of a mitral ntntloii man: "Any roil uhieh
dott not Txtty w•^l^ fi' kUmi-xitt hnurt inld or tiilh Ihr numhrr of nulomfrt connrrtrd it a
drmand rotl. In filhrr w<»r<J«, unl«-«i you ran clrflnltrly amiini « rott to Hip cualomcr group
or to lh» fT^rtr ff'^p. I* l**!'"** to th« Hrtnand gniup." The roaaona glvfn are flnandal.
Th« *lrw la thai of A\rx»nder iKr*. Spa lOlfi N. E. I.. A. C<invmllon proo«cdinr'. general
Toluro*, p. 41S

K'KiMnuRSKMENT OK Skparari.k OK I'rn.MK Cost fi7

cluBion as rofjards this ])liaso of the separation of cost is rather
negative, that is, th(> kih)\vatt-hour element will usually take care
of so much hesides kilowatt-hour soparahle cost that in actual rate-
making all one ncorls to consider is merely that if the exigencies
of the situation had liajiponcd to favor cutting the kilowatt-hour
charge to separable cost and in case of douht hurdening other
rate elements, rather than it, the kilowatt-hour charge might
easily be much lower than it is likely to be made. It matters
little for present purposes whether two cents instead of one will
often be necessary to cover variable energy cost. The kilowatt-
hour charge is seldom calculated with reference merely to reim-
bursing for separable cost.

Illustrative examples of the results of analysis of cost for elec-
tricity according to underlying variables and possible rate elements
are given in Chapter V, page 125, below.

Consumer Cost or Initial Cost of Service

The nature of consumer cost and the various ways in which it
may be dealt with have been indicated in the discussion of rate
elements. That such costs are separable per consumer or per some
related unit is not open to question.

Any sort of initial charge — and such is the essence of a service
charge — operates as a discouragement to the potential consumer,
especially if small, who might otherwise become a customer of
the company, and, even though at first no more than paying
expenses, ultimately a profitable one. The indirect effects of a
policy that restricts business are always worth considering. The
fact that large consumers often grow into such from small ones
is probably of less weight than the effect of familiarizing the
public generally with the use of electricity for all sorts of light
and power service. There is no reason why electricity should not
in time come to be thought of as a necessary of urban life, just as
gas now is. It may be maintained that it is bad economy for
practically all residences to be supplied by both utilities. But
gas will doubtless continue to be needed for cooking and. for the
rest, it is simply a question as to whether gas lighting or electric
lighting is superior as regards cheapness and convenience.

88 Electrical Rates

There are too mniiy questions as to tin- proper basis of com-
parison botweon gas luul clcctririty as. regards cost and Pcrviceability
to the consumer to make it practicable in this connection to put
the facts into terms of dollars and cents. For electricity we should
probably assume the use of 50-watt tungsten lamps, perhaps also
some of smaller size and less efTicicncy, but not at present of gas-
filled lamps. On the other side, are we justified in assuming the
general use of incandescent mantles, and, if so, must we also sup-
pose the more costly high candle-power gas to be used with them?
Supposing the consumers' premises piped and wired for both gas
and electricity, and supposing small use of incandescent gas
mantles, electricity is the cheaper illuminant as well as preferable
on general grounds of convenience and sanitation.

But under any sort of initial charge the comparison is affected
bv the amount of energy taken. It is clear that, with a service
charge for electricity and with none for gas, the latter would be
the more economical for the very small consumer. But in the
ease of all consumers above the very smallest the advantage of
electricity over gas should be decidedly increased by a correspond-
ingly lowered rate per kilowatt hour.

The slightest consideration of consumer cost leads to the con-
clusion that there is somewhere a lower limit of size below which
it is unprofitable for the electrical company to get the business.
If the company serves this class at a straight kilowatt-hour rate,
it must Ik* granted the right to make up the excess cost somewhere
else. It seems logical to take the compensating profits from the
next largest chuss, especially if the members of the smallest class
get their service at less than cost because of an initially level kilo-
watt-hour rate, which will naturally be extended to neighboring
size-dai'ses. If, on the other hand, the company is j)rotccted against
the undue extension of this kind of business by some sort of an
initial charge, the kilowatt-hour rate can properly be nunli lower.
Even if the smalh'st class still does not entirely pay its way, there
is no reason why the initial kilowatt-hour charge sliould be affected
by this fact, though the excess cost, if important, must be made
up to the company somewhere, perhaps by a generally slightly
higher kilowatt-hour charge.

The width of the first block under a simple kilowatt-honr rate
is a test of the extent to which the consumer of moderate size is

Reimbursement of SEPAiLvnLK oit Phimb Cost 89

made to sulTer because of the failure to have a separate initial charge
and a two-charge rate — or possibly of the extent to which he suf-
fers from a low legal maximum. The arbitrary nature of the
determination of the limit of the first block is reflected in the
fact that its width ranges from 10 to 1000 kilowatt hours a month.*
Obviously such difTercnces are not results of difl'crenfcs in cost.

If consumer cost is taken care of by some kind of initial charge,
the initial kilowatt-hour rate should be correspondingly lower.* I^t
us suppose, for example, that the initial rate be reduced from 10
to 6 cents per kilowatt hour. Such a change is l)Ound to have an
important effect upon the liberality with which electricity is used
by those who will readily pay consumer cost by way of a separate
charge. Not only will the average size of this group of consumers
be increased by some of the very smallest consumers being cut off,
but the remaining small consumers will tend to use energy more
liberally, not only for lighting but also for power, cooking, and
even heating purposes. This should be of decided advantage to the
company as well as to the community generally. The two things
the electrical company especially needs are evenness of load — which
means diversity of use — and density of consumption — which means
that any district (a residence district, for example) worth culti-
vating should be cultivated intensively. An initial charge, with
the rest of the rate schedule appropriately adjusted to it, cuts both
ways.

But it is clear that the initial charge should be made as small
as may be, consistently with its purpose to take care of consumer
cost. In other words, only prime or separable consumer cost should
be included. For this reason the writer would, at least in a very
large city, exclude the cost of service pipe and wires from any
computation to determine this element in the rate. The cost of
connecting an apartment house containing fifty families with a
street main is no more separable, and chargeable to the individual
consumer, than are the wires stretched along a block-front to supplv
20 private houses. In a city of multiple dwellings, the distribution
system extends almost to the meter and its cost is a joint cost.

' N. E. L. A. Rate Book, checked to 1920 Issue. Aubum. N. Y., 13c. for the flrrt 10
kw. hrs. ; N. Y. Edison and United Elect. (New York City). 7c. for the first 1000 kw. hr».
York, Pa., shows 20o. for the first 5 kw. hrs. and 8c. for the next 200.

' Where a municipal council had not provided for a minimum charge, the Ohio Public
Utilities Commission (re Cleveland Elect lUg. Co., P. U. R. 1920B 891) said " the maxi-
mum rat« must necessarily be sufficient to cover the mo&t expensive short-time »er»ic«."

90 ELEcrnirAi. TJatfs

Thero arc various opinions ns to tlio normal nniount of consumer
costs, but it is the common opinion tliat $1.00 j)or month per con-
sumer or less will cover them. One chtllnr is in fact rather large —
or was large prior to the \\:\r. It may ho appropriate for detached
houses considerahlo distances njiart — for suburban or rural con-
ditions — * but not for multiple city dwellings. Often some element
of fixed charges on the distribution system is included, and it
should not be. And service pipes and wires l^elong with the distri-
bution system in the case of multiple dwellings. Thus qualified
and explained, 50 cents per month may be deemed at least a fair
standard of reference.*

Rural extensions of electrical service involve heavy costs per
consumer analogous to most of the elements of the service charge
with added emphasis on the cost of physical connection, trans-
former and transformer core losses. The cooperative building of
lines by farmers has sometimes been adopted to meet some of
these costs. In this case density cannot be made to help.

♦ The Indiana Commission considers $1.00 the reasonable minimum charge In the country
corresponding to 50 centii for the city. Decision of August 7, 191G, 9 Hate Ke«. 391.

* The following tabular stiitement comes from the testimony of the Commonwealth Edison
Co. of Chicago, on which basis in part the Ulinois Public Utilities Commission approved
• minimum charge of .00 cents a month. See its decision of June 26, 1916 ; also 9 Rate
Research 248. The statement happens to bo even more directly indicative of the nature
and proper amount of a consumer charge and is here reproduced chiefly with reference to
that view point.

SUMMARV OK TIIK CUSTOMF.R.S' COST (INCLUl)INO AI.L ITEMS ON

CU.STOMEUS PREMISES)

Cost per —
^ -A >

annum monthly

Fixed charges on flrrt cost of watt-hour meter 1 03 .086

Fixed charges on cotit of first supply of Incand'went lumps S3 .019

Meter reading, billing, bill delivery, bookkeeping, claim and statistical. . . J. 01 .167

Meter Itistallation, removal, maintenance and testing 90 .076

Incpectlon on customem' premise* 10 .017

Customers' repairs, Including household devices but excl. meters 34 .02«

Fixed chargrs on servlct connection 41 -034

Maintenance of s^rv Ice foiine<;tlon 1^ -01'

$5.27 1.489

General expense, such as office rentals, telephone, telegraph and general

tupervlnlon at li per r»>nt of the particular expenditures listed above. .79 .066

ToUI Customer's cost tO 0" » f'OC

Ei.erKy u«e<J by average customer whoa* bill it lew than 60 oenti 1.84 .163

I7.B0 9.6S8

KRIMmnsKMENT OF SKF'AItAHLK OR PrIMB CoBT 91

There are some opportunities for economy in the matter of con-
sumer costs that ouglit [)crhaps to receive more attention than tliey
do. In the suninicr of 1!)17 the Detroit Edison adopted hi-monthly
billing for small consumers with a view to cutting one of the most
important items of expense.' Where it is tlie practice to require
deposits of consumers, it would seem to be unnecessary to make
monthly meter readings and collections. The practice of hilling
quarterly is not unknown in Europe.

Gas consumer costs are comparai)le in character with those for
electricity. The comparison is of special significance because, with
the small consumers overwhelmingly preponderant, the possibility
of avoiding the issue by shifting tiie burden to other classes of
consumers is substantially taken away. But gas rates and the pre-
vailing size of gas bills — $2.00 a month for all classes of consumers
in New York City — do not suggest that the consumer element in
cost approaches as much as $1.00 a month.' Such is the situation
as regards gas consumer cost absolutely considered. It is true, on
the otiier hand, that material costs, which are represented suffici-
ently well by production expenses, are greater for gas. It appears
that production expenses constitute nearly two-thirds of gas operat-
ing expenses and only half as large a proportion of electrical operat-
ing expenses. Fixed costs, also, are decidely greater relatively in
electricity supply. The necessary charge per thousand cubic feet
is therefore bound t-o be comparatively large and there is accordingly
less reason for making a separation of other cost elements from the
thousand-cubic-feet (corresponding to the kilowatt-hour) element,
even though, absolutely considered, gas consumer costs are not
very different in amount and are of more nearly universal signifi-
cance for the business done than for an electrical company.

On general grounds already discussed, that is, in order not to
discourage the accession of new consumers, there should be no objec-
tion to limiting the combined kilowatt-hour and initial (or con-
sumer) charges to some defined kilowatt-hour rate. As expressed

• Electrical World, July 14, 1917, page 68.

' In 1908 the average bill for gas in New York City was $24.93 per year and for elec-
tricity, $177.34. hi 1915 the first average had fallen slightly, to $23.06. and the second
considerably, to $101.78. For the data, see the 1915 Annual Report of the N<^ York
1st District Public Service Commission, Vol. Ill, pages 22, 24. Some uncertainty as to
the possible inclusion of a few public consumers in the number compared with revenues
from private consumers does not significantly affect the results.

92 Eleotrk'M' T?ate8

praphically in a rate curve, such a proviso means that the first part
of the curve in Fipruro 1 will cut horizontally straight across the
diauram at perhaps 12 cents or at whatever other level may be fixed.
This will mean some small loss to the company to he made up
elsewhere, hut the policy is justifiable on both the <reneral grounds
mentioned at the opening of this section. ^^loreover, such a rule is
sometimes necessary in order to conform to laws prescribing a legal
maximum. The argument in behalf of such a use of the maxiiuum
idea is exactly the same as the argument for having a maximum
at all. At worst it is a concession to public opinion that costs
comparatively little. The Wright type of load-factor rate is the
result of an application of similar reasoning to the demand charge.
The fixing of a low maximum rate per kilowatt hour, where this
is the only element in the rate or where the limitation applies to
the average kilowatt-hour charge regardless of how it is computed,
is, however, a somewhat different matter from leaving intact an
established or customary kilowatt-hour maximum that is not so low
as to cut the ground from under the argument for a compensating
reduction of the kilowatt-hour element in the rate when a service
charge is added. The charge for initial and small consumption
under a straight kilowatt-hour rate is usually the point in an elec-
trical rate schedule that is, economically speaking, least open to
objection as being too high. Politically, however, that is, with a
view to the number of voters afi'cctcd, it is evidently the most vul-
nerable. This fact may have something to do with the tendency
to make reductions at this point rather than elsewhere. Not only
the commissions but also the companies appear to be affected by
8uch considerations.*

• A reduction In the maximum rate for the Now York Kdisoii Co. from 10 cent* per kilo-
watt hour with lamp renewaU Included to 8J cents with liinipft. or H c-eiitn without, w««
effected May 1. 101.1 (lUl.'i N. Y. l"t Dist. P. S. C. H. f)«). The ojilnlon o( Comnil^loiu-r
Mattble favore<l a grrulrr reduction in the kilowiitt hour rlmrtfe and the eirtabliithnient of a
meter rharve of ;.o c-iitn up t<i $1.00 n month nddltlonal (IKir. N. V. l»t Dirt. I*. S. C.
R. 132). Thin li thr roimtrui-tlvp f>-alure of the opinion* in Uiin rnne. The retil liwue of
the cane, dljw-rlmiiuitlon through lunc" quantity dlHoounta, waji not met But private plant
InterentJi are not the bo«.t protiiiconlntx of the umall consumer. About the Ut of Novmiher.
1010, a further, and nominally voluntary, reduction wan obtained fn>m the company.
promUlnfr 74 ceiiU aa thn maximum from January 1, and 7 cenU from July 1. 1017.

.None of thiHio rKluctlonii appreciably benedt the Intennwllate rlnji* that <:in nrlth"r »ine
the iiolated plant an a club nor nwing election* by lU vote*. The 1011 bl.xk charire-^ were
•o adju.te'l (wime of thrm ral'i-d) in lOIf. lh.it the neneml rate conMimer of Intrrnifllate
iixe, after allowance for the .^.tlon of aupplylnR hU o^^•n lampa. remBinH dubslantlally
where b« waa before, the reduction on 1000 kilowatt boura conmimi.tlon Ix-lna »I DO iind on

Reimbursement ok Si:pAUAnLR on TrtiME Cost 93

The claim for ri'diKtiun of rates on -^^'iioral economic grounds
is strongest for consumers intermediate in size, perhaps small as
rcf^ards connected load but comparatively long-hour users. A wide
initial block may easily be made to deprive them of the possibility

of iiiiv rcduclion from the niaxiinum rate.'

l&OO, $1.30. Beyond the latter point the rate wan somewhat lowered. In the reduction
of Jan. 1, 1917, increa-ses in the block charges between 1200 and 2500 kilowatt hours
niuiithly about balanced the reduction on the first 900 kilowatt hours. \ similar Htateiiiciit
applic.-i for the July 1 change. The gist of this situation is that mere size as such is not
allowed to benefit the consumer until he approachce the competitive clas.s. These compen-
sating features of the changes in the average-rate cur\e, however, should not be taken to
mean that there was any corresponding balancing of gain and loss in the revenues of the
company. There was of course a very considerable cut.

In the Brooklyn Edison case the view of the Commission is indicat'ti by the following
quotation (191C X. Y. 1st Di.st. V. S. C. R. 175,228): "The minimum bill now in effort
serves many of the uses of a meter charge or consumer charce, and thei practice of the com-
pany nuiy, therefore, be left undisturbed." This, and other parts of the opinion, show
progress towards a position favorable to the service charge and thus to preparation for
meeting the issue of discriminatory quantity discounts squarely on its merits.

The opinion and order in the New York and Queens Electric Light & Power case (1917
N. Y. 1st Dist. P. S. C. R. 87) — which company is an intercorporate associate of the New
York Edison — bears on the views of the Commission on this subje<;t. It results from a
compromi.se accepted by the company. A meter charge of 60 cents is instituted in combina-
tion with a kilowatt-hour charge of 9 cents, but the resulting combined rate is limited
to 11 cents a kilowatt hour, except that a minimum charge of $1.00 a month is retained.
The restrictive clau'.es are accepted provisionally for the time being, and the opinion ex-
pressly favors substituliiig the consumer charge for the minimum charge.

A later axpression of opinion by this Commission is as follows: "For the present the
Commission approves a minimum charge, resening, however, for future consideration the
question as to whether a fixed consumer charge should not be adoptM by the Flatbush Gas
Co., as well as by other electrical companies, in place of the minimum rate. Of course
any question of a future change in the direction of imposing a fLxed consumer charge would
necessarily involve a readjus-tment of the energy charge to which it is to be added " (Feb. 1,
1918). P. U. R. 1920E 930, 1020.

The N. Y. 2nd Dist Commission decidedly prefers the consumer or service charge to the
minimum charge, for good re.isons given, as appears, for example, in a quotation in the
Electrical World for Jan. 15, 1921, pnge 172.

• On this subject a recent opinion of the Mis.souri Commission (tn re Fort Scott & Nevada
L. H. W. & P. Co.. P. U. R. 1915F 540) is much in point: " These rates .... result in a
uniform rate of 10 cents per kilowatt hour to residence consumers, except, of course, as to
thosa whose accounts are not paid by the 5th of the month, and to those who fall within
the minimum monthly charge. This result is due to the extremely large blocks, starting
with 100 kilowatt hours for the first block. No residence consumer uses more than 100
kilowatt hours per month .... consequently, no residence consumer participates in any
of the lower rates on the sliding scale. The blocks appear too large also for business
lighting, and the size of the block militates against the very purpose of block rates on a
sliding scale .... limiting unduly the proper effects of long hours' use of electricity and
minimizing the encouragement of long hours' use."

It should be noted that the objection is to a first block one-tenth as large as that of the
New York Edison Co. On reducing the maximum in 1915, the width of the first block was
extended by this company from 250 to 900 kilowatt hours, and further to 1000 kilowatt
hours a month on July 1, 1917. making it, so far as one can determine from an examination
of the 1917 N. E, L. .\. Rate Book, ab.solutely the largest initial block or step in the United
states. The usual sizo of the initial block under block rates is 50 or 100 kilowatt hours a

94 Electrical Rates

Lamps are a separable cleniont in cost usually provided for in
some one or another rate element, but now perhaps more generally
made a separate and optional part of the service of the electrical
company. As regards the carrying charge on the initial and con-
tinued investment in lamps on behalf of a consumer — if the com-
pany owns them — that is properly a part of consumer cost. It is
separable per consumer (with a qualification as regards the size
of the installation) and may be so treated in the company's rates or
left to the consumer to attend to directly. ^Maintenance and
replacement of lamps — depending as they do chiefly on hours' use,
the number of hours a lamp will burn being fairly constant — vary
with kilowatt hours consumed and are properly covered by the kilo-
watt-hour charge. The constituents of lamp cost are thus, after
sub-division, separable on two dilTerent principles. But the lamp
situation is a special question. It is best disposed of neither by
sub-summing lamp cost under consumer cost nor by separately
apportioning the costs involved between tliis and other rate elements.

Lamp Efficiency in Relation to the Service Charge

Consumer cost is significant chiefly for residence consumers and
therefore for lighting more than for power uses of electricity. The
straight kilowatt-hour rate has long been open to criticism as an
inadequate method of dealing with the cost of supplying the small
consumer. It is easy to see that the situation has not been improved
by the remarkable increase in the eniciency of electric lamps of
small sizes. Such efliciency is ordinarily expressed by the number
of watts required per candle of illuminating power. In no other
respect has electrical engineering made such marked progress in
the la^t decade or so " as this of lamp etlkiency. Further improve-
raents are to be expected. If the benefits of those made are already
extended to coDEumers lately using obsolete carbon-filament lamps,

month — to far m» the word " uxual " in nupllnililr where prartlr* vnrlr* no (frfatly. There
■r« mor« cu»f under 60 than abo\e 100. The renlderire rate In rhiU<lelphia effective
April I. 1010, 1* of the qu;intlty-block tyi>e with a flrnt block of 12 kilowatt hourn a month
at 9 oenla.

"In hU Pre»ldrnt'» addretii on the "Trend of Klec-trlral nps-elopmnnt " (Proceodlnjrn of
the American ln»tltut« of Klertrlcal Enitlneeni, September. 1P1.'>. pa«e« 1491 1.'.02), Paul
M. Lincoln makra various compariMitm for the fourteen year* prr<ri||ii(t. with tJie seventeen
year* tollowlnx IR98. HI* result for lamp efJlclency in lOOn per cent Improvement for the
later a« compared with .'<0 per cent for the earlier perlixl. Other coniparlnonn, and the
(«n«ral r«»ult«, though utrlklnir, do not Involve acceleration of growth.

Reimbursement of SEPARAnLR ou Piume Cost O.'j

that is only because the War was tlic last halo of bliaw that broke
the back of inertia.

Some of the peculiarities of electrical rates resulting from the
lamp situation have been noted in tlie section on Lamp Kenewals in
Cha{)tor II. The readjustment of rates with a view to encouraging
the use of tungstens generally — whether by requiring their supply
and free renewal in consideration of the rate for energ}' or other-
wise — is but recently, if as yet, accomplished. There is, of course,
the difficulty of reduced kilowatt-hour revenues.

The making of lamp renewals a separate matter should mean the
gradual achievement of the universal use of the most efficient
lamps." The consumer needs to learn to judge and compare the
efficiency of electrical appliances. It may not be worth while as
yet to install tungstens for some of the less frequently used lamps
or those much subjected to jarring movements.

On the other hand, we sliould not too readily assume that the
drawn-wire vacuum tungsten is the last word in efficiency and
serviceability, even for the domestic consumer. The extent to which
tungstens have already displaced the less efficient types is shown
in a previous chapter." Comparatively few carbon-filament lamps
are now issued. But if the revolutionary potentialities of the
vacuum tungsten lamp have already been realized, there remains
the possible application of the gas-filled lamp in the domestic field.
The supply companies are not yet through with the effects of
increasing efliciency in lamps of small sizes.

A simple computation will show that under no practicable kilo-
watt-hour rate will the obtaining of a given amount of light from
carbon-filament instead of tungsten lamps be other than a con-
siderable economic loss at prevailing differences in the cost of the
lamps. Carbon-filament lamps were obsolete by 1916 and ought to
have bcQii scrapped as promptly as possible. A qualification of this
proposition with reference to the few lamps that are so seldom used
that the carr}-ing charge is the most important element in cost,
however, should be mentioned. The general statement also relates

"In the Brooklyn Edison opinion and decision of November, 1916. the N. V. 1st District
Commission proposed a separate charge of a half-cent per kilowatt hour for lamps, tungstens
of 50-watt size or other equally efficient lamps to be furnished. In the compromise finally
accepted by the Commission the company leaves the consumer to supply his own lamps
without this option.

" Chapter II, page 75.

96 Electiucal 1?ates

primarily lo purchased clei-tricity and is inorc to the point where
the kilovratt-hour element in the rate liears the whole hiirden of
cost and profit. A eompanv producing its own electric energy, a
street railway for example, may find it economical to use carbon-
filament lamps, because kilowatt hours are for its purposes valued
onlv at their separable cost. Also, l)ec}uise the company is usually
not the ultimate consumer of the light it furnishes, it may consider
that a lamp is a lamp, with little regard to how much candle power
the public enjoys.

The very remarkable increase in the efficiency of incandescent
lamps, including the small sizes suitable for domestic use, consti-
tutes an important argument for a meter or similar service charge.
The reduction of the quantity of energy needed to obtain a given
amount of lighting to little (if any) more than one-third of what
it was 10 years ago involves a greatly increased relative importance
of such costs as do not vary with the kilowatt hours consumed."
The separate recognition of these costs should benefit the companies
by making possible the conservation of their income from lighting
consumers, and at the same time this policy should make it feasi-
ble for them to do their share in promoting the general use of the
high-efficiency lamps. A company can scarcely be expected to give
to the public the full benefit of scientific advances in this particular
when every step in that direction decreases revenue without bring-
ing about any comparable reduction in expense."

With the development of small tungstens that are slightly more
costly but much more economical of energy than the old carbon-
filament lamps, a part solution of the resulting problem confront-
ing electrical companies may be the discontinuance of free lamp
installations and renewals, thus leaving the consumer no excuse
for not using the most economical type of lamp and at the same time
giving the company some slight compensating benefit for such a

" Avoraifc lumcnii per watt In 1007 were 3.33. aiid in 1U18, 10.30. I'agc 241 of the
lOia .\. K. L. A. I.niiip Coinniittce report.

" " Until the probable limit of development lof hiKh-efflrlency lljchtlnul ran be nioro
fully predlrte<l. or until the irrowth of othcir appllratlonn of icrvloe make* the lluhtlnjc
demand of Incidental Importnnif. the rentriil Ktotlon'ii fixed Hervlre (kilowatt honrl and
demand charge* mu«t be protect»^ by the rote inh<-<liile." 1012 report of the Hate Ke^oarch
Committee, N. E L. A. Convention prorcedlnirn. 1012. vol. 1. page IB.'). At the 1016
N. B. L. A. Convention. Prewldml K, W. Lloyd aummed up the oltuatlon a» followi-ii: "We
find our»elvr« practically through the period of chnnge from the carbon lamp to the high-
efficiency t)!)**" *>' Incandencent lamp*, the Incrennlng u»e of which ha* lowered the use of
energy for lighting purpone* In the laiit few yrjira." See general volume of proceeding*
pages 1011.

Reimbursement of Skparable oi; I'immk Cost 97

lessening of consumption as may result from liigluT lamp effici-
encies. In connection with any change in maximum rates, it is
a simple matter to give to all consumers the option of either paying
(say) half a cent a kilowatt hour for lamp renewals or purchasing
their own lamps.

The other part-solution indicated is the ado|)tion of some sort
of sen'ice charge, and with it promotion of diversified and intensi-
fied household consum])tioii. It is possible that now (at the close
of 1920) time has to a great extent solved the particular problem
of the electrical company involved in the transition to the use of
high-efficiency lamps by small consumers; or that the increase of
general efficiency and the increasing importance of power uses has
permitted it to be merged and lost in the general ])rol)lem of new
cost levels made acute by the War. Even so — if the critical phase
is now passed — so much of progressive development of the oppor-
tunity to provide intensive service for domestic consumers depends
upon a proper disposition of consumer cost as related to initial
use for lighting that the need of a correct solution of the problem
cannot be too much emphasized.

The Meter Charge the Preferable Form of Service Charge

What the form of the initial charge shall be must be decided
largely with reference to whether there is to be a separate demand
charge. For reasons to be given presently, the writer believes that,
except in the case of large consumers, there should be no such
demand charge. Under such circumstances it is evident that it
would be well so far as possible to have a kind of initial charge that
will also to some extent serve the purpose of a demand charge. Of
the three possibilities open — the consumer charge, the meter charge,
and the minimum charge — the meter charge is the one that has
special advantages from this point of view.

It is possible to class both the initial charge and the demand
charge under the general head of readiness to serve. The principal
difference in form is that the initial charge attaches to the consumer
as such, or substantially so, while the demand charge varies quan-
titively with the consumer's active connected load or some related
quantity. From this point of view the meter charge partakes of
the character of both, since there is an additional charge for addi-
tional meters, and there may also, and should reasonably, be higher

98 Electrical Rates

charges for the larger sizes of meters. Tlie tlu-ory of the meter
charge is ditTerent, but its effect in relieving the kilowatt-hour
charge may he substantially the same in character as is the proper
effect of the demand charge. The meter charge, however, requires
no elaborate measurements or estimates of kilowatt demand. Its
basis, which is the prime cost of the service of the individual exclu-
sive of energy taken, is different from the basis of the demand charge,
which is the fixed charges imposed upon the company. It does
cover some fixed charges, but it does not explicitly take account of
load-factor considerations. In fact, however, as regards small con-
sumers the latter are usually not directly taken account of even
in such rates as purport to do so, but instead some quantity having
a direct relation to the conneded load, in ])lace of the maximum
demand, is made basic.

It happens that meter capacity is a function of maximum demand
just as much as is connected load. If the sizes of meters are care-
fully adjusted to the needs of the consumer luid if their capacity
is measured in watts, meter capacity is in fact rather more directly
related to maximum demand than to connected load. So far as
lights are used alternatively to each other — as to some extent even
between dining room and living room — the meter need not be
adjusted to aggregate connected capacity, but only to something
considerably smaller. This situation might be used as an argument
for making the meter charge heavy enough for it to relieve the
kilowatt-hour charge to a greater extent than it will when based
upon prime cost. It is, at any rate, a strong argument against
making the meter charge relatively smaller for the larger consu-
mers, at least where the kilowatt-hour rate is at the same time
graduated down somewhat with reference to volume of I'onsump-
tion. From this point of view, care should l)e taken to graduate
upwards the meter charge. It should not be allowed to deal merely
with the initial cost of the small consumer, on the assumption that
it will be relatively negligible for large consumers — until a suffi-
ciently large sized and otherwise sulliciently distinct type of con-
fiumcrs is reached for them to be entitled to a different type of rate.

As to the scale of the meter charge, as has alrea«ly been sot forth,
.50 cents per month for a consumer having a single meter of the
smallest size class would seem to be (or to have been, before the
War) the appropriate round number under ordinary conditions in

Reimbursement of Ski'ahahi.e or Prime Cost 99

a Iar<;e city. For detached residences the appropriate charge may
he nearer $1.00. Care should ho taken in such cases, however, not
to mingle density-factor with consumer-cost consideration.s, especi-
iilly if the former can be dealt with in other ways. P.ut it is not the
purjjose of the writer to draw the line with exactness between
meter or consumer cost and other cost elements, if indeed it is
necessary under a differential system of rates to do so. Tiie charge
for additional meters should be at the same rate as for the first.
For larger sizes, the charge should be increased, probably in rela-
tion to wattage, or possibly to amperage."

The situation as regards high-eihciency lamps has a relation to
the position here taken that the meter charge is preferable to the
minimum charge. If the company is reimbursed for consumer
cost, it is therel)y freed from important checks upon the extension
of business where it should be extended and not elsewhere. If,
on the other hand, the consumer feels that what he pays per kilo-
watt-hour is for kilowatt hours, his attention will be called to the
economical use of energy, not only negatively in the sense of using
as little as may be per service unit (per candle hour, for example),
but also positively in the sense of extending its use under encour-
agement from a low kilowatt-hour charge by adopting additional
electrical appliances. The kilowatt-hour charge will naturally be
less of a check upon consumption when accompanied by a meter
charge. This, it is true, is an advantage of the meter-charge only
over the minimum-bill method, not over the consumer charge. In
relation to the last the advantage of the first method is rather a
matter of the need of some substitute for a demand charge, having
a least educative value.

The adoption of a consumer or meter charge seems to be about
the only way of avoiding discrimination in dealing with the small
consumer. Otherwise there is opportunity for debate as to whether
the companies suiter directly more fi-om the costs per consumer not
fully compensated as such, or gain indirectly more by keeping
kilowatt-hour rates unduly high for a broad range of small consu-
mers, usually including long hour users.

** The cost of the meter, which is the most important single element in a consumer
charge, may be ascortaiiied from the price lists of the manufacturers, but the appropriate
discounts should be applied. The 5-ampere meter is by far the predominant size. After
adding the cost of installation, as in its nature also a capital charge, the investment in
the meter of a small consumer is (or was before the War) perhaps $10.00.

100 Electiucal Rates

As a method of insurin;^ tlu> coinpany scmn' roturn for tlio ser-
vice that is rendered apart from kilowatt hours supplied the meter
charge is preferahle hocnusc it has a direct and consistent relation
to cost. Even as repirds the concession made to public prejudice
under the minimum-bill method by allowing the consumer to take
kilowatt hours up to the amount of such bill without alTecting the
total amount charged, thus making it appear that it is at his option
that he pays for kilowatt hours that he does not receive, that fact,
after all, is not much of a consolation whore, for example, the con-
sumer may have been out of town. It would seem to be better to
take pains to educate the consumer through the meter charge as
to the nature of the cost of electricity — incidentally obtaining
other advantages — than to have the initial charge accomplish but
a single purpose and that crudely.**

The minimum bill will naturally be larger than the consumer
or meter charge because it takes care of initial kilowatt hours as
well as of consumer costs, though of the latter only verj' roughly.
The fact that it is absorbed in the kilowatt-hour charge, however,
makes the roughness of the adjustment less noticeable and less
objectionable to consumers.

In the above discussion of the minimum-bill metliod of dealing
with consumer cost it is assumed that the minimum charge will
be upon a monthly rather than an annual basis. In actual prac-
tice the latter basis is commonly preferred." In effect, this exempts

" The tint report of the Rate Reaearcb Committee of the National Electric Light Amo-
elation unanimouxly approved the minimunibiU method, that is " minimum charge per
month or i>er year." See Convention proceed I nifii, lUll, vol. 1, p. 318. Hut tlic nitema-
tive tiie Committee hsm in mind is tlie un(|uuliMed meter rate. Its rec-ognition in tlii«
reference of the importunt bearing of hi|{h elllciency lainpv on the oituation !■ Rigniflcant.
The recommendation of the minimum bill in rcitrrnted in 1910 (Convention proceeding*,
general vol., p. 222).

" The altuatlon at the close of lUl'i an rcicardN opinion ami practice in thin reiiprrt it
■ummrd up by the Committ4-e on I'ublic Utility Hat<-ii of the National AMOciation of Railway
Commiuioneni a* followi: " In a few ca»e« only have commiKtionii conHidered thn cjuention
of yearly or monthly minimiimii. The Mu«-<;ii huM-ttjt Cbn and Kle<-tric ('<imml»«ion in the
lloKton KdlM>n rW-tric ('aiM> ordcrnl a minimum cliarK)' to hr ailjiii>t«<l on an uiinual baHiR,
ko alao the .New York 2nd Dintrict C'ommii»ion in the HufTnlii elm-trie cuae, and the Maryland
Commiaalon in the Baltimore cane. The Nnw York 2nd lUKtrict Comml»ion uid, ' The
minimum rate |Wc| should br a yearly minimum and not a monthly minimum. The propor
proportion ahould be charK<*<l monthly, howe%er, and an adjuntmrnt made at the end of the
yntr.' The .New Jeney Commimlon aaid, 'That tlir making of this (minimum) charge by
the month U Jiut and reatonable and \n really more equltablo than if the charve wan made
by th« year.' The Wl»con»ln Commiwiion Miid, ' A» to wlwther the minimum bill Rhould be
placed on a monthly or yearly baai* much can l>e aaid on both aiden. In tlic instant cajic,

Reimbursement of Separable or Pkime Cost 101

from tho cliarfje any coiisunior who bikes (say) $12 worth of cur-
rent a year, regardless of whether his consumption is spread evenly
through the year or is disprojiortionatcly large in winter (and at
peak times) and too small in summer to pay the consumer costs
that are about equal through the months of the year. The point
is of course interesting in principle rather than practically impor-
t-ant. A separate meter charge does not so readily lend itself to
such an ineptitude. In effect such a minimum charge upon an
annual basis amounts merely to a guaranty of $12 a year from ea<!h
consumer, and properly relates to contingency rather than to sepa-
rable cost." In dealing with the large mass of small consumers
the supply company needs no such guaranty, since in the mass their
behavior is entirely regular and predictable. Only in the case of
a very large consumer, whose individual demand appreciably affects
the business of the company, is such a safeguard necessary. The
strictly monthly basis of the minimum charge may, however, be
objectionable owing to temporary disconnection in summer to save
the amount of the charge. So far as it seems desirable any sort
of initial charge may be modified upon due notice for absence of
the consumer from his premises.

Seasonal and intermittent consumption might, it would seem,
be properly dealt with by an initial charge collected for an entire
year without regard to amount consumed. Under such circum-
stances, however, the situation is correctly met by modifying the
service charge to make it chiefly a charge for installing and renew-
ing the meter. The indicated charge, due to this special cost, would
be less than the annual consumer cost (12 months) and more than

however, it seems advisable to leave it on a monthly basis.' " 1916 Convention Proceedings,
page 102.

" Of the 138 cities in the United States having a population of 40,000 or over, minimum
bills aro monthly in 90, yearly in 11, variable in 8, and daily in 1. Twenty-four of these
cities have no minimum bills and four are not reported." Page 105. The significance of
these returns, however, is not entirely clear.

The committee specifically recommends the yearly basis (page 102). Its reason for this
position (apparently) is contained in the following statement: "When the actual con-
sumption for the year exceeds the sum of 12 minimum bills it Ls thought that adju-rtment
should be made on the ground that the object of the minimum bill has been secured."

" The minimum charge may sene the purpose of a demand charge — properly of course
only where the only other element in the rate is the kilowatt-hour charge — though less well
than the meter or consumer charge. The annual ba.-iis does not entirely conflict with this
conception of it.s function. Compare the view of an early advocate of the minimum
charge (on an annual b.isis) : W. J. Greene, \ Method of Calculating the Cost of Electric
Cuirent and a Way of Selling It, Electrical World, Feb. 29, 1896, p. 222. In a Maryland
case (P. U. R. 1918E 331) the monthly basis is justified on readiness-to-sene grounds.

102 Electric. M. TJates

the I'onsunier charge for a single iiiontli. WIuto a cousumer's
deposit is not provided for, there should be no objection to collect-
ing an amount corresponding to such a charge in advance."

It is scarcely necessary to insist that the charge per meter is not
to be considered a charge for the use of the meter, or a meter rent.
It is merely the best species of service charge and a method of
obtaining reimbursement for separable consumer cost in general.
The meter is installed directly in the interest of the company and
not for the use and enjoyment of the consumer. There is no reason
why he should pay rent for it."

Doubtless one reason why the minimum charge is commonly
preferred by both companies and commissions over the meter or
customer charge — either of which involves a separate rate ele-
ment — is its apparently greater simplicity. There is less arith-
metic required to compute the bill. With a consumer charge the
rate cannot, even conditionally, be stated in a single figure. But if
it is in the interest of the consumer to make this rat« element explicit,
the fact that he is not habituated to it should not be allowed to stand
in the way. Simplicity is not possible without honesty, and honesty
demands that consumer cost be made explicit. There is a kind of
simplicity of rates that serves the pui-poses of monopoly. Eco-
nomic, not political, considerations should determine the charac-
ter of dealings with the small-consumer and numerous-voter class.
Viewed with reference to what a two-charge rate accomplishes,
the adjustment is decidedly simple. A two-charge rate is in its
nature as simple as a Wright rate or a quantity i)l()ck rate, except

" But, 8aj-» the New Hampshire ConirnisKion (Claromoiit gaa company case, March 22,
1918), colleftirig a benice charge for a year In advance ii; not reasonable, and It 8usi{««t*
a dl»c-«unt for payment in advance. 15 Kate Ilesoanh 222. The New York Is-t DIst. Com-
rnlioilon ntlchmond Light and Railroad, June 4, 1U19) diwipproves a meter InKtallation and
ren'fWBl cluirKC of ^.''i.OO to be refunded if the consumer continued to be HUch for an entire
yi-ar, but intiniaten that it would approve such a charge if absorbed when a certain quantity
of cle<-tricity had l>cen taken, instead of bt-iug made merely a matter of time. 16 Kate
Henearch 880-2.

*• The following from the opinion of tlie New Hampshire ComniisMion In the C^oncord |ra«
ra*e U ii^ilflrant and c<>rre<t, thouKh it just niicsrs thp point mnde above: " It wa» claimed
that It la the duty of the kus conipHtiy U) furni>.h meter and equipment for mrasurinu k»m
a* mui-h aa It la the bunines* of a grwer to furnish M-aleti for weiKhinn out rowIs for hia

curtomern The dll!'Ten<-e which In controlling la that each gat ctinhumcr baa a

meter on hU own prembe*. which Is reserved for hla particular UfcC and can be used by no
one elue, whcreaa the name acalea are used by a large number of cuatomera. and it would be
Impractical to make a diarge to each cust^jmer, thouKh of course the u»c of the acalea la
paid for by the usera . . . . aa truly aa if It were made a apcclal charge to each Individual
cuatomer. 13 Rate Research 260.

RETOBmiSEifENT OP SEPARABLE OR PriMB CoST Kl3

for the somewhat sinister fact that the latter are commonly po
designed that most consumers have no practical acquaintance with
anything except the first block.

It should be noted that the meter charge as favored by the
writer is not a third rate-element but is, instead — as will appear
in Chapter V — regarded as in part a substitute for the demand
charge in the case of the small consumer, for whom, because of
administrative costs or discriminatory incidents of the methods in
use, it is considered undesirable to attempt to apply load-factor
rates.

There is a further aspect of the argument for simplicity. The
dealings of the supply company with the consumer should have
regard to keeping consumer cost as low as possible. The making
of lamp supply a separate matter is a step in this direction. The
prepayment meter may assist. The practice of requiring a deposit
might be so developed as to make the reading of meters and collec-
tion of bills oftener than quarterly unnecessary.

Although the minimum-bill method is more generally employed
by electrical companies at present, there appears to be a definite
tendency towards the more specific service charge.*^

Dynamic economic considerations, or regard for progressive
development of the uses of electricity, favor the employment of the
meter or consumer charge as against the minimum bill. Load-
factor considerations suggest the meter rather than the consumer
basis. It is more important that consumption be diversified than
that small consumers for one use only and without elasticity of
economic demand be served extensively at less than their separable
cost. But a small consumer who is potentially a larger consumer
obviously does not belong in this class. And no consumer whose
patronage is in doubt should be loaded with uniformly pro-rated
fixed charges. This is the topic next to be dealt with.

" The Committee on Public Utility Rates of the National Association of Railway Com-
missioners says : " The trend of opinion at present seems to be to some extent towards a
' senice charge ' instead of a minimum charge." 1917 Convention Proceedings, p. -155.

ciiAi'Ti:!; i\"

CLASS RATES AND RATE-DIFFERENTIATION

Classification the most familiar moans of differentiation.

Meaning of "differentiation." Prirc differences not its essence. The
unequal loading of fixed charpe.s and overhrad cost.s, in place of pro rating
them, the essential point. Graduation m.ay be without differentiation. In
a variety of modes differentiation is the gist of the electrical rate question.

Class rates, especially the power rate. Most electrical rate classification
is based upon load-factor considerations. Competitive sources of power not
important for small users. Long hours' use and daylight use. The latter
now of little importance in large centers; residence lighting less on the peak.
Permanent advantage of power relates to .'•easonal variation. Grouncis for
a class power rate are no longer strong. Disadvantage of power in respect
to the " power factor."

Class rates in general. Employment to stimulate new and developing
business, but with favorable load characteristics. High-tension current in
effect a different article. Occupational cla.><srs. True and consistent use
classification impossible. Distinctness and definiteness of classes nece.ssan*'
for eciuity. Weakness of reliance upon avt-rage characteri.stics. Value of
optional rates as a means of self-cla.ssification. The option belongs to the
coasumer. Class rates not an advanced type.

The justification of differential rates. Commercial succc-'s of differenti-
ation not .sufTicient. Po.-^sible costliness to !<ocioty. Differential rates should
be bas<d upon adequate cost analysis, which takes account of future condi-
tions and possibilities. Breadth and volume of service fundamental. Tho
principle of "charging what the traffic will bear" too nearly akin to that
of taxation to be proper for private business. "Value of ser\'ice " not a
definite guide. Use-value classification impossible for electricity.

Questions relating to tlic share of separable cost in electrical
rates liavin;^ boon disposed of, the nioro oharactoristio and impor-
tant clement in the situation, naniojy, rate dilTorontiation, is next
to be considered. This chapter will deal with a familiar, and
indeed the most obvious, mode of diirorontiation, which is classi-
fication. This mctliod is employed l>y the railroads especially, and
is generally recognized as typical of difTorcntial price-making.
But first there is need of stating what is meant by the term.

Meaning of " Differentiation "

If by differential rates one means a diversified and complex sys-
tem of prioos, inoludin;: difforonoos not conformable to the quanti-
ties of commodities and services dealt in as these are physically
104

Class Rates and R.\te-Diffi:rf:ntiation 105

measured, it is evident that electrical rates are decidedly differential
in a variety of ways. The clapsificatioii of service and the making
of difTcront rates per kilowatt hour for the diircrent classes so
constituted is only the most obvious mode of differentiation. The
purpose and effect of sueli " class rates " are to he considered in
the present chapter. But the mere existence of such price differ-
ences is not the essence of differentiation, and it is important to
understand the fundamental character of the latter before attempt-
ing to pass judgment upon this particular mode of differentiation.

By differentiation the writer does not mean the mere making
or existence of systematic differences in price, even when such dif-
ferences are based upon something other than differences between
the goods or services for wliich compensation is received — though
this is a familiar external aspect of differentiation. The essential
fact is rather tlie disregarding of separable costs and of the arith-
metic of aliquot parts in the apportionment of fixed charges with
reference to their recovery from consumers. Stated positively, it is
the loading of such costs unequally (as opposed to uniformly per
commodity unit or per objective service unit) upon the various
classes of consumers, such loading having reference to increasing
the volume of business transacted rather than reference to col-
lecting " full compensation " — whatever that may mean — for the
entire cost of each article sold or service performed. Separable
costs should be repaid by each consumer, but joint, general, or
overhead costs, may be differentially distributed, so that some
contribute much and others little. This practice is contrasted in
idea and method with pro rating, where the result is a matter of
physical facts and simple arithmetic, instead of being a matter of
commercial policy.

Differentiation may be accomplished by the simple graduation
of rates. But if the graduation conforms directly to the variation
of cost, as it is generally supposed to do in the case of wholesale
prices, the rates are not differential in spirit and should not be
so named. At least such a case should be qualifiedly described as
external differentiation. True, it is impossible in practice accu-
rately to draw the line between the two, but clear thinking requires
the recognition of differential rates and graduated rates as dis-
tinct and different things, even though one may sometimes be

106 ELECTTiirAL Rates

in doubt as to whether a particular rat(> belongs more in ilie one
or the other group.

Tlie various modes of difTerentiation are nowhere more com-
prehensively represented than in olectrical rate practice. The legal
and administrative status of the three modes to be considered —
classilied service, quantity discounts, and demand charges — is well
enough established, though most public-utility commissions show
some reluctance to meet the general issue squarely. That issue —
tlie problem of determining what degree of dilTerentiatiou is justi-
fiable in principle and what are the practicable w'ays of applying
the principle — is the gist of the electrical rate question. Even
in such phases of electrical rate-making as are conmionly assumed
to be founded upon hard and fast analysis of cost, we shall find
the real question to be whether this or that peculiar feature or
element of a rate schedule is an organic part of a well considered
differential policy or not. But classification, as the most familiar
mode of differentiation, is first to be considered.

Class Rates, Especially the Power Rate

The classification of customers according to the use to which
the energy is put, or according to occupation, is a common feature
of electrical rate schedules. The analogy of freight classitication
by the railroads immediately suggests itself. The basis of freight
classification is, in no necessarily invidious sense, " what the trafhc
will bear." The same principle, of course, finds expression in the
cla.ssification that appears in electrical rate schedules. There is
doubtless some tendency by this means to encourage new uses of
electricity and to initiate new classes of users. But this policy is
more likely to find expression through pushing certain consumer's
appliances. Altogether, use and occupational classifications have
l;een based more upon load-factor considerations than directly
upon the desire to expand business by such means.

The most important and most general Mpplii iition of the method
of classification is observed in the distinction between lighting and
power rates. This involves separate metering of cnorgy used for
motors and means in practice the concession of a lower rate for
such a use than for energy not thus separately trcatml. In tha
same way a special rate may be granted for storage-battery charg-

Class IRates and Rate-Differentiation 107

ing. The power rate is old and, where the distinction is still justi-
fiable, must bo referred mainly to load-factor considerations or to
the supposed ]on<]^ hours' use of the maximum by motors.*

It is possible that something might be made of a claim that
it is necessary to give power users a low rate because of possible
sources of power other than electrical. But in the case of power
for small units, the superiority of electricity is so great that com-
petition is not effective; and, in the case of very large users, the
possibility of an independent supply is often no more important for
power than for lighting. Indeed, even for the small lighting con-
sumers there is an available substitute in the form of illuminating
gas that might logically be expected to cause the electrical com-
panies to favor that class of business. In some cases they very
likely do as much as load-factor and other cost considerations per-
mit. But it often happens that both gas and electricity are supplied
by the same company or else by associated companies, under which
conditions the electrical company may make no effort to extend
its business among small consumers, leaving them to the associated
gas company. Altogether, aside from load-factor consideration,
the special power rate is traditional, rather than generally adapted
to present conditions of electrical supply, at least in the largest
population centers.

Unless there is something intrinsically advantageous in a class
rate as compared, for example, with a load-factor rate — a question
that does not call for discussion — the consideration of the power
as distinct from the lighting rate in practice relates to consumers
of small and intermediate size, since large consumers can be better
taken care of by load-factor, and possibly by density-factor, pro-
visions. In fact, distinctions between power and lighting are often
not made at all in the case of wholesale consumers (unless on
account of the power factor) . In the matter of lamp supply, more-
over, the large consumers are likely to prefer to attend to their
own needs, even if the small ones do not. Hence the following

* The unnamed writer of the section on the Development of Electrical Rates in the 1918
report of the Differential Rates Committee of the National Commercial Gas Association
(page 28) disposes of the origin and recent history of the power rate with the statement,
which is perhaps too off-hand, that the power rate was originally started as half the lighting
rate and that there have been two theories followed in its adjustment to changed conditions,
one that the rate originally made contained a sufficient concession to " value of service,"
so that the lighting rate is gradually to be brought down to the power rate, the other that
the 50 per cent ratio should be maintained in making reductions.

108 Electrical Rates

remarks deal with the power rate in rehition to oomparatively small
consumer?.

The most .ueneral arijuiniMit l"<»r a distinct power raif, lower than
tlie ordinary lighting rate, is the long hours' use of the jiuwer
demand. It is, also, possibly still true in general, though of doubt-
ful validity for the largest urlian centers, that the daylight load
is comparatively small and tliat therefore power can be taken on
at very little cost per unit supplied. This argument rests ujjon
the supjjosed diversity of power uses. In fact, however, the power
demand is less likely to be ofT the peak than residence lighting,
which constitutes most of the small lighting. Where the peak comes
before six o'clock, residence lighting consumers are not more re-
sponsible for it than power consumers. But in most large cities,
the winter peak does come before 6 and even before ."> P. M.' Tiiis
situation is now developing further because of the nuuh reduced
consumi)tion per candle hour of the most recent types of lamps.

If, owing solely to the great increase in the efficiency of lamps,
the relative imi)ortance of lighting as a contributor to the system
peak may soon become half what it has recently been, the tacit
assumption of many discussions of electrical rates, namely, that
the lighting consumers make the peak, will then become abso-
lutely untenable. If small consumers at the same time come to
apply electricity more liberally for motor and cooking uses, diver-
sity among them will take care of their contribution to the com-
pany's load factor, so that not much direct attention need be given
to this question in devising a rate schedule for them.' Even now
there is not much ground left for making a distinction between
small lighting and small power consumers. While tiie load-factor
of the latter is better, the diversity of the former is not only better,
but doubtless increasingly better. The diversity in qiic-ilidii, bitw-
ever, ha« regard largely to diurnal variation.

Only Eft regards the seasonal variation of the load has power
commonly a permanent advantage in comparison with lighting.*

* 8«e thp loacl run« ol>ovr, tiaic<i« 17, ll», ond 22.

* Even ■• rt^tptriU lUclitlntc u»c» only, high rfllcli'ticy and clporcnuod cost fuvor a tendency
to lonic'r hourn une. Cf. Willlatim and Tweedy, C<>mni<TTial EnKlneerinir. pajfc 73.

* In New York C'Uy, despite the power lo«d of Uv elefHrloal romp«nle«, and dr»pile the
j.rM(..it.l;, ■> ii.rv. (.at irreatrr extent of uw of ira* for rooklnjf In nurnmer limn In winter, the
• I-.. .■:,'. -..ir I. I, of the drmantj fur the two ornlrm ReeniN to be inil>»tantlally lilentlral,

^ ir.i>t»T 1m II. If d'-trnnined hy the variation In the mipply of natural light. See the dl»-
'i of thi« tojiln (with dia^rrani) In the Anniwl Krport of the New Vork Publio Service
C'(.'tr.iiii-»i'ir. fnr thr Kirrt Iiiariit f..r 1I»I4, vol. HI, pa^es 72-78.

Class "Rates and TJate-Diffehentiation 100

A lotul-fiictor rate of tlio il(.j)kiiison type on an annual basis, which
should l)e available for large consumers, will be duly influenced
by this characteristic. Thus the large })ower consumers can be
adequately provided for without separate classification. Neither
Wright nor llopkinson rates, if on a monthly basis, concede any-
thing to power for its seasonal constancy. As regards small power
consumers (and other small consumers), wdiat seems to be needed
is some concession on account of extra summer use. This, if
desired, could be effected by granting a specially low rate on account
of energy taken between April 1 and October 1 equal to or in excess
of the average amount taken during the six preceding months.
This would operate to encourage occasional heating and cooking
uses, when fires are not regularly wanted, as well as summer power
consumption. The seasonal variation is administratively much
easier and simpler to deal with than the diurnal.

The fundamental distinction of electric-supply classification,
that between lighting and power rates, is based upon load-factor
considerations and also upon the assumption that the lighting
demand will constitute the peak. This assumption no longer
holds good in large cities under developed conditions of electricity
supply.* We may in fact expect a gradual reversal of conditions
under the influence of factors whose importance is already estab-
lished. Moreover, if, or so far as, the favorable load characteristics
of a consumer may be directly determined and recognized in the
rate given him, the clumsier class-rate method should be regarded
as a makeshift to be superseded as soon as practicable.

But if this statement is true of the most important of classifica-
tory distinctions, then it is reasonable to suppose that the classi-
fication of service will gradually cease to be an importiint method
of electrical rate-making, except possibly in small towns, being
otherwise appropriate only for experimental and provisional rates
designed to develop, and determine the characteristics of, some one
or another kind of new business. However, whether the writer's

» Mere proportion betwee<n the two classes of use has much to do with the result Accord-
ing to Williams and Tweedy (page 72), the other than lighting connected load rose from
26 per cent in 1892 to 50 per cent in 1910, despite the fact that the method of computation
involves understatement. There has been a further marked change in the same direction
since 1910.

110 Electrical Rates

forecast is justified depends, of course, entirely on the character
of the reasoninc: and conclusions of the following chapters.*

It would seem that there is left no strong reason for a class rate
favoring small power consumers in comparison with residence light-
ing consumers, especially if the rate schedule othenvise makes
little or DO use of mere classification. But it may still for a while
be advisable in some localities for companies with an undeveloped
power load to give to this class a better rate than that available
for lighting consumers. An allowance for the non-supply of lamps
is a matter of course and should not be regarded as constituting a
difference in rates.

Power in one important general respect compares unfavorably
with light, because the former is subject to business fluctuations,
while the lighting use is fairly constant through bad times.

There is another important disadvantage to the electrical com-
pany that is special to the power load. The point is summed up in
the words " power factor." This is a decidedly technical engineer-
ing matter of the nature of wliich only a hint can well be given
here. For direct current, volts times ampcres = watts. For alter-
nating current volt-amperes are the equivalent of watts for lighting
uses but not where the electric energy is transmuted into mechani-
cal power. Hence a power iiser at a given wattage may require of
alternating current generators, conductors and transformers nearly
f» third greater capacity than the kilowatts he employs and for
which (directly or indirectly) he is supjwsed to pay. The power
factor is the co-eflicient that expresses the importance of this ele-
ment in the situation.* It should be noted, on the other hand, that

•Oompare the 1017 report of the R.ite Itesearoh Coniinittee ((ieivral volume of the
N. E. L. A. Convention proceed I n(fH, page Ifil): " Thi? Coinmitteo noten .... a (fenerti
tendency toward* the adoption of identical rateH for Kiiiall liKhtini; nervioe and misrcllaiieoua
power service. There Ih an evident ndvanUiKe uf obUiininK the beiiriflt of the diversity
betvrefn the day service for power and th" ni((ht service for liKhtiiiK ; thus mvuritiR a better
utilization of the company'! Invrntnicnt all the way from KcnoratinK equipment to ncrvlce
•nd meter. The fact that the wiring may be arranged on u more almple plan U of distinct
Interevt to the customer."

' The power factor has been defined abov at page 13. A power factor of 70 per cent or
• little better Is fairly repres«»ntaltvc of operating conditions where no si)eclal effort has
been made to Improve It. The " wattleM cf)mpont'nt " Is, as has been noted, nlgnitlrant only
in connection with the supply of allcmalinp current for mofor usea. Othnr than alternating-
current g«'ner«tion Is now unununl In up-to-date plants, unless very small. Hut direct-
current diotributlon Is often usetl in the more dense cent»Ts of dem.ind, In connection with
■ Iteniating-curretit generation. What sort of equipment comes between Uie prime mover and
the conaumer*! aen-ice connection is determined by complex consideration* that are of tech-

Class Eates and TJate-Differentiation 111

careful voltage regulation is highly important for lighting (though
less so for tungsten than for other lamps) and comparatively unim-
portant for power uses.

Engineering theory and practice favor correcting the power factor
and penalizing for bad adjustment, rather than attempting to treat
the matter as strictly a rate-making problem.' Methods of dealing
with it are still in the experimental stage.

Aside from the distinctive character of power uses — whose dis-
tinctiveness is evidently subject to much qualification, and whose
claims, also, arc not indisputable — there are no classificatory dis-
tinctions in electrical rate schedules of constant and enduring
importance from the point of view of any decipherable principle.
Though something might be made of a policy of favoring the raw
materials of manufacture, and thus of power as in general con-
sumed productively, nothing of this sort is observable, though it
might be alleged to be implied in wholesale rates, which however
are actually in spirit merely competitive.

Class Rates in General

Some class rates are doubtless designed to stimulate a new and
developing class of business. Special rates for storage-battery charg-

nological rather than economic interest, though possibly having an importajit bearing on the
rate for power. The relation between kilowatt hours consumed and the necessary capacity
of the generating and other appliances is in inverse ratio to the power factor of the con-
sumer's apparatus.

The 1917 report of the N. E. L. A. Rate Research Committee contains the following:
" The committee suggests, as a basis for discussion only, and not as a fully considered
recommendation, that a satisfactory power factor rule should (a) accept without charge
or penalty power factors from unity down to (say) 85 per cent ; (b) increase the rate
suitably for power factors from 85 per cent down to 75 or possibly 70 per oent ; and (c)
penalize by a rapidly increasing surcharge all power factors of 70 per cent or less." Con-
vention proceedings. General volume, p. 185.

» 1917 Rate Research Committee report, page 186: "The sense of the Committee is
that the best policy is to effectively penalize all um-easonal)ly low power factors, and all
costly unbalancing, and thus prevent their occurrence, rather than to measure the excess
cost of these faults in our practice and endeavor to collect that cost from the consumer."
Compare also an editorial in the Electrical World, Sept. 27, 1919, page 689, emphasizing
deterrence and cure. The 1920 Rate Research Committee says: "It is the sense of the
Rate Research Committee that loads of unreasonably low power factor and unbalanced loads
on polj-phase systems should be considered by member companies as interference with good
service preferably to be prohibited, rather than as variable factors in the cost of service, to
be compensated for in the rate charged " ; and, further, if a power-factor penalty clause is
adopted, the rate under it " should be such as to permit full compensation to the company,
while affording inducement to the customer to eecura correction of the low power-factor, or
of the lack of balance."

113 Elia ri;i( Ai, K'atks

ing are of this nature, llitnigh tliis use is also one with alleged
specially favorable load and diversity characteristics. 'I'he same
applies even more certainly with regard to refrigeration uses. In
all such cases, however, the favored new class of business presumably
has desirable load eliaracteristics.

To certain very large consumers in position to use primary or
high-tension alternating current a very low rate may be granted.
It is asserted, and with reason, that this is in effect a ditferent
commodity from the low-tension current supplied to ordinary con-
sumers.

The Wisconsin schedules furnish examples of rather detailed
classification, chiefly occupational, based on load-factor considera-
tions. In the Madison case * for incandescent lighting, classes A
to F are distinguished according to the percentage of connected
load to be deemed active, and in addition the percentage for class
A (residences) is graduated.

It should be observed that such classification is of the occupa
tion or business of the consumer rather than of the actual use made
of the current. Accordingly residence consumers constitute a
class by themselves, without regard to the great variety of uses to
which electricity is put in the household. In fact the use classi-
fication that is the foundation of most differentiation, and of rail-
road rate-making in particular, ciiniiot be consistently applied in
electrical rate-making. The uses of electricity, if not exactly sub-
jective, are in most cases very near to the satisfactions of the ulti-
mate consumer. Xo method of classification < an deal successfully
with the different uses of a lamp socket from which the lamp is
from time to time removed to be replaced by an electric llat-iron
connection, presumably used for ironing, but which is also d(>mon-
strably practicable as a cooker, and wliich — if the present genera-
tion sh.'pt in unhealed rooms — would doubtless l»o found superior
(though to be used with care) to any of the bedwarmers our grand-
mothers used. The same lamp socket may also be used to nin an
electric fan, a washing machine, or a vacuum cleaner. In fact no
scheme of classification according to anything that approaches
final or definitive use can be consistently applied in electrical rate-

•4 W. R O. R. 747. Tlif WIvwndn Coftimlwilon. In it* ilptomiliiation of perrontago
of connected load drrmcd to be active^ conaittcntly BMifTu high nitio« for povror.

Class Rates and RATE-DirFi:iu:NTiATiON 113

making." And if some ])rarti(ahl(' iiiflliod could he devised, the
desirability of diversity of use would condemn tlie policy as re<(ard3
small consumers especially, and would make its wisdom doubtful
even for large ones. With large consumers use classification can
be carried out, but only by the employment of separate meters, by
frequent inspection of consumers' premises, etc.

A related difTcroncc between railroad and electrical rates that
calls attention to a further difficulty with use classification in the
electrical field consists in the fact that railroads in handling freight
do business with dealers instead of mainly with ultimate consumers.
Dealers are familiar with differential practices and will seldom object
to the principle, as distinguished from unfair or vexatious applica-
tions of it. The electrical company, on the other hand, comes into
conflict with the moral sense of the consumer when it tries to dis-
criminate between uses that are all mere varieties of the applica-
tion and enjoyment of a homogeneous supply of energy that is
administered by the consumer himself.

In order that rate classification appeal to the general sense of
justice, it must avoid arbitrariucr^s. This means that the lines of
division between classes should be distinct and definite and that they
should leave no room for douljt as to the class in which a consumer
properly belongs. The problem is simply the very general one of
putting like things together. While it does not necessarily follow
that there should be no attempt at classificatory separation where
grades shade into each other, it is evident that much care should l)e
taken with distinctions of this sort. If two classes do shade into each
other by practically continuous steps, the character of the change
in the rate should be of a similar nature. The superiority of tlie
block over the step type of quantity-discount rates rests upon this
principle. While the step rate is distinctly a class rate, it might
be argued that the block type represents an abandonment of the
class-rate principle. However, this may be regarded as merely a
matter of definition. Xeverthelcss. the weakness of the step rate

'" The classification of a motor-grenerator set used to operate a moving picture machine has
been the occasion of confusion in the minds of some commissioners. The energy bought
is applied directly to operate a motor, but it is u.trd for lighting. The X. Y. 1st District
Public Service Commission decided that the classification should be as power (1916 X. Y.
1st Dist. P. S. C. R., 162). Montana and Ulinois Commissions decided that the ultimat«
use governs, while the latter recognized that the long-hour service may constitut* a claim
for a lower rate. 1917 Rate Research Committee Report, page 182.

114 ELECTniCAL Kates

in this connection is a weakness of class rates generally. The group
for which a special or class rate is made should, for the l)est results,
be definite and easily distinguished — a distiiu-t type of consunifr
or of use.

But the conveniences of the electrical companies (or the neces-
sities of the case) cause averages to be tlie main reliance in devising
class rates. A large group of consumers is ranked according to its
average standing, in particular as regards the average hours' use.
For example, on the average, saloons made a more intensive use
of their installations than grocery stores. Would it not be better,
however, to let the rate vary with actual performance within each
class? Some grocery stores surpass others and some of them may
surpass some of the saloons in respect to the amount of electricity
used, for example, per foot of floor space. A class rate based on
averages is not economically speaking dynamic in its efTect; it does
not stimulate intensive use. It is not even quite fair as between
consumers thus lumped together.

It is worth noting that such rate classes based upon averaging
may be worse, or more discriminatory, than step-rate classes, because
it is only near the class boundary that injustice occurs under step
rates, and the injustice may be made practically negligible by the
employment of numerous small steps and the narrowing of the
range of each class. In the case of class rates based, for example,
on occupation, it is quite possible that most of the members of a
class have load factors — supposing the underlying principle of tlie
claRsification to be of this nature — nearest to the type for other
classes that obtain higher or lower rates. If a step rate is properly
considered as by nature discriminatory," the class nite is ordinarily
more so.

Rate schedules often show "optional " alongside of regular rates,
that is, under certain conditions consumers may choose whether they
shall be charged under one rate or another. Whore the straight
meter rate is long established and general it may be well to permit
(rather than compel) the consumer who is in position to respond to
encouragpmcnt towards long hours' use to be billed under a load-
factor rate, even though it w(»uld not be adviHai)le to attempt to put

" C(. pag« 47. abo^*.

Class Eates and T?.\TK-DiFFEnENTiATiON 115

into effect for small consumers generally any such rate." The exer-
cise of such an option amounts to self-classification, hence its men-
tion in the present connection. Such a method of constituting
classes is in principle thoroughly sound. If the rate schedule is
honestly made u]) and only reasonahle limitations are put upon
the exercise of options, discrimination is practically eliminated.
Difficulties with drawing the lines between classes do not exist.
There is no arbitrariness. If two consumers with identical char-
acteristics are found in different classes, this situation does not
result from acts of the company. The consumer can take advan-
tage of a change in his conditions of consumption by promptly
changing his class. He may be definitely stimulated to a more
intensive use in order to avail himself of a load-factor option.
Optional rates are also serviceable to the company as a means of
experimentation with new adjustments and of acquainting the pub-
lic with new devices.

Carelessness on the part of the company may involve an abuse,
namely, a customer may be not duly informed of his right and
interest to exercise an option that is undoubtedly to his advantage.
The company has a duty to perform in this connection.

Whether a customer should be allowed to exercise his option after
the fact, that is, with reference, for example, to a month just passed,
is another question. For reasons of administrative convenience,
in general he should not. And he should not be allowed to shift
back and forth between rates at frequent intervals. However, any
restrictions upon the choice of the consumer should be clearly
stipulated and not a matter of afterthought on the part of the com-
pany. All the optional element properly rests with the consumer
until he is given due notice of a change."

This brief review of certain methods of differentiating rates bv
way of the classification of service is important chiefly as indicating
the impossibility of arresting one's attention and interest, whether
practical or theoretical, at this aspect of the matter. Systems and
methods of classification point chiefly to load-factor considerations,

" The 1917 Committee on Public Utility Rates of the National Association of Railway
ConlIni^;sione^s nays : " A block rate meter schedule should be supplemented by an alterna-
tive (optional] demand schedule." Convention Proceedinp?, p. 453.

" An option cannot be withdrawn by the company without due notice. A New York 2d
District decision on this point is given in 14 Rate Research 332.

110 Electrical Rates

which constitute the principal distinctive charac-t<?ri8tic of electri-
cal rates, or to quantity discounts, which are by no means peculiar
to this field, but which are peculiarly important and significant in
it. If it is practicable to make such load-factor considerations
explicit, it is obviously better to do so, thus not only making the
basis of rates clearer to the public but also more eniciently obtain-
ing for the company the benefits of cost analysis and dilTerentia-
tion. It is assumed that classifications will not be employed to
conceal the real objects of the rate schedule, though there is a
danger that a company will deceive itself as well as the public in
this way. A manager is not any more disposed to change an estab-
lished classification merely because he does not understand it.

Classification, however, will doubtless remain a permanent char-
acteristic of electrical rate schedules. It will appear conspicuously
in the form of the schedule in the different rates offered. Such
kinds of rates have been frequently mentioned. Even though clas-
sification be made to serve an administrative purpose — as it should
mainly in distinguishing between the scheduled kinds of rates —
rather than that of rate differentiation, the clement of differentia-
tion will seldom be entirely absent. Classification by way of optional
rates and with reference to new appliances and situations will also
continue. In this connection there arc more positive, and not
merely administrative, reasons for its being.

The Justification of Differential Rates

There can be no doubt as to the commercial success of differ-
entiation in rates. Of course it must be understood that excessive
differentiation, or unjust discrimination — such as is not justifiable
in the long run on broad economic, not merely commercial, grounds —
is not in question. The American people have now reached a stage
of economic and administrative experience where it is perhaps not
necessary to argue for the commercial exjKjdiency of the policy
of differentiation. Rut it is also not enough to prove that much.
Differentiation must be justified from a social point of view if it,
or some part of it, is to stand. Survival does not always mean the
survival of the fittest. " letting the business " is not sumcicnt evi-
dence of correct policy.

Class Eates and Eatk-Differentiation 117

Differentiation is, among other tilings, a competitive device.
Since it is of interest primarily in relation to public-service cor-
porations and since a public-service enterprise is now in general
protected from competition through another enterprise of the same
kind entering its field (as distinguished from competition between
different kinds of enterprises), the fact that differentiation is a
competitive device means that it ought to be carefully watched and
often subjected to restraint. The device is too powerful to be
left to unrestricted employment in the service of private interests
and ambitions. What is profitable to a particular corportion may
be costly to society.

The most obnoxious and unmitigatcdly objectionable form of
costliness to society is closely connected with disregard of cost analy-
sis on the part of the corporation charging differential prices, hence
this phase of differentiation can be adequately discussed with direct
reference only to cost conditions. It is sometimes alleged that differ-
entiation means serving some consumers at less than cost and in
compensation obtaining excessive profits from other classes that are
unable to help themselves. This allegation may mean that the
critic is unwilling to recognize as just any but an objectively uni-
form and unvarying rate per unit supplied. In this case the criti-
cism deserves little consideration. It involves the patent fallacy
that an average, in this case average unit cost, is something objec-
tive instead of being the result of computation, or at least that the
average is necessarily a type or mode, from which there are few
except narrow and insignificant variations.

It is true, however, that the ambitious management of a cor-
poration will, in its desire to expand and to "get the business."
often do just the kind of thing that it is accused of doing, though
the fault consists not in practicing differentiation as such, but in
overdoing it. The means by which we are to determine whether
there is error and injustice of this nature are cost accounting and
cost analysis. Hence the importance of what they teach with regard
to differentiation. The implication is that differentiation must
be limited by cost. This may seem paradoxical, since to many it
seems that basing rates upon cost can only be alternative to letting
them be differential.

If by cost analysis is meant cost accounting, then we have here
properly only a check upon differentiation, not its negation, and

118 Electrical Rates

certainly not its basis. It is true that cost accounting lias refer-
ence to price making and that it allocates all costs. But so far
as it is allocation according to some arithmetical or other formal
rule, it has not the same character or cfTect as the actual separa-
tion or causational isolation of certain expenses to be attributed
to a specific product. The very name " overhead " charges suggests
that I hey cannot be separated. Of course they can be allocated on
some basis of theory and experience, but that is another matter.
Were cost accountants willing to (or oxpt^ctcd to) deal with less than
total expenditures, so far as they claim to obtain the actual cost of a
particular good or service, their true service might be more clearly
perceived and therefore greater.

if tile reference is to cost analysis, there is no reason why the
effect of business yet to be obtained upon aggregate and unit costs
should not be fully considered, or rather, there is every reason why
it should be " taken into account." It is in fact just here that ditTer-
entiation takes its rise. But this kind of cost analysis may be cor-
rect in theory and yet wrong in its application. It is wrong in
its application where a vorv' low rate is extended to an individual
large consumer on the ground that, during the term of the contract
made, the " out-of-pocket expense " — the practical man's term for
prime cost — will be loss than the return received. The rate must
be generalized and offered to all in this consumer's cla.ss. both as
a matter of sound business method and as a public obligation, and
the rate should be planned with reference to continuing it next
year and into the indefinite future. Such consideration may reveal a
weakness in the original calculation. It may appear that the effect
of the additional consumer's demand upon resene capacity may
not have been sufficiently taken into consideration, or that main-
tenance vont may not have been accurately dealt with. The sjiecial
bane of this kind of cost analysis is the tendency to let numerous
unr-onsidcrr'd expenses be loaded on a residual non-com})etitive class
of consumers '* wlm arc made to l)oar iho. burden of the mistakes

^* Tot cxkmplv. In an «|'porti ihiium of pipnuwi brtwreri rotiirumcru by a rotnpuny that
aUrf^l lu proflu ramn from the larR*" f-ontumem, prnrtlrally all faxr» were loa'le<l on the
rrtlrlual claaa nf comparatively unall conmimrTB, althouKh In the atate in queation the
taxation of piibllrnenlr* corporatlona wm ao adjuated that the unount of their tucM
»-aried directly with proflta.

Class Rates and Rate-Differentiation 119

made by a hasty management that over-reaches itself, but i? pro-
tected from the natural consequences by its possession of monopoly
power, especially over the small consumer. It is here that unjust
discrimination, or unjustifiable difTerentiation, is especially likely
to enter.

It is true that if, with an existing investment, additional large
customers can be served who will bear their full share of the out-
put costs and at the same time bear a part, at least, of the fixed
cost, it is not unjustly discriminatory to give such large consu-
mers a low rate." The logic of this " additional business " basis
is sound, but its application may encounter pitfalls. Even apart
from mistakes of judgment as regards the incidence of future costs,
a distinction should be made between capacity reasonably needed
for present service but not fully utilized (in off-peak hours par-
ticularly) and reserve and excess capacity, which may not properly
be chargeable to the needs of regular consumers." A company should
not be allowed to make any sort of rate merely because it is neces-
sary in order to ''get the business." The limit of differentiation is
not determined by any such consideration. Rate discussions emanat-
ing from the electrical companies seldom show full appreciation of
the importance of this fact.

Variation of cost is the controlling consideration in rate-making.
A certain fundamental point is therefore likely to be lost sight of
in following the mazes of more or less mathematical cost analysis.
What the consumer wants and is willing to pay for is service. This
attitude should have an important influence upon the policy of
every public-service corporation. The amount of the charge should
be determined with reference to increasing the quantity of service,
that is, after the consumer has reimbursed the company for the
separable costs he imposes upon it, the differential element in the
charge should be mainly so determined. The greater the service,
the more willing the public is to see the company obtain large
revenues and large profits. The policy of small proportionate
profits on large sales is properly applicable to the business of a

" Wisconsin Railroad Commission in Coleman-Pound Light & Power Company case,
Sept. 29, 1919. 18 Rate Research 276. Similarly, Massachusetts Department of Public
Utilities. Athol case. P. U. R. 1920C 1083, 1040.

*• Maine Public Utilities Commission, Bar Harbor 4 Union River Power Co. case. P. U. R.
1920B 513.

120 Electrical I?atf.s

public-sonicc corporation, aa of course to incrcaiitile enterprises
ponerally. For operatinn; expenses and circulating capital this
implies a quick turnover, and for fixed capital a hi^'h doi^ree of
utilization. This policy is quite the opposite of charging what the
traffic will boar in the sense of charging nil it will bear. The ser-
vice rule means: In case of d(iul)t favor the policy that means
greater ser\'ice.

As to the measurement of service — kilowatts of demand, except
where the important matter is the insurance of continued supply,
are not such a measure. In relation to the meter charge, also, it
should be remembered that the meter serves the purposes of the
company rather than those of the consumer. But the collection
of meter and consumer costs separately should mean a freer use
and greater service from kilowatt hours, once the small initial
obstacle is overcome, hence there is a strong service argument for
such a charge. Whether this is outweighed by the service counter
argument, resting on the tendency of such a charge to restrict the
extension of use to new small consumers, is elsewhere considered.
The strongest claim for the kilowatt-hour charge as a comprehen-
sive basis of rates is the fact that it is a service rathor than a cost
unit.

But, for the commonest use of electricity, there is a higher order
of service unit or one more completely of that character, namelv,
the candle hour. The electrical companies ought to favor the use of
the most economical lamps in a way they have not always seen fit to
do. The adf)ption of a sort of demand charge for the small consumer
that will facilitate the general use of high-etliciency lamps may
thus itself be defended on service grounds. There is also a great
field for the extension of use of electricity as an illuminant in the
honif'S of the wage-earning classes. Comparative studies of per
capita consumption should reveal to the electrical companies great
fields of service which they have as yet hardly touched.

It should be evident that the above views are not at one with
the 80-callcd " value of service " theor}-. That phrase seems to
the writer to be an ambiguous and, as used by practical men, rather
" highfalutin " way of indicating a policy that includes unjust dis-
crimination as well as justifiable dilTerentiation.

If it is tnie that public-service corporations must be expected
to take from consumers according to their ability to pay or accord-

Class Eates and Rate-Differentiation 121

ing to the companies' effective power to collect — which is one mean-
ing of the value-of-service theory — if, in other words, they exercise
a power akin to that of taxation, it would seem that mere regula-
tion can hardly suffice to guard the public interest. It is coming
to be recognized that the taxing power is a suitable means for cor-
recting in some degree a certain tendency to malformation in the
distribution of income. It is also alleged with reason that dis-
crimination by monopolistic corporations has done a good deal to
caujse the existing undesirable degree of concentration of wealth
and income. The power to redistribute wealth is not one to be
delegated to private corporations.

If the valuc-of-service theory be taken to mean that rates should
be determined, not by cost to the central stations, but by what it
would cost the consumer to obtain the service elsewhere, then it
is merely a superficial justification for competitive rates that in-
volves any concession to the bargaining power of the large consu-
mer that is necessary in order to get the business. Though con-
cessions must be, they cannot be justified in this way, nor their
proper limits so determined."

"The 1914 Report of the Kate Research Committee incorporates a paper prepared under
its auspices championing the value-of-ser\ice theorj- (N. E. L. A. Convention proc^edinp;,
1914, Commercial Sessions volume, pp. 70-93, with discussion extending to p. 115). It
pays its respects to the cost theory as determining the necessary general average of rates
or the fair return, but its author or authors seem to think that cost analysis does not, even
in part, provide a basis for determining what the different charges to different classes of
consumers should be. The conception of value of scnice is the purely commercial and
competitive one mentioned in the text above. Rut all the paper really attempts to do is to
show where a differential policy is indicated according to the " value " principle. The
results of cost analysis would not be different. As regards the degree or quantity of dif-
ferentiation pemiis,<;ible — the real crux of the matter — nothing is said.

An older and better statement of the value-of-senice point of view (though not offered as
such) made by the Boston Edison Co. (quoted in the 24th Annual Report of the Massa-
chusetts Roard of Gas k Electric Light Ommissioners, p. 24) is as follows: " The costs of
an electric lighting company are actually the sum of what its customers' costs would be
if they supplied themselves under the different conditions under which they consume current,
less such deduction as is justified by the use of the same plant by different customers (load
and diversity factors], and such deduction as is justified by the greater economy of the
company's larger plant [density factor]."

In order to understand the practical significance of the value-of-senice doctrine, it is
necessary to take into account an unmentioned proviso. If the central-station manager
wants to set a particular class of business, he feels he should be allowed to charge what the
traffic will bear, in the lower-limit or lower-unlimitJng sense of this phrase, in order to get
it. And he wants to get the large consumers. Electrical companies generally are charging
small lighting consumers more than the traffic will bear. For example, there were 224.000
con.sumers of electricity supplied by New York City companies in 1912 as compared with
1,32.'^.000 consumers of gas, the ratio being 1 to 6. Or if meters in vu^e by consumers con-
stitute a better basis of comparison, the figures are 267,000 and 1,390,000, reapectively.

122 Electrical Rates

Classifications of consumers arc likely to have reference to " value
of service " in a somewhat more objective sense than either of
those just mentioned, that is, to classification of uses. The dis-
tinction between power and lighting is the first stage of such a
classification, but the principle may be carried much further.
Doubtless this is the most general form of dilTerentiation, or most
generally recognized form, outside the electric-supply industry,
and it is especially familiar as freight classification. Because of
the peculiar interest of the load factor for electrical rate-making,
though this classificatory method finds considerable scope in prac-
tice, it has a subordinate place in electrical rate theory. But its
borrowed prestige, as well as its practical importance, make it
necessary to point out its objectionableness in this connection, more
especially because use classification may appear to be an application
of the service principle above stated. The point may be brought
out by emphasizing the differences between the electrical and the
railroad rate situation. In the latter case the nature of freight and
of the methods of packing it are thoroughly objective and easily
determined whenever there may be any doubt as to classification.
How different in this respect is the situation for the uses of elec-
tricity has already been shown, and attention has also been called
to the fact that the railroad does business chiefly with dealers
instead of with ultimate consumers. Use classification, notwith-
standing the specious suggestion of its name, is not designed to
help or to serve consumers but to get more revenue from them and
it is, as such, a mere commercial device. It is not necessarily objec-
tionable economically, if workablo, and if applied in a way to extend
business rather than to tax most cfTectivcly what comes, but in
electrical rate-making it is evidently a poor instrument of the
former purpose and is object ionablo on the general ground of not
being impersonal or not readily accepted as such by consumers.**

(New York F'ubllc Servlre Commimlon for the Flint Dirtrirt, Annual Report. 1012. vol. 111.
Table XIII, XXIV, VIII and XIX.) liut the electrical companieii are little liiterciitrcl in
thU field for the exten»lon of um*, liecaane iiuch omnumptlon doeii not app''al to the lnint(ina-
tlon— poMlbly often also be<-ausc there la a tarit diviflon of the field with BMooiaU^d gu
compani'^.

*• The viewpoint that KCJ/ral efyjnomic renulta rather than formal clankinration of unen
properljr control* ia well worked out In an Engliiih opinion (Juntice Antbury, Hankney
Municipal CouncITi rate decinion) : There It one clan* of energy and no diKolinilarity of
cirrum«tanc«* In the manner of It* dlntrlbutlon, but there la dlwilmllarity " in the circum-
atance* of the ctutomer In ao far aa they react on the aupply that he taken and in the time.

Class Rates and RAXE-DiFFEnENTiATioN 123

The policy of adjusting rates with reference to perfonning the
maximum amount of service — service meaning benefit to society,
not tlie extension of one agency at tlie expense of another that is
equally effective economically — is of a different nature from the
various applications of the value-of-service theory just mentioned.
It is in no way antagonistic to cost analysis, and is the best business
policy for the long run. Differentiation based upon broad eco-
nomic grounds is not to be identified with manifestations of the
conmiercial instinct tliat strives to get all the business and to take
from each customer all that the traffic will bear.

diversity, and quantity of consumption. In other words, the purposes to which the customer
puts his energ^y which he purchases, whether for lighting, power, or heating, is per si'
irrelevant. It is in the quantum of and the circumstances in which he tikes his supply of
the one product " that one should look for controlling con^^ideration.s. Light, heat, and
power classifications have reference to load factor, diversity factor, and quantity. 11 Rate
Research 366-7.

CHAPTER V
lOAD-FACTOR RATES

Practical importance of the load factor. Illustration by the results of
three analyses of operating expenses into consumer, output, and demand
costs.

The practical significance of the load factor. Peak demand and load
variation. Importance of diversity. Definition of " diversity factor." Indi-
vidual diversity and diversity ratio. Individual load factor still of techno-
logical importance. High load-factor business. The Hopkinson rate easily
adapted to take account of diversity.

Seasonal variation as a load-factor consideration. The monthly basis
ordinarily used for demand charges not theoreticallv sound. The bill period
significant also for quantity discounts. Illustration by New York City
rates. The filling of the summer valley, raising the hourly average for the
j'ear, should be recognized in rate schedules. Further meteorological con-
siderations. Daylight saving.

Load-factor considcratiotis in relation to the small consumer. Economi-
cally impracticable to ba.se rates for small consumers on actual load deter-
mination. Inadequacy of methods of estimation commonly used with the
Wright rate. The minimum rating often too high. Inadequacy of the
recognition of diversity by way of averages. Diversity as a positive reason
for simplification of rates. Residence lighting esnecially entitled to con-
sideration on this score. Power no permanent advantage in this respect.
A low kilowatt-hour charge encourages diversification. Long hours' use
le.ss important. The principal business of electrical companies is now power
supply. Den.ser use by small consumers too little favored. Simple load-
factor methods.

Load-factor rates for large consinners. The metering of load variation is
entirely practicable for large con.sumers. Wholeside concessions should be
conditioned by load-factor and diversity ratios; and may, when so con-
ditioned, be large. Hopkinson the appropriate rate type. Public interest in
elimination of arbitrariness. Load-factor rates based upon measurement
should be available to con-sumers of intermedi.ite .s-izo upon reimbursement
for inrtering. Load-fu<rtor discounts should not be mi.xed with quantity
di-Mcountrt.

Thr dijfi-rrntinl rhnrartrr of load-factor rates. Fixed cost.s not simply
allocable per unit of product, not seji.arahle. Kilowatt co.st does not vaiy
directly with the coasumer's maximum demand. Kven the simultaneous
demami not Kufilcient. OIT-peak use of plant not co.stless. Con.Mtructive
differentiation of rates Hugge.sted. Not nece.ssarily arbitrary'. Bearing of
the scale of generators. The liiinj)ing of small consumers. Problem of
reserve capacity.

In thJH fliapter it is purpopcd to Rct forth the true economic
pignifieanee of the load factor, and then to show how it serves rather
as a guide in difrerentiation than as a cost foundation of rates.

How important the load factor is may readily he shown. A
central station may have an annual load factor as low as If) per
124

Load-Factor Katks 125

cent. The load factor of a company with diversified business in a
large American city will be 30 per cent or better. Operating costs
may, for the purpose of the present illustration, be assumed to be
unaffected by the load-factor situation. Fixed charges, on the other
hand, remain substantially the same whether the load factor is 15
per cent or 30 per cent. If fixed charges account for two-thirds
of the costs in the case of the less well situated company, it is evi-
dent that one with the same volume of ouptut, but with a 30 per
cent instead of a 15 per cent load factor will be able to charge one-
third less for the energ)' supplied. It is obvious that a rate schedule
designed to favor those classes of consumers that contribute to a
favorable load factor will tend greatly to reduce costs and thus
justify a considerable amount of differentiation between, let us say,
long-hour users and short-hour users.* Or the rate schedule may
apply the two-charge method and recover operating expenses on the
basis of kilowatt hours consumed and fixed charges on the basis
of kilowatts of maximum demand.

Data of load-factor economy, if they are not merely hypothetical,
suppose the detailed classification of operating expenses and fixed
charges according to the principles governing their variation. In
a leading case the Wisconsin Commission has divided electrical
operating expenses in the following ratios : Consumer cost, 13 per
cent; output, 67; and demand, 20, Including taxes, fixed charges,
etc., the ratios become 17, 63 and 21 per cent respectively.' The
results suggest too heavy a loading upon the kilowatt-hour element,
of course as regards fixed charges, and also as regards operating
expenses. For other revenue deductions, depreciation, income de-
ductions and profits, the Commission assigned 20 per cent to consu-
mer cost, 56 to output and 24 to demand.

A composite analysis made by an officer of a large electrical
company ' gives the following results :

* Cf. for one way of putting it, Wallis, Forsee System of Charging: "Capacity la the
station's most valuable stock in trade and current the least valuable." 1901 N. E. L. A.
proceeding^, page 34.

= Madison Gas & Electric case, decided March 8, 1910, 4 W. R. C. R. 501, 668.

' S. E. Doane, High Efficiency Lamps, 1910, N. E. L. A. Convention proceedings,
vol. 1, pp. 152-170.

126 Electrical 1{.\tks

I'er crnt dintributions

between Per cent

, . o(

Output Demanrj Consumer total

General expense 76.9 23.1 12.0

Distributing expense 47.0 28.9 24.1 14.4

GcneratinK expense 72.0 28.0 .... 2.1.0

Taxes and insurance 84.0 Ifi.O 7.8

Depreciation 81.8 18.2 0.8

Interest and dividends 10.7 G3.7 16.6 32.1

Total 30.3 55.1 14.6 100.0

With the aid of the last column combined distributive figures for
the first three items may be obtained. These are: Consumer 12.1 ;
output, 47.7; demand, 39.9.

A detailed study of the operating expenses* of a large company
by the present writer — carried out, however, without access to suf-
ficiently detailed information as to the operating conditions anrl
accounts of the company — gave the following results: Variable
per consumer or per meter, 12. G per cent; variable per kilowatt
hour, 48.4; variable per kilowatt of demand (subject to qualifica-
tion with regard to diversity),' 30. G; fixed (not variable with ordi-
nary changes in volume of business), 8.4 per cent."

It will be noted that, in the last-mentioned analysis, a consider-
able portion of operating expenses is treated as fixed in amount —
of course only within the limits of ordinary changes in ojierating
conditions such as a commi.ssion would need to take into considera-
tion in dealing with a rate case. Estimated provision for deprecia-
tion is not included in operating expenses as thus analyzed. Its
inclusion would considerably increase the last two ratios and cor-
respondingly decrease the others, especially the second. The per
unit costs obtained, which are also of some illustrative interest,
were: Per meter per year, $5.7r) ; per kilowatt hour, $.0114; per
kilowatt of demand upon the central station per year, $11.78; the
** fi.xed " element not lir-ing apiilicalilc to any rate unit. I'^irtlinr

♦An of the year 1011.

* Refem to the Rtation maxinnim and the indiviihial roiiKunier's share in it, nnt to individual
maximum demand.

•Thin fourth clement in m.t variation app'^ant in W. .1. r,rrcnr'n f-nuniTation in hid
imporUnt article In the Klectrlcal World (Vol. XXVII, p. 222. Feb. 20. 18nr.). A Mothofl
of Calrulatinif the Coot of Furni'<hin(C Electrir Current and a Way of Scllini; It. The
writer was not acfiuairitwl with thii arti(;le at the time of niakinj? the analysis referred to.
Oreene also lists separnlely the number of rfinsumers and the sir.e of meters, without, however,
snijcKcstind that Uicy be the bn^i« of rate element* as docs Doherty (cf. focitnotc on p. 70,
abo^'c). Greene was, in fact, the protagonist especially of the minimum charge.

TtOad-Factou 1?atks 127

allowance for (li'i)iH'ciati()n. iiicoiiu! dediu-tions, etc. would of course
affect chiefly demand and fixed costs. These two may, for most
rate-making purposes, he comhined.

All the figures in this section are offered as having illustrative,
not probative value. It is worthy of note, however, that there is
very close agreement as to the share of consumer cost in the total
and considerable variation in the apportionment between output
and demand cost. This difference suggests that the apportionment
in question is not so definitely a matter of cost accounting as is
commonly assumed.

The Practical Significance of the Load Factor

The load upon a station is the rate of energy su])ply (best
expressed in kilowatts) made necessary by the demands upon the
station at the time specified. A succession of values thus deter-
mined and plotted for any period of time gives the load curve of
the station. The peak in such a curve comes where the rate of
energy supply is at or close to a maximum. There is a peak for
each day, perhaps also subordinate peaks, and a seasonal (annual)
peak in winter. The load factor is the ratio to such a peak — for
example, the maximum peak for the year — of the average rate of
supply during the specified period of time that includes the maxi-
mum in question. If the necessary capacity of energy-supplying
or consuming equipment is determined at the maximum, the load-
factor ratio expresses the ratio of actual use in a period of time to
the greatest possible use in that time.

The load factor relates primarily to an electric generating or
distributing system or part of such system. In the case of a com-
pany with several generating stations, it is the company or system
load factor that is particularly significant. An individual con-
sumer, on the other hand, may equally well have his load factor
computed, if only the necessary data are at hand : That is, in par-
ticular, if his maximum is measured. Every group or class of
consumers likewise has a load factor, though it is seldom practicable
to measure it.

It is easy, at this point, to let one's reasoning go astray by iden-
tifying the interest of the company in building up a good load for
itself with a policy of favoring consumers with good individual

1?8 Electrical Rates

load factors. Tho acquisition oi" a new consumer with an indi-
vidual load factor better than that of the company must, it is
true, tend to raise the company's load factor. But it is also possible
that an individual consumer with a bad load factor may better
the load curve of the company to an even greater degree than the
consumer with an especially good individual load factor. It is
only necessary that all his consumption come at off-peak times.
In other word, " diversity," in the somewhat technical sense of the
word, is just as important as long hours of use. Therefore, as a
matter of strict theory, a straight demand charge should relate to
kilowatts at the time of the station peak.

Though this fact is not yet accorded its proper place in rate
theory, and still less in rate practice, the term " diversity factor ''
is officially defined by the American Institute of Electrical Engi-
neers ' and familiar to all students of electrical rates. Disregard-
ing certain refinements of the formal definition that have no direct
relation to present questions, we may describe the diversity factor
as the ratio of the sum of tlie maxima of a group of consumers to
the maximum demand of the grouj) in question when the individual
requirements are combined. This ratio is greater than unity, often
much greater. A figure representative of the diversity factor for
residence lighting from consumers to power station is 5.5 or 550
per cent. Of course the diversity factor applies between groups
as well as between individuals. It is of great teclinological impor-
tance in relation to the planning of a distribution system as well
as of economic interest in relation to load factors and rates*

' H»^ p. 13, above.

• The (ollowing la from Gear and Williams, Electric Central-station Distribution Systems,
p. 309.

DIVERSITY FACTORS

Com-
Resilience mercial General Large
light light power uscra

Between consumeni 3.35 1.46 1.44

" tranKfomierK 1.3 1.3 1.36 1.15

fet-derH 1.15 1.15 1.15 1.15

" NubstutioriH 1.1 1.1 1.1 1.1

Conaumor to trunHfoniK-r 3.3.'> 1.40 1.44

'• feH'T 4.30 1.00 1.9.1 1.15

" " Hub-tiition 6.02 2.19 2.24 1.32

" " generator 5..')2 2.41 2.40 1.46

It should be noted that in the " large-user " class diversity in a broad sense in important
ns between various applications by the same consumer.

IjOad-Factou Rates 129

According to the definition wo cannot speak of the diversity fac-
tor of an individual, since the concept supposes a group of con-
sumers. But, with reference to the relation of the period and
amount of the individual's consumption to the system (or other
group) peak, we may speak of his characteristic diversity. The
individual's diversity may be conveniently defined numerically as
the ratio of his total consumption per day (or per year) to his
rate of consumption or his " demand " at the time of the station
peak. To make this ratio conveniently comparable with the load
factor the individual's demand at the station peak hour should be
the unity term of the ratio. This second quantity may appropri-
ately be called the consumer's " simultaneous demand." * A con-
sumer's requirement at the time of the station peak may be on the
slope or even in the valley of his load curve. In strict logic the
diversity ratio ought to be understood in place of the consumer's
individual load factor in most theorizing about the relation of the
load factor to rates, especially as regards writings published prior to
the general recognition of the importance of diversity.

An alternative mode of expressing the relation of an individual's
consumption to the central-station peak is the ratio of his maxi-
mum demand to his demand at the time of the station peak. It has
been proposed that this be called the individual diversity factor."
But this conception attaches importance to an individual peak that
is usually to be provided for under off-peak conditions — an operat-
ing problem, and a simple one except for the very largest consu-
mers — while the diversity ratio is directly a measure of the indi-
vidual's contribution towards raising the level of the valleys.

In one respect it is necessary to qualify the statement that the
electrical company is interested in the individual consumer's diver-
sity ratio rather than in his load factor. It is his load factor that
determines the necessary capacity of his service connection and,

» " Simultaneous peak " is the not altogether appropriate tenn used by H. E. Eisenmenger
in an article in the Electrical World, May 24, 1913, vol. 61, P. 1085, entitled The Theoretical
Basis of the Multiple Rate System. This and other articles of the same writer are char-
acterized by an interesting use of tri-dimensional diagrams. Of. his contribution incor-
porated in the 1911 report of the Rate Research Committee, N. E. L. A. Convention proceed-
ing, 1911, vol. 1, p. 291 ; also. Some Geometrical Aspects of the Three Charge Rate System
in the Electrical Review and Western Electrician, 1911, vol. 58, pp. 280, 332, 384.

^* H. B. Gear, " The Application of the Diversity Factor," in the technical volume, pro-
ceedings of the National Electric Light Association, 1915 Convention, p. 245; also at p. 358
of Gear and Williams, Electric Central-station Distributing Systems.

130 ELECTnicAL Hates

except a^ the broadening of iiroui) divi-rsity niTocts tlie situation,
of the other means of siipi)lyiii<r him. Hut in proceeding from
consumer to the central power liouse through services, circuits,
transformers, cables, etc., the individual load factor rapidly loses
its economic significance until, at the jiower station itself, only the
consumer's simultaneous demand, not his maximum demand, deter-
mines necessary investment and kilowatt cost. Even for the joint
service connection of an apartment house, which thus pertains to
a fairly homogeneous group of consumers, the sum of the individual
maximum demands of the tenants is several times the maximum
demand on the service.

The diversity ratio as above defined is of no great practical
interest in the case of small consumers, since its value cannot be
determined except where a special type of meter with clock attach-
ment is used, such that the consumer's load curve is registered for
(say) every 5-minute interval. This is commercially practicable
only for the large consumer. But a clear conception of the diver-
sity ratio should help to clarify one's ideas as to the significance
of load factors. It is possible that it should be substituted for the
consumer's individual load factor, with certain qualifications, in
computing the demand charge, where this is an element in the rate;
but that is a matter for consideration in another connection.

Certain kinds of business are very important with reference to
load-factor considerations. Such considerations are likely to be at
the foundation of any use or occupational classification of consu-
mers. Perhaps pumping against a head has the most desirable
load characteristics. The use of electricity for the fixation of nitro-
gen, and presumably for some other branches of the chemical indus-
try, can offer a 100 per cent load factor. But the requirement of
continuous operation creates a difficulty. The possibility of inter-
mittent punij)ing at times conformable to the needs of the electrical
supply company amounts to offering a load factor (actually a
diversity ratio) of much more than 100 per cent. Special contracts
are appropriate under some such circumstances. A comprehensive
statistical study of occupational load curves appears to be wanting,
though it ought to be of great interest to electric companies."

"The Report of Committee on Hijrti Load f;irtor uiul Non-peak Bu.'.inewt, National Elec-
trio Light Ansociatlon, .'ITth Convention, 1014. Commercial Session* volume, p. 190, does
something within the liralts suggeBtcd by Its title. There is an excellent compilation by

Load-Factor TJates

131

Whether the individual user has a sharj) peak or not, or whether
he makes a brief or long-continued use of his ordinary demand,
are questions of secondary importance if his diversity favors the
company. When electricity is used almost exclusively for one or
few purposes, say for the lighting of streets, places of business and
homes, it may be practically correct to assume that the individual

J. E. Mellett for a variety of lines of industry, with results shown by individual daily load
cunes, for consumption at Camp Gordon (Atlanta), in the Electrical World for April 6, 1918,
page 721 ff. The conclusion is drawn that control of the load by the central station is a
more important reason for low rates than a low load factor. In other words, it is implie<l
that diversity ratios should be emphasized more than load factors, though diversity is not
mentioned by name.

still more interesting are the following data obtained from a paper by Mr. Samuel InsuU,
" Centralization of Power Supply " (In Public Utility Economics. Lectures before the West
Side Y. M, C. A., New York, 1914), p. 107. (The article is also published in phamphlet
form). The table is slightly modified for reproduction here, Itilowatt hours and the diversity
ratio being derived and added to the matter shown.

DATA FOR CERTAIN LARGE LIGHT AND POWER CUSTOMERS WITH PRINTING

TAPE WATT-HOUR METERS-COMMONWEALTH EDISON CO.

OF CHICAGO (APPROXIMATELY 1913)

Kind of business

Department stores.

Garages

Office buildings

Steel, iron and brass

works.
Manufacturers

Stock yards and pack-
ing.'

Telephone exchange
and offices.

Ice manufacturers. . . .

Anaual income

6J2

Hotels.

Brick yards and quar-
ries.

Cement works and
miscellaneous.

250,700
93,400
59,700

172,600

159,000
66,200
34,500

114,300
27,400
21.600

1.72
2.23
2.24
2.02
2.05
1.24
2.23
1.07
1.67
1.91

ij — J3
^ c.

298,900 0.77

1,293,300 1.35

14,680
4,170
2,660
8,520
7,750
5,330
1,540

10,680
1,640
1,130

88,078

Demand

V .

« c
^ o
3 9.

Diversity

O C 3 •-

ly " ° a^^

5ES I '■^

silli.>^

a 1 Q

96,078

5,280
2,220

960
3,280
8,680 !
1,550

480

2,170

1
340 I

650 I

6.030 !

4,400
90
720
980
1,550
830
3S0
20
260

540

26,640

9,770

880
2,130

240
2,300
2,130

720

100

2,160

660
6,490

37.8
528.9

31 8
20.4

42. 4| 31.6

99.2! 29.6

67.1 24.0

73.81 39.2

46 6' 35.6

6097. 2! 56.2
I
72.0 55.0

20.0

16,870

806.0

112.3

72.0

41.2

The general diversity factor is 2.7.

133 Electhical Kates

consumer's peak occurs at about the same time as tlie company's
peak, and that lonpor liours' use will mean additional use at other
than peak times; but when there is diversified use and, in particu-
lar, a heavy daylight load for various applications of power, the
diversity of the individual consumer can no longer in justice be
disregarded. Then it becomes imj)ortant to pay attention to the
relation of an individual's consumption to the system peak rather
than to the shape of his individual curve. It is possible, for example,
that in our largest cities the domestic lighting consumer has come
pretty generally to take practically all bis electricity at off-peak
times, with reference, that is, to diurnal peaks. Such consumers
may tend to reduce the station load factor wherever the daylight
and twilight demand account for most of the consumption of elec-
tric energy. Diversity may, it is true, be taken into account in
the method of determining assigned maxima — as also, of course,
through the classification of consumers — but such a method is rather
unreliable.

But it is self-evident that, if all consumers had individually high
load factors, the company supplying them would inevitably have
at least as good a load factor as they have, hence the load factor of
the consumer may well be a basic fact for the rate schedule. The
demand charge, however, should be modified with reference to
diversity.

Seasonal Variation as a Load-factor Consideration

With reference to the extent to which sea.sonal as well as diurnal
variation of demand is to be recognized, the method of determin-
ing the demand is worthy of more attention than it ordinarily
receives. The Wright rate on a monthly basis, supposing the peak
is actually determined instead of being arbitrarily assigned by
classification, disregards the seasonal variation." The demand ele-
ment in the total charge is, under such conditions, based upon a
new maximum for every bill rendered. Hence, for the year, the
demand upon which this element in the rate is based is in effect the

" ARain it in neretihury to rpmltid th'- roiuIiT thiit this fhiirnctorlstio of tlip Writjlit rate r-s
actually applied in thiw country in not (Hjuntcnatifcd by the ideas and practires of Mr.
Wrijcht himiielf. It uppf.irs that at Uri({hton he tof)k an the ronsunier'n iiiaxinnim the avera;j;e
of monthly pcaicH for the six winter nionthM. (See the 1800 articln.) He also allowed a
residence coniaimer who planned to gi\c an evening entertainment to have the demand indi-
cator iwitchcd out that evening for a nominal fee.

Load-Factor Eates 133

average of twelve monthly maxima, instead of being the largest of
them and the one that, in theory, decides the kilowatt l)urden on
the supply enterprise. Under these circumstances, with a given
yearly maximum, the smaller the other monthly maxima, and pre-
sumably, therefore, the smaller the off-season consumption, the
lower the aggregate demand charges for the year. This situation
in effect moans the exemption of the consumer from paying the cost
that his seasonal, as distinguished from his diurnal, load-variation
imposes. The Hopkinson rate for large consumers, on the other
hand, is in practice likely to be put on a yearly basis, so that the
annual (winter) peak affects the rate the year round. This prop-
erly asociatcs the demand charge with the necessitated fixed invest-
ment. The sharpness of a peak (resulting from diurnal variation)
is of course an important factor also. But the relative importance
of a yearly peak is a function of daily as well as seasonal variation.
The demand element in a Hopkinson rate, which it may be assumed
relates directly to the yearly peak, thus reflects the influence of
both annual and diurnal variation of demand.

The bearing of the bill period upon the variation of the average
rate per kilowatt hour is of interest, not only in relation to whether
the maximum (if a factor in the rate) is determined for the month
or for the year, but also in relation to whether quantity discounts
according to kilowatt hours taken are granted on the basis of
monthly or yearly consumption. If the discount depends upon
monthly consumption, the greater the unevenness of the consump-
tion, the lower the average rate. This effect, however, is not likely
to be of great practical importance in terms of revenue involved.

With regard to the chief factor determining tlie variation dur-
ing the year in the amount of energy consumed per month, that
is, the duration of daylight, if the peak for domestic lighting is
retarded from winter to summer by only an hour and a half, and
for other lighting correspondingly, and if the average hours' use
of the actual maximum is as small for lighting as is commonly
stated, the range of variation on monthly bills during the year,
even without assuming vacations or shut-downs, must be very con-
siderable. Tn the latitude of ISTew York the range of variation in
the need of artificial light as determined by the time of the sun's
setting on the longest and shortest days of the year is about three
hours. If the time of lighting up residences ranges between 5 : 30

134 Elkcthical Kati:s

and 8:30 P. M., and if the time for extinguishing the lights is
typically 10:30, then the quantity of energy required might be
expected to show a seasonal variation from minimum to maximum,
due to this cause alone, in the ratio of 2 to 5. Diversification, even
with reference to the lighting function only, will of course con-
siderably reduce this range of variation. But with reference to
this factor of seasonal variation considered by itself, the range evi-
dently nearly equals the average consumption per month. If the
range in question happens to equal this average, and if the average
happens to be in the neighborhood of a change from one monthly
block rate to another, the consumer will get the benefit of the lower
rate to the extent of about one-eighth of the energy, merely because
of his seasonal irregularity, by reason of which he takes more than
the average quantity in winter when the kilowatt demand on the
company is especially heavy. Furthermore, since he is a lighting
consumer, his additional consumption is likely to come at the peak
time, that is, at the close of the winter afternoon. Yet practical
rate-making pays little attention to this matter, doubtless because
it is so convenient to close up the consumer's account finally for
each bill period." For large consumers, at any rate, this should not
be done, even if only with reference to the educative value of a
more scientific adjustment with regard to seasonal load-factor con-
siderations.

To illustrate the point more in detail — it is not mathematically
correct to reduce the annual to a monthly basis as is done for {)lot-
ting purposes in order to compare the Cicneral and the Wholesale
rates in Figure 5, presented at page IGO, below. The diU'erence
between the two bases in favor of the General rate may be illustrated
by an example. A consumer under this rate with an average cou-
sum])tion of (j2.")0 kilowatt iiours a montii will, if his consuniijtion
is only !•<!() for the smallest and 11, GOO for the largest month, pay
less for these two months than he would if he took G*2.')0 kilowatt
hours in both months. 'J'he cost of 1 l.GOO kilowatt hours in .$53G.t.\5;
of 6250, $308.88; and of 900, $72.00. The cost of the two months
even consumption is therefore $(117.';.'"). mihI iiiiovon, $G08.'?.'). The

"The quantity dinrountfl under the New York Kdison wliolesale rates (miiiiiiiuiii now
7r.,000 kilowatt houm a year) are, sinw 1011, on the yearly basis; those for retail con-
(lumcTs are on a monthly basis. Cliicago rates for small consumers especially, like Wright
ratea In general, are on a monthly basis. In fact only in wholesale rates is any other
basis common.

Tx) ad-Factor Eates 135

consumer thus gains $9.50 on account of a peculiarity of liis con-
sumption that is not favorable to the company. If all the 12,500
kilowatt hours is taken in one month, and none at all in the other,
$33.75 more is added to the difference, making the total gain to
the consumer from unevenness of consumption $43.25. But the
illustration is an extreme one and doubtless the ir 'determinate or
suspended character of the charge for a considerable period where
it depends upon annual consumption far outweighs any advantage
of the annual basis in the case of small and medium-sized consu-
mers. Only fluctuations ranging across the blocks between 900 and
1900 kilowatt hours a month affect the amount of the final pay-
ment, hence neither the consumers that take always under 900 kilo-
watt hours a month nor the ones who take always over 1900 kilowatt
hours are affected by this peculiarity.

This question as to the importance of seasonal variation in rela-
tion to the load factor involves a question as to the comparative
economic significance of filling in the valleys of the load curve and
of merely keeping for the most part off the peak. If adding to
the peak definitely involves the requirement of a certain addition
to generating or distributing capacity, that is the crux of the situa-
tion and of unique importance. If, however, the responsibility
for the peak is divided and variable, and somewhat indefinite and
an affair of averages, then raising the level of the valleys may be
as much worthy of attention as keeping down the peak. Of course
the filling of the valleys is not an affair of a brief interval of time.
But if consumption is maintained at about a given level throughout
the spring, summer, and autumn, such a long-continued, steady
load (a plateau in the consumer's load curve) affects the general
average by raising the level of the seasonal valley. The permanent
disadvantage of lighting consumption lies here.

Irrigation rates, on the other hand, though available only in
limited sections of the country, have a permanent advantage that
is the complement of the disadvantage of the lighting load. But
in at least one case the irrigation load has been so developed as to
cause a summer peak."

The importance of the peak is relative to the average — a fact
duly expressed in the load-factor ratio. Consumption that affects

'^* Idaho Public Utilities Commission, June 2. 1920, re application of the Idaho Power
Company to increase its irrigation rates. 17 Rate Research 212 ; P. U. R. 1920D 806.

13(1 Electrical Rates

favorably tlic average for the year — the first temi of the ratio —
has an importance that may not be indicated in its immediate rela-
tion to the winter maximum or to an average of diurnal winter
peaks. So far as the character of the diurnal load curve of a
lighting consumer is in question, if there is a constant demand from
5 : 30 to 10 : 30 P. M. on a winter day, the diurnal load factor is
5/24ths, or 21 per cent, which is not bad where no diversity of use
is taken into consideration. But various species of lighting load,
among which are those of offices and of stores that closs at 5 or 6
P. M., rank less favorably on an annual as well as on a diurnal
basis. Street lighting, on the other hand, supposing lights to be
burned all night, is evidently about the best kind of purely lighting
load. But street lighting, also, has the seasonal characteristics
that result from the variation of the hours of darkness. On the
other hand, the controlling importance of astronomical factors in
determining " hours' use " for different classes of ligliting in the
various months should, on account of their simple and certain cal-
culability, facilitate the right treatment of lighting consumption
with reference to the load factor and obviate to a large extent the
necessity of resorting to special measurement devices. Such calcu-
lations, it is true, cannot take account of darkness due to sudden
storms. But commercial and manufacturing establishments in-
crease their demand more readily under such circumstances than
do homes.

Xot only does the lighting demand suffer in quality by reason
of unavoidable seasonal variation, but it is also a source of sudden
peaks in the ofT-peak season. A sudden thunder storm and dark-
ness on a summer afternoon may cause the general turning on of
lights and the superposition of a lighting demand upon the regular
power demand such as to cause a peak nearly as high as occurs in
December. This involves a difficult operating problem, which
seems to have been quite satisfactorily solved. Such meteorological
conditions are as little amenable to control as the astronomical
detemiinants of seasonal variation.

The seasonal variation of demand for summer resorts is oppo-
site in character from the general seasonal variation of the light-
ing demand and is often dealt with by a flat rate, by a considera-
ble service charge on an anniml basis, or by a higher rate per kilo-
watt hour for summer than for year-round consumers.

Load- Factor Rates 137

The daylight-saving plan of setting back the clock in summer
further reduces lighting consumption at the slack season while
leaving it the same in winter. It is thus an unprofitable thing for
the electrical companies. Therefore it is not surprising that they
are not among the advocates of this policy. That they should
actively oppose what is evidently — at least as regards their part in
the issue — sound national economy and almost pure gain to the
public would be a discredit to the electric supply industry." In
fact, because the daylight-saving plan tends to force the companies
to pay attention to the problem of seasonal variation, which they
have hitherto rather neglected, it might in the long run inure to
their advantage.

Load-factor Considerations in Relation to The Small Consumer

Whatever may be the theoretical soundness of the demand charge,
its application in actual rate-making is conditioned by the prac-
ticability of determining the cliaracter of the individual's load curve.
In the case of the small, and even of the medium-sized, consumer,
to do this satisfactorily, that is, with due regard for the bearing
of diversity on the kilowatt requirement, is not worth while. Its
costliness outweighs any advantage to be obtained by the result-
ing possibility of a finer adjustment of rates. The strongest advo-
cates of strict maximum-demand rates, and of maximum meters in
support thereof, admit that the method is inapplicable to the resi-
dence consumer.

There is the alternative possibility, frequently resorted to, of
estimating the consumer's maximum demand, such as is the case
where his connected load or something likewise related indirectly
to his actual maximum is employed. This method, as employed
in Wright rates, has been discussed above and various objections to
it set forth. It does not conform to cost; it is hybrid in form: and
it presumably ignores diversity. It is not adequate as a method of
collecting a demand charge. The latter, as has been shown, is prop-
erly not a mere matter of long hours' use. Difficulties with regis-
tering the consumers' demand in this broader conception are no

" R. S. Hale, in an article entitled Daylight Saving in Boston Residences (Electrical
World, Jan. 17, 1920, page 170), gives figures indicating that the reduction in bills on
account of daylight saving is rather small, being 3J per cent on bills amoiuiting to ?100.00
per year.

138 ELFXTniCAL T?ATi:s

sufficient reason wliy it shoultl not mean something more than
his individual maximum. As an clement in an electrical rate, its
proper amount should be unambiguously and fairly determined.
Diversity is equally important with the individual maximum."

An evidently unjust feature of the Wright t\\)e of rate as some-
times employed in this country consists in fixing an unduly high
minimum rating for active connected load — such that even very long
hours' use cannot give the small consumer any benefit of the lower-
priced block. This practice may be accompanied by a minimum
charge, in which case it in effect duplicates or extends such charge.
At best it is a poor substitute for an initial or service charge of
some sort. If the minimum rating thus fixed is 1^ kilowatts and if
the first block of a Wright rate is 60 hours use per month, the con-
sumption of 90 kilowatt hours a month is arbitrarily required before
any consumer gets the benefit of longer hours' use. Under such
circumstances the rate for small consumers would be more honestly
stated if there were no mention of the Wright features available
for consumers of larger size. Such a system discourages long hours'
use on the part of small consumers."

'* The assumption that the benefit of diversity should po to the central station — which
18 implied wherever the individual consumer's load factor is considered a final determinant
of the demand charge — has been made explicit in the rather extravaj^ant statement of a
writer quoted in C Rate Kesoarch 342, who says that the diversity factor " is the birthright
of the central station, the fundamental basis of its existenc-e, and its resultant value brloiifpi
to the central-station company."

This is as if a bank should attempt to arropate to itself by some natural or divine " right "
the whole benefit of the diversity of the demands made upon its deposits. In fact, it is
Ratihfled to get merely what it needs or deserves as determined by competitive and other
elements in the business situation. It is scarcely necessary to say that neither actual rate
schedules nor the expressed opinions of central-station men quite conform to the dogma
enunciated. For example, Mr. John W. Lieh, of the New York Kdison Co., in a r-ipc on
the ComnuTcial AhTio<ts of Electric Lighting (in the .Johns Hopkins Lectures on Illuminating
Engineering, 1010, p. 915) says (on p. 093) : '* The fixed charges and the standby charges
ought rather to be apportioned to earli consumer in proportion to his maximum demand
I evidently hi^ " simultaneous demand ") at thr dny and very hour the maximum load of the
year oc<-urre»l at the station."

"A cloxely related question Is dealt with in the 1917 report of the N. E. L. A. Hate
Rcswirrh Committee, namely the point of incidence of the " follow on " rate, in other
words, the proper point at which to pass from the first to the second block under a Wright
rate. It is suggested that the first number of hours' use rfqiiired, when low, may have been
selected as the point of most economical use of light in order thu* to encourage the liberal
tiae of jtower and miscellaneous appliances. Hut, says the committee, it is perhaps most
common to select the point according to the reduction of earnings desired to be effected.
Convention prooeedings, f;eneral vol., pp. 170-80. This is an interesting example of the
way In which not even commercial exigency, but what we may identify as arithmetical con-
venience, rather than the desire to effect an equitable and scientific adjustment of rates,
often determine* the actual rate.

Load-Factor Rates 139

The individual consumer's claim to consideration in respect to
the character of his load curve ought, if possible, to be recognized
in the rate he receives. Such recognition involves recognizing his
diversity. Tliis is commonly done by way of averages. The objec-
tion to allowing thus for the diversity of a class of consumers by
way of a class rate is that good and bad are lumped, and the average
rate arrived at gives no incentive to the consumer to better the
conditions of his consumption with reference to the company's load
factor, which betterment underlies the recognition of load factor
and diversity factor in any form." But in the case of the small
consumer the direct recognition of load characteristics is doubtless
impracticable.

Diversity has not only a negative bearing on the question of a
demand charge — in restricting the significance of the individual
load factor — but properly also a positive influence in favor of sim-
plification of rate schedules. If diversification of business is great
enough, irregularities of demand tend to cancel each other and the
diversity may of itself result in a fairly even load curve for the
company. But so long as, or wherever, lighting takes the major
part of the energy, this situation is not yet developed. The fact that
in most places it is yet to be developed justifies for the time being
a specially low power rate. This element in the existing situation
counts for as much as the long hours' use of the power demand.
But, if the kilowatt-hour charge is put as low as possible for the
small as well as the large user, there is no reason why a situation
like that which has prevailed for some time on Manhattan Island
should not develop generally. Here the power load outweighs the
lighting load by a considerable amount, as is evidenced by the pro-
portion — that of approximate equality — of the two classes of con-
nected load." In other large cities the proportion of industrial
power is probably greater, hence the statement may be made general
for large cities. And there is a pronounced tendency to further
rapid growth of the power demand. Of course, the kilowatt hours
supplied for power must be much greater in proportion to con-
nected load, perhaps twice as great, as for lighting. Moreover,

^' Cf. the discussion of the weakness of classification in this respect in Chapter IV,
page 112, above.

" See Annual Report of New York Public Service Commission for the First District, 1912,
vol. Ill, p. 75. The railway load is not included in the comparison.

140 Electrical Rates

lighting sockets are frequently used for other purposes than light-
ing. Residence lighting in Manhattan is off the peak in wiiitor and
its peak is often in summer smaller than the daylight peak." The
winter peak in large population centers is not due to lighting for
residence purposes but rather to the superposition of lighting for
commercial purposes upon power uses, in which combination light-
ing is becoming the lesser constituent. It is important to note that
residence lighting comes on only gradually and does not reach its
height till the dinner hour, while commercial lighting comes on
full at twilight. In the largest cities in midwinter the peak of
lighting for commercial purposes is reached by five o'clock.

Even apart from the especially rapid rate of growth of motor
and similar uses of electric energy the developments of the recent
past and the immediate future mean an increasing relative impor-
tance of the uses of which power is representative. The substitu-
tion of low-wattage, high-efficiency lamps for the much less effi-
cient carbon-filament type should involve at least a cutting in two
of the amount of energy taken for a given lighting use. The impor-
tance of the latest type of low-wattage tungstens as a factor in the
situation has already been discussed. For the larger sizes of lamps
there is the still more efficient nitrogen-filled type.

Other aspects of the diminishing claims of power for special
consideration in the form of a low class rate have been considered
above in Chapter IV. Its only permanent advantage over lighting
is in respect to seasonal variation. As regards diversity, the resi-
dence lighting consumer, and that is but another way of saying the
small lighting consumer, is coming to liave a stronger elaim to
favorable rates than the power consumer. The tendency to use
lamps of much higher efficiency enhances the force of the argument
for ignoring the possibly high iiulividniil load factor of the residence
consumer.

Diversified use on the part of residence consumers ought to be
encouraged by low kilowatt-hour rates. Even if this involves some
consumption at peak hours, for cooking especially, the diversity
ratio would probably not be unfavorably affected, especially since

*• Si(^lflcant developmcntH in this direction in Biiltlniore are plTectively presented in an
article In the Electrical World for July 28, 1917, p. 148 (T., entitled the DiKappearance of
the Kveninff Peak, by W. N. Nclbich. It appears that in 1916-17 a condition had been
attained mich that there waa an overlapping o( the power and lighting peaks only durinj;
a period of six weeks.

Load-Factor Rates 141

the economical use of electricity in this connection probably sup-
poses a combination of electric heating with the fireless cooker
principle of confining the heat, thus involving slight and long-
continued or merely intermittent consumption in preparation for
a meal some time ahead. Other domestic uses naturally come
mainly off the peak. The adjustment of interior wiring and of
the wattage of sockets to meet such requirements, so far as it has
not already been done, appears to be comparatively inexpensive.

It should be noted that, where domestic appliances containing
motor or heat elements are used, these, rather than lights, will
usually make the peak. But no one would allege that such appli-
cations of electricity should be restricted by maximum-demand
rates. However, the advantages of diversification of residence con-
sumption relate rather more to density-factor than to load-factor
considerations. The subject is therefore discussed in that connec-
tion.**

Hence the conclusion that number of hours' use is not of fun-
damental importance in the case of the small consumer. It is
necessary to add, unless possibly with reference to the greater den-
sity of consumption implied. Density of consumption, however,
does not relate to the load factor, being another matter and a sub-
ject dealt within the following chapter.

But rate-regulating bodies have as yet taken little notice of this
situation by reason of which the Wright type of rate, which leaves
no place for diversity, is becoming increasingly unjust to lighting
consumers. The Wisconsin Commission has recognized the strict
inapplicability, according to its own premises, of its type of rate
schedule to a town where the power load happens to be four times
the lighting load, but it treats this case as exceptional and not call-
ing for a modification of rules." It doubtless is exceptional at
present, but if something like this situation is to become standard
in the near future, the Wright type of rate should soon be done
away with, at least as relates to lighting consumers, unless frankly
put forward (and remodeled) as a density-factor rate.

The argument for a new policy towards small lighting consumers
with regard to load-factor considerations is reenforced by United

» See page 174 flf.

*= The Berlin case, 1914, 15 W. R. C. R. 134. It is assumed in the decision that the power
business could not be obtained at a higher rate.

142 Electrical Rates

States Census figures. With the horsepower capacity of motors
reduced to kilowatts hy multiplying by 0.740, and incandescent
lamps similarly reduced on the basis of 50 watts per lamp, arc
lamps being put down as returned, figures showing the compara-
tive growth of power and lighting loads are as follows : "

Lamps wired for service

Inc.mdescent and Statiorrary motorx

otln-r — est iiiiated served — kilowatts

Year Arc— number kilow:itt8 capacity

1902 385,698 910,000 327.000

1907 562,795 2,094,000 1.230,000

1912 505,395 3,825,000 3.081.000

1917 Not reported Not reported 6. 875, 000

It appears that electrical-supply companies generally are no
longer predominantly lighting companies. Estimating the kilo-
watts required for incandescent lamps on the basis of equivalent
tungstens, the quantity should be reduced by half or more. P.ut,
with a lower cost per candle hour, of course the consumer will take
more light. If the average hours' use of motors is two or more
times that of lamps, allowance for this and for tlic fucf lliat tung-
stens had still in 1913 to displace carbons for many consumers
means that power supply is at present of much more tlian equal
importance with lighting supply for electrical coinpanics generally,
^funicipal plants arc included with ])rivato central stations in the
above data.

In brief, since it is not only diiricult or imj)ossiblo to do justice
to the load-factor quality of the small consumer and give him an
incentive to develop his consumption in the way most favorable to
the company, and since so far as be is primarily ;i lighting consu-
mer giving such an incentive is becoming unimportant, it would
gcem best to let diversity take care of his relation to the com-
pany's load curve, so far as it will, and for the rest, so far as
necessary, develop other business in a way to make up for the small
consumer's shortcomings. Perhaps this policy can as yet be fol-
lowed unreservedly only in the large cities. There, at least, the
aggregate consumption of the small residence (chiefly liLditing)
consumers is so small a fraction of the total that its contribution to
the peak, for this as well as for other reasons, does not call for inu< b
attention. Doubtless the business of small consumers is not yet

"U. S. OeiuiUfl, Central Electric Light and Power .StationB, 1912, table on p. 20; 1917,
p. 98.

T^oad-Factor Rates 143

developed as it should be and as it will be, though the large consu-
mers also offer by no means an exhausted field for the development
of electricity supply.

Intensification of use is just as important for small consumers
as for large consumers. Indeed it is presumably more important
to the electrical company, because it can be assumed that the rate
for the additional energy supplied will be higher for the former
than for the latter class. The profitableness of the result is not
lessened by the possibility that many small consumers are now
being carried at a loss. It is perhaps necessary to explain that
extension of use — the taking on of new small consumers — is not
in question. Intensification of use refers to the increase of con-
sumption in proportion to maximum demand or connected load on
the part of individuals or classes already supplied. It is not impos-
sible that, under a proper rate policy, such as to encourage this
development, the more general use of a greater variety of domestic
appliances might in a comparatively short time doul)le the residence
use of electricity. An initial charge accompanied by a low kilowatt-
hour rate would tend both to prevent undue extension of electric
lighting among the smallest-sized consumers and at the same time to
encourage more intensive use among those not daunted by the initial
charge. Apartment house dwellers constitute the class that one
would expect most readily to respond to such a system. The appli-
ances might be sold by the electrical companies at cost, or the more
expensive ones rented at low rates."

It is possible to base the rate to residence consumers upon load-
factor principles without employing either the Wright or the Hop-
kinson method and without becoming involved in any complicated
metering problem. The lighting requirement for each month may
be agreed upon, as based upon connected load and other data, and
kilowatt hours consumed in excess of the agreed quantity in any
month may be billed at a lower rate than the initial quantity. The
essence of the method consists in making the high-priced, initial

^ Doubtless the extent to which gas is used for cooking, and the high per capita con-
sumption, in New York City, especially in Manhattan Borough, is considerably affected by
the policy of the Consolidated Gas companies, which had about 300,000 ranges and cookers
rented at the close of 1914 in the borough named, the population of the borough being about
2,300,000 and the number of consumers, 675,000. For the data upon which this estimate
is based see pp. 1S2 and 176 of vol. Ill of the 1914 Annual Report of the 1st District New
York Public Senice Commission.

144 Electrical Kates

block much smaller in summer, so that consumption at that season
is encouraged, while consumption during the winter and at the peak
season for the extra lighting then required does not obtain so low
a rate." The seasonal element in the load factor as well as hours
of use are thus directly dealt with.

There is also an excess-demand watt-hour meter which integrates
energy at a rate equal to the use in excess of a predetermined load."
This tends to keep down the individual diurnal peak and also, of
course, though less effectively, the annual peak. The use of this
device is not uncommon in Europe, though apparently not estab-
lished in the United States.

As to the proper dividing line between small consumers, where
load-factor rates are out of the question, and those of medium and
large size, a monthly bill five times the quantity corresponding to
the minimum charge has been suggested as an appropriate point
for the use of the demand charge, if not of demand meters, to begin.
If the most usual initial block has a bearing on the question, that in-
dicates 50 kilowatt hours a month. But if the question is one of
determining, not merely the consumer's maximum, but the character
of his load curve generally, this amount is doubtless not large enough.
As regards the expense of determining load characteristics by meter,
there are certain advantages in providing for an intermediate size-
class, where load-curve determination is optional with the consumer,
but with the resulting cost added to tlie ])resumably lower price that
he obtains through exercising his option in favor of a load-factor
rate.*'

Load-factor Rates for Large Consumers

With very large consumers the situation as regards a dcMnand
charge is different from what it is for small consumers. With the
former it is entirely feasible to determine the maximum demand of
each day and the course of the load curve. It is possible to base
the rate for such consumers upon the maximum peak or upon the
simultaneous demand or upon any othrr foaturo or combination of

*• The British Board of Trado lins roo-iitly fhiiiiK*''! it« method of fomputiii(f iiiiniimim
charKen, bo that the charge 1h the priic of 10 unltti in the KUrnnier quarter and 15 in winter
instead of the same the year through. 18 Rate ReKcarch 00.

" 1914 N. E. L. A. Convention proceedings, Technical vol., 24-2.'').

" Cf. page 114, above, on optional rat«!).

Load-Factor Eates 145

features of the consumer's load curve in relation to tiiat of the com-
pany. Meters that record the quantity consumed during brief inter-
vals are not absolutely inexpensive, either to own or to operate, but
relatively to the energy taken by the very large consumers, in con-
nection with whose supply they would naturally be used, the expense
is inappreciable. Though it is not possible to make a simple general
statement as regards the practice of the companies in this respect
in dealing with large consumers, enough of them offer load-factor
metering as at least an option to justify the opinion that rules re-
quiring such metering for large consumers are entirely practicable.
It is the view of the writer that any concession below a certain
amount per kilowatt hour under a single-charge rate, or per kilo-
watt of demand under a two-charge rate, whether under a so-called
wholesale rate or under any other rate, should be conditioned upon
the possession of load characteristics distinctly favorable to the
company. As to what load characteristics should be required, it is
evident that the individual consumer's demand at the time of the
station peak, rather than his individual maximum or his hours'
use, is the critical thing. The consumer's diversity ratio, and per-
haps in addition his individual load factor, should be higher than the
system load factor, if he is to receive marked concessions.

If the characteristics of his demand are decidedly good in these
respects, it is difficult to say just where the concession of a lower
rate should stop, since it is quite possible for such consumers to make
up to the company the cost of the bad load characteristics of other
consumers, in which case the former might claim concessions di-
rectly at the expense of the latter. This element in the situation
should be dealt with by a scale of demand charges varying with the
diversity ratio, subject to adjustment according to the realized load
factor of the company. But it may in certain cases be dealt with by
negotiation and special adjustment of the consumer's demand, for
example, through the changing of factory hours so as to close the
working day before dusk, thus avoiding to some extent the overlap-
ping of power with commercial lighting.^

** Cf. E. W. Lloyd in 1916 N. E. h. A. Convention proceedings, genl. vol., p. 9: "In
certain lines of business the cost of energy is becoming so great a factor that these indus-
tries are compelled to consider an adjustment of the hours of labor in order that power
may be purchased at prices they can afford to pay." An article on Seattle conditions,
entitled Keeping the Power Load off the Peak (Electrical World, Dec. 1, 1917, page 1056),

140 Klkctrical Kates

Not only adequate metering, but the control ainl limitation of
peaks, especially momentary peaks, appears to be entirely practica-
ble as regards large consumers. The systematic use of such control
would go far towards justifying very low industrial rates under
such conditions. Off-peak and limitod-peak rates have an impor-
tant future in such apj)lications."

The "filling-in process" referred to can l)est be accomplished by
adjustment of the time of demand and by applying off-peak rates.
The character of the consuming industry is an important factor in
the situation, but a limiting rather than a controlling condition.
Ice-manufacture appears to be the most generally eligible." It will
be noted that this use relates directly to the cure of seasonal in-
equality. It is an available recourse in all large cities."

It is true that, even though the diversity of a consumer is not
explicitly recognized in a rate schedule, it may easily be taken into
consideration in determining how the consumer's demand is to be
computed, if that is fixed, otherwise than by meter. But this method
throws wide open the door to discrimination and is therefore to be
condemned. As the variation of demand comes to be recorded in-
stead of estimated, diversity will doubtless come to receive explicit
recognition in rate schedules wherever the load factor is made an
element in the rate."

Difficulties in making metering adequate to the application of
load-factor principles to rates have long been an obstacle in the way
of their proper develojunent, as appears in the discussion of the
determination of maxima in Chajjtcr II above. With this obstacle
removed, the policy of the electrical companies as regards rates for

fttates the problem thuii: "The peak Is caused by the overlappinic of the liKhtliiK ind
industrial power loadii on the electrlc-mllway eveninK-nmh-hour demand " ; and Kiioncexta
earlier clof>ini; hourii and In othf-r caKe* the leavinR of employoos nt half-hourly intervald,
•Iwayf with due reffard to their ofTeft on the included Ntrrrt- railway load. It hiu been
eatlmated that " utatrifered houm " would wive ITi.OOO kilowatt* of demand at no«toii
(Electrical World. .Nov. 10, 1018. paK" 040).

"Compare an to the control of pmkK on th*- i-lrctrlflfd portions of the ChiraKo, Mil-
waukee & St. I'nul Ry . F. f Pratt In the Klcrtrical World. Oct. 4, 1910. paife 753.

••Compare William* k Tweedy. Commercial KnitlnecrinK, pn((<'fi 7.1-70.

" It if «tat<>d that Cti'% of artificial Ice In Chicago In made by cent ral-(.tat Ion energy,
which U 28.6 per cent of all Ice uned there, including natural. Elpctri<-al World, March,
1919, paice 800.

"The rate achedule* of Detroit, Michigan, and rif no<-h<"Kter, New York, contain fea-
ture* that attach Importance explicitly to diversity, the foniier by w.iy of time differ-
entlali for auxiliary and emergency iicr>lce, tho latter by way of qiinlincation of the
demand charge for recorded peak* with reference to their time of occurrence.

Load-Factor Rates 147

large consumers ought rapidly to take fairly defmite aud fairly
uniform shape.

The appropriate load-factor rate for large consumers, as is abun-
dantly indicated, is of the llopkinson rather than the Wright type.
The decisive consideration in favor of the former is clear in the
light of the importance properly attaching to diversity. The Hop-
kinson type of rate lends itself to the substitution of the diversity-
ratio for the individual consumer's load factor (his " simultaneous "
demand for his maximum demand), and also to any desired com-
bination of the two. Lighting fur commercial purposes would,
under such a system, be made to pay for its usual bad diversity ratio
as well as for its bad load factor.

Load-factor considerations applied to determine the proper rate
for large consumers should be administered partly with reference to
giving such consumers their share in the lower costs, but more
particularly, from the public viewpoint, with reference to safe-
guarding the company and the public against undue concessions to
bargaining power. To give those with special bargaining power
carefully all that is their due by means that are unambiguous, tak-
ing nothing for granted, is the only way to be sure that such con-
sumers do not get more than is their due. But from this point of
view the density-factor feature of rates, to be considered in another
connection, is of at least equal importance with the demand charge.
Load-factor rate elements sliould not be used to disguise quantity
discounts, and vice versa the quantity discounts should not be made
specious by arguing from an assumed but not determined load
factor. It is true, for example, that the large consumer will in
general have a somewhat better load factor than the small consumer,
but the fact is irrelevant and the argument merely specious if the
better load factor results from a degree of diversity of use in the
case of the former only such as would be matched by the diversity
factor of a number of small consumers, taken at random, having an
aggregate consumption equal to that of the large consumer.

As to consumers intermediate in size, it may be desirable to en-
courage oflF-peak business by various methods not requiring the use
of load-recording meters. An outright concession to power uses
may sometimes be made, though it should not be large in amount
and should not depend on volume of consumption. It may be ex-

148 Electrical 1?ates

pected ultimately to disappear. Other sorts of consumption that are
easily ascertained to be od'-pcak are entitled to similar conces-
sions." Furthermore, without direct reference to size, a consumer
who is willing to reimburse the company for the expense of the
special metering should be allowed the benefit of load-factor dis-
counts. In the case of the large whole.-^ale consumers, on the other
hand, the expense of such special metering should not be the occa-
sion of a special charge, since it is incurred quite as much on be-
half of the public as of the consumer.

In brief, load-factor discounts should be designed to make busi-
ness grow in the right direction qualitatively as well as quantita-
tively. In order to do this honestly and elfectivcly they should not
be mixed with quantity discounts.

The Differential Character of Load-factor Rates

The subject of load factors is discussed as a phase of the cost
of electric supply. This is the correct viewpoint. The distinction
between running or variable costs and lixed costs is of general
validity and of the greatest significance. But this statement does
not mean that the distinction can be accepted without qualification
or as something in its nature absolute. The variable costs readily
lend themselves to analysis and allocation per unit of product. The
fixed costs, it is usually assumed by engineers, lend themselves to
similar analysis, but the unit is the kilowatt of demand.

If it is entirely true that kilowatt fixed cost can be so separated,
then load-factor rates are not differential. But engineers and others
interested in the separation and apportionment of costs to dbtain
unit figures are seldom prepared to appreciate the limitations upon
such analysis that arc implied in the theory and pracfice of difTer-
entiation. And the same engimiT tli.ii ciirrics his bard and fast cost
analysis to the extreme h'mit may, as the manager of an electrical
company confronted with competition, carry the practice of difi'er-
entiation to equal extremes.

The fact is that a figure of cost of fuel per kilowatt hour generated
and a figure of cost of generating plant per kilowatt of generating

"A " limitiT " mny he twed to prevent px<-ckh demand on flio part of a nnall consumer.
The Orejron fVimmlwion has approved a rnt" (for Icemakitiif). allnwinir n fiO per rent
dliirount on that portion of the o<-)nRumT'« df-niand not used between 4 and 8 P. M. during
the four months Nov.-Feb. 10 Rate Research 101.

Load-Factor Rates 149

capacity have not the same relation to tlie charge per kilowatt hour
and that per kilowatt of maximum demand, respectively. In a
general way, the coal burned varies with the kilowatt hours pro-
duced, and even though this be true only in a general way, it is a
firm foundation for rate-making. That the central-station capacity
is a function of the maximum demand of consumers, or varies with
the consumers' demand, is not true in anything remotely resembling
the same sense. If it were true that generating capacity must in-
crease in proportion to the aggregate consumers' demand (even
though a decrease in such a demand could not be reflected by a
decrease in capacity) the functional relation would hold sufficiently
for the purpose of basing rate-making upon unit fixed cost. But
the consumer's demand, as ordinarily defined by reference to his in-
dividual peak, has no necessary relation to the kilowatt burden he
imposes on the central station. The significance of the diversity
factor in this connection need only be mentioned, since it has al-
ready been fully discussed.

Even if one wished to define the consumer's demand as his kilo-
watt requirement at the time of the station peak— which engineers
are not generally inclined to do — there are theoretical and practical
objections to apportioning fixed-charge cost completely on this basis.
In the first place, is it economically sound or just to charge for the
use of the plant at the time of the peak load all the fixed-charge cost
and let the use of it at other times go entirely free of such cost ? Of
course some of the fixed cost can be spread out by putting it into
the kilowatt-hour charge, and this element in the rate should be
given the burden (not the benefit) of the doubt. But to do this is
to abandon a fundamental point in kilowatt cost analysis, and to dis-
tribute some of the fixed cost differentially merely according to con-
siderations of policy. And if here, why not elsewhere? For ex-
ample, why not make the off-peak users pay some of the fixed cost
and thus reduce below "cost" the miit charge for peak use of
plant ?

If the company sticks to the cruder conception of the individual
consumer's demand as his maximum peak, however, something will
be charged for the off-peak use of the plant, but in a rather hit-or-
miss fashion. And under such a system the consumer's fixed cost
per unit changes from year to year, owing to the development of

I'lO Electrical Hates

diversity to which he presumably contributes nothing, which grows
up also witiiout any encouragement from the company in the form
of rates adjusted to prumote diversilication and a better load factor.

Should the company maintain a passive or nearly passive attitude
in the matter of its load factor? If costs for plant imposed by the
consumer are so definite and inevitable as they are often made tx)
appear, of course the company can do nothing except be sure of its
compensation. But if it can reduce tliese costs per unit of output by
a proper adjustment of its rates, in the long run giving to the
consumer most of the benefit of such reduction, why should it be
fettered by a kind of cost analysis that at best takes account of the
past rather than of the future? In other words, is not a differ-
ential policy the only sound mode of applying load-factor consider-
ations in rate-making? The company should strive to smooth out
its peak by diversification of business and by load-factor rates plan-
ned with reference to accomplishing this.

The analogy with the railroad-rate situation should be helpful
at this point. Dill'erential rates are there due to the policy of
favoring certain classes of freight that will be shipped in large
volume, and their j)urpose is the more fully to utilize the railroad
plant, or the fixed capital. The electrical plant's problem in rela-
tion to obt-aiuing a better load is somewhat dilfercnt in its nature,
but the fundamental economics of the two cases are tlie same. And
the result to be expected is the same in both cases, that is, dilTer-
entiation. The economist will naturally not look with favor upon
a short-sighted attempt to make the thing more palatable by calling
it something else. What is needed, rather, is the training of dider-
entiation into conformity with economic principles. Difl"erentiation
is not necessarily or naturally associated with arbitrariness, though
it can scarcely be reduced to rules of tlininl). It is hardly necessary
to say that electrical company managers iis\ially pay more attention
in practice to " value of service " than to strict load-factor con-
siderations.

The ordinary conception of (he basis of the demand charge, ac-
cording to which it is sinij)ly a f|U('s(ion of the consumer's individual
ma.ximum, has the appeararn i- of mnkin^r it possible to follow
the tliread of causation to its source in the case of the fixed-charge
element in cost as easily as for the most obviously separable element.

Load-Factor Rates 151

The falsity of this assumption has been dealt with. But even if it
were true — or if we could deal with the consumer's demand in an
equally absolute way by identifying it with his kilowatt requirement
at the time of the station peak — the differential character of the
demand charge would not tliereby be exorcised. In the matter of
power-plant economy, it makes a great deal of difference whether
a central station must provide for a large demand or a small demand.
The difference between a 2000-kilowatt generator and a 20,000-
kilowatt generator, both of which sizes are well within the extreme
limits of the range of capacity of generators actually in use in cen-
tral stations, is an important one for unit costs of construction and
operation. According to the rule cited above " the specified increase
in size should involve an increase of at least 65 per cent in physical
efficiency. This of itself would be an incentive for the electrical
company to expand its business by means of differential rates that
affect the charge per kilowatt as well as that per kilowatt hour.
Such elasticity in rate-making is more than the germ of diiTeren-
tiation and it accords ill with the notion that the determination of
the demand charge is a matter of arithmetic instead of a question
of business policy.

It should be understood and must be admitted that a differential
policy may choose to ignore in large degree, instead of emphasizing,
variations in the load-factor element in cost. In other words, the
supply company may prefer to deal simply with the average, or
with the several average conditions of a few large classes. The
lumping together of the long- and short-hauled passengers of street
railways affords a familiar illustration of this sort of thing." But
in this case the density-factor rather than the load-factor justifies
the policy, hence the analogy with electricity supply is not direct.
Moreover, and more important, the electrical company is in posi-
tion to deal actively with the load-factor situation, and use its rate
schedule to favor off-peak consumption, instead of merely accepting
such advantages of diversity as accidental developments confer
upon it.

" Chapter I, p. 28.

»*J. W. Lieb of the New York Edison Co. cites this analogy (1916 A. I. E. E. Pro-
ceedings, p. 76). The differential character of street-railway rates is affirmed by the
present writer in an article in the Quarterly Journal of Economics for August, 1911
(vol. XXV, p. 623).

ITiS Electrical Rates

The problem of meeting the maximum demand is not unmixed
with the cognate problem of proper reserves of capacity for dealing
with emergency demands and growth. It is obvious that insurance
against the unexpected is a matter of providing a small per cent
above the necessary maximum capacity — for this purpose including
in the reckoning some overload capacity as available. The capacity
reserve for growth is rather to be determined by the balancing of
investment and operating economy in large units against the fixed
cost of carrying an added investment for several years without di-
rect return. The cost-accounting treatment of the first or insur-
ance aspect of the problem of reserve capacity is not difficult. The
capacity necessary to meet maximum demand, including the neces-
sary capacity reserve (except so far as unexpected developments can
be taken care of through overloading), is to be counted as cost.
The excess capacity providing for growth, on the other hand, is not
properly chargeable to current costs, that is, it pertains to some fu-
ture year. As unused provision for growth it ought not to influ-
ence rates directly. In electricity supply there is much less need
of anticipating future requirements by present physical provision
than in the case of water supply.

The fact that load-factor theories deal with the fixed-charge ele-
ment in cost in itself constitutes a presumption that a load-factor
adjustment is difi'erential in character, since it is almost obvious
that the commercial tendency with regard to such costs is univer-
sally differential. An examination of the load-factor theory and
of its application to actual rates serves to show that we have here,
not a piece of ordinary cost accounting, but a peculiarly interesting
and important species of differentiation.

CHAPTER VI
WHOLESALE RATES AND aUANTITY DISCOUNTS

Wholesale rates are presumably differential.

Quantity discounts. The difference between wholesale and retail prices
not merely a question of quantity. Continuous character of electricity
supply — no true whole-sale. " Quantity discounts " not a matter of form.
Need of segregating initial or consumer cost, which is inappreciable above
200 kilowatt hours a month. Collection of such cost from adjacent size
classes. Actual range of pure quantity discounts may be two-thirds or more.
Such discounts properly apply to the kilowatt-hour element but may affect
others. Power for transportation companies a special case. Large pure
quantitj' discounts specious rather than sound. Intensiveness of use and
density of consumption not the same as large quantity. Load-factor and
density-factor considerations should be dealt with explicitly. Large power
rates have been less regulated than others.

The competition of isolated plarits. Bargaining power the foundation of
undue concessions. Comparative advantages of the private plant. Aggre-
gate isolated plant capacity probably as great as that of central stations.
" Merchandizing " contracts for operators of tenement and loft buildings.
Concession to the landlord as regards the wholesale minimum. Possiblj'
other means of dissimulating concessions to those with special bargaining
power. Bearing of the presence of isolated plants upon density-factor econ-
omy and upon the cost of transmission and distribution. A case where
distribution is not a general or joint cost. Concentration as a means of
wartime economy.

The opportunity for diversification and intensification of use among small
consumers. Tendency to lump all small consumers under a general rate.
The social importance of morselized power supply. Electricitj' in the house-
hold. Gas as a competitor. Motor uses more economical than heat uses
of electricity. Even the urban lighting field not fully occupied. Impor-
tance of density and of rates adapted to promote it. Domestic uses entitled
to more recognition.

How volume of consumption may best be recognized. Wholesale rates
less a matter of course and more a matter of differentiation than is com-
monly supposed. True cost analysis leaves a zone of differentiation. Th(!
requirement of generalizability. Electricity supply not in itself of such
a nature as to justify large qauntity discounts. IDensity, on the other hand,
highly important. Mere quantity discounts not in accord with this idea.
Isolated plants inimical to density. But the rate cannot be fixed merely
with reference to "getting" the isolated plant. Possibility of co-operation
with the latter. Desirability of making the density factor explicit in rates,
perhaps as a discount for quantity consumed per foot of block front.
Density not a matter of size. Distance from the station a different mat-
ter. Density factor discounts should be combined with load-factor dis-
counts. High tension rates another matter. Public interest in putting
wholesale electrical rates upon a sound basis.

In considering the subject of low rates for large quantities, or
low rates to large consumers as such, it is again necessary to look

153

154 Electrical Rates

for differentiation. By differentiation, as lias already been indi-
cated, is meant the distribution of the burden of fixed charges
according to some other rule than that of arithmetical uniformity.
Wholesale rat^s and quantity discounts arc not ordinarily thought
of as differential in their nature. But it is a well known fact that
differentiation carried to the extent of abuse and injustice has
usually come about through immoderate concessions to large con-
sumers due to their special bargaining power. Eailroad rebates
constitute an important example of this sort of thing. In the case
of public-service corporations generally, wholesale rates may be
presumed to be as much differential in spirit and purpose a.s are
class rates. Hence the importance of inquiring into the basis and
the legitimate degree of this sort of differentiation in connection
with electricity supply.

Quantity Discounts

The validity of a difference between wholesale and retail {)rices
is universally recognized. Indeed the ordinary mercantile concep-
tion — which influences and in fact dominates economic thought
much beyond the circle of the trading classes — is commonly allowed
too much scope. The situation may be quite different from that
supposed by such notions, if what is sold is not wares but the ser-
vices of fixed capital, and if profits are no longer prinei{)ally depen-
dent upon the raj)id turnover of circulating capital.

Where to draw the line between wholesale and retail is often a
difficult question. Sometimes the lower price does not depend
directly on quantity but comes l)y way of concessions " to the trade."
Sometimes there is a fairly well marked objective distinction, as
in tlie case of railroad freight shipi)ed in car-load lots.' High-
tension or primary power is similarly different from the low-tension
electric energy in the supply of which the ordinary distinction
between wholesale and retail rates applies.

' In a rwcnt opinion of the Interstate Commprce ConimlsBlon, in the rrivatowirc case,
dated Aufru.ot 3, 1918, itJt poRition on the subject of straiffht wholesale rates, which is
supported by prece<Jin^ decisions in railroad cases, Is explained as follows: "We have
frequently stated that the so-called wholenalo theory has no proper place in the rates of
common carriers." 60 I. O. C, 767-8. This statement is followed by cit.'jtions and quo-
tations from pre^■ious opinions, anions them: "Any discrimination .... in rates based
upon the idea that one cla.ss of person.s makes many shipments while the other makes but
few ia unJuKt and unreasonable." These principles are presumalily applicable to other
publlc-senice corporations, aa well as to common carriers.

Wholesale Rates and Quantity Discounts 155

In the case of electricity supply, the energy is furnished as a
continuous, not a discrete, quantity. Here, if a distinction is made
between wholesale and retail rates, the line must be drawn entirely
on the basis of some arbitrary quantity. Classification will not
help much, as has been shown in previous chapters. An objective
electrical counterpart to the " commodity rate " practice of the
railroads cannot be devised. Moreover, there is no distinction
between large and small packages; and nothing of the nature of
bulk delivery. It is not without significance that etymologically
speaking there is no such thing as " wholesale " electric supply.*
The original idea was evidently, for example, that of selling cloth
by the piece instead of by the yard, a specified number of yards
being cut off in the latter case as wanted. But there is no such
a whole-piece price for electricity, the supply being potentially con-
tinuous. The wholesale-retail dichotomy can, as such, have little
significance, since the lower unit costs resulting from a large vol-
ume of sales are in this case an effect that will be felt gradually
and continuously in proportion to the scale of total sales, not at
some definite point where the distinction between retail and whole-
sale is made. Hence the consumer is entitled to a graduated scale
of reductions or discounts conforming substantially to the continu-
ous variation of unit cost. If there is to be a so-called wholesale
rate as distinguished from retail rates, the two should graduate
into each other and both should exhibit variations within them-
selves on the basis of quantity taken.

Hence in the electric supply industry the fixing of a low whole-
sale rate is best effected through a succession of discounts for
quantity taken. The difference between the step method and the
block method lias already been described. That the block method

* The reaction of the 1917 Rate Research Committee on this matter of terminologj* — it
seems to be no more than a matter of terms in this case — is indicated by the following:
"Objections have been raised to the lue of the term 'wholesale rates' to designate rates
for business bringing more than a stated minimum of income, or having a demand above
a stated number of kilowatts. It is pointed out that the word wholesale suggests retail,
and that the implied description as ' retail ' of all ser\'ices which do not qualify for the
wholesale rate, may cause offense. Further, it is pointed out that the word wholesale
carries with it the idea of wholesale purchasing and retail vending ; it may be held to
imply service purchased wholesale for the purpose of retailing to tenants or to neighbors.

" Our immediate comment is that local use and custom, or definition in the schedules of
the purposes for which ' wholesale ' senice is offered, may prevent misunderstanding or
offense, but that other available tenns as ' large light and power rates,' ' industrial '
rates,' ' bulk ' sales, and ' high tension rates ' are not subject to the recited criticisms."
1917 N. E. L. A. Convention proceedings, General volume, pages 177-78.

156 Electrical Rates

relates to something more fundamental than mere details of sche-
dule-making technique has also hocn made evident.

It is perliaps necessary to say that the " quantity discounts "
under discussion in this chapter are not to be understood merely
formally as referring to the graduated scale commonly appearing
in rate schedules under this name. These (as has been shown above
in a footnote on page 48) constitute merely one way of formulat-
ing and expressing a step rate. In this chapter the reference is
to any method of reducing the average rate as th(> quantity of
energy taken increases. Quantity discounts can be efTectcd by the
block as well as by the step method, and indeed, since the former
is in accord with the better and the prevailing practice, the block
method will ordinarily be assumed to be the one to be considered.
Moreover, quantity discounts that are more or less palliated or con-
cealed, perhaps as prompt-payment discounts — on their face a curi-
ous reflection on the credit of large consumers — or as concessions
granted in consideration of long-term contracts, or in return for
large guaranteed minimum payments, or by way of graduation
of the demand charge, are still economically significant merely as
quantity discounts.

There remain to be considered two questions, one as to the
proper range of variation between the small consumer and the
largest one — involved in the distinction between differentiation and
discrimination — and another as to whether the mode of making
concessions purely on the basis of quantity consumed can properly
be carried as far in electricity supj^ly as in other industries.

But, before considering the range of the quantity discount proper,
it is well to segregate the influence upon tlic iiiilial rate of the
initial costs of serving a particular consumer. This element in
cost, that is, "consumer cost," so-called, is not peculiar to elec-
tricity supply, but is involved to a greater or less extent in any
attempt to compare wholesale and retail prices. Consumer cost
naturally varies considerably as conditions vary from city to city.
We shall here use 50 cents per meter per month as merely a conveni-
ent round number that is approximately what the consumer charge
for the small consumer ought to bo." This may in some cases be

'Cf. page 00 ff., above. The reference Is to conditions not .-wJjuKted to tlic rffe'^U nf the
war.

Wholesale Rates and Quantity Discounts 157

rather low, but there are good reasons why the separate consumer
charge sliould be as small or as closely calculated as is practicable.
For the purpose of determining the range of the quantity dis-
count proper, after allowing for consumer cost, it is convenient to
reduce the latter to terms of kilowatt hours. Upon the basis of
50 cents a month it is easy to compute its importance in relation to
quantity discounts. Reduced to cents per kilowatt hour for va-
rious size classes of consumers the charge varies as follows:

For the consumer taking 10 kilowatt hours per month 5c per kw. hr.

" " '• " 50 " '• " " Ic

" 250 " 0.2c " " "

" •• " " 1000 " " " " 0.05c

and so on for intermediate and further points, tlie computation
being a matter of the simplest arthmetic. At 200 kilowatt hours
this element in cost accounts for a quarter of a cent per kw. hr.
At 1000 kilowatt hours it is of very little importance as an element
in the rate. It is evident that if we compare the rate at 200 kilo-
watt hours with that for the largest quantities provided for in the
rate schedule, the range of variation between these two points
should be affected by consumer cost only negligibly. The conclu-
sions to be drawn from such a computation as this would remain
substantially the same if the consumer charge were multiplied by 2.
It is easy to test the importance of this or any other fixed amount in
relation to the variation of the kilowatt-hour rate.

A qualification is necessary, however, with reference to the possi-
bility of the rate somewhat beyond the range of the smallest con-
sumers being kept high enough to compensate the electrical com-
pany for not collecting full consumer cost from the very smallest
class. This practice, where pursued with moderation, is defensible
on the ground that, in price-making — though not in dealing with
most other demands for justice — it is often sufficient that justice
be done in the average rather than in each individual instance,
though the averaging should not he too rough and ready but should,
on the contrary, treat like cases alike so far as practicable. But
such a method of compensating for initial costs properly applied
should scarcely affect the rate above 100 kilowatt hours a month.

Where the demand charge does not count directly, the range of
the quantity discount can be easily determined. It happens that
the rates of one of the most important electrical companies in the

168 Electrical Rates

country, the New York Edisou, are, since I'Jll,* entirely on a
quantity basis so far as relates to low-tension consumers, the excep-
tional consumers being few in number and of very special char-
acter, the use of high-tension alternating current involving the in-
stallation and operation of expensive apparatus for what is in elfect
the further manufacture of the energy on the consumer's premises.
For such high-tension consumers the company has Ilopkinson rates.
The wholesale rate of the company referred to is a strictly
" block " rate, hence only the mathematical limit of the average
rate, that is, the rate for the last block, can be stated definitely
without reference to specific volume of consumption. The lowest
rate is 2 cents and is for the block " over 1,100,000 kilowatt hours
a year." The charge in excess of 2 cents for the preceding blocks
adds .875 cents per kilowatt hour to the 2 cents at the 1,100,000
kilowatt-hour point, making the average rale there 2.8T5 cents.
For a consumer taking 2,200,000 kilowatt hours a year the average
rate would therefore be 2.4375 cents. Previous to 'May 1, 1915,
the lowest low-tension rate to the largest consumers (from 833,333
kilowatt hours a year up) was 3 cents straight, the straight rate
having been obtained by the interjection of a free block. Under
the old schedule the range of variation of the rate was equal to the
difference between 9 J (the maximum less luilf a cent for lamps) and
3, or 6^ cents. In commercial terms, this amounts to a 68 per cent
discount. Under the present schedule it is difficult to say what is
the practically significant extreme range. At 833,333 kilowatt hours
the present average rate is 2.995 cents. The maximum was reduced
to 8 cents on May 1, 1915, and further to 7^ on Jan. 1, 1917, then to
7 on July 1, 1917. Adjustments in the early blocks confine the
effect of the 1917 reductions to the initial portion of the average-
rate curve. The ratio of the maximum rate to the average rate at
833,333 kilowatt hours per year is evidently less than the ratio of
9^ to 3. The figure that is in the same ratio to 8 that 3 is to 9^ is
2.526. Only consumers of nearly 2,000,000 kilowatt hours a year
get such an average rate. The initial block at 8, 7^ or 7 cents ex-

* Jtwt prior to 1911 the rat« to the so-called "Intermediate wholesale claRP " involved
the " hours' use " bn.si!i, but the wholesale rate itielf was already purely a matter of
quantity of encrgj' taken. In its report to stockholders in .January, 1912, the Consolidated
Gaa Company, which controls the New York Edison, characterizes the rate schedule adopted
by the latter in 1911 as "designed .... to insure to each customer a rate commensurate
with the volume of electric energy he consumed."

Wholesale Rates and Quantity Discounts 159

tends to 900 kilowatt hours a month, and the previous initial block
extended to 250. Consumer cost is doubtless more than taken care
of before either of these points is reached. Thus, it is not necessary
to make any appreciable allowance for this element. The pure quan-
tity discount is still about two-thirds of the price to small consumers.
This is probably less than the quantity discounts contained in the
rates of other companies, but it is seldom possible definitely to deter-
mine their range. The New York Edison has not gone farthest in
this direction, but it appears, in its schedule, to pursue the ends in
question with a directness and simplicity of which the example is
not without influence upon the industry generally.

The character of the New York Edison rates — thougli they can-
not be considered representative or prevailing practices — is of gen-
eral interest because of the importance of the example. They also
lend themselves neatly to graphic representation. Figure f is pre-
sented to show a thorough-going system of quantity discounts. The
diagram is comprehensive for all low-tension rates (as of 1915) of
the New York Edison and United Electric companies, which supply
practically all Manhattan and The Bronx. The classification is of
the simplest. All graduation is on a purely quantity basis and by
means of blocks, not steps. But in order that the quantity discounts
be applicable, the energy must be supplied to the same owner or
leaseholder, and to the same building or to buildings not over 100
feet apart. A system of chain stores, for example, cannot, as such,
get the benefit of the discounts." Figure 5 shows both the rate
blocks and the variation of average rates. An explanation of the
necessary inexactness of the means adopted for reducing the whole-
sale rate, which is on an annual basis, to the monthly basis of the
retail rates, is given on page 134, above. The construction of
Figure 5 need not be further explained." It will be noted that,
within the range of the curves, which reach the very largest class
of consumers, the average rate drop? for the wholesale class to 33

" a rider of the Commonwealth Edison Company of Chicago, recently abolished by the
Illinois Commission, granted discounts where more than one premise was covered by one
contract, of 5 per cent for two and one per cent more for each addition, but with a limit
of 20 per cent and of four cents per kilowatt hour. 13 Rate Research 38, 40. P. U. R.
1918B 732.

* A detailed description and interpretation, together with the diagram, is contained in
the Annual Report of the New York First District Public Service Commission for 1915,
vol. Ill, pages 119flf. The rates have been slightiy modified, since the date of the diagram,
not, however, in a way to involve any char.ge in principle.

Wholesale Rates and Quantity Discounts 161

per cent of that obtained by consumers who take 900 kilowatt hours
and less per month, and for the storage-battery and refrigeration
class to 28 per cent.

Comparisons to determine the range of quantity discounts in the
case of the Wright type of rates are not so easy to make. The rate
for the small consumer in force in Chicago ^ is 9 cents a kilowatt
hour (disregarding a prompt-payment discount of 1 cent) up to 30
hours' use per month of his maximum. Lamp service is included,
hence tlie rate without lamps may be treated as 8^ cents. Large
light and power consumers (low tension, A. C.) pay a demand
charge of $2.00 per kilowatt per month for the first 200 kilowatts
plus $1.50 for each additional kilowatt* and an energy charge
graduated between 3 cents for the first 5000 kilowatt hours a month
and 0.65 cents per kilowatt hour for all over 100,000 kilowatt hours
a month, this energy charge being subject to a 10 per cent prompt
payment discount. On this basis the kilowatt-hour charge for a
consumer taking 1,200,000 kilowatt hours a year is about' 1.055
cents, less 10 per cent, and for one taking twice as much 0.8525
cents, less 10 per cent, and so on. The demand charge that goes
with this can only be estimated. With a 20 per cent load factor,
the maxinmm for 100,000 kilowatt hours a month would be approxi-
mately 685 kilowatts, costing ($400 plus $628) $1028 monthly, or
1.028 cents per kilowatt hour. The rate thus appears to be 2 cents
or less per kilowatt hour for some large consumers. The range is
greater than in the New York Edison schedule, but the discount in
this case is not purely a matter of quantity, though the kilowatt-hour
graduation shows it is mainly that. Other features of the Chicago
schedule show that tenderness to quantity is by no means absent.

The above are merely illustrative cases and not extreme for elec-
trical rates. They probably are considerably greater than ordi-

' 1917 N. E. L. A. Rate Book ; rates involved in this calculation the same in the 1920
Rate Book.

* The lower second block is a concession granted only where the demand charge is on a
yearly basis.

* The " about " is necessary because, since the energj' charge is based on monthly
consumption, the more irregular the distribution of tha 1.200,000 kilowatt hours between
the months, the lower the average rate, because a greater proportion will be charged r.t
0.65 cents and a less at 0.9 cents, the latter being the rate from 30,000 to 100,000 kilowatt
hours a month. Cf. p. 134, above.

162 Electrical Rates

nary wholesale discounts." ronijjarative statistical analysis of rate
si'hodulos ,i:cn(M-ally with roforeiice to the point under discussion
should be worthwhile, but should be supported by considerable
knowledge of the actual application of rat-es and not merely of the
formal schedules.

In the above discussion the writer has attempted to isolate the
quantity discount and it has been assumed for the sake of simplicity
that this discount will apply to the kilowatt-hour element in the
rate and that the graduation of other rate elements will be based
upon other considerations. These assumptions are not entirely in
accord with the facts. We know merely that the graduation of the
kilowatt-hour element is properly a matter of quantity discounts,
though there may also be other considerations induencing the
graduation. As regards other rate elements the situation is
reversed. The dominant idea may sometimes be that of favoring
the large consumer, but the extent of such concessions cannot
easily be measured. The demand element in the ITopkinson rate
is usually graduated, either by blocks or, less conuiionly, by steps.
It has also been noted that estimation of demand, wliether under
a Wright or a Hopkinson rate, may l)c similarly affected.

So far as these practices are due to the desire to grant quantitv
discounts, they are of course more objectionable, because dissimula-
tive, than discounts relating directly to the kilowatt-hour charge.
Even where a definite intention to lower the rate on the basis of
mere quantity consumed cannot be alleged, the Wright type of
rate lends itself so readily to the disguise of quantity discounts that
there is always room for suspicion of such influence. Indeed, not
much could be found to object to in such practices if the rate were
worked out and put forward as based upon density-factor consid-
erations.

The marked discounting of the demand element for size in a
Hopkinson rate where the kilowatt-hour element is also discounted
for quantity is not equally defensible. The demand fixed by con-
tract, and even the nu'asurod peak, is fhiofly a matter of extent of

'• In the recent tllKpoml of War Dopartmetit cnnneil nieatH by the Kovemmont. as per
rates advertized in Fehrtiarj-, 1021, diw-ountu wem allowed up to STi per cent (for purchases
of over $1,000,000) under the rate for a minimum $2r.O order. These rates have reference
to getting rid of a surplus arrumulated on other than economic jfrounds and should be
greater than ordinarj- wholesale discounts. The minimum order accepted is not a retail lot

Wholesale Rates and Quantity Discounts 163

premises, and therefore not directly connected with intensiveness
of use. Any needed concession to long hours' use is either suffi-
ciently provided for by the two-charge form of the rate or will
naturally appear in the kilowatt-hour element.

The business of supplying with power street railways and elec-
trified terminals and other portions of steam railroads constitutes a
field of large-scale electricity supply in which the central stations
are displacing independent plants more and more. Doubtless the
tendency is economical. It is noteworthy that quantity discounts
have little to do with the matter — nor need they, since the quantity
to be supplied can be so definitely determined beforehand. As
regards the load-factor, also, the demand is nearly the same from
day to day, except for abnormal weather conditions in winter, so
that the peak can be pretty definitely predicted or else controlled.
The protection of the central-station's peak is usually specially pro-
vided for. Such contracts, indeed, do not involve a rate, in the
sense of a price generally available to consumers on conforming to
specified requirements, hence, like street-lighting contracts, are only
of collateral interest for the present work.

There is a certain appearance of reasonableness in large quantity
discounts. An argument may be based on load-factor considerations.
A more effective argument makes implied or explicit use of the
density factor, though here also the plea of the opponent of quan-
tity discounts may be chiefly one of confession and avoidance.

The argument from the general appearance of reasonableness
(the first of the two questions to be considered) is merely specious.
The merits of the question raised must be ascertained. In fact the
supplying of a large quantity of electricity, other things equal, costs
no more per unit than the supplying of a small quantity, once the
influence of consumer cost becomes inappreciable. There is no dif-
ference as regards methods of handling (which are due chiefly to
vehicle and package units) as between 10,000 kilowatt hours sup-
plied to one consumer and the same amount supplied to 1000, if
consumer costs are otherwise provided for and if two other things
are equal.

One of the " other " tilings to be considered is the relation of the
time when the energy is taken to the company's load factor — a
question already sho^\Ti to be properly independent of the detemiin-

164 Electrical Rates

ation of the range of quantity discounts. Classification by mere
quantity taken is obviously too crude to fit load-factor conditions.
For some conspicuous groups it does not fit at all, notably in the
case of lighting for department stores and oflSce buildings, tlie use
being for a short period and on the peak. Furthermore, if due
recognition of the load factor is really the purpose, it is entirely
practicable to register the variations of the load of large consumers
and give to each of tliem the full l)encfit of his load factor and
diversity as such.

It should be added, perhaps, that because of the diversity of the
different elements constituting the large consumer's kilowatt-hour
requirement, the computation and comparison of load factors would
not of it-self fully justify correspondingly low rates to him. The
diversity in question would favor the company as much if each ele-
ment represented a different consumer. Such large consumers usu-
ally combine both power and light. These two, though often
metered separately, are ordinarily billed together ; yet the company
is no better off because of the mere fact tliat they are billed together.
Their simple combination will result in a higher load factor than
holds for either separately. The situation is similar as regards the
load factor of a landlord who combines his tenants' consumption
with his own. Diversity is not increased by combined billing. The
fact that the diversity influences intermediate load factors (feeder,
line and sub-station), as well as that of the electrical system as a
whole, has no particular bearing on rates. At least there is no
occasion to give to the large consumer more adviuitage from the
diversity within his own consumption Ihaii an explicit load-factor
rate would give.

Tlie remaining (the second) question ri'lates to tlic area within
which or over which the supply is spread, that is, to the density
factor. While it, like the load factor, has no necessary connection
witli mere quantity consumed, density is involved with quantity.
But it is not to be assumed that there is a necessary connection be-
tween high density and high load factor.

The situation in question is well illustrated by the case of large
office buildings. The value of the site involves an intensive use of the
area and a lofty structure. Electric elevators and other electrically
operated equipment, the lighting of corridors, and the free use of

Wholesale Rates and Quantity Dlscounts 165

energy for light and other purposes in connection with the utiliza-
tion of the time of the well-paid office staff of tenants, all together
involve a highly intensive use of energy per square foot of ground
area or per foot of block front — a high density factor. One may
also naturally infer that there is a high degree of use of connected
load or maximum demand, in other words a high load factor — a
strictly intensive use of the demand. In fact, however, the winter
lighting of offices in a large city comes on before 5 P. M. and begins
to drop off at that hour. Little or no regular office lighting is
required in summer. The demand is therefore almost exclusively
on the peak. Lighting for commercial purposes in general shows
similar characteristics, but office lighting is quite the worst of the
class. Even with other kinds of service to help the situation, the
load factor of office buildings is bad and the diversity ratio com-
paratively worse. In this case, certainly density and intensiveness
of use do not go together. Department stores do better, but the
quality of their demand suffers in the same way. In fact, there is
a degree of inherent opposition between density and diversity, as
referring to a comparatively restricted area, owing to the localiza-
tion of employments. In the case of mercantile establishments,
moreover, the competitive situation compels general conformity to
agreed-upon or established rules and practices in regard to closing
hours and other controlling conditions. The earlier closing of the
stores in the higher-grade shopping districts accentuates the unde-
sirableness of such lighting demand. As to diversity, as measured
by non-coincidence of peaks, there is practically none in the com-
mercial lighting class of uses, though once the load is on, it may
be continued to an earlier or later hour in the evening.

As regards both load factor and density factor the sound policy is
to grant concessions specifically on these grounds and in proportion
to favorableness in these respects, if this is what the electrical com-
pany wants to do, instead of obfuscating the issue by basing the rate
merely on quantity taken. Existing rate schedules and practices
abundantly show that load-factor considerations are easily dealt with
as such. The influence of the density factor on cost has not found
explicit recognition in rate schedules, but is in its nature even more
easy to deal with satisfactorily.

166 Electrical Rates

Large power rates of electrical companies have boon subject to
less interference from regulatory commissions than other parts of
the rate schedule, partly (it may be surmised) because it has been
felt that the public generally is not directly afTected, partly because
competition from other sources of power is effective, especially since
the consumers are themselves substantial business men, and partly
because the determination of rates for such service is intrinsically a
rather complex problem. It has been argued that the public is not
interested in preventing the central station from taking from the
manufacturer a share of his extra profits. One commission has
adopted the view that a burden placed upon commercial lighting
and industrial power is so subdivided and passed on to the public
generally as not to be burdensome." It may be noted, parentheti-
cally, that the economist will not readily accept the notion that in-
direct taxes are best. On the other hand, the general public is di-
rectly concerned that power rates be not so low as to shift the burden
of carrying the utility to other rate classes. Doubtless the margin
on power rates has been closer than elsewhere, hence there has been
a well-nigh universal increase in such rates as a result of the War."
Recent experience has also called attention to the fact that the
quality of large industries as customers is impaired by their being
affected by shut-downs and periods of depression."

There are still to be considered the merely commercial or com-
petitive, as distinguished from the technical or the strictly economic,
grounds for low rates to large consumers, and the incidental ten-
dency towards unjust discrimination by way of quantity discounts.

The Competition of Isolated Plants

Special bargaining ))ow(T on the part of tiie shipj)cr or consu-
mer is the foundation of undue concessions to him. The tendency
may be an incident solely of his size or of the volume of business
at stake, but this factor is usually at least reen forced by competi-
tive possibilities of one sort or another. In the case of electricity

'' Georgia Railroad CoinniiKsiun, fJeorgia Railway k Power case, Sept. 22, 1920. 18 Rate
Reearch 43.

"Committee on Public Utility Rates, Natioual Association of Railway k Public Utility
Commissions, 1019 Convention Proceedings, pages 05-00.

** Massachusetts Department of Public Utilities, Athol Gas & Electric case. P. U. R.
1920C 1033, 1039.

Wholesale Rates and Quantity Dlscounts 167

supply the important competitive possibility is the isolated or pri-
vate electric plant. Less directly, competition with steam power
plants is of some importance. The central-station representatives
of course claim that the isolated plant is uneconomical.

The question as to comparative economy is not easily decided.
The central station has the advanta,2es of large-scale production —
and the increase of efficiency with size in the case of an electrical
station is very marked." A private plant, however, is not neces-
sarily a very small plant.'" But these advantages are not so decisive
as the general student of economics may be inclined to assume. The
private plant saves the fixed and operating cost of transmitting and
distributing electricity, and this is as important an element in
central-station cost as is the cost of generation. The private plant
will usually have considerable expense for cartage of coal from which
the central station may be exempt. The load-factor or degree of
utilization of a private plant is not ordinarily good, while that of
the central station has all the advantages arising from the broadest
diversity of demand. But perhaps the most important matter is the
facility of using by-product low-pressure or exhaust steam from the
private plant for heating, while the central-station can seldom make
much of this possibility, because condensation losses are so great on
steam sent any considerable distance." Large and efficient engines
are also condensing engines, without by-product exhaust steam.

It may be a better description of the situation to say that the
electricity needed for lighting a building in winter may be in large
part a by-product of the steam needed for heating the building

*■* The case against the isolated plant in this respect is well stated by Paul M. Lincoln
in a paper on the Relation of plant size to power cost, in the 1913 proceedings of the
A. I. E. E., pages 1937-1948.

*' The plant of the Equitable Building in New York City is of 2600 kilowatts capacity ;
that of the Woohvorth Building of 3300 kilowatts. The great majoritj' of central stations
have a smaller oapaoitv. (See pas:e 28, above.) Plants of manufaoturina: concerns are
commonly larger. That of tha Ford Motor Co., said to be the largest direct current plant
in the world (Electrical World of August 12, 1916, page 312), is of 65,000 kilowatts.

" Alliances of electrical with steam-heating companies, or with so-called " service "
companies that manage steam plants, are a natural result. The Missouri Public Service
Commission, re Union Electric Light & Power Co., in relation to steam-heating rates appar-
ently designed to obtain an electrical contract, refers to the " suspicion of separate bargain-
ing or, in other words, of potential discrimination, if not discrimination in fact." P. U. R.
1918E 490, 526. Similarly, California Railroad Commission, re Pacific G. & E. Co.,
P. U. R. 1920E 597.

1G8 Electrical Bates

supplied by a bloik ])lant." Tlie time of the need of tlie steam for
heatinf;, however, is not so nearly coincident with the time of the
need of electricity for lighting and for elevators, etc., that the full
advantage of the relation between the two can always be obtained.
Eefrigeration has, however, in some cases been found an available
alternative to heating.

The importance of isolated-phmt competition is nicii^urcd from
another viewpoint by the extent to which such plants already occupy
an important place in supplying electricity. Entirely satisfactory
data upon this point are not available, but it appears that, recently
if not at present (in 1921), even after leaving out railway plants,
more electricity was generated by private plants than by central sta-
tions. In manufacturing establishments in 1909, of 4,817,140 horse-
power in electric motors, 1,749,031 horsepower was run by purchased
electricity and 3,0G8,109 horsepower by energy generated by the
establishments." Central stations, hydraulic and steam combined,
appear to have had a greater capacity. But a deduction from the
central-station total for the prime-mover capacity required for
manufacturing motors run by purchased power should be made
(since doubtless some part of the energy purchased did not come from
central stations) ; and a further deduction for municipal plants
makes the difference in favor of the central stations small."* Besides
manufacturing enterprises, many large ofTice and mercantile build-
ings have private plants.

Data more to the point, though naiTower in their scope, and
which, though not official, have been compiled by or for one who is

•'After an elaborate test of the Hall of Records power plant in New York City, making
due allowance for the use of by-product steam, " the independent enginccrinR counsel
(ProfesHors Lucke and Carpenter) have arrived at the conclusion that, if the Rdison
company were to sell current at a price which would be to the advantiige of the city, it
would not charge more than 1.40 cents per kilowatt hour, or 1.66 cents per kilowatt hour,
makintf allowance for taxes." Letter of trani?niittal to printed document: Hall of Records
Power Plant Report, City of New York, 1910. The test was conducted for the full year
1913. The lowest available rate of the New York Kdison Company was considerably
over 2 cenUi.

** 13th U. S. Census Abstract, p. 471. The 1914 Census does not show electric horse-
power s'/parately.

"The central station figure for 1907 is 4,098,188 horsepower and for 1912 7,528,648.
Interpolation for 1909 gives .1,490,372; less some part of 1,749,031; less 416, .542 (inter-
polated between 321.3.')1 and .'..09,328) for municipal stations leaves perhaps 4,.')00,000.
Owing to demand factor and diversity factor, even after allowing for distribution and
other loss, the central station prime-mover capacity attributable to the manufacturing
motors would doubtless be less than their capacity.

Wholesale Rates and Quantity Discounts 169

in position to know,'" show the situation in the city of Chicago in
January, 1912, as follows, the figures being maximum loads:

Light and power stations 100,540 kw.

Street railways 186,920 kw.

Isolated plants 194,300 kw.

Steam railroads 146,750 kw.

Total 628,510 kw.

The last item does not refer to existing electrical supply, as the
others do. j\rr. InsuU says that the combined load factor for the
isolated plants may be assumed to be equal to that of the Common-
woallh Edison Company, which is stated to be 35.5 per cent. The
kilowatt hours generated by private plants may accordingly be esti-
mated at almost twice the light and power central-station output in
a city where the leading electric-supply company has been partic-
ularly enterprising in going after such business."

An outgrowth of this competitive situation, of very great interest
for the consideration of electrical rates, is the merchandizing con-
tract lately prevalent in New York City for the service of office
buildings and apartment houses. The situation involved is of
general interest, even if not found elsewhere. Under such a contract
the consumption of tenants and landlords was combined and billed
to the landlord or his representative at whatever rate the quantity
discounts on the total consumption brought about. This often re-
sulted in the company's getting from the tenant little over half what
it othei-wise would." The tenant might or might not get some
small concession from the landlord. The company in either case
performed substantially the same service at the same cost. But
under the revision of the rate schedule effective May 1, 1915, by
which the company no longer sub-meters Avithout charge, the situ-
ation was considerably changed. The maximum rate was also cut

^"Samuel Insull (President of the Commonwealth Edison Company of Chicago), in
Transactions of the American Institute of Electrical Engineers, 1912, vol. XXXI, part 1,
pp. 241-242.

'' Insull gives similar figures of later date (Journal of the American Society of Mechani-
cal Engineers, Nov., 1916, p. 853) as follows: Light and power business of the Common-
wealth Edison Co. (doubtless including street railways), appro.ximately 338,000 kilowatts,
isolated plants. 264,500 ; steam railroads, 125,700 ; total in city, 728,200.

^ The transfer of business from one rate cla-ss to another class with a lower rate is
proposed in an able unsigned article in Rate Research, February 12, 1913, vol. 2, 1912-13,
p. 303, (opinion in question on p. 320), as a sufficient check upon differentiation through
lowering rates. The point of view is evidently too exclusively that of the central-station
manager. But the practice of the Xew York Edison disregards this criterion.

no Electrical Rates

to 8| cents (and has since been further reduced), other (average)
rates being reduced a larger or smaller fraction of one cent. The
profit obtainable by the landlord through acting as middleman is
thus much reduced but not eliminated. Previously the company
had practically ever}' expense it would have if it dealt with the ten-
ants separately — except that the credit of the landlord might be a
little better and tlie cost of collection reduced — since it supplied and
read the individual meters and reported the readings to the landlord,
renewed lamps, and attended to all matters relating to quality of
service, etc. Because of the importance of consumer cost, since these
tenant consumers are small, they are supposed to be unprofitable to
the company, the rate being on a purely kilowatt-hour basis. But
the quantity discount was applied nevertheless.*' A contract rider
practically limited the application of the method to a single block.
But there are, or were, cases of such merchandizing consumers hav-
ing several hundred meters.

Under the wliolesale rate, however, there was a rider in accordance
with which it was not even necessary for the landlord with com-
paratively little consumption of his own to contract on belialf of
his tenants in order to get the benefit of the wholesale instead of tlie
maximum rate, since the company counted tenants' consumption
towards the minimum amount required to bring tlie landlord under
the wholesale rate. It is obvious that such provisions had reference
to the possibility of the landlord's combining his tenants' consump-
tion with his own if he cared to install his own private plant. The
competitive situation, not cost, detennined the rate policy of the
company at this point.

The rate schedules of other companies than those of the New
York fMison and the associated United Electric Company doubt-
les.s accomplish the same thing, but not so directly.

It should be added, however, that the corridor lighting and ele-
vator service of the landlord is in effect an extension of the service
of public ways and may on that ground be considered entitled to
favorable difl'erential treatment, so far as the costs imposed upon
the company allow,**

" " When the wholcMiIe Is inprely the bookkeepiriff afn^red^ate of numcroun retail de-
liveries the principle .... applies to a much le-^ser fleprree." Report of the Rite Research
Committf-e, 191.5, N. E. L. A. Convention proceedingR, Commercial vol., p. 339.

•* Washingrton, D. 0., and Seattle, Wa«h., offer special rates for public lighting in apart-
ment bouses.

Wholesale IUtes and Quantity Discounts 171

Where a landlord, while performing no substantial service in this
connection for the tenant, receives a considerable share of what the
latter pays for electricity — supposing of course that this service is
metered and billed separately for the tenant— it would seem that the
situation constitutes a clear case and a most reprehensible form of
rebating, morally if not legally. The better commercial credit of
the landlord cannot, in view of the other means available to the
electrical company to insure collection and of the inferior facilities
of landlords for this purpose, be considered compensatory. But
the abolition of gratuitous submetering doubtless changes the legal
situation.*"

Whether there are special inducements of which rate schedules
give no evidence by which potential consumers inclined to operate
isolated plants have sometimes been persuaded to take the central-
station service, is an administrative question of some interest, but
not a matter with which a general discussion of electrical rate theory
and practice can deal to advantage. It may be noted in passing
that such things might occur in connection with the wiring of con-
sumers' premises, charged to " promotion of business." Companies
sometimes supply auxiliary services and appliances and first instal-
lations without regard to direct cost but ratlier with reference to
extending consumption. Misclassification, also, which may be
somewhat more diiScult for an electrical than for a railroad com-
pany, is not impossible. Since the companies attach so much im-
portance to getting the business of the large consumers, it would
not be surprising if the latter were found to be specially favored
in ways not appearing in published rate schedules. That this sort
of thing is common commercial practice in other fields is a suffi-
cient reason for watchfulness in the case of public-service corpora-
tions. How prevalent and persistent it has been among the rail-
roads is well-known. A corporation whose policies are open and

25 The use of private telephone exchanges in hotels and apartment houses is somewhat
analogous to the combined metering of electricity consumed by tenants, but it seems not
to have been done for the sake of direct profits and therefore not often to have occasioned
disputes. There is one interesting case, where a hotel attempted to collect 10 cents a call for
both room service and public corridor booths. The telephone company tried to adjust its
rates to permit the practice. The Massachusetts Public Service Commission's decision pro-
hibits hotels from purchasing telephone service in bulk and selling it at retail on the
ground of lack of authority on their part to deal in such service, holding it to be immate-
rial whether the hotel sought to obtain profits from the senice or not. 14 Rate Research
229-235.

ll*? Electrical Rates

whose hejids are ]>ublic-8pirited, however, should not be subject to
suspicion.

Althougli large concessions for large quantities consiinied seem to
be the natural means of meeting isolated-plant competition, this
method may not be the soundest. The private plant ordinarily has
a poor load factor. While the central station itself may not lie so
decisively concerned with the individual load factor of the lari^e
consumer (because of the advantage it obtains from diversity),
unquestionably the variation of cost to the operator of a private
plant is much alTccted by it. Under these circumstances it would
seem to be unnecessary that the central-station company should give
the same rate to all large consumers regardless of their load factors.
In other words, even with reference merely to meeting most effec-
tively the competition of the isolated plant, the wholesale rate
should be a load-factor rate. Such a rate conforms best to the
variation of isolated plant cost."

Althougli isolated-plant competition is so likely to cause discrim-
ination, the situation has also its positive aspect. Apart from
general arguments in favor of large-scale production and supply —
another name for the density factor — as reducing cost, density has
very special importance in the case of electricity supply because of
the large proportion of total cost due to transmission and distri-
bution — a proportion usually as great as, and often much greater
than, that employed in production proper. For this comparison
transmission cables and sub-stations arc part of the distribution
system. The ratio in question varies extremely, of course, especially
according to the type of electric line construction, and is, for this
and other rea^^ons, greatest in the largest cities. The burden of
fixed costs on this account is reduced in proportion to the density
of consumption within the field supplied by the central-station
company, and such density is chiefly dependent on whether it gets
as nmch as possible of the electrical business within its territory. A
feature of the New York Edison Company's rate schedule that is
from this point of view justifiable is the restriction of quantity
discounts to the city-block basis. This policy results in some ap-
proximation to the density-factor basis.

" ^f^. Ives, in the Elwtrinal World, Apr. 17, \mr,, vol. eft, p. 989, Bays this point is
" the strongest argument in favor of a load-factor rate."

Wholesale Kaths and Qr^\xT^rY Dlscounts 173

In this connection it may well be noted that the great steam
central-station company with the largest type of alternating-cur-
rent turbo-generators, high-tension transmission lines, and a score
of substations is technologically as different from a small-town plant
as it is from the private plant of an ofTice building.

The desirability of concentrating the generation of electricity
as a matter of war economy in order to save coal was called to the
attention of the public by conferences and press notices in March,
1918. It was proposed that large numbers of isolated plants ought
to be shut down. The proposal applied for small central stations
as well, and was accompanied by a suggestion of the joint utiliza-
tion of some such small plants, instead of their being merely shut
down." General economic conditions during the War, especially
the difficulty of obtaining fuel, naturally worked strongly in the
direction of substituting central-station for isolated-plant service.
The annual report of the President of the Consolidated Gas Com-
pany (Xew York City) "" records 72 private plants displaced by
its subsidiary electrical companies during 1918. In fact the ten-
dency of isolated plant OAvners to turn to central-station service as
an escape from high coal costs and the difificulty of getting supplies
has often occasioned embarrassment to the latter."

While it is correct in general to treat carrv'ing charges on the
distribution system as a joint cost, it should be noted that in the
case of large consumers it is often possible and proper to separate
this element in cost. Such a consumer may have a feeder direct
from the sub-station for his individual use, which becomes thus in
effect an expensive individual service connection. Such a feeder
is more separable and more properly chargeable to the individual
consumer than the regular service connection between the street
main and the interior wiring of a multiple dwelling. It will very
likely still be true that the average cost per kilowatt or per kilowatt
hour for the distribution of energ}' to large consumers will be mark-

" Mr. C. E. Steuart of the Fuel Administration at hearings before the New York Public
Service Commission for the 1st District. Note in Electrical World for March 16, 1918,
page 582.

^' February 15, 1919. (Reference in Electrical World, page 335.)
^ On which subject the Sandusky Gas & Electric Co. says: "We are compelled to buy
coal at present prices and generate electricity to be sold at before-the-war prices to con-
sumers who have taken advantage of our predicament to such an extent that anything like
good service is impossible." Electrical World, June 19, 1920, p. 1448.

174 Electrical Rates

edly lower tlian tlie corresponding average for small consumers.
But tlie scjxirable cost that fixes the minimum limit to rate conces-
sions arranged by the dilTercntial treatment of joint costs will, as
regards this element in the total, be greater, not less, for the large
consumer. In general the smaller the consumer, the greater the
proportion of transmission and distribution cost that is joint, or
rather the more nearly complete is the disappearance of the separa-
]ile element in such cost.

The Opportunity for Diversification and Intensification of
Use Among Small Consumers

Electrical companies commonly sliow great interest in the largo
consumer — to whom competitive options are open — and compara-
tively little interest in the small consumer, not only the residence-
lighting but also the small-power class. As a matter of fact, the
" residence lighting " designation ought soon to become a misnomer.
Indeed the so-called "general rate" is replacing the "retail light-
ing rate " in current terminology. This is partly due to a tendency
in the most developed centers to discontinue substantially the dis-
tinctive class rate for power. Thus all small consumers, and some
that are in fact not very small, are, or sliortly may be, in the same
situation as regards electrical rates.

One of the great economic — and social — reforms thai tlie electri-
fication of power appliances generally may legitimaioly be expected
to bring about is the removal of one great disadvantjige under which
small manufacturers, including the so-called hand trades, have suf-
ffrcd in competition witli large factories. It is impossible for the
former to obtain their power economically directly from steam on
so small a scale or in so manageable a form as they require. Cen-
tral-station electricity admira])ly meets the need of morselized
power supply. It can bring power-driven machinery down to the
dimensions of one man's management and take from mere mass of
capital its great advantage in this respect. Flexibility and ease of
adjustment to the use in hand are advantages in which electricity
ha.s no competitor. Shall the great public-service enterprises be
allowed to hinder such a development because of the competitive
clul) hf'ld over them by the large conccnis? The small power user
often has to pay five times as much per kilowatt hour as the big

Wholesale Rates and Quantity Discounts 175

manufacturer or the large operator in other lines. The electrical
enterprises appear to feel too sure of this class of business to find
out what its possibilities of expansion are.

In residence applications, also — aside from the advantages of
residence lighting over mere commercial lighting — '" there are great
possibilities of which only the beginning of an exploitation has been
made. Motor operated cleaners, washers, freezers, etc., have as yet
hardly passed beyond the stage of curious interest. Electric refrig-
eration is in principle just as well worth promoting in the home as
in the factory. Cooking, especially such parts of it as may be done
at the table— toasting, percolating coffee, etc.— ought to develop
more rapidly than it does.°^

Heat uses as such are not economical — a point well illustrated by
the fact that it requires the employment of two-thirds of a horse-
power to heat the electric iron in common domestic use. Eegular
cooking by electricity is likely to remain too expensive under any
general kilowatt-hour rate that can at present be foreseen. But the
combination of the fireless cooker plan with an electric heating ele-
ment ought to be highly economical of direct cost as well as highly
convenient. The common objection that the heaviest demand for
cooking (for dinner) comes just at the peak hour scarcely applies
for the insulated type of appliance. And most industrial power
uses similarly come on the peak. Electric cooking is also likely to
a considerable extent to constitute a special summer demand. Dur-
ing the day, also, it fits into the noon-hour valley of industrial use
or, at breakfast, comes ahead of the industrial demand.

Heating of rooms by electricity is probably still some stages re-
moved from practicability except in the homes of the very rich, or
in regions supplied by underloaded hydro-electric plants, but sum-
mer heating may not be impossible. Only water power under condi-
tions of minimum use of flow seems quite equal to meeting the low-
cost requirement necessary for the general-heating use. This off-
peak condition has been met to some extent, perhaps experimentally

»» Because of " early closing precluding consumption by stores of more electricity than
residences," the Montana Range Power Company was held to have an improperly balancod
schedule in charging residence customers 12 cents an hour against a merchants' rate of
6i cents. Electrical World, June 19. 1920. page 1449.

« An Electrical World editorial (Feb. 7, 1920, p. 305) refers to the " potentially gigantic
power load in our homes."

176 Electrical Eates

rather than altogether practically, by storing the heat in water."
Technically heat can easily be stored for a few hours while power
and light, economically speaking, cannot be stored. Electric iron-
ing, on the other hand, though it is also a heat use, is of established
practicability and economy. But the use of electricity for house
heating is in general not economically practicable." From the
point of view of the electrical company, moreover, the load factor
for atmospheric heating it bad.

It is true there is a very effective competitor for electricity in
much of this field, especially as regards cooking, in the form of
centrally supplied gas. One might expect this competitive oppor-
tunity to stimulate the ambition of the electrical companies to get
the business. The two classes of utility, however, often seem dis-
posed rather to divide the field. From a general point of view, it
should be noted that in gas cooking the circulation of air through
the flame is necessary, and this inevitably carries most of the heat
away; also the savory volatile essences of the food go with the air
currents. Electricity on the other hand is specially adapted to in-
sulated cooking. Perfect control of temperature is one of the ad-
vantages of electricity in this application that should count for much
in cost and service comparisons. In the western part of the United
States, it seems, the electrical companies have given much attention
to the promotion of electric cooking, but not noticeably in the con-
servative East. In general, the greater the nearness and closeness of
the application to consumption and enjoyment, the less considera-

" Tlie mfthod appears to be a practical success in Norway. Heat-retaining stoves ar«
similarly hpatod at niglit in Switzerland.

" A " Report on the Heating of Houses " by tiie IlydroEIectric Commission of On-
tario, Feb. 28, 1918, states the gist of the matter thus: "Coal at $10.00 per ton is very
much cheaper than electricity at 0.3.") cents pei kilowatt hour." The report also points
out that tlie room for prospective increase in efflcipiicy in the burning of coal is great
while in electric heating it is small. The Idaho Commission, which has to do with
hydro-electric companies largely, says that " so long as there remains a field for the use of
electric energy aa motive power, its use for house-heating is extravagant and wasteful."
Electrical World, Nov. 29, 1919, page 1021.

On the other hand, it is predicted by D. 1). Miller (Electrical World, October 12, 1918,
page 693) that the industrial heating load will eventually surpass the industrial power
load. But this means that certain heat uses in the chemical industry where mode and
control of application of heat, rather than its quantity, are fundamental, will become
increasingly important.

Wholesale Rates and Quantity Discounts 177

tions of cost will prevail over those of convenience. Even so, the
domestic heating field is not promising for electricity."

Mechanical-power uses in the household are more economical
of energy than heat uses, but their development without special
encouragement will probably be slow. Vacuum cleaners, washing
machines and wringers, electric fans, and sewing machine motors
are only the more important among the possibilities. Refrigera-
tion and occasional heating in the summer season are applications
appropriate to the household that may be expected to become com-
mon in the not distant future. Their development should be of
particular interest to the electrical companies as tending to correct
the undesirable seasonal variation of lighting uses. Eeference to
the wattage'" of such motor and other appliances and to hours'
use in comparison with that of ordinary lighting requirements
make it evident that their adoption, together with the further
spread of incidental heat uses, might easily double or treble the
energy taken by residence consumers, among who the only regu-
lar use of electricity at present is for lighting. This would mean
diversification of use, thus bettering the residence demand in re-
spect to what may be called quality, but still more decisively, it
would mean intensification of use and density of demand. The
gains to be made in the domestic field are not less in proportion
than those to be obtained through putting the isolated plants out
of business.''

It should be mentioned again that the urban lighting field is
far from being as fully occupied by electricity, with regard to
small consumers, as would seem desirable on economic grounds.
The hold of gas lighting in this field is doubtless being steadily
encroached upon. But much remains to be accomplished, as is
indicated by the fact that consumers of gas in Xew York City are
more than four times as numerous as consumers of electricity;

** The technical disadvantage of cooking and heating loads has been the subject of a
warning by Arthur Wright to American companies inclined to encourage such business.
Thermal efBciency requires close regulation of voltage and its full maintenance, which is
costly and is comparatively unimportant for metal filament lamps. Compare 1917 Rate
Research Committee Report, pages lSl-2.

^ The 40-watt tungsten lamp is a standard lighting unit. Toa.sters, flat-irons, percolators,
and grills are of about 500 or 600 watts each ; vacuum cleaners and washing machine
motors of about 200 watts ; electric fans and sowing-machine motors of about 40 watts.

3«The Utah Public Utilities Commission, re Moab Light & Power Co., in authorizing
increases in rates, required the company on load-factor grounds to include household elec-
tric appliances within the benefit of the cooking and power rate. P. U. R. 1919F 948.

178 Electrical Eates

and the ratio is probably not much smaller for American cities
generally. How far the displacement of gas as an illuminant
should go depends on comparative costs. In terms of candle hours
and at prevailing prices for small users, doubtless the direct com-
parison of the standard tungsten lamp with the Welsbach mantle
gas burner is still somewhat unfavorable to the former. The ele-
ments of cost and utility favorable to electricity that are not
taken into account in this way, nevertheless, probably justify the
claim that electricity is already the most economical illuminant
under practically all circumstances.

Lack of density of demand is probably at present a greater draw-
back of residence neighborhoods in large cities than bad load
factor. But the possibilities of the situation should be decidedly
encouraging to the electrical companies. ]\Iuch is already being
made of electricity on the farm under conditions far less favorable
in this respect, the general rural use of electric service being as
yet out of the question.

The special cooking and similar rates in actual use have com-
monly a low kilowatt-hour charge but a high maximum consump-
tion guaranty. It would be better to adopt the general rate to
the possibilities in question by lowering the kilowatt-hour rate and
coincidently protecting the revenues of the electrical company by
a consumer or other service charge. Or an existing rate system
can be adjusted by rating each consumer for expected ordinary use
and allowing a low rate for excess consumption. In either of these
ways even the smallest consumers would be encouraged, not only
to improve the form of their load curves, but, also to contri])ute
greatly to density of consumption. As to an excessive maximum
demand resulting from the coincident use of nearly all the appli-
ances in a household at once — the supply company can control the
situation by limiting switches, double-throw switches (making
cooking and water-heating alternative to each other, for example),
and possibly by means of devices to record or coiitnil the demand
at the time of the station peak.

Reference has already been made to the possibility of bettering
the station load factor by increasing diversity of domestic use
through stimulating the sale, or in some cases providing for the
rental on easy terms, of domestic appliances." Increased density

•' See Chapter V.

Wholesale Rates axd Quantity Discounts 179

of consumption is an even more certain and quite as important a
source of prospective gain from such a policy. The policy of
encouraging such consumption by pushing sales of appliances is
much in evidence on the Pacific Coast and also to a nearly equal
dcgTee in the Middle West. Despite war conditions, the Common-
wealth Edison Company of Chicago sold $1,000,000 worth of
merchandise in 1918,°* which was increased to about $2,500,000
in 1919." It should be of advantage to rent, as well as sell, the
more expensive appliances like washing machines. It is possible
also that less sympathy for " price maintenance " theories in these
matters would be of advantage to the electrical companies.

At the 1919 N. E. L. A. Convention it was predicted*" that in
the next two or three years the largest growth in central station
business would come from increased consumption by home devices
and from the substitution of central supply for isolated plant gen-
eration. The rate policy of the company represented by the speaker
might color his expectations as regards the latter, but not the
former, tendency. The public-service character of the electric sup-
ply industry should mean emphasis upon such service to the great-
est number, of course within the limits fixed by costs.

The defects of the Wright rate from the viewpoint of load-factor
considerations have been noted and it has also been hinted that, if
reconsidered and readjusted with reference to density-factor con-
siderations, its claims for more general employment might be greatly
strengthened. The basic estimated kilowatt requirement would need
to be little changed. But the adoption of a consumer charge might
properly involve reciprocal modification of the so-called primary
rate per kilowatt hour. This should mean, perhaps, a lower primary,
but in any case an earlier reaching of the secondary, kilowatt-hour
charge. The limit of the first block — the point of incidence of the
" follow-on " rate — should be determined much more according to
definite principle than appears hitherto ever to have been done. The
number of hours use of the " max;imum " per month required before
the consumer gets the benefit of a lower rate has frequently been
adjusted to encourage cooking — why not to encourage domestic uses

« Electrical World, Feb. 8, 1919, page 277.
'» Electrical World, Dec. 20, 1919, page 1120.

■"> By Arthur Williams of the New York Edison Company. Electrical World, May 24,
1919, pages 1080-1081.

180 Electrical Rates

in general? The ground for the adjustment in either case is the
density factor. The limiting of the count for active connected
load to lighting has a similar ell'ect. The discussion of the " follow-
on " rate by the 1917 Eate Research Committee shows how hap-
hazard has been the adjustment." A beginning of a conscious policy
of emphasizing the density factor and intensive use might be made
at his point.

How Volume of Consumption May Best be Recognized

Volume of purchases is generally recognized in all lines of busi-
ness as a sufficient reason for specially low prices. This is because of
the smaller unit cost where articles are handled in large quanti-
ties. But the practice rests also upon the familiar general ground
of differentiation, that is, the profitableness of rapid expansion
through the acquisition of large quantities of new business. Of
course the possibility of profit on account of the latter is conditioned
by prices being kept above the limit of the separable cost of serving
the large consumers. The justifiability of the policy of wholesale
discounts rests upon cost analysis. But a company may possibly
be clubbed into undue concessions by the special bargaining power
of certain consumers — as the railroads have often been. It is also
quite possible for a dealer to overreach himself in his anxiety to get
large orders. In the case of a more or less monopolistic public-
service corporation such a mistake might not reveal itself by it-s nat-
ural consequences, since the company could make up the deficit on
the favored class of customers by higher charges elsewhere.*"

The difficult problem for cost analysis in this case is where to
draw the line between separable costs caused by the particular ser-
vice in question and general or joint costs that would have to be
incurred whether that service were performed or not. Into the
details of this analysis it is not necessary to enter here. It suffices
to say that any class of business that hangs in the balance will be
likely to have its separable cost rockonod closely.

" N. E. L. A. Convention profeedinpi, General volume, pagen 178-181.

■"The 1D17 Rate Kesearrh Committee report refers disapprovinRly to "the questionable
drift toward a ' blook rate ' for all services large or small ropardlpss of load fartors, and
the very dancermis inclination to fix a maximum rate approximating what should be an
average rate." Convention proteedings, General vol., p. 177. The latter tendency is very
properly a'tsociated with the former, as appears in the discussion of consumer co^t from
various viewpoints in this book.

Wholesale Rates axd Quantity Discounts 181

There should be noted in this connection, however, a point to
which attention has been called above," namely, that the sum of the
separable costs of all classes of business added together will not equal
total cost. There will be a very considerable difference between these
two, which is accounted for by such cost elements as cannot be said
to be due to any one class of business. Cost analysis confesses itself
wrong where separated costs do add to the company's total. When
this happens it often means that the costs for one class have been
determined as residual, this class taking up everj^thing that is not
already accounted for elsewhere.

A comprehensive total unit-cost may also be obtained by carry-
ing the process of apportionment through joint cost according to
some more or less arbitrary scheme. The method of such apportion-
ment is a matter of opinion, and the results ought not to be treated
as of the same nature with separable costs. The plan of apportion-
ment might better be applied to the undistributed cost as a conscious
attempt at differentiation according to ultimate profitableness or
to ultimate costs, so far as predictable, both these plans amounting
in the long run to the same thing.

The rate made to the very largest consumer should deal with the
class, not with the individual as such." The danger from dealing
with each individual separately is peculiarly great in the case of
consumers especially interested in quantity discounts. Even if a
particular consumer constitutes a class by himself in respect to
size, he need not be treated as an indi\adual to be bargained with
separately. The rate schedule should provide for the largest class
of consumers by graduations shading into each other, just as the
retail and wholesale rates should shade into each other. As to load-
factor considerations, also, the adjustments of the rate schedule
should similarly anticipate all needs. Special contracts not sug-
gested by the plan of the rate schedule are justifiably condemned.

There are reasons why one might expect the range of quantity
discounts in the case of electrical rates to be small. We may assume
that consumer costs are taken care of by a service charge of some

■" At pa^e 86 ff.

" The Washington Supreme Court (State ex. rel. P. S. C. of Washington v. Spokane
and Inland Empire Rr. Ck)., P. U. R. 1916D 476) : " ' Rates ' must be held to mean a
charge to the public for a senice open to all and upon the same terms, and not a con-
Bideration of a private contract in which the public has no interest."

182 Electrical Eates

sort. If tlioY are not so disposed of, we should expect them to be
absorbed in the initial or earlier rate blocks, thus having no appre-
ciable effect on the range of quantity discounts. As regards the
matter of delivery in small lots as against " bulk deliver}'," there is
no reason here for a considerable range of discounts, since all low-
tension delivery is under substantially the same conditions. Units
are not discontinuous ; there is nothing corresponding to the carload
lot of the railroads. There are no expenses for packing and han-
dling. Selling expenses and the cost of making a market are un-
necessary.

On the other hand, quantity of demand may be presumed to be
associated with density of demand. In so far as this holds, there
is a basis for a broad range of discounts. It is true, also, that this
factor is nowhere more important than in electricity supply. The
transmission and distribution system costs about so much, whether
much or little energy is sent over it. As regards the amount of
copper employed, that will have to vary with the quantity of energ}'
supplied, except so far as increase in the quantity supplied is due
to longer hours' use. But all the other expenses of electric-line
construction will in any case not greatly increase with the increase
in quantity supplied in a given area. Extensions to new territory
are, of course, a different matter.

The degree to which this factor, which is the density factor, is
of special importance for an electrical corporation is measured by the
amount of its investment in transmission and distribution. The
proportion of such capital to total electrical fixed capital — in which
connection it should be remembered that the total in question is it-
self accountable for a conspicuously large proportion of the cost
of electricity — is, as has already been shown, especially large. But
if the density factor, that is, the degree to which current is supplied
within the limits of a given area — as measured, for example, by
kilowatt hours per year per foot of block front — is a sound basis for
discounts, is it not evident that the lowering of the rate should be
pursued in conformity witli this principle of variation instead of
merely according to quantity taken?

Actual rate practice is far away from correspondence with what
regard for the density factor would indicate. The application of
the quantity-discount principle by the New York Edison Co. forcibly
illustrates this point, in the general principle underlying the sche-

Wholesale Rates and Quantity Discounts 183

dule as well as especially in the " merchandizing " contracts fostered,
both of which matters have already been discussed. Terhaps it is
just that the rate should be low under the circumstances prevailing
where " merchandizing " obtains, but if so, should not it be such
in proportion to the benefit of the density factor and should not the
rate be substantially the same on the tenant's consumption whether
made to the tenant or to the landlord ? :Merchandizing contracts are
apparently a logical result of the company's willingness to sub-meter
to any extent the consumer may desire. If so, there should be a
charge for this service. And that would properly involve the gen-
eral application of a meter charge.

But the reasonable explanation of such policies is isolated-plant
competition. It would seem that this method of meeting such com-
l)etition is anything but satisfactory from a public viewpoint. On
the other hand, so far as concessions are made on the basis of the
density factor, there should be no objection to them in principle.
If the central-station company's territory is dotted with isolated
plants, it cannot make so high a degree of use of its transmission and
distribution system as it would if it had practically all the business,
hence if the serving of this class of consumers hangs in the l^alance
it is justifiable for the company to compute cost without including
more than a minimum amount for transmission and distribution.
Such a degree of differentiation would inure to the benefit of all.
The situation with regard to some large consumers, however, is
modified, as has already been noted, by reason of the fact that they
may be supplied by a direct line from the generating or sub-station
instead of from the regular distribution system. Doubtless the cost
per kilowatt hour for capital outlay and maintenance is in such cases
very small. But such cost is in this case separable, hence the argu-
ment for low rates to large consumers is, so far as it rests on the
differential theory, weakened rather than strengthened by such
conditions.

A calculation that determined costs per kilowatt hour for the
most favorable conditions as regards density would fix the proper
minimum rate obtainable on account of volume of consumption at
one place. This point once fixed, the policy of the company should
be undeviating, regardless of whether isolated plants continue to be
installed and used or not. The policy of an electrical company

184 Electrical Rates

should be unanibieriioiis and undeviating because, from any point of
view, isolaknl plants should not be built merely for bargaining pur-
poses. Purely " business principles " are not likely to lead to the
best results in such a situation. And in fact the protection from
competition enjoyed by a public-service corporation should properly
stop it from applying in the conduct of its business narrowly com-
mercial, as distinguished from broadly economic, principles.

The central-station manager naturally seeks to displace rather than
to cooperate with isolated plants. For this reason little use has been
made of a possibility of mutual advantage in dealing with the situ-
ation. Because of the value of steam for heating in cold weather
the isolated plant's cost per kilowatt hour of electricity is greater in
summer than in winter. The unfavorableness of the summer situ-
ation of the isolated plant tends to be heightened by the increased
efficiency of lamps and the lessened need of energy for this use. The
central-station, on the other hand, needs the summer business most.
It should perhaps extend to private plants the advantage of a sea-
sonal off-peak rate." The central-station cannot to advantage itself
sell exhaust steam for heating, because its engines are of the con-
densing type as well as because it is seldom near enough to the
business center.**

These suggestions should, however, await the spirit of cooperation
on both sides. The isolated plant cannot rightly claim any advan-
tage of cooperation and at the same time tlic unrestricted right to
compete."

** The diverge attitudes of central-station men towards thia suggestion is shown in
connection with a report on High Load Factor and Non-peak Business and the ensuing
discusHion in the Commercial Sessions volume of tha 1914 Convention proceedings of the
National Electric Light Assn., pp. 289, 290, 293. The economic advantages of the u«e
of private plants to supplement central stations at peak times is discussed in a paper by
Moses and Schaller, Co-operation between central-fftations and private power plants, in
Power for June 12, 1917, p. 812 fl. Articles by central-station men favorable to the idea
may be found in the Electrical World for July 24, 1920, and for Jan. 1, 1921.

*• There is a possibility in the use of gas for lighting in winter when the heat adds to
its utility, and of electricity in summer when the heat is of negative value.

*' Mr. Lieb of the New York Edison Company sUites the viewpoint of the central station,
though perhaps putting the tiase too strongly, as follows: "We are prepared to give
' segregated ' g'-rvice as an auxiliary to private plants at our regul.'ir rates without any
limitations wha^ocver. We arc also prepared to give breakdown and au.xiliary service to
Isolated plants nt the standard rates for this service provided for in our rate schedule. We
are not, howe%er, prepared to funiish breakdown service to a so-called block lighting
plant, which is not a f/ustomer's own plant furnishing service for himself alone, but is in
effect a small central station supplying energy to a number of customers outside of the
building in which the plant is located, making it an actual competitor of the lighting

Wholesale Rates and Quantity Discounts 185

As to the method of applying the density-factor principle, the foot
of block front, in view of its relation to the extent of the distribution
system, would seem to be the best basis. Density-factor discounts
should be figured per kilowatt hour consumed per foot. But this is
suggested tentatively only. Administrative details and difficulties
to be met in applying such a principle do ^lot need to be discussed
here. Some account ' might need to be taken of the number and
character of service connections for the block. But such discounts
have no proper dependence upon whether the consumers in a block

granted a certain volume of consumption— are one or many. The

rate should be based upon the aggregate consumption in the block.
But if some one or another consumer can be distinguished as taking
more kilowatt hours in proportion to the space he occupies in the
block than others, it is possible that rules might be devised to give
such a one a larger share of the discount.

The central-station manager may feel that it is no merit of the
small consumer — for example, a residence consumer in a multiple
dwelling— if he happens to live under conditions such as cause the
consumption of a great quantity of electricity within the limits of
a single block. Such a manager may also entertain along with this
opinion the notion that it is a merit in the large consumer, perhaps a
hotel proprietor or a manufacturer, to contribute to density of
consumption by taking his electricity from the central station. But
such a distinction would certainly not commend itself to the public
as fair, and even as a matter of private business, it should not be
forgotten that an increase in kilowatt hours distributed per acre
is a matter of relative, not of absolute, quantities. It is obvious that
increasing the consumption of a given number of residence con-

companies, one over which the commission has not, however, assumed jurisdiction, these
block lighting plants paying no franchise taxes and escaping the regulatory obligations
and control as to rates, standards and conditions of senice, etc., that are imposed on light-
ing and power companies bv the Public Senice Commissions law and the statutes of the
state " See p. 583 of Electrical World, March 16, 1918. In the case of Acker, Merrall .<:
Condit Co. vs. the New York Edison Company (Dec. 31, 1918), the New York Public
Service Commission for the 1st District decided the company had no right to refuse senice
to a block lighting plant, because the company cannot pick and choose among possible
customers and because it does allow merchandizing customers to resell energj- in their
block The mera operating of a generator is held not to make an electric plant in the sense
of the law and not to be an essential difference. P. U. R. 1919B 287. This decision was
reversed by the N. Y. Supreme Court, Feb. 1920, on the ground that the company should
not be compelled to supply breakdown service to a competitor. 181 N. Y. S. 2a9. This
decision has been affirmed by the Court of Appeals, the court of last resort in the state.

186 Electrical Hatk.s

sumers is pro ianto a.s inijiortant as iiicronsinfj the use of rentral-
stAtion energ)' by any otlier group of equal weight.

Density is not a matter of the size of the consumer, but of getting
all sizes and increasing all. Elasticity of economic demand is not a
funi'tion of size; and there are general economic grounds, funda-
mental to the nature of the curve of diminishing utility and econo-
mic demaJid, for believing that elasticity of demand is greater at
comparatively high prices than at low prices** Consumer cost hav-
ing been properly disposed of, tliere is no reason why the small con-
sumer should not get as nuuh proportionate advantage from density
as the large. That central-station men think too much of bargaining
power in this connection is evidenced by the fact that they are will-
ing to deal with an aggregation of small consumers as if combina-
tion affected the character of their demand (in the economic sense).
It is true that all merchants do likewise, but the conduct of a public-
service corporation protected from competition can be and should be
different. The ambition of the commercial management of an elec-
trical company to get all the business of all the large purchasers
may easily exceed due bounds.**

The selection of the street block as the appropriate unit for com-
putations relating to density is of course in part merely a matter
of convenience. Some other unit might serve the purpose better in
some localities. But there is a possible general objection to any such
basis, which should be considered. It might be alleged that density
of consumption is purely a question of distance from the central
station and tliat what is called for is the favoring of nearby or
centrally located consumers. There are important reasons why
such an argument is not sound.

The location of a generating station within the district it serves
is determined mainly with reference to available facilities and costs
of production and only to a very minor extent with reference to
nearness to the centers of largest consumption. Technical as well

• " The eluKtlclty of demand in great for hiicb prices, and (creat, or at lonrt consldorable,
for medium |)r|pei» ; but It declineH an the price falls; and (rriidiially (ndcs iiway if the
fall ({(>*« »o far that fcutloty level is rearhcd." Marhh-iU, Principles of Kconoinlcs f>th cd.
p. 103 (Hook III, rh. IV, piir. 2).

♦•The claiKrlo anoimetit for direct In preference to indirect taxation mlRht be npidied on
behalf of irrnntlnK a rate yieldin(f little profit In the case of maniifncturerH and others who
iwe current for purpose* remote from consumption, but the writer hns nowhere seen It so
applied.

\VH()I-KSA(,K KaTKS AM) QlANTITY DISCOUNTS 187

a8 coniniorcial considerations (tho latter having,' to do vitli the
traiisportiition of fuel and the fonner pcrhajjs cliicily with the supply
of water for condensation) favor a waterfront generating station.
Transmission at liigh tension, furthermore, is much more eflficient
than distrihution at low tension. JTence, whether a particular group
of consumers, or a particular hlock, is nearer to the station than
another is an accident that should not afTect the rate." In the case
of outlying territory not offering enougli husiness to use the distri-
hution system sufficiently, of course, distance may, in one way or
another, be made a factor in the rate^ but not merely on density-fac-
tor grounds. The fact that private-residence consumers, even in well
built-up sections, are on the average at a greater distance from the
generating station than other classes is sufficiently recognized in
any attention paid to the density of their consumption. Moreover,
their average distance from the sub-station, or their necessary aver-
age distance from a sub-station of standard efficient capacitj', is of
greater significance.

How far extensions should be made that cannot be expected to
pay for themselves for some years and must meanwhile be carried
by the general business of the company is a question akin to the
one just discussed. But it is at least a much larger problem, indeed
too large for incidental treatment here. Adjustment of rates with
reference to notions of equality of rights may easily carry the
imposition of public duty so far as properly to involve taking the
administration of the utility out of the hands of the private cor-
poration.

Disregard of distance (within reasonable limits) as a factor in
rate-making — except, of course, in so far as the general average

" The economic point along with others is contained in a Wisconsin decision in a pa-*
c;ise in the following: "Legally there is no objection to basing a rate schedule upon
distance differentials which will take care of the accumulating costs created by sening
customers at increasing distances. This form of schedule when applied to different dis-
tances within any city is objectionable, however, from a social point of view in that it
discriminates in favor of the central portion of the city which tends to become congested
at the expense of districts farther removed. It is also objectionable from an operating
standpoint in that it might interfere with good engineering practice relating to the loca-
tion of gas plants. Franchises have therefore usually reqtiircd that a uniform rate apply
to all sections within which the utility is authorized to operate. This has been the case
in Milwaukee. Rut as between two municipalities, these arguments do not apply and for
this reason the West AUis rate schedule must be based upon its separate cost data." Wis-
consin Comsn. — City of West AUis, vs. West Allis Gas Co. Apr. 19, 1916. 9 Rate Re-
search 367.

ISf* ELrcTnic.M. Katks

ili.staiu'o ol inui.-inis.-Kin and (ii>nil»iition must be provided for in
general avera-xe rates — is in principle the same as tlie disregard
of the character and cost of the hxnl distribution system, as to
whether it is altcrniitin<;-current or direct-current, undergmund
or overhead, etc. If such cdiiditions were made determining ele-
ments in rates, regulating commissions would need to prescribe
methods of construction in greater detail than they now prescribe
types of consumer's meters to be used.

As to commercial policy, the rule "to divide and conquer"'
applies in relation to density as in other rospect.s. Where den-
sity is low, the elTcct of encouraging more intensive consumption
is likely to be greater than in the fully developed center of a
city. If an isolated street bloik in an outlying section gets a low
rate by reason of density, that fatt is of incidental advantage to
the company as an example to neighboring blocks. Within the
established limits of the distribution system, a single system of
density dii^counts should lie impartially applied. It is hardly
necessary to specify that density is a matter of ground area, not
of floor space. But a rate based on floor spaic — as the Wright rate
sometimes is — has density-factor characteristics.

Under special conditions there may be sufficient reasons for
granting a "development'' rate, of an experimental character, to
a class of large consumers, hut in relation to all such actual or
alleged exigencies it should not be forgotten that the density-factor
rate should itself be by nature the greatest developer of business.

What should bo the minimum rate per kilowatt hour obtainable
merely by density-factor discounts depends upon specific conditions
of o})eration. But some general propositions can be enunciated.
Such dis<'ounts will naturally apjily when load-factor considera-
tions do not. But the two ought to he applied in conjunction, and
the combined result must b(» carefully calculated beforehand. On
the score of density «liscounts alone, it would seem to the writer
that the kilowatt-hour charge might decline — of course regardless
of the absolute amount t^ken — to the level of the average wholesale
rate, which Wf)uld mean a discount of about half the maxinunu kilo-
watt-hour charge. Such a minimum should be subject to still fur-
ther discounts on account of load-factor considerations.

The foregoing disiussion of quantity discounts assumes a homo-
geneous supply, i. e., low-tension energy supplied under ordinary

WlIOLKSAI.K TvATKS AVI) Ql ANTITY DISCOUNTS 180

residence, store, ofiico, or shop condif ions. Ili^rh-tfiiHioii energy
is different, sinro it ifi funiislicd in a conijiariitivfly raw statf
and has to he worked over l)y the consunicr with rather expensive
appliances and specially haiKlltd on acfount of (ire and casualty
risk. Hence the hifrh-tciision rate may well he lower than the
lowest low-tension rate. This, iiowever, is a special matter that
need oidy he nientioiicd in a discussion of the j,^eneral foiuKhit ions
of electrical rates.

The makinij of the density factor an explicit element in rate.s
is of the greatest practical importance in tiie sense that it seems
to be the only satisfactoiT way to deal with a j)roblem that causes
more trouble than any other phase of dilfcrential rates. Such a
device would remove arhiirariness, wliii li has been the banc of dif-
ferentiation. It would irive the devil — in this case presumably the
large consumer, though it may sometimes be more nearly correct to
identify him with the other partly to the arrangement — his due.
Giving him liis due is a necessary means of preventing his getting
more than his due. It would cut the ground from under the speci-
ous argument that the load factor of the large consumer entitles
him to special consideration on account of his size. The fact is
merely that the volume of his consumption means the inclusion of
much diversity within that volume, due among other things to the
use of both light and power — a situation of no more advantage
to the company than it would be if the different uses were metered
separately and billed to separate consumers. The " increment-
cost " analysis so often applied in this connection is al.so to a great
extent merely specious because it supposes that the la.st comer is
to be credited with all the density obtained, not always through
him, but often merely wifh him.

From an economic viewpoint, it is drnsihj of consumj)tion that
the central station needs; not large consumers as such, still less
composite or " merchandi/ing " customers. If, in order to main-
fain density <if consumption, it is necessary to grant low rates to
loft and ollice buildings and apartment houses, it would seem best
to make the density factor explicit in the rate schedule; that is,
to grant discounts from the maximum rate on the basis of kilowatt
hours consumed per month or year per foot of block front, or
according to some other convenient and practicable measure of
density. Such discounts should not depend upon whether the con-

190 Electhk -M. Kates

sumors within a given block are billed separatoly or through the
landlord; although, for reasons of administrative cost, it could
hardly be expected that the discounts would be offered to the
smallest consumers as well as to medium and large consumers.
This solution of the problem is untried, and it is made merely as
a suggestion, subject to qualifications and modifications through
experience.

According to well recognized principles of differentiation, a
central-station company is warranted in making concessions to
the extent of almost the entire cost of transmission and distribu-
tion, in order to keep business that would otherwise go to private
plants. In the long run, from the point of view of social economy,
it is better that isolated plants be prevented from being built, if
a rate that yields anything to the electrii-al company for transmis-
sion and distribution, in addition to a due share of other costs, will
retain most of such business for the central station. Where den-
sity-factor economies are involved the consumer is entitled to a
specially low rate. Herein is found the kernel of justification in
the policy of the central station in relation to isolated-plant com-
petition.

In order to deal fairly not only with the electrical supply com-
pany but with the public generally, it is important that the ele-
ment of justifiable difierentiation be duly recognized by commis-
sions and courts. If the thing is ignored or the issue befogged by
arguments that do not distinguish between justifiable differentia-
tion, which we may call differentiation proper, and unjustifiable
differentiation, for which the familiar name is " discrimination,"
there is much less likelihood of electrical rate schedules ever reach-
ing a stable and generally satisfactory condition. Some concession
to such consumers as can to advantage be supplied by isolated
plants is justifiable on grounds of ]ni1ilic policy.

CHAPTER VII
THE GENERAL THEORY OF DIFFERENTIAL RATES

General principles most clearly exemplified by electrical rates. The econ-
omic foundation of differentiation. .

No natural tcridency to unijormity in prices; uniformity sustained by the
moral force of public opinion.

The public the judge of homogeneity of goods or ser\'ices, differences
being the occasion for price differences; electrical examples. Homogeneity
in relation to joint cost. Degrees of jointnoss; illustrations. Joint cost
vs. monopoly as the basis of differentiation. Differentiation might develop
largely under competition. Danger of arguing from a single " cause."

Wholesale discounts usually differential. A differential element m
retail price-fixing. Monopoly may promote uniformity of prices, especially
for small consumers.

Deterioration and cost often in proportion to time rather than to use.
Fixed-capital cost is of this nature. An improved cost accounting theory
having regard to idle capacity. Bearing on load-factor cost for electricity.

The limitations upon averaging in rate making. A weakness of the class
rate as such, except when used experimentally. Need of objective criteria.

Service the ultimate standard in judging differentiation. This principle
opposed to rates lower than separable cost, as well as in favor of a differential
treatment of general or joint-cost. Suggestiveness of electrical rates for
impersonal methods. Public policy.

The study of electrical rates directs attention to principles which
are generally applicable, and which are of special interest in con-
nection with electricity supply only because they are there applied
under circumstances peculiarly favorable to distinctness of develop-
ment and clearness of explanation. The present chapter deals with
these general questions. Some repetition of points made in other
connections may be necessary.

The economic foundation for differential rates is the desirability
of more fully utilizing a fixed-capital investment through the grant-
ing of specially low rates to business that can only so be obtained.
Fixed capital is seldom or never utilized to its full capacity through-
out a specified period, for example, a year. That the capital be
utilized enough to earn a fair rate of return under existing condi-
tions is not the point. " Full utilization," as the expression is here
used, is a matter of economic technologj' rather than of finance.

A railway line operating only three or four trains a day furnishes
an illustration of one important kind of low degree of utilization.

191

1"'? flLITTRK Al, H.VTRS

The electrical central station with a low load factor — indeed, with
any sort of load factor actually experienced — affords another illus-
tration of low degree of utilization, less generally appreciated, hut
even more forcihly ajipropriatx.'. It is obvious that both these situ-
ations — and the loatl factor, moreover, usually acts in reinforcement
of the density factor — stinmlate the ambition of managers to get
additional business, and they make prolital)lc the loucession of
low rates, of course within limit,*^, in order to get sucii business. In
the case of the load-factor motive, however, not every sort of busi-
ness will do. Moreover, the condition of the successful pursuit of a
differential policy is that the higher rates from the oliler business,
or the profits from that business, bt> not substantially impaired by
the transfer of consumers from the old classes to the new class.

It seems to the writer that economists have tended to invert the
natural order in assuming that the original or " normal "' condition
is one of uniformity of price for all the units of a homogeneous
supply. It is generally assumed that uniformity of price — whatever
that may mean — is natural and to be expected; and that, conse-
(juently, the investigators task is to explain why and how difTeren-
liation emerges. The writer does not think this view is correct.
Among primitive peoples, price, to the stranger at least, is deter-
mined by individual bargaining without reference to any standard.
Hven among peoples living under the conditions of Western civili-
zation, especially outside the cities, uniformity of price, if it pre-
vails, is something to be maintained by watchful care, rather than
something from which any departure calls for explanation.

The forces that maintain price uniformity, or a "' one-price sys-
tem,'' furthermore, seem to be priniarily moral and oidy secondarily
economic. Competition prevents the shojikceper from taking all the
profit he can wherever he can, chiefly because each consumer becomes
indignant if he finds ground for suspecting that he is paying more
than others. The dealer known to be " fair " will get the trade. If,
or so far as, a dealer can obtain a monopoly, he is, it is true, to a
degree emancipated fnmi this restriction im{X)sed by the moral senti-
ments of purchasers, liut even the monopolist will try to conceal
or palliate discrimination. On the other hand, if the public will
accept some kinds of differentiation as fair ami reasonable, the

TlIK fiF.N'Klt AT, TliroitV n|- DlIM'KUKN'TIAL 1'aTES 193

shopkeeper ciiii priicti.M' ilir.-,c' witlxjut ilic jirotection of a monopoly.
The retail trader sells goods with the added coiivenietice of eity
delivery for the same price as that at wliieh he sells identical goods
to he taken home hy the purchaser. He is often ready to pay express
cliarges on sizeable orders to be sent "within one hundred miles of
New York." His cash and credit prices are the same. He holds
" special sales " so far as he can do so without losing too much trade
at the regular prices. Your corner grocer would in many cases be
quite willing to charge a different price to each different customer
for the same good if he could do so without offending the commu-
nity's sense of fairness. Not in all cases, of course, for in many
other cases his own sense of what is fair and just would restrain
him, apart from any pressure of public opinion. All this, it may
be said, is because the consumer is willing to let retail trade be less
analytically competitive than the purchasing dealer is disposed to
allow wholesale trade to be. But this influence is still primarily the
moral factor. Among dealers themselves, certainly the most com-
mercially minded are not those least inclined to " shade " prices.

One of the first things a combination does is to cut down extended
and easy credits; that is, it docs away with one sort of differen-
tiation. Book publishers cooperate to maintain uniformity of prices.
The entrenched monopoly seems to be quite as willing to lump con-
sumers as to classify them carefully, though differentiation usually
pays better, especially when tlie product is subject to competition
from other kinds of business enterprises. But in this case, and to
a less degree in others, doubtless economic factors are working in the
same direction as the moral factors ; notably, the cost to both dealer
and consumer of making an individual bargain with each sale.

The scope of the public's demand that prices be fixed and uni-
form is, of course, limited by the perceptual discrimination of classes
of goods as different from each other. But from an economic point
of view it does not matter much just how the public draws the line
between homogeneity and heterogeneity. Though the public still
needs educating as regards classification, certainly at present it is
disposed to tolerate much price difTerentiation.

Regardless of whether moral public opinion or strietiy economic
factors are the nwre potent in bringing about uniformity of prices,

194 Elkcthical Rates

it should bo romlily adinitlcil that tlic only jiraoticahlc wav i)f doler-
inining what goods are honK)<;oneou.s or wliaL articles holoiig in the
same rlai^s is to let the question be answered by the common sense of
the public. Grounds for the acceptance of dilTerences in prices
may not appear in the material goods jjut in the supply of some-
associated service; on the other hand, tlie public may refuse to con-
sider relevant dilTerences in associated services, or in the goods or
principal services, if the ditrercnces are small. In other words, two
things belong for price-making purposes to different classes or to the
same class according to what people in general think about it. If
tlie public will accept a distinction between the carriage of cord
wood and the carriage of coal a given number of ton-miles, the two
services may be considered not homogeneous. Similarly the public
may be willing to accept differentiation as between gas for fuel and
gas for lighting, between kilowatt hours used for light and kilowatt
hours used for power, between kilowatt hours sold to a church and
kilowatt hours sold to a theatre, between a kilowatt hour that is one
of ten supplied to one consumer in a mouth and a kilowatt hour
that is one among ten thousand supplied to another, between kilo-
watt hours used for lighting before P. M. and after G P. ]il. — or
the public may not be willing to accept some of these distinctions.
It is significant how well electrical supply puts to the test what sorts
of goods and services one may consider homogeneous and what not.
In an important recent discussion of this subject the question as
to what is to be considered joint cost, and what not, has been made
to hinge on the definition of homogeneity.* This seems to the writer
insecure ground. At leai^t one would expect the definition to hinge
on economic effects rather than mere physical qualities. The eco-
nomic distinction between ])roduct and by-product should consist
not in the fact that they are two — twoncss is a relative as well as a
commonplace matter — but in the fact that contributions to the two
supplies are closely bound together so that one supply cannot be
increased in quantity without increasing the other at something like
the same rate. Let the two supplies be distinguished any way you
will. Absence of interchangeability or of the possibility of sub-
stituting one for the other seems to be the j)ro|)er eccmomic criterion.

" Figou and TbumIj In the Quiirfi-rly Journal of Kc-oiiomlo, vol. ivli (1912 13). pp. 378.
C3£, C67.

The General Theory of Differential Rates 195

The foiiii (if the dcniand curve is sif^nilicimt, hut hardly the decisive
nuittor. If it were decisive, one might expect two articles ahsolutely
alike to he sold to dilfereiit individuals at different prices, for utili-
ties differ even more than tastes, since circumstances, especially com-
plementary relations, as well as natural and acquired desires and in-
terests, atfect utility.

Granted that the supplies are two, or that they cannot ordinarily
be substituted for one another, degree of control possessed by the
producer over the separate supply of each is the important fact.
No doubt some qualification is necessary, to the extent that the ex-
ploitation of any by-product always involves some expense tliat
would not otherwise be incurred, and this means that in no case is
the supply of an economically serviceable article (an economic pro-
duct) entirely unaffected by economic considerations or under en-
tirely extraneous or non-economic control.

From this point of view, joint production is a relative matter.
It is only the extreme case of a situation that is common, and also
important, even where the characteristic element in the situation
would not in all degrees be understood as one of joint production
and joint cost. When there is a physical facility available for eco-
nomic exploitation but largely unused, of which the possible extent
of utilization is indefinite, the situation is certainly worthy of atten-
tion, whether we call it a case of joint cost or not. Quantity of
physical performance may be in some determinate proportion to the
service of a related demand though the performance is not of the
nature of an economic supply. This is the case with back-haul
empty cars. There is no economic supply until some small use is
made of the empty mileage. The utility resulting from the unin-
tended part (economically speaking) of the whole performance may
be nil, in which case there is a failure of economic service or produc-
tion. Or the situation may be that of physically idle, as well as
necessarily at the same time economically unutilized, capacity.

An electric generating plant must be constructed with reference
to taking care of the peak of the load. Its capacity at any other time
of the day and year is to a large extent unutilized. Some plants in
small towns shut down during the daytime. If capacity formerly
unutilized comes to be applied to drive motors for manufacturing
purposes, are not the kilowatt hours so supplied to some extent joint

196 KLECTItlt'AI. Hatks

pr(>tliht.>i Willi tlu' kildwjitt hours snUl ft)r li^^litin^' piirposos? If the
intervals of small load ran he further e.\})loited, perhaps hy the use
of electric energy for refrigeration, does not the same question arise,
to he answered in the same way? Yet carefully measured physical
units of a given form of energy would sccni to he ahoul as homo-
geneous as anything can be,

A similar illustration is alTorded hy street railways. Transporta-
tion service offered may hest he measured in terms of seat miles
operated ; and jiassenger service ecoiiomicaily e.\i)loited or enjoyed
may he measured in terms of passenger miles ridden. A street rail-
way cannot possii)ly so arrange its schedule that these two match
each other, liack-haul seat miles — especially important during rush
hours — are in effect a by-prodm t. Of course, most such seat miles
arc no j)roduct at all in a strictly economic sense; they are an inci-
dental waste of energy that might have been productive. But any
attempt more fully to exploit such seat miles would naturally treat
them as a by-product.

These cases are analogous to that of a steam railroad that more
fully utilizes its roadbed by differentially low rates for certain kinds
of freight. That there is no fixed ratio between the quantities of
the various economic services obtained from a single instrument does
not seem to be of decisive economic interest. Even where the by-
product is a material good, it may have any degree of importance
subordinate to that of the main product, and the quantity obtained
will often be made to vary somewhat according to its importance.
It may be commercially worth nothing and still be a true by-product.
Some cotton seed was always rc(juired for jilanting, but most cotton
seed was long mere waste. The by-products of coal-gas manufac-
ture are more variable and more subject to control, l)ut they are not
therefore less truly by-products, than the cotton seed. Indeed, the
gas is th<! hy-i)ro(liict and the coke tlu? main product where blast-
furnaces demand the latter. The diffcreiii conditions of course
involve differences in the (juality of l)otli gas and i-oke ; which fact
does not involve any change in underlying economic principles. If
a strict conception of jointness of supply makes it a physical rather
than an economic matter, then the economist is interested rather in
the larger fact that some goods iind services are availaiile in (pian-
tities that do iml vary din-ctly in response (o incrense or decrease

The Ckn'khal TuKonY oi" T)ri'FKin;NTi \i, li'\ii;< 197

ill the (loiiiaiid for iIhih. IJikIit these eireumstances it would Bcem
not to make imii h <!il]crcnce how we deterniine whether one or njore
separate products or services are heing supplied. The working dis-
tiiutiou is made l)y consumers in their views on discrimination.

To rejjeat, tiie economy of full ultili/.ation of product ami
capacity is the foundation of the sii^Miilicance of joint cost. I'os-
sihly, hecause of some restrictive formal delinition that distracts
attention from functional similarity, one may refu.se to call all
cases exhibiting the characteristic results of this situation cases
of joint cost; but this seems to the writer unessential. The vari-
ous cases belong functionally in the same geueral economic category.

The question whether joint cost — which the preceding discus-
sion may warrant us in taking in the broad .sense as relating to the
economy of full utilization — or monojioly power is the cause of
price differentiation has l)ecn much deljated.' There can be no
doubt that a monopoly would be inclined to differentiate, and since
by hypothesis it has the power to differentiate, monopoly power is
doubtless a sufficient cause of differentiation; in other words, it
may be the decisive circumstance or influence. As to the modes
of dilTerentiation, a monopoly will, doubtless, both on economic
grounds and from the need of conciliating public opinion, follow
practically the course dictated by considerations of joint cost.
There remains to decide the question whether joint cost could
produce differentiation under competitive conditions.

Although competitive enterprises are much hampered by lack
of control of the situation, just as they would be in instituting any
price policy, it seems to the writer that a considerable degree of
differentiation might still be developed. A 30 per cent annual load
factor for an electrical enterprise is good. Will a plant that does
not try to utilize the other two-thirds of its capacity by low rates
be stronger competitively than oiu' that does? Will not comi)eti-
tion tend to cause the development of a differential system under
such circumstances? If, indeed, the original consumers will not
consider other than a straight kilowatt-hour rate (a kind of influ-
ence already dealt with), and if they have a choice between different

- J. M. Clark, in chap. 1, " Railways and the Law of Cost," of his Stantlards of Rea-
sonableness in Lot'al Freight Di<criniinatii>ns, traces the development and interrelation of
the two points of view, but withiiut coming to any definite conclusion.

IHvS Elkiti.i. Ai. IfAirs

sources of suj)j)ly. if will not. I'.iil in fact tonsimicrs do not object
to a lowering of the rate per kilowatt hour as the average hours'
use increases. It is true that the conijjany will he in better |)ositiou
to push its enterprise by way of difTcrential rates if it has a nio-
nojwly hold on the original business. But the possession of large
fixed capital only partly utilized seems to be more fundamental.

The situation of a railroad transporting chiefly freight is some-
what dilTerent, because tlie sui)ply does not have to be provided at
the moment of demand. It is the necessity of producing at the
moment of demand which makes the electrical rate question pecu-
liarly interesting. But the carriage of a consignment of freight
cannot be long postponed without the loss of the business. Even
for the road with the densest traflic, taking the year as a whole,
there is bound to be some falling short of complete utilization.
The more important element in the situation, however, is the fact
that railroad lines are built long before they can be fully utilized.
Hence if they can get low-grade freight by accepting less than the
necessary general-average ton-mile rate, there will un(iuestionably
be sound economic reasons for thus dilferentiating. Though the
increase of business will in time require double-tracking, the aver-
age fixed charges per ton-mile carried will be less on a double-
track than on a single-track road, so that even the imminent neces-
sity of providing additional facilities will not mucii qualify the
desirability of increasing business by dilTcrentiation. The Ameri-
can public does not expect that, after due allowance for incidental
ditferences in methods of handling, coal and manufactured products
will be carried at the same (or equivalent) rate. It is feasible,
as a matter of fact, to treat the ton-mile sold to the coal-mine
operator, to the dry -goods jobber, and to the copper smelter as
different "commodities." IJkewise with the kilowatt hours sold
for domestic lighting and for elevator service. If a specially low
rate is necessary in order that a railroad or an electrical company
get a particular class of business at all, not only will that clai-s of
shippers or consumers dcmiuid such a rate, so far as is consistent
with the profits of the j)ublic-service corporation, but public opinion,
at least that of the mercantile connnunity, will support such a
demand. The j)roblem of obtaining a great volume and esjjecially
a great variety of business in order to meet heavy fixed charges is

TiiH riHNKKAi, 'l'iii:(ti;Y (ti |)ri I i;i:i.Ni I \i- 1\atp:s lOy

certainly not pcculiiir to monopolies and certainly has a formative
inlhioncc on difTcrcntiiil rates.

If we could find a branch of production requiring heavy invest-
ment in fixed and s()ecializcd capital where competition neverthe-
less ruled, and if we should fmd difTerentiation then^ j)ractised in
order to j)romote full utilization of ])lant, that situation would
constitute the needed crm ial instance. Ocean freight rates appear
to yield approximately such a case. Competition is keen and dif-
ferentiation is practised, especially in relation to " berth cargo."
The printing and publishing business affords another approximate
case. If we consider the use of a set of book plates in printing to
be a homogeneous service and one for which an equal charge for
each copy impressed may be expected, then the sale of a $1.50
and a fifty cent book printed from the same j)lates, and differing
only in the quality of the paper and binding to the extent of a
few cents, is a case of differentiation. Of course, for each single
book copyright gives a monopoly; but for the supply of popular
novels, or of serviceable school books, which are tolerably homo-
geneous as put out by various publishers, such differentiation is
a competitive device. The devices by which different prices are
paid for subscriptions to the same magazine constitute a similar
example. The practice of charging less to new subscribers is well
established and general.

One's attitude towards the debate on this question — whether
fixed charges or monopoly cause differentiation — will naturally
be influenced to a considerable extent by the degree to which one
accepts or rejects a certain false premiss of much economic reason-
ing, to the effect that a given sort of economic phenomenon must
be explicable by some single " cause." This is no place to argue
the point at length ; the writer can only state his opinion that any
phenomenon is explicable only by a complex of many antecedents,
conditions, circumstances, or "causes" — call them what you will —
and that primacy among them is chiefly a matter of the various
degrees of what " goes without saying,'' of what will be mentioned
by one who is careful to be comprehensive, and of what calls for
particular attention as the decisive factor under the circumstances
assumed or described. To suppose that a specified sort of effect
has one and only one cause seems to be a sort of personification
of events aud objects — a survival of fetichism. To illustrate by

200 Klectricai, Hatks

rofcrentc to Mar>liaH\>; aiinloj^y o!" the scissors, and to tlio contro-
versy rogardinp the explnnation of value to which this analo<jy
relates, the writer helieves it is corn 't to say that, wlicre one hlade
is hehl in a vise, it is the moving l.hide that (h)es the cuttinj:, in
the sense that its motion is tlie decisive factor and the rest is con-
dition, circumstance, or what not. Kut it is equally possihle that
eitlier one of the two blades may, in this sense, do the cutting; that
is. that the decisive factor in the determination of value may he
either on the side of supply or on that of demand. .\nd it may
be necessarj- to attend to both blades; their action will usually he
neither entirely disparate nor of equal importance. ^Yhethe^ there
is or is not a similar reciprocity of action between the two causes
of differential rates, the illustration serves to emphasize the point
that we need not regard monopoly power as the sufficient and only
cause of differentiation, merely because by itself it may be made to
provide a clear-cut explanation of the phenomena in question.
Indeed, the joint-cost or full-utilization explanation goes to the
economic foundations of the matter in a way to entitle it to a larger
place tlian the monoj)oly explanation. Monopoly merely gives the
economic and commercial motives of the dealer freer scope. What
he will do if he has the power will be to fix prices in a way tx) utilize
his fixed capital to the fullest, incidentally saving himself incon-
venience by classifying his customers. Where he will charge high
rates, and wh<>rc low, is indicated l)y the joint-cost theory.

Although wholesale discounts are not ordinarily hn»ught under
the theory of differential prices, the writer has so classed them.'
The fundamental reason for a difference in price according to
quantity purcliased is of course of an entirely different nature. Hiit
once such a dilTercnce is accepted, its degree may lie differential in
mofive and effect, just as differences of quality and kind are
e\|»|oilcd difrrrentially. It has been also pointed out by the writer
that the conijH'titiou of the isolatcfl plant, affec-ting only large con-
sumers, may be considered a justification for some degree of differ-
entiation of the same nature. The cases are again mentioned here
chiefly to illustrate the broad scope of llie principle. This particu-
lar case of differentiaticju through wholesale j»rices also serves to

* 8«« pajrc 103(1.. uIkivp.

TiiK (li-.NKitAi, 'l'iii;'>i;v (II Dii ri;iti;NTiAL Kaii:'^ I'O]

illuHtratc th(; fact that diiroreiitiation is not absolutely conditioned
by monopoly power.

The presence of a difTerenliiil ('l(iii''iit in methods of retail price-
makings should also be noted in this connection. Hetailers deter-
mine prices by adding to what was paid the manufacturer or wiiole-
saler certain percentages ad valorem for handling the articles
they sell. This procedure conforms to the principle of charging
what the tralTic will bear — since the purchaser of the more valuable
article is charged more without specific reference to the character
of the service performed — rather than to a {)olicy of obtaining
reimbursement for specific costs. The article that costs more at
wholesale is not therefore of greater bulk or weight than the less
costly article. Interest and insurance may add a trifle more to
the basic original cost in the former than in the latter case. But
such ascertainable differences seldom affect the percentages used.

In fact, a good case could be made for taking the absence of dif-
ferentiation of the ordinary type in retail price-making as an ear-
mark of entrenched monopoly. Such a monopoly is indilTerent to
the business offered by the individual small consumer, and is disin-
clined to adjust to individual needs prices made or services per-
formed. Price uniformity is in fact decidedly economical if the
buyers are small and where they have no option. We should there-
fore expect an adaptation of the method of differentiation to the
situation described. That is what actually happens. Under such
circumstances services widely varying in cost are often furnished at
the same price, so that the profit varies greatly in a distinctly dif-
ferential manner. This is one reason for the conventional nickel
street-railway fare, though there are of course others. ^Monopoly
tends to abolish careful graduation and external differentiation of
rates. The fact that this tendency is a sign of monopoly powtr,
however, should not be taken to imply that the change is never an
improvement or never, even in the long run, pleasing to the public.
At least, the suggestion is worth considering that the toucht-tone of
monopoly policy is rather to be sought in connection with the treat-
ment of small, than of large, consumers.

It has been argued that rates can bo based on specific cost and in
the long run should be; that all costs can be assigned to the pro-

202 FLrrTKK-M. Ratks

ducts or services to which they are duo on the hiisis of the propor-
tionate use the product,*! make of the means of production, and that,
when this is done, there remains nothing to distrihute differ-
entially.* All costs certainly can he apportioned. But that fact of
itself is no more significant than is the possihility of ohtainiiig an
arithmetical average of any fortuitous collection of numbers. It
is also true that for most costs there is a fair and reasonable basis
of apportionment. The exact whereabouts of the line of distinction
between this problem and that of the disentanglement of separable
costs — still by way of averages and for classes of commodities or
services, not fur individual consumers — may bo dilhcult to deter-
mine.

Rails wear out, though it may take twelve or fifteen years, and
their cost can be pro-rated on the basis of the use made of them, just
as the cost of a trainman's wages is pro-rated over the objective
services to which he devotes his time. But the likeness of the two
cases is not complete. That the rails will have to be replaced some-
time is not the fundamental point, though the brevity of the time
during which a given kind of expense is effective — its rate of turn-
over, so to speak — is an important aid in the isolation of costs. The
causal connection between use and cost is more likely to be close
wlien the period of use is short, especially when there is but one use
obtainable, as in the case of a processive good like fuel.* The crucial
question, however remains this: "Whether replacement becomes
necessary after a given number of uses, and in proportion to vse,
or after a given period of fimr, with little or no reference to degree
of utilization. If a locomotive's expectation of life in full service
is determined by miles-run only and not by obsolescence and the
like, then this element in cost per locomotive mile is determinate
and separable ; but if it is to l)e displaced at the end of ten or fifteen
years whether it has run so many miles or twice as many, then
average cost per mib- is not something to build on, but merely a

'Thin apppam to lie th'^ doniin.ant point of vlow of our piibliciitility coniniissionji. But
HiiK* the fiiridiirnctiUil problfin for a nitc-rrifiiliitiriK boily iH (lie Ncpiiration and just appor-
tionment of rost». it 1m hardly to \>p oxpofffd that such a body will attompt nicely to
diKtinfrulnh Reparation from apportionment, espwdally »lnrr« the two shaile Into enrh other.

* That in, In order that the ito-oalled " variable " costs ronform to the aiwumptlon ordi-
narily made, (hey mu-.t be Kpe<-ial in time as well as s-pecial In iniiclenrc.

TiiK rip:NKitAr- Tiri:<)i;v ok niiiKuiATiAi, T? \tks 20;]

result of degree of utilization." I )ctt'rior;iti(in of rails, for fxamplo,
is not proportionate to use; still less is that of ties. Jn fact, depre-
ciation in general is as likely to be due to rotting or rusting out as
to "wearing" out. The cases where deterioration is more nearly
in proportion to time than to wear and tear are numerous. Espe-
cially if obsolescence be taken into account, it is evident that the
uses of tixed capital in general are, to a great extent, deciduous. If
the fullest utilization is not made in season, certain potential uses
are simply lost and the total cost has to be apportioned over fewer
uses. Cost is, therefore, higher by reason of the failure of a fuller
degree of utilization, such as might have been obtained, perhaps,
by way of ditTerentiation. Cost accountants are too likely to assume
relations as fixed which may change as a result of prices based upon
their cost analysis. Eates for electricity based upon load-factor con-
siderations most forcibly illustrate the insecurity of amount of actual
use of fixed capital as a basis of cost apportionment. Differential
rates may lower cost. Though unquestionably cost analysis is im-
portant for this, as for any sort of price policy, a differential policy
cannot be purely a matter of cost accounting after the facts have
occurred. !l *■ I

Fixed-capital costs in general are in proportion to time rather
than to use ; hence the unit cost per use unit depends upon whether
the price policy of a company promotes full use. This holds of carry-
ing charges in general — of interest, rentals, and necessary dividends
unqualifiedly, and of maintenance so far as proportioned to time
rather than to use. In electrical industries obsolescence is partic-
ularly important. Tlic importance of high degree of utilization
as a reason for lower cost is clearer in the case of electricity supply
than anywhere else because of the obvious special importance of the
load factor as well as because of the importance of the more gener-
ally effective density factor.

* M. O. Lorenz in his article on " Constant and Variable Railroad Expenditures " in the
Quarterly Journal of Economics, vol. xxi, p. 283, fails to see that these terras he employs as
title do not siifficiently indicat« the important distinction, which is between expenses that
vary with time (or etemit.v), on the one hand, and those that vary u-ith amount of wf, on
the other. Nor is it of great practical importance that, if a railroad c<"iuld select from
among the classes of business that come to it, after it has once become well established, it
might be wise for it to take only the most profitable and not to expand — despite the im-
portance of diversifiefl loading and the applicability to the situation of the general prin-
ciple of increasing returns.

20 1 Ij 'Tikk \i I! a ri:s

A conspicuous instaiui' of tlie falliuious assumption that appor-
tionment accordin}:: to some measure of use yields separated costs is
afforded by the discussion of demand or capacity charges in connec-
tion with electrical rates. If we sujipose that the peaks of all con-
sumers coincide and directly constitute the station peak, the respon-
sibility for the latter is quite definite. But in any actual case there
is more or les.^ diversity. Shall we discount each individual maxi-
mum demand in the ratio of the general diversity factor? Or shall
we make the demand charge of eacli consumer pro])ortionatc only to
his share in the station peak, that is, to his " simultaneous " de-
mand? Shall we then exempt from any demand charge the con-
sumer who requires no current at the time of tlie station peak? In
that case, what if the load becomes smooth and nearly or practically
constant for four or five hours of heaviest loading? Is not the wliole
question really one of policy, and should not the apportionment vary
according to the needs of the company in building up its load factor ?
Some small plants can better afford to shut down during the day-
time than to run at all. Others may liave a daylight load about
equal to their evening load. Is there any " use " rule of apportion-
ment that will cover these extremes and the usual intermediate
situation? ^fust not the company plan its rates with reference to
the growth of business and adjust them accordingly from time to
time, and is not this policy in contrast with, nay the opposite to,
pro-rating costs and tlie procedure of most cost accountants?

It should be added tliat not all cost-accounting employs averaging
and pro-rating in the uncritical way just mentioned. A cost-ac-
counting theory that might be called differential though its origin
does not appear to relate directly to differential rates has been advo-
cated and to some extent put into practice. According to this theory,
the burden of carrying and maintaining unused capacity, and a
large share of overhead expenses in general, should be charged to
profit and loss.' Such procedure would promote the utilization of
otherwise idle capacity, even though at a minimum or partial pro-
fit. According to such a priiuiple, it wcmld not be necessary for a

'Cf. n. I.. flaiiU, The lUlatloii lirtwt.ii Pn-iludioii :iiiil Costi. in Traiiwif-tioim of th«
Amrriraii Ho«l«'ty of Mi-<liaiil<-al KinfitiMrii, >ol. 37 (llM.i), p. 112. and Ihe followlnR dli
rujmion ; aluo, by the tamt- author, rro<hictlve Ciipaclty a Moamire of the Value of an
Induxtrlal Property, tn Journal of the Amerloan .Soricty of Merhanirnl KiiirlncprK. Nov.,
1018, p. 870. Sec al«o Chapfrr XII and eUewhTO in Coftt Accounting and Burden Appll-
ratlon, liy Clinton II. Soovell.

The Genehat, Tni-oitY or Dikfkkkntial Rates 205

niainifacturor to llirow overboard the results shown by his cost-
accounting system in order to operate at all during slack times.
Eeserve or other excess capacity created in anticipation of future
needs, or the result of ill-timed expansion of the fixed investment,
would no longer be a drag upon operations.

If the theory be extended from ordinary manufacturing to elec-
tricity supply and applied in the liglit of load-factor considerations,
and if it may be further assumed that the element of cost attribut-
able to low load factor and to be charged to profit and loss is still
a true cost for the business as a whole and to be recovered from
consumers in some way, then, with such a sanction and guide, the
policy of differentiation would liave large scope. In the case of a
company with a 30 per cent load factor, for example, the portion of
fixed charges attributable to " idle " plant and to be treated differ-
entially would have a relation, though not direct and numerical, to
this ratio. It would tend to be smaller than 70 per cent to the extent
that the use unit (the use of a kilowatt of capacity for a unit of
time) would naturally be charged for at a higher rate during thf-
peak time. On the other hand, the entirely diiTerential burden of
carrying reserve capacity would count towards increasing the pro-
portion of fixed charges to be treated differentially. It would also,
of course, be no small problem to determine the proper cost of a
use unit at different times of day.

The extent to which the averaging of experienced or expected
costs may properly be carried is a question involved in any method
of rate-making having a claim to serious consideration. One set
of extremists want to average everything' on the basis of some single
consumption unit — in electric supply the kilowatt hour. Even the
extreme diflferentiationist, however, is not willing to consider mak-
ing a separate rate for every individual. In the most general as well
as crudest form of differential rates, namely, class rates, large
groups of consumers are dealt with according to ascertained or as-
sumed average service conditions and requirements. But the most
refined differential policy does away with arbitrarj' class distinctions
and attempts to make any classes it uses as homogeneous as possible.
The differentiation may be continuous instead of by discreet steps —
as in the case of a load-factor rate of the Hopkinson type. Such

i>(U» Kl,r,( TUK AL K'atks

(lifTorcntiiition by wny of oontimious variation is usually supple-
mented bv some classifioation. Impersonal and impartial classi-
fication is rigbtly considered essential to justice in ratc-makin;?.
Tlie problems presented are the avoidance of arbitrariness in the
lines of distinction, the avoidance of overlapping; between classes,
and the avoidance of hetero<jeiieity or undue breadth of ran<re within
each class — all of tliem closely related to one another and susceptible
of beinjx summed up in the ])ro]M)sili(>n tliat likes shall be put to-
gether and unlikcs kcj)t a})art. And all throe problems are perfectly
solved in a rate that varies continuously according to some mathe-
matical rule. In form, the superiority of such a rate is evident.

A business-developing policy, however, usually means the appli-
cation of a new class rate. This is justifiable as an experimental
method, though it is desirable that ultimately such a class rate be
merged in a general system in which the method of classification
plavs a minimum part. One reason for the resort to class rates is the
reluctance of the practical manager to disturb an existing rate
structure to provide for the new possibility; he prefers to let well
enough alone, at least to let any existing high rates alone. He wants
to deal with dynamic elements as a separate matter and he may fail
to see that the whole situation contains dynamic possibilities in
greater or less degree.

The connnon preference of managers for class rates, at least in
the just-mentioned aspect of the matter, is likely to be supported
by public o])ini()n to the extent that the class rates depend on easily
identifiable objective criteria and easily discernible difTerences. But
the requisite objectivity and definitcness attaches to things rather
than to uses or to modes and conditions of consumption, lience the
real purpose and function of a class rate niiiy be lost sight of. Cur-
rent supplied to a motor-generator set and then used for the light
employed in moving picture apparatus is properly entitled to neither
the ordinary lighting rate nor to the ordinary pow(M- rate. " fvight-
ing " is not a suflicient description of the use. But to base the rate
upon the simple objective fact that the energy is supj)lied to a motor
can be regarded as adequate only where means are treated as end.
The objective criteiia of freight classification work better, liut idl
clafisificalion reflects mere middle principles, valid only as working
rules and methods of applying load-facti^r and density-factor prin-

Tiiio <;i:ni:u.m- 'riii;<)!:v op Diii KiiiA'i iai. I{ates 207

(•i[)]ps and siK li dtlur kiioulfilirc of ilic cau.-al coiiiicctioii Ix-twecn
costs incurred and sorvicp |)i'i luinicd as may I"' availalilc

'J'lic readi.'i" will <)l)scrv(! that in tlio pa-sent discussion no such
fundamental opposition is found between prices based upon cost on
the one hand, and ditferential prices on the other, as is ordinarily
assumed. DiU'erentiation is properly based on cost analysis, but a
kind of cost analysis that takes account of expected results as well as
of present conditions; not on mere cost accounting;, which is a
much more limited thing. If we wish to keep strictly to the cost-
accouutinj; jjoint of view, there is a degree of oi)position Ijetween
the cost element and the difl'erential element in price, the former
being separable in fact and the latter merely apportionable accord-
able according to some theoretical or arithmetical assumption. The
writer can see little significance in the familiar, if not hackneyed,
contrast between so-called " cost of service " and "■ value of service "
theories. The latter seems to be a more plausible, only because
rather high sounding, mode of stating the principle of '' what the
traffic will bear." Cost, in the broad sense, should be of more de-
cisive influence than value. The latter under a well-worked out dif-
ferential theory operates only through the effects of price (value)
upon cost. Cost is therefore the fundamental matter. But cost
itself must be judged with reference to the volume of service that
ought to result from cost. The strongest argument for differentia-
tion rests on the general social ground that such a policy favors
maximmn service to the public'

From this point of view, aggregate cost, including therein a fair
return upon capital (plus a premium for efficiency or minus a fine
for inefficiency), should doubtless fix the aggregate of prices, since
the rendering of the maximum volume of service requires that rates
be kept down. It supposes low average rates because the lowest
rates will be given to the most elastic or expansive kinds of demand,
which will therefore count for most in the weighted average charge
and cost in question. But separable cost fixes the lower limit of any
rate for the obvious reason that an enterprise cannot prosper on
out-of-pocket losses because there are " so many " of them. This
statement is subject to qualification if there is a return to the com-

• That cost not normally resulting in service should have no direct share in price is
properly a part of the same view. The service must he performed efficiently in order that
the claim to the return of cost, including necessary profit, be justified.

208 Electhicai. T?ati;s

inunity that the reiipient of tlio diicit service will iiut ailequately
reeogni/.e in tlic price he is willing to pay for it; but service of this
sort cannot ordinarily be brought within the scope of the rule under
discussion, or, when such a policy is indicated, tlie enterprise should
be condui'ted by the government and not as an ordinary business
alTair. However, it is only separable cost that must or can have a
direct causal connection with rates for specified goods or services,
and a quantitatively delinite elfect upon them. The remainder of
total costs are properly apportionable according to general condi-
tions and policies, so that the share allotted to a particular good or
service is only in part due to its own characteristics. Doubtless all
this is highly theoretical and will not by itself solve any concrete
rate problem. But in matters of general policy — and differential
rates come under this head — mistakes are due to a failure to develop
clear ideas quite as ofton as to insufficient attention to the details
of the concrete situation that confronts the practical man.

Electrical rates are of great importance in another respect; not
only in the general way discussed in the foregoing pages, but also in
the implied suggestions towards carrying out a differential policy
impersonally. The principle of maxinmm service is too widely and
variously indicated to be deemed a contribution from the consider-
ation of electrical rates. But two-charge and three-charge rates —
even though these also are not quite peculiar to electricit}- supply —
are distinctive and are characteristically suggestive. The superi-
ority of such multiple-charge rates as a method of differentiation
consists in the even and balanced impersonality with which the
differential policy — so often under suspicion for unjust discrimina-
tion — can be applied through their use. A single charge, it is true,
can be so graduated that its variations are continuous. Hut it takes
account of variation in only one dimension. Two principles of va-
riation may be recognized by way of two charges; or, what is more
to the point, one charge may be made to vary with separable cost«^
and the other according to differential principles. The electrical-
rate demand cliarge is properly treated in the latter way. Both the
kilowatt-hour charge and the consumer charge, on the other hand,
reflect separable costs.* And there is also need of differentiation

•The Ihrf'-rliarK'' '•Icftrlc-iil rat'* ii likn what a ruilroiiU ratv would be If it were com-
powd of a tcrniiiiul chiirK** phii u iiiilc:i|{r charge, uiid Ihvu plus KomcthiiiK for tlio dilTer-
edtial Ichidlrifc uf died rUsirnvH.

The Gkn'khal Tiikohy or Diiiilkn 1 1 \i. K'ates 209

according to the divcirtit)- lacior. The desired impersonal quality
appears to attach to mere quantity discounts; hut tlicse involve con-
cessions to mere hargaininy power — which is directly opposed to im-
personal justice in rate-making — and they encourage an artificial
adjustment of service conditions. Pure quantity discounts should
therefore he scanned with suspicion. Density-factor discounts are
not open to the same objection. The "increment-cost" analysis
that is ordinarily adduced in favor of an extreme application of
quantity discounts in individual cases cannot be expected to result
in the establishment of general and permanent rates. Classi-
fication as a method of applying cost analysis, even though the
analysis be correct, is crude as compared with methods actually in
use in electrical rate schedules — though doubtless actual rates, even
where there is back of them adequate analysis with reference to the
different variables, will be likely to employ classification rather than
multiple charges.

From the rendering of maximum service to the public as a guiding
principle, there is an easy transition to the fixing of rates with more
or less reference to general considerations of public policy. To a
certain extent this would seem to be a legitimate expectation in the
case of corporations performino- scrvaces " affected with a public
interest." A private corporation, however, even a public-service
corporation, cannot well carry the principle so far as a government
enterprise may. For the former the rule neveitheless suggests it-
self : When in doubt, it is better to be public-spirited. Even though
business men will transcend ordinary business principles and habits
only when the application of these familiar guides leaves them in
doubt, the twilight zone between what is and wdiat is not separable
cost is so important that the attitude suggested would be of con-
siderable practical effect in rate-making. The rule of maximum
service is itself a rule of public policy, and the policy of differenti-
ation in general should be pursued in this spirit rather than in one
of mere profit-making. The policy of differentiation is not neces-
sarily a mere commercial device ; it has a broad and firm foundation
in economic principles that relate to enduring social welfare.

(•ii.\r'ri:i; \iii

CONCLUSION: SUGGESTIONS FOR A MODEL RATE SCHEDULE

The ubliKution of loc:il adaptation and of simplicity. Tin- burduii of
proof. A rate .sehedule should be tlynamic. The feature of a kilowatt-hour
ihanje assunieii ; othei"8 to be disjcu.ssed.

The load factor reviewed. The density factor reviewed. Latter to be
di.'T?o.'«etl of first.

Sunne.stions for a schedule. A, Meter charges; B, Kilowatt-hour charges;
C Density-factor dii^countg; D, Load-factor discounts for wholtvale and
other con.>;inuers; K, A coninuitetl-rate option; F, Minimum combined rate
per kilowatt-hour; C!, Special rates, ofT-peak and other; H, Prices for lamps
and special appliances; I, Hiph-tension rates; J, Coal dau.-^e.

Politics as well as economics in rate-making. Technical questions and
economic foundations. Immediate prospects.

In order to give a tolerably complete view of a rate schedule
from au economic standpoint, it will be sutlicient to deal mainly witli
the most highly evolved situation, such as is found only in (lie largest
cities. Of course any discussion of what an electrical rate schedule
should be must recognize the requirement that it be adapted to
local conditions. The general propositions below are therefore neces-
sarily subject to (jualification. Even so, nmch of the outline will
have to be left rather indelinite. The process of adaptiitiou, how-
ever, will in general mean dealing with conditions less developed and
les.s complex than those for which an ideal rate schedule would nat-
urally be drawn ujj. In other words, we should expect .such a sched-
ule to be amended and adaj)ted chiefly by way of simplification.

There is indeed not only a presumption against complexity, but
also a presumi)tion again.^t change, unless it be in the direction of
himjililication. Kates resemble taxes in respect to the fact that what
in simple and established should be considered lust until i)roof to
the contrary is forthcoming. For every feature of a rate schedule
other than the htraiglit kilowatt-hour charge tlie burilcn of proof i.^
on the proponent. However, what is established (»r now exists in
,'*neh .M-hedules is generally not simple, hence constructive thinking
in the direction of relined adju^lments has freer scope than in most
matters <jf ajiplied economii s.

SUGGKSTIONS FOi; A MdDKI. R.\'l i; SnrKDf'LK 211

Aiudlicr ruiiilaiiifiiial nMiuiri'iiiciit. of an I'lci-t rical lalu sulifduh?
— ami of latr silifdiilcs ^ttiu'ially - is that it b(j pro^^cPsivp <»r
(lynaniif in its inliiu'iUL'. Itsliould j)roiuole the expansion of bu.si-
ness and tiie extension oi" the use of the serviee to the limit of what
is eeonomical from the viewpoint of society as a whole. No class of
business that can be handled at a profit should be despised. Often
tile problem will be how to decrease costs so as to enter upon new
fields of use. Sometimes the question is simply one of educating
the public. In the case of an electric central-station enterprise, new
uses and new appliances necil to be investij^ated and pushed, and all
possible consumers, within the limits of ultimate profitableness,
should be reached. In the construction of a rate schedule such mat-
ters siiould always be reckoned with.

As to actual rate schedules, their failure to conform to any one or
few settled principles makes it impossible to derive inductively a
standard schedule from them.

The following suggestions will assume the justifiability of dif-
ferential rates. It is also assumed without discussion that energy
supplied under ordinary conditions will be metered and that tiiere
will be a kilowatt-hour charge. This position will leave open three
questions as to important features of the rate schedule, namely : (1)
how consumer cost should be dealt with, (2) when and how load-
factor considerations should be recognized, and (3) what influ-
ence upon the rate schedule volume of consumption may be allowed
to have and how that influence should be expressed. But the two
most important questions relate respectively to the load factor, this
being the special peculiarity of electricity supply, and to the density
factor. The situation as regards these two is summarized in the
following paragraphs.

The load factor is of special importance in electricity supply be-
cause in this industry supply must be synchronized with demand,
since there is not the usual alternative possibility of storage. But
in fixing rates, it is necessary to emphasize the fact that the station
or company load factor, not that of the individual, is what is of
special importance. With reference to building up a good load
factor for the central station, diversity is at least as important as^
long hours' use by consumers of their individual maxima. From
this jioint of view the consumer's simultaneous demand is more im-

?r? Mi,K( iHicxi. IJaii;s

portaut than his inaxiimuu. 'llu' uuijosjjibility of t'cononiically
ascertaining the facts about the load rurvc of eaeh consiunor, how-
ever, and the unsatisfactoriness of current methods of estimation,
load to the conclusion that, for small ((insuniers, the situation may
best be left to be taken care of by their known diversity — or the de-
gree to which their consumption adds to the olf-peak rather than
the peak load of the station — at least in the case of a company
that operates in a large city and has a developed daylight load.
For large consumers, the ascertainment of the individual load factor
and. not less important, of the individual diversity, is entirely prac-
ticable and should be made the basis of any concession of specially
low rates.

The density factor as a ground for low rates is not familiar under
that name and is not explicit in existing rate schedules. The sug-
gestion of its explicit employment in such schedules is original
with the present writer, so far as he knows, and is to be taken for
what it is worth. It is proposed as a means of meeting isolated-
plant competition, so far as that is iicrniissihlo, on strictly economic
grounds and in a way to prevent any sort of discrimination. It
seems to be the only way of putting the wholesale concession on a
sound economic basis in the case of electricity supply. Otherwise
the granting of low rates seems bound to be influenced by bargain-
ing power. The case for mere quantity discounts, except so far as
the concession is actually due to density, is not as strong in the situ-
ation of an electrical company as it is in almost any other industry.
Allowing landlords and others to profit by quantity discounts
through " merchandizing," furthermore, is a most reprehensible
form of rebating.

For the sake of simplicity (if for no otlier reason), in formulat-
ing the rate schedule, density should probably be disposed of by
itself before load-factor considerations are taken into the calcula-
tion.

Other indicated elemenls in a rate schedule, drawn up according
to what seem to the writer sound economic principles — but of course
drawn also with due reference to various limitations not of au eco-
nomic nature — may best be illustrated as a part of a scheme for such
a schedule. In particular the method of api)lying the meter charge,
which, as has been shown, has uU tin- advaiilau'os of a consumer

Suggestion's foi! a Modf.i. Rati: Scfikdule 213

cliaigi' and, at luast in iclalion to Hiiall consumers, some of those of-
a demand cliargo, may Ixst be indic-alcd by way of such a schedule.

No impoitanco should be attached to the absolute quantities and
charges mentioned below; they will of course vary with conditions
and are not even asserted to be appropriate for any known set of
conditions. Tlie relative quantities implied are somewhat more
significant.

The various clauses of our hypothetical rate schedule are described
for purposes of illustration, rather than formulated, in the following
articles. It is not necessary for present purposes that they be prac-
tical in every detail. The illustrative purpose is an excuse for some
degree of what may for practical use be considered over-refinement.

A. All consumers charged principally on the basis of kilowatt
hours consumed will pay a meter charge. The smallest charge, for
meters of 10 kilowatts or smaller capacity, will be 50 cents a month.
The charge should increase with the size of the meter and should
apply to each meter installed. This relates to standard watt-hour
meters. The number and size of meters appropriate to the con-
sumer's installation should be determined in accordance with rules
acceptable to or prescribed by the district public-service commission.
Extra charges for special devices should be required to conform to
similar published rules.

Meters with clockwork and printing devices that record kilowatt
hours for each 5-niinute interval, which are used under contracts
with consumers taking not less tlian 1,;?0,000 kilowatt hours a year,
will in such cases be installed and operated by the company without
other charge than for regular meters. But in the case of consumers
taking less than 120,000 kilowatt hours a year who claim the benefit
of load-factor discounts and have these load-recording meters in-
stalled with reference to obtaining such discounts, an extra charge
should be collected sufficient to reimburse the company for the addi-
tional costs in question. But no consumer taking less than 12,000
kilowatt hours a year should be entitled to claim load-factor dis-
counts or have the meters in question installed.

The meter charge does not apply for public street lighting, nor
for flat-rate and similar contracts, where consumption is determined,
not by meters, but by the time during which lamps are burned, or
other apparatus used, and where the company's accounting with
the consumer is also simple. This may include cases where the
hours of use are controlled from the company's station.

B. Except as specificaly provided for elsewhere, each consumer
will pay a kilowatt-hour charge as follows : For energy supplied up
to 1000 kilowatt hours a month the rate is to be 6^ cents where

?I I l\i.r( I Kii' \i. K \ lis

llio coii-suiiu'r is tlassi'd as ;,aiii ral and is entitled to the free supply
and renewal of incandescent lamps. Hut the rate is to he (> cents
where such a small consumer takes energy only for i)ower and does
not require himps; also, any consumer at his option, may supply
his own lamps and thus ohtain the ()-cent rate.

Knerg)' in excess of 12,000 kilowatt hours a year will he charf^ed
at the rate of 5 cents per kilowatt hour under a contract for the
full year (the actual rate heinf^ the avera«;e of the 5 cents for this
excess and the G ccnti^ for the first 1^.000 kilowatt-hour hlock). hut
with an additional half cent ]ier kilowatt hour if lami)s are included.
This is the hasic rate for all large consumers, but is subject to dis-
counts elsewhere described and of course does not ai)ply under spe-
cial conditions, indicated in the rate schedule, entitling the con-
sumer tx) a special rate.

C. Density-factor discounts will be allowinl to each consumer,
except as specified in K, on the basis of average consumption, within
the street block to which he pertains, per foot of l)lock front, accord-
ing to the following rules. For energy sui)plied to such a degree of
density as to raise the density figure for the street block to 80 per
cent of the average for the system, a discount of 20 per cent on the
kilowatt-hour charge for energy taken in excess of the 80 per cent
up to a 150 per cent figure is allowed. In addition, for energ}'
taken above a density figure 150 per cent of that of the system, a
discount of 50 per cent of the kilowatt-hour charge on such energy
in excess of 150 per cent is allowed. These discounts relate to the
kilowatt-hour charge only and are applicable to each month's bill
according to the density figure attained by the consumers in the
street block in question during the month. But the actual amount
deducted in each month shall be the amount earned in the |)re-
reding month, there being thus no discount made in collecting
the first monthly bill and a discount due the consumer, upon his
last bill, after discontinuance of service.

The average density figure of the system, however, is to be com-
puted in absolute terms for existing conditions, and applied without
modification for three years, at the end of which period it is to be
revised according to the average figure exj)erienced during the three
years; and so on for each succeeding period. At eath such time of
readjustment the new standard density ratios will be sul)niitted to
the district pul)lic-service commission, which will determine whether
or not a coincident readjustment (^f kilowatt-hour rates to give to
consumers part of the benelit^i of gains in density is called for.'

* KxiHTlprid' will (Joulitlrhh hiiK(ti"!<t tiiudifloatioiui of these rules. Sonic nuMim Nliould be
d«vlM-<J for ulluc-atliiif the cotilriljulloii to ileiihity niuile by curli coiisuiner in u ifiveii
ttrvet block, to whii-b contrlbulion the wuIp of iliscouiitM inuy be uiljuxted for other than
the imialleKt coiwumerii. t'onsunnitiini In rehilioii l<> Itoor Hpuie iKiiipicMl seeiiiH t« he a
proper ba»l* fur aucb alluc-atioii.

Suggestions fok a Moih-j, K'aii: SfiiKDri.K 215

I). Whok'salc (•(iiisunicrs iakinj^ not less than 120,000 kilowatt
hours a year or inoro arc ontitlcfl to a flomand rato of tho Hopkinpon
tvpo instead ol" payin^^ 5 (Splits per kilowatt hour. Any conRiimep
takin<]^ as iiuicli as 15,000 kilowatt hours in any month must he
charfjed ujion this hasis, oxoopt as noted under F. (Consumers of
smaller size, hut such as take not less than 1,000 kilowatt hours a
month, are entitled to this rate upon claiming it and confonning to
the conditions prescribed in A,

The basic wholesale rate shall be $;Ui j)er year per kilowatt of
demand plus 3^ cents per kilowatt hour. Bub the kilowatt-hour
charge shall be subject to the density-factor discounts specified un-
der C. The demand charge shall also be sul)ject to discounts with
reference to the diversity ratio, or else shall be based upon the mean
of the consumers individual kilowatt maximum and his simultane-
ous demand.'

The maximum demand of a consumer shall he determined by
meter and, except as specifically otherwise provided, by one that
records the consumption during each five-minute interval. The
peak maximum demand of a consumer, except as specifically other-
wise provided, is understood to be the highest recorded average kilo-
watt rate of consumption during any 30 minutes within the year.
The amount of the demand charge due under the year's contract is
thus not finally determined until the close of the contract year
and must be estimated for each month according to definite rules,
adjustment being effected at the close of the year. It is considered
in conformity with the rule if the average maximum for the 4
winter months be taken as the consumer's maximum for the year
and for every month whose maximum does not exceed this average,
the demand charge for each such month of excess to be computed
on the basis of the month's maximum. In the case of consumers
whose load shows the normal seasonal variation, up to July 1 or
thereabouts the preceding winter maximum will apply finally in all
calculations; and after July 1 demand charges paid will be subject
to revision according to results shown in the succeeding winter.

The electrical supply company may make any needed and rea-
sonable regulations and sti])ulations providing for surcharges de-
signed to compensate for or to depress large momentary demands

'The scheme of diversity ratio discounts might be as follows: Whenever the diversity
ratio of any consumer under the demand rate shall exceed 20 per cent, that consumer
becomes entitled to a discount of 1 per cent on the demand charge, and for each point
per cent diversity ratio in excess of 20 he shall be entitled to a larger discount determined
by addintf 1 per cent to this figure. Thus, for a diversity ratio of 21 per cent, the
discount will be 2 per cent; for a ratio of 22, 3 per cent; and so on. Where the diver-
sity ratio exceeds 120 per c-ent or more no demand charge will be made. The diversity
ratio will be computed for each nmiitli or other l)ill period with reference to the average
kilowatt demand on the system during an hour (or longer period if preferred by the com-
pany) specified in advance by the company for the month in question.

2 It'. Electiucal Katics

and irromilar fluctuations of the consumer's {loinniitl durinfr peak
or other Iiours.

K. Any consumer taking less tlian 1000 kilowatt hours a month
shall, ujion npplii>ation, be jjiven a ratinp: for normal consumption
in kilowatt hours per month, hased upon character of load variation,
diversity and intensity of use of appliances, and density of demand,
as interpreted according to published rules, the normal figure so
determined being subject to variation with reference to the four sea-
sons in such a way that, while the average of the four seasonal figures
shall e(|ual the basic figure, the four may vary in relation to each
other in substantial conformity to the seasonal variation of the need
for lighting or in accordance with some other factor controlling the
seasonal variation of the demand. In lieu of all other discounts —
for load factor, diversity ratio, and density factor — a consumer so
rated shall be entitled to a rate of 2^ cents per kilowatt hour for
excess consumption above the amount specified in his rating. A
con-sumer taking less than 100 kilowatt hours a month shall have
available to him only this option in lieu of being i)illcd at the stand-
ard rate,

F. The company may fix a minimum kilowatt-hour rate, after all
discounts have been applied, of H [ ?] cents straight per kilowatt
hour for any wholesale low-tension consumer. This refers only to
the per kilowatt-hour element in the rate and not to other charges.

G. Special rates (not covered by the published schedule) for cer-
tain specified classes of service may l»e oiTcred by the company at
not less than the smallest rate obtainable under the terms prescribed
in D. Notice of any such special rate, explaining its puri)ose, shall
be sent to all consumers who may be presumed to be interested by
reason of similarity of service and other conditions. In general, the
purpose of such rates is experiment and the development of new
business. All special rates shall be optional with the consumer, but
8ul)ject to discontinuance upon due notice at the will of the com-
pany and of the district public-service commission.

A straight kilowatt-hour rate of not less than the minimum kilo-
watt-hour charge obtained under I) may be ofi'ered to exclusively
off-peak service, reckoning the peak time at not less than two hours
each day. But the consumer in such a case shall, in addition to the
kilowatt-hour payment, recompense the company for all meter and
administrative costs incidental to his special service.

Special breakdown and auxiliary rates and contracts for private
plants shall be olTcrcd, but shall be conl'onnaljle to the rules above
stated.

Street lighting should receive a special rate, determined by con-
tract with the municij)ality, confonnable to the rules above stated.

Such special rates may be flat for street lighting, sign lighting
and similar classes of service, but only where the quantity of energy

Sr<i<ii.>i i<t\.s ini; A MmtKi. Ii'Air. Sciii:i)ri,i; 217

consumed is dofinitcly ascertained ihrou^di recorded hours of service
and capacity of connected apparatus, or else where hours of use are
controlled from a station or sub-station of the company.

11. Prices for lamps and all other electrical consumers' appli-
ances supplied hy the comjiariy shall he' fixed each January 1st for
the period of a year, subject, however, to reduction but not to in-
crease, at any time durin<!: the year. For each coiii^umer entitled to
free renewals of lamps, at least one -JO-watt lamp of the most efTi-
cient tyj)e in commercial use shall be supplied and renewed free of
charge.

I. High-tension switchboard and primary rates shall bear an
equitable relation to the above low-tension rates. The rate shall
be eitlier of the Hopkinson type or off-peak. All contracts shall
conform to a published schedule, which shall include standard
sti])ulations as to power factor and the variation of rates in relation
thereto.

J. High-tension rates, off-peak rates consisting of a kilowatt-
hour charge only, rates to private plants and others generating elec-
tricity, and any established kilowatt-hour minimum, may be quali-
fied by a coal (or fuel) clause varying the specified kilowatt-hour
charge with the cost of coal or of a specified number of heat units
contained in fuel purchased.

It must be recognized that the electrical rate question is a matter
of law and of politics — in no necessarily bad sense — as well as of
economics. Doubtless much remains to be said on the subject from
this point of view and much in the way of adjustment and com-
promise is necessary. These are matters with which this work does
not profess to deal.

On the economic side a caution is necessary as regards certain
possible future developments. If it ever becomes possible to store
electric energy as cheaply and efficiently as, for example, it is now
possible to store gas, load-factor considerations will become of negli-
gible importance. Electrical rate schedules should then be expected
to lose their present characteristic traits. The storage-batterj' is
already applied to a considerable extent for smoothing out the peak
of the load, at least in Europe, but it is available only for direct
current and is costly in respect to both initial outlay and efficiency.

If in addition it should become possible to transport the stored
energy cheaply, steam central-station electric supply itself would be
completely revolutionized. In any case, as time goes on, through
improvements in transmission and through enlarged facilities for

-IS Kl,E(TRirAI, Ratks

tho storn^rr of water, hvdro-clcctric ^cin'rnlioii will liommp more
important. Hut this (IcvclojJinnit hy itself will tend to cause an
increasod emphasis on load-factor considerations rather than the
opposite.

However much the tochnolofjical devciu|>nicnts of the future may
affect eleetrical rate schedules by chan^inj]: the conditions presup-
posed in an economic analysis of the existing,' situation, there can
scarcely he found a more interesting problem in rate analysis thnn
is afforded by the subject of the present work. Nor is the i^ignili-
cance of such analysis limited by the continuance of the dominant
importance of the load factor in electricity supply.

In the long run economic considerations should control tiic policy
and attitude of regulating bodies and courts towards electrical rates.
Rates that favor the most economical, that is, the fullest, utiliza-
tion of capital should he, not merely jiermissive, l)ut prescribed. So
long as the load factor has its present economic significance, the ren-
dering of maximum service can be effected only through an appro-
priate rate schedule. The mere averaging of costs, whether by few
or by many rate classes, and whether on a straight kilowatt-hour
basis or according to some more recondite form of the idea that cost
can be comi>letcly pro-rated per use unit, will not suffice. The con-
sumer ought to be given an inducement to promote the lowering of
cost. This is entirely practicable, at least with large consumers.
Differentiation with a view to maximum service is needed.

Confronted with present conditions of economic uncertainty and
unrest — which the electric central-station industry shares with other
kinds of business without having had their ojiportunities for profit.s
from the War — the practical central-station man will doubtless find
the overshadowing problem of getting an adequate return a barrier
to giving much attention to questions of detail as to comparative
rates for difTerent classes and conditions of consumers. Trogressive
economic changes, however, are especially likely to be nurtured by
unsettled conditions. Kate readjustments will b(> initiated but not
perfected under the pressure of emergency. More and more atten-
tion will be paid to getting the right kind of linsinc«s and snjjplv-
ing existing customers through the right kind of rates. We may
therefore lo(jk forward to the grailiinj elimination of arbitrariness
or of the too free exercise of options by the conipanv in determining

Sr(;(;i;sTi()Ns for a Mouki, I{ath SciiinuLK '>][)

the consumer's demand under load-factor rates. Ami (|iiaiitity dis-
couni'^ may be expected to be ^rradmilly purj^'ed of the suspicion of
being unduly influenced by bargaining power. It is not possible to
say exactly where a correct balance will be struck between over-
refinement in adapting the rate to particular conditions and injus-
tice in the grouping together of consumers with dilferent charac-
teristics; but it is safe to say that fuller knowledge of the facts
pertinent to such determination will be developed and with it will
tome better application of such knowledge.

INDEX OF NAMES

(Where a page number is followed by the letter n the reference is to a

footnote.)

Acker, Men-all & Condit case, 185n.

Adams, Comfort A., 6.

American Academy of Political &

Social Science, Annals of the, 60h.
American Economic Review, 30/1.
American Institute of Electrical

Engineers, 12, 12n, ISji, 14, 128.
A. I. E. E. Proceedings, 28n, 36/1,

62n, 94n, 167n.
A. I. E. E. Standards Committee,

49.
A. I. E. E. Transactions, 169n.
American Society of Mechanical En-

nccrs, Transactions, 204n.
A. S. M. E. Journal, 28n, 169n, 204n.
Association of Edison Illuminating

Cos., 13n, 62n.
Assn. of Edison Illg. Cos. Commit-
tee on Load Factor, 14n.
Astbury, Justice, 122n.
AubuiTi, N. Y., 89?^.

Baltimore, 25n.

Boston, 146n.

Boston Edison, 24, 37n, lOOn, 121n.

(British) Board of Trade, 144n.

(British) Institution of Civil Engi-
neers, 5271.

Brooklyn Edison, 18, 18n, 24, 76n,
93n, 95n.

Brown, Will, 32n.

Burnand, W. E., 56n.

California Commission, 60n, 167n.

Carpenter, Prof., 16Sn.

Chicago City Council, Report to
Committee of, on Gas, Oil and
Electric Light — Investigation of
Commonwealth Edison Co., 16?i,
21».

Chicago. 20, 21, 22, 23, 59n, 13471,
146?i, 161.

Chicago, Milwaukee & St. Paul
llailwav, 146n.

Clark, J." M., 197n.

Cleveland Electric Illg. Co., 24, 76n.

Commonwealth Edi.son Co. of Chi-
cago, 16, 18, 20;i, 23, 23;i, 28/t, 74n,
90n, 131n, 159?i, 169n, 179.

Consolidated Gas, Electric Light &
Power Co. of Baltimore, 25n.

Consolidated Gas Co., New York
City, 143«, 158ft, 173.

Crompton, R. E. B., 52n.

Detroit, 146n.
Detroit Edi.son, 24, 91.
District of Columbia, Public Utili-
ties Commission, 78?i.
Doanc, S. E., 125n.
Doherty, Henry L., 70n, 126n.
Dow, Alexander, 86n.

Edison " Jumbo " dynamo, 27.

Eisenmenger, H. E., 129n.

Electrical Review & Western Elec-
trician, 129/1.

Electrical World, The, 23n, 27n, 32n,
56n, 57n, 76?!, 77/!, 78n, 91 n, 93n,
lOhi, 126r), 129n, ISln, 137n, 140n.
145n, 146?i, 167n, 172«, 173n, 175n,
176n, 17971, 184/1, lS5;i.

Electrician (London), The, 5ln, 53n,
60?i.

Equitable Building, 167/1.

Erickson, Halford, 60n.

Fall River Electric Light Co., 76n.
Ferguson, Louis A., 62/i.
Flatbush Gas Co., 18, 18n.
Ford Motor Co., 1677K
Freeman, 68/1.

Gannt, H. L., 20471.

Gear, H. B., 129n.

Gear & Williams, 12S«, 12971.

Georgia Railroad Commission, 166n.

Greene, W. J., lOln, 126/1.

Hackney Municipal Council, 122ti.
Hale, R. S., 137/1.

221

222

Electrical Katks

Ui\\\ of Rocortls Power Plant
Kcptirt, 168n.

HnniKin. 65ri.

Hupkinson. John, 51, 51ti, .')2», GOh.

llydro-KliM-tric Commission of On-
tario, 176n.

Idaho Public Utilities Commission,

13,5n.
Illinois Commission, 26n, 29n, 47n,

66ri. 77n, 90n, 113n, 159h.
Indiana Commission, 90n.
Insiill, Samuel, 2Sn, 131«, 169, 169n.
Interstate Commerce Commission,

35n, 154n,
Ives, 172n.

Junior Enpinecring Society, Trans-
actions, oln.

Kapp, Gisbert, 56.

Lieb, John W.. 138n, 151n, l.S4n.
Lincoln, Paul M., 28n, 36n, 62n, 94n,

lG7n.
Llovd, E. W., 96n, 145rj.
Lorenz. M.O., 203n.
Lubarskv, L. H., 6.
Lucke, Prof., 168n.

Maine Public Utilities Commission,
119n.

Maltbie, Commissioner, 92n.

Manhattan, 139. 143n.

Marshall. Alfred, 186h, 200.

Mar>-!an<l Commission, 26n, lOOn.

Miuiaciiusf'tts Board of Gas &
Electric Light Commissioners, 37n.
6.5n, 71rj, lOOri, 121n.

Mass;ichu.s<'tts Department of Pub-
lic Utilities, 119n, lG6n.

Ma.ss;uhusett« Public Service Com-
mi.ssion, 171n.

M.llett, J. E., 131n.

Mitropolitan Edison of Reading,
Pa., 79.

Michigan Comiiiission. 77n.

Miller, D. D., 176n.

Milwuukje, 187n.

Missouri C'ommission, 77n, 167n.

Montana Commi.ssion, 113n.

Montana Range Power Co., 175n.

Mows and Schaller, 18-ln.

National Awwjciation of Railway
Ounmi.KsionerH, Committee on
Public Utilitv RaleH, 47n, 58n,
7y»i, lOOn, l6.3n, 115h, IOOn.

National Civic Federation, 37n.

N.ational Commercial Gas Associa-
tion, Diderential Rates Commit-
tee. 26n, Gin, 107h.

National Electric Light Association,
179.

N. E. L. .\. jtroreedings, G.')H, OGh,
fiSri, 70r), 7S?i, S6n. 96«, UOri, I2ln,
U'tu, 1297J, laSn, 144n, 145n, 155n,
1 7071, l.SOri, 184h.

N. E. L. A., Committee on High
Load-factor and Non-peak Busi-
ness, 130n.

N. E. L. A., Committee on Lamps,
73n, 75n, 96n.

N. E. L. A., Committee on Meters,
63n.

N. E. L. A., Committee on Prime
Movers. 27n. 28?!.

Neibich, W. N., 140n.

Ne\vb(Tr>-, F. D., 277i.

New IIanip.>^hiie Commission, 102n.

New Jersey Public Service Com-
mission, 71;i, 77/1, lOOn.

New York Citv, 16, 91, 91n, 121n,
14371, 169.

New York Court of Appeals, 72«,
185n.

New York Ivlison. 18, ISn, 21n, 47n,
.52n, 73n, 74 7i, 767i. 92h, 937i. 1347i,
1.58. 1.59. 161, 168n, 169«, 170, 172,
182. 18471.

New York Edi.son and United Elec-
tric. 23, 8971. 1.59. 170.
New York Public Service Commis-
sion, 1st District, I871, 737i, 91n,
9271, 9371, 9571, 10271, IO871, 113;i,
12271, 13971. 14371, 1.5971, 1737i, lS57i.
New York Public Service Comiuis-
sion, 2d Di.strict, 29, 54, 727i, 77«,
9371. 10071. 11571.
New York Si Queens Electric Light

,t Power Co., 23, 767i. 93n.
New York Sujjreme Court, 185n.
Norway, 176«.

Ohio Public Utilities Commission,

71ti. 72h, 8971.
Oregon Comiiiis>«ion, 47«, 148n.

Pennsylvania Ptiblic Service Cora-

n)issif)n, 77ri, 79h.
Pliiladelphia, 94n.
Philadeli>hia Electric Co., 24.
I'igou, 194.
I'otomac Electric Power Co., 78n.

Imdhx of Names

223

Power, 184n.
Pratt, F. C, 146n.
Public Service Mlictric of New Jer-
sey, 21.

Quarterly Journal of Economics, 6,
7, 37n, 151«, 194h, 203n.

Rate Book, N. E. L. A., 32n, 4-1n,
48t?, 5hi, 53?i, r)6ri. 66n, 68n, 76,
76n, SO?i, S2n, 89h, <»3«. IGln.

Rate Research, 2rvi, 26n, Sin, 53n,
62n, 65n, 6Gh. 71», 72«, 77n, 79h,
90«, I02n, lloH. lH)n, 123n, 135n,
138n. 14Sn, 169?!, lS7n.

Rate Research Committee, N. E. L.
A., 44/?, 45n, 47, ')!», 52, 52h, 64,
66«, 76, 78, 80«, 96«, 100«, 110?i,
111/?, 113/?, 121/?, 129/1, 138n, 155n,
170/?, 177/i. ISO. 180/?.

Richardson, H. W., 57n.

Rochester, N. Y., 146/?.

Rochester Gas & Electric Co., 77;?.

Rockford Electrical Co., 77n.

Sandusky Gas & Electric Co., 173/i.
Schenectady, N. Y., 57/?.
Scovell, Clinton H., 204n.
Seattle, 145/?, 170/?.
Siegel, Gustav, 5ln.
Standardization Rides of A. I. E. E.,

12. 12n.
Statistics of Railways in U. S., I C.

C, 35/1, 36/1.
Steuart. C. E.. 173/i.
Switzerland, 176/?.

Tuu.K.sijr, F. W., 6, 191.

Union Electric Light A Power Co.,
167n.

United TStates Census, Abstract of
13th, 168n.

U. S. C'ensu.H, Efrtimatcfi Valuation
of National Wealth, 36/i.

United States Census of Central
Electric Light and Power Sta-
tions, 34, 142n, 168n.

United States Census of Electrical
Ind\istrics, 34n.

United States Census of Manufac-
tures. Abstract, 36n.

T'tah Public Utilities Comrai.ssion,
177/?.

Walli.s, 12.5n.

Washington, D. C, 170/i.

Washington Supreme Court, 181r?.

Watkins, G. P., 7, 30n, 37/1, 151n.

Williams, 179n.

Williams and Tweedy, 108n, 109/?,

146/?.
Wisconsin, 37, 37r?, 39, 112.
Wisconsin Commission, 28, 28n, 47n,

53, 55/?, 58. 59/?, 60/?, 100/?, 119n,

125. 141, 187/?.
W^isconsin Electrical Association,

60/?.
Woolworth Building, 167;?.
Wright, Arthur, 53, 60/t, 69/?, 132n,

177/?.

York, Pa., 89n.

INDEX UF SLl'JKCTS

(Where a page number is followed by the letter n the reference is to
a footnote. At the boRinninR of each chapter is a condensed outline to
which, also, the reader is referred.)

Apjiliances. s;ile and renting of by

central stations. 178.
Averages, use in rate classification,

Ill-
Averaging, of peaks in determining
demand. 61 ; as a concession to
diversity. 61 ; as based upon di-
versity, 1.51 ; limitations upon as
a basis of rates, 202.

Bargaining power as a factor in
rates. 166, 183.

Block-front foot as a basis for den-
sity-factor discounts. 185, 186.

Block method of graduation, de-
scribed, 45; differs from usual
whnk"s;ile discounts, 46 ; compared
with step method by means of
curves. 47 ; also applied to the
demand charge, 52.

Breakdown rate described, 42, 64 ;
for isolated plants, 66; actual
variety of use of energy under, 67.

Carbon-filament lamps obsolete, 95.

Central stations, individual capaci-
ties of in various states, 28. 29.

ChiHsification, !is a rate-making de-
vice, 106; need of avoiding arbi-
trariness, 113; u.se of averages in,
114; not an advanced nietliod of
rate-making, 115.

Cl;u« rates in general. 111; occupa-
tional, 112; as development rates,
206.

Clock's share in demand metering,
63.

Coal clause, early examples, 76; ex-
tent of adojjtion by 1919, 76; not
applie<l to all classes of con-
sumers, 77; sliding scale down as
well as up, 77; wc.ikne.sses of the
devic«', 78; originated as an emer-
gency nu-asurc but probably per-
inan<;nt, 79; place in a model rate
Bchedide, 217.

Coniiiii-HHionH, powers and attitude
in rrl.itKjn to ilntrical rates, 37;
to <li(Terentiation, 38.

221

Comiilexitv in rate schedules un-
desirable, 210.

Connected load, A. I. E. E. defini-
tion, 1371 ; as basis of demand
cliarge, 59.

Consumer charge, described, 69;
may residt in a high rate per kilo-
watt hour, 70; in the opinions of
New York comini&?ion.>^. 92n; as
a means of avoiding di.><crimina-
tion among small consiuuers, 99.

Consimier cost, 87; relation to use
of gas or electricity, 88; normal
amount of, 90; greater in stirbur-
ban and rural service, 90; possi-
bilities of economy, 91 ; for gas
and electricity compared, 91 ; if
not met in maximum rate or by a
separate charge may involve
wider first block, 92 ; lamps not
properly a part of, 94.

Con.'^umer clement in cost, ratio to
total, 125. 126.

Contracts between company and
eon.sumcr not outside the rate
structure, 81.

"Convenience" lighting in relation
to the estimation of demand, 58.

Cooking by electricity, 175; com-
jx'tition of gas. 176; character of
cooking rates, 178.

Co-operation between isolated
l)lants and central stations, 184.

CoiTidor lighting, 170.

Cost accounting, a theor>' that pro-
vides for difTcrcntial prices, 20-1.

Cost analy.sis should not load unjis-
signed items on a residual cl.iss,
181; apportionment not the siuue
as separation of costs, ISl.

Curv(>s of load v.ariation, 15-22; per
cent index form de.><cribed, 16n.

Daylight, duration of in relation to
.•^ci.sonal v.ariation of demaml, 133.

Daylight sjiving, adds to sea-sonal
disadv.'intage of lighting demand,
137; not an inijxjrtant burden on
electrical comjianies, 137n.

Index of Subjects

nrj

Demand, A. I. E. E. definition, 13n.

Dcnmnd factor, A. I. E. E. defini-
tion, 13h.

Demand charge, 49; relation to
peaks, 49; properly relatss to fixed
capital requirement and should
take account of diversity, 50; an-
nual vs. monthly basis, 60; prac-
ticability of in relation to size of
consumer, 144 ; not properly a
matter merely of the individual
maximum, 150.

Demand cost cannot be specifically
separated per kilowatt, 148; to be
dealt with as a matter of com-
mercial policy, 151 ; illustrates in-
correctness of idea that costs arc
proportionate to use, 204.

Demand element in cost, ratio to
total. 125, 126.

Demand metering. 57; substitutes
for, 58, 64 ; practicable for all large
consimiers, 62, 144 ; should be re-
quired wherever large discounts
for quantity, 145 ; should be open
to medium sized consimiers on re-
imbursement of cost, 147.

Density, significance of for electric-
ity supplj\ 29.

Density factor, not a matter of
quantity merely nor of the size
of the consumer, 165, 186; not
necessarily associated with high
load factor, 165; should be made
explicit in rates, 165, 182 ; a way
to deal with isolated-plant com-
petition without discrimination,
189; summary of importance in
rates, 212.

Density-factor discounts, range of,
188; place in model rate schedule,
214.

Density-factor rates, the way to
meet isolated-plant competition,
172 ; general economy involved,
172; possible adaptation of
"Wright type of rate to this view-
point, 179; small consumers en-
titled to consideration under, 186.

Depreciation may be in proportion
to time instead of to wear, 202.

Development rates, 188.

Differentiation, may be explained
by monopoly or by joint cost,
197; applied to kilowatt hours
supplied, 197 ; occurs also where
there is competition, 199; not the

result of a single cause, 199; ab-
.scuce of one kind of is a pos-sible
( armark of mono])oly, 201 ; not
ofipo.sed to cost analysis, but to
the idea that all costs can be sepa-
rated, 204.

Differential rates defined and de-
scribed, 105; may be involved in
wholesale rates, 106; not sufTici-
entiy ju.stified by success, 116; a
competitive device, 117; relation
to co.st, especially future cost, 118;
"additional bu.siness " basis, 119;
based on desirability of full utili-
zation of fixed capital, 191.

Distance from station as a factor in
rates, 186, 187.

Diversity, in effect modifies consum-
er's load factor, 128, 129; claim
that the benefit belongs to the
central station, 1387i; should be
explicit in some load-factor rates,
146 ; as an argument for broad
averaging in rate making, 151 ;
between the uses of a large consu-
mer not as such a claim to a low
rate, 164.

Diversity factor, A. I. E. E. defini-
tion, 13n; for parts of an electri-
cal system and for cLas.ses of con-
.sumers, 128n; individual, 129.

Diversity ratio, 13n, 129 ; in relation
to the small consumer, 130.

Domestic uses of electricity, 140.

Dynamic qualitj' essential to a good
rate schedule, 211.

Energy charge, 43.
E.xtension distinguished from inten-
sification of use, 143.

Fixed-capital costs in proportion to
time rather than to use. 203.

Fixed-capital investment in relation
to rates, 12; a large element in
the cost of electricity, 26.

Fixed element in cost. 126.

Fixed expenses, proportion to total
costs, 125, 126.

Flat rates, 64, 65; original reason
for, 65; relation to hydro-electric
power, 66: recent revival for small
consimiers, 66; limiting devices in
connection with, 66; for summer
resorts, 136.

226

Elkctrical Kates

Floor-;irra basis of domiiivl (•h!irK<\

59.
Free hlorks, 16; limit inii provisos to

avoid, 47.

GenenitinR units of larRe size, 27.
27 « ; in rel:\tion to eosts, 28.

Growtli of elect.rieity supply, 34;
compared with that of other in-
dustries, 35.

Guaranty feature of rates, 67.

Heating of rooms by electricity only

exceptionally i)ractical, 175.
HiRh-ten.-^ion rates, 42, 112, 1S9; in a

model rate schedule, 217.
Hopkinson rates, 51 ; most generally

used rate for large con.'^umers, 52;

more scientific than Wright rate,

54; best type for all large con-

simiers, 147.
Hours use of connected load not of

fundamental importance for small

consumers, 141.
Hydro-electric plants, growth of, 35.

Impei-sonal quality of well-adjusted
electrical rates, 208.

Initial charges, 68; legal obstacles,
71 ; how in part met, 72 ; possible
use in an optional rate, 73; indi-
rect effects of, 87; some possible
consumers too small to be profita-
ble 88; relation to the lowering of
the kilowatt-hour charge, 89;
shouhi be as .small as practicable,
89; problem in relation to legal
maximum, 92; i)oi>ular interest in
a low maximum, 92.

Initial co.st, 87.

Initial qualifiers of the kilowatt-
hour charge, 43.

Intensification distinguished from
extension of use, 143.

Interconnection of power plants, 33.

Isolated i)lants as a comi)etitive fac-
tor in rates, 166, 1H3; ecimomy
of us comjjared with central-sta-
tion service, 167; imjjortance as
measured by kilowatt iiours gen-
crated, 168; nlation to combining
tenantji' and landlonls* consump-
tion, 170; eiTects of war and coal
costs ui)on, 173; j)ossible co-oper-
ation between them and central
stations, 184.

Joint cost, 194 ; u nuitl<r of degree,
195; potential by-products may

not be an economic supply, 195;
\imitilized capacity us a. by-
product, 195.
JiLstifiable differentiation in relation
to i,-<()lated-plant competition, 190.

Kapp rate, .56.

Kilow.itl-hour charge, 43; easily
loaded with unassigned costs, 86;
actually not a result of separable
co.st, 87 ; place in a model rate
.schedule, 213.

Kilowatt-hour co.st on a separable
and minimum basis, 84; implica-
tion of (I itain coal clauses as to,
85; small amount indicates im-
portance of differentiation, 85.

Lamp efficiency related to need of
consiuner charge, 94 ; discontinu-
ance of free renewals desirable,
95 ; increase of efficiency in ten
years, 96; service charge a part
solution of the problem, 97.

Lamp renewals, 73, 76; relation to
comparison of lighting with power
rates, 73.

Lamps, high-efficiency in relation to
rates, 73; illuminating standards,
74 ; displacement of other than
tungsten, 75, 76.

Lamps in a model rate schedule,
217.

Large consmners, demand metering
practicable for, 144 ; special sepa-
rable costs for certain of them,
173, 183.

Large jiower rates, certain charac-
teristics of, 166.

Large-scale production, .significance
of for electricity .supply, 29.

Lighting a decreasing share in sta-
tion peak, 139; high-efficiency
lamps a factor. 140.

Lighting demand, permanent sea-
sonal di.sadvantage of, 135; cause
of .sudden jieaks. 136; of decreas-
ing importance in the business of
electrical comiianies, 142.

Lighting of homes, field not fully
occupied, 177.

Limiting devices to control peaks,
146.

]j(r.i(i curves, 15-22.

Load factor deiiii..!, 12-14. 127; A.
I. K. K. definition, 12;i; method
of computing reconuneuded by

Tndkx or Sru.jKCTS

227

Assn. of Edison IIIr. Cos., 14n;
why important for ol^'ctricity sup-
ply, 14, 15; an economic mat-
tor, 25; application to pas ratrs
discnswcd, 25n; importance illus-
trated, 124; consinuer'H qualified
by his diversity, 127; of company
improved by attention to val-
leys as well as peak, 135; sum-
mary of place in rates, 211.

Load factors of specified large elec-
trical systems, 24n; for certain in-
dustries, 130, 13171.

Load-factor rates defined, 56; have
usually been ba.'^cd upon esti-
mated demand, 57; scheme for
discounts in model rate schedule,
215.

Maximum demand, A. I. E. E. defi-
nition, 13n,- substitutes for mea-
surement of, 64; not practical to
measure for the small consumer,
137.

Maximum service as a guide in rate-
making, 120, 123 ; not the same as
value-of-service theory, 120 ; im-
plications of the principle, 209.

" Merchandizing " contracts, 169,
182.

Meter charge, 70; how different
from consumer charge, 70; the
preferred service charge, 97; rela-
tion to demand, 97; limitations in
this respect, 98; amount of, 99;
comparison with minimum charge
with reference to high-efficiency
lamps, 99 ; not for the use of the
meter, 102 ; not favored as a third
rate element, 103 ; suggested for
model rate schedule, 213.

Minimum charge or minimum bill,
70 ; not as satisfactoiy as consum-
er charge, 100; no logical need
of guaranty from small consumer,
101 ; apparently the simplest form
of service charge, 102 ; losing
ground to other kinds of service
charge, 103.
Mininumi kilowatt-hour rate in

model rate schedule, 216.
Monopoly, as ready to lump custom-
ers as to differentiate, 193, 201.
Monthlj' vs. annual, basis of service
charges, 100 ; computation of
quantity discounts, 133.
Off-peak rates, 64; a thoroughly
load-factor type and involve at-

tention to diversity, 67; relation
to filling-in valleys, 146.

Option, a .suggfj.sted general one for
small con.sumers, 210.

Optional rates, as a means of sc-lf-
cla.s.sification, 114; the option in-
volved belongs to the consumer,
115.

Output cost, 84.

Output element in cost, ratio to
total, 125, 126.

Output rate, 81.

Overload capacity, 30.

Peak demand used in rate-making
not instantaneous, 61.

Peak hours, adju.stnient of to ob-
tain low rates, 145.

Per cent index curves described,
16n, 20n.

Plant factor, A. I. E. E. definition,
13n.

Politics as well as economics in rate-
making, 92, 217.

Power, permanent advantage over
lighting in respect to seasonal
variation, 108, 140.

Power factor, A. I. E. E. definition,
13n; significance of, 32; not a rate
problem, 32, 111.

Power rates, described, 41, 106;
competitive factor in, 107; rela-
tion to hours' use, 108; to sea-
sonal demand; 108; actual basis
in load-factor considerations, 109;
claims to class rate no longer
strong, 110; relation to power fac-
tor, 110.

Primary or high-tension {q. v.)
rates described, 42.

Prime cost, 83.

Private plants, see under isolated

plants.
Prompt-payment discount, 80;
sometimes a cover for quantity
discounts, 81.

Quantity discounts afifected by dif-
ferentiation. 153; may not appear
as such, 154 ; proper range of, 156;
con.simier cost not properly a fac-
tor in range of. 157; extent of
under a i^imple block-rate s>'stera
computed, 158; riders favoring
quantity, 159; extent under a
load-factor rate system computed,
161 ; not confined to the kilowatt-
hour charge. 162; demand blocks
under a Hopkiason rate not an ap-

KLi:(ii;ir\i, Kates

jiropriatc phicc for siich difcounls,
1G2; density factor the sound
basis for, 163; reasons wliy lluy
niiplit bo cxpocti'd to be small in
elect ricity supply, 181.

Railroad rates, analogous to electri-
cal rates, 12. 150.

Railroad rate differentiation af-
fected by possibility of delaying
shiimient. 198.

Rate elements onuraeratcd, 42.

Rate-makinn, immediate and more
remote prospects, 218.

Rate schedule described, 41.

Rating of generators, 30.

Rebating possibilities, 171.

Reserve capacity in relation to
rates, 152.

Residence use, of artificial light
easib' estimated, 136; diversifica-
tion of should be encouraged, 174;
of motor appliances should be
encouraged, 177; lack of density
in more important than low load
factor of, 178.

Residual method of computing cost
unsound, 86, 118.

Retail prices, likely to be differen-
tial, 201.

Seasonal consumption in relation to
the sers'ice charge, 100.

Seasonal variation of demand, a
load-factor consideration, 132; re-
lation to monthly vs. annual com-
putation of rates, 133, 134; the
unavoidable disadvantage of light-
ing use, 136.

Separable co.st, refers especially to
initial charge and to kilowatt-iiour
charge, 83; a lower limit on price
differentiation, 207.

Service charge, defined, 68; types
dewribed, 69; either consumer or
meter favored as promoting busi-
ness development. 103.

Service units in relation to rates,
120.

Simidtaneous demand, 129.

Sin.ill con.simier, cannot be suppli<'d
under strict load-factor rates, 137;
Wright rate jm make.shift. 138;
diversified use by shoiild be en-
couraged, 140; also intensified
uw. 143; rate for might well re-
quire gmaller hours' use by in
summer, 143; entitled to consider-

ation umler density-factor rates,

1S().
Small power u.'Jtrs. social importance

of electricity for, 174.
Special rates. i)lace in a model rate

.-riiedule, 216.
Special rates to .street railways. 163.
Si)ecific co.st not a complete basis

for rates, 201.
Step method of graduation, 44;

more familiar to the public than

the block method, 46; condemned

by commissions and others, 47.
Straieht-line meter rate, 43, 48>i.
Surciiarge, 80.

Technological developments in rela-
tion to future rates, 217.
Two-charge or Hopkinson rate, 51.

Uniformity of price, not the origi-
nal or normal condition, 192 ; suii-
tained by moral force of public
opinion, 193; the conditioning
homogeneity of goods a matter of
the attitude of the public, 194.

Use, classification based upon not
practicable for electricity, 112,
122.

Value-of-service theory of rates,
limitations and dangers of, 121.

\'()lumc of con.-^uuption, how best
recognized, ISO.

Wage claus(% 79 ; public policy in-
volved, 79.

Wholesale and retail, where the di-
viding line. 155.

Wholesale price not strictly appli-
(•al>Ie to electricity, 155, 163.

Whoieside prices often differential,
200.

Whol(\s,ile rates described, 41 ; af-
f((ted by differentiation. 153.

Widtli of first quantity block. 88.

Wri^'lit rate, descrii)e(i, 53; mo.st
generally employed load-factor
rate, .')4 : computation appears
simpler th.'in for Ilopkin.son rate,
54; possibl(> other than load-fac-
tor use, 55; connect e<l load b.asis
for, 58; in practice more a mat-
ter of cla.ss averages than the
Hopkinson rate. 61 ; unduly wide
i'wM. block and tmduly high iiiini-
iiium .active connected load under.
l.HS; takes no direct account of
diversity, 141 ; need of revision to
emphasize density factor, 179.

This book is DUE on the lust date stamped below

MftR 1 6 1933

jHTERilBWB^ LOANS
•■ .■ ; REM

SEP 1 4198^

Form L-9-i:>m-7.'ai

9685 Watkins -

^A2W3 Electrical

cop.l rates.

^ ^^58 07288

5165

CJCrIp

,„,,. oirifi.yii I IRHAHY ttClLlTi'

AA 000 766 677

UNIVEK.M 1 .

a.il^UHNlA

LUS A>'GELEiJ
LIBRAKY