POWER BOARD AFFAIRS

Otago Daily Times, Issue 20961, 26 February 1930, Page 5

POWER BOARD AFFAIRS

A REPLY TO CRITICISM. STATEMENT BY ENGINEER. ’ MANAGER. ADVISABILITY OF INQUIRY. The engineer-manager of the Otago Electric Power Board (Mr J. C. Collins), with the approval of his: board, submits the statement in regard to Power Board ■affairs as a reply, to the criticism that has been levelled at that body during the; past few weeks:— Because so representative a body as the executive of the Otago Farmers’ Union resolved that an investigation into the board’s affairs be demanded, I have prepared for your consideration the following statements, respectfully soliciting the board’s permission to their publication for the purposes nf— " .. ■ ■ (1) Showing ; the executive of , the : Farmers’ Union that its demand was based on an incomplete consideration of figures placed before'it; (2) Showing opr consumers' in general that the 1 board fully realises the ; seriousness, of its position'arid .has had a full realisatiori of its difficulties since my appointment in March, 1927;, (3) Showing our consumers that the board has set itself the task of bringing its affairs to a‘ satisfactory state, anticipating only the assistance of its consumers to an extent no greater than is given to the average supply authority in New Zealand.

The chief factor which has caused the board’s finances to be in its present state was the adoption, by the Otago Power Board in 1924, of a non-guarantee policy. It is not necessary to discuss the pros and cons of a guarantee versus -a nonguarantee system> Let it be sufficient to say that solely from a .sound financial aspect, the. ’guaranteed system has everything in its favour,, provided the guarantees amount to a minimum 15 per cent. °f capital expended and are spread over a suffici4ritly long..period.. From the other standpoint, the. non-guarantee system has, at anyl rate, this advantage, that the man witu the land who advances the greatest security for capital required receives the benefit of electric 'supply without further penalty. . CONSIDERATION OF. FIGURES.

In .1924 the Public Works Department submitted estimates, based upon information received from the Power- Board he.fore the late Mr Massey. ' The' board itself was never informed what these estijnates. -were, but that they were unduly optimistic willy ’be . admitted upon, consideration of the board’s position as each year was completed. Nevertheless, /the executive. was /quite entitled to consider a comparison of! the board’s present position with that estimate. But why did not the. executive conaidetj further. the' beard’s position at March 31, 1927, with that estimate? , • * Such consideration would- have shown,: —Capital expenditure at 31/3/27, estimated £150,000, actual £192,500; total revenue, 1925-6, 1926-27, estimated £40,000. ™ a L £l7 ’, 2oo , : '!*■ at 31/3/27,' estimated £12,300, actual £4OOO. Now Pince the c.ipita*» expenditure exceeded trie estimate, by £42,500, one would' have expected a greater loss than' the* anticipated £12.300 had the revenue been up to expectations. Since the revenue for those , two vears fell short of the Estimate by £23,200, would not one natrirally ekpect a loss exc.eed “!l/IS.SOO. pius £23,200, i-.e., £55.500? 7^ oss shown does not exceed £4000! ,-It must be apparent, therefore,, that these losses,; at this 1 stage, were so decreased by paying 'mi jot: capita] various permissible charges—a procedure ' conducive to dire results. ’'This‘ further consideration will surely show .that' the board s financial position was then no less unsatisfactory , and no less serious than if is to-day.

REALISATION OF'POSITION, In 1927, some weeks a’fter my appointment as engineer-manager, Mr .Denford and I placed a complete statement of the boards financial position in front : of the members. ' ■ ■' :■ At this time, and lOrti one orj-itiwo- other occasions, resultß ha.ve ’prdyed that 'l Have ’certainly made tne"'mistake of'beinit overconsiderate of the ,effect of the'board's actions upon the Ratepayer,, , When this financial-statement placed,before the board—the outstanding figures : of which were a capital .expenditure of '2192,500 and a revenue 0f.£13,200—1 made 1 a stateto the members, and considered it sufficiently importabt; to repeat ifi ■ This ; statement was to the folloiving effect:— With respect to the board’s future policy were I to consider my position as a appointed engineer-manager as being of first importance to. me, I would naturally adopt a conservative attitude; when sub-, mining estimates-for the ensuing, year; with the position ■of capital expenditure and revenue such as they are, there could be only one outcome of such a jpolicy—the striking of a substantial, hate, for the year and for successive years, until *he board should become self-supporting,' Ihe alternative was to stave off rating as long as possible, the advantage being that ap each year passed we should become more nearly a self-supporting concern, and lessen the number of years during which our ratepayers would have to bear the burden of a Tate, The disadvantage, from my point of view, and I stressed, this, was that in the interests of the Power Board X was placing my reputation in the hands ? * “y 0 members, as this course necessitated an optimistic forecast of revenue and whenever,- this forecast, was not realised, no alternatiye, remained but to supplement our receipts from the sale of dectricity with - receipts from rating When rating is presorted to, it must of necessity penalise certain ratepayers more severely _ than others with resultant dissatisfaction, such dissatisfaction usually bemg expressed in one form 'or another through the columns of the press. Now, has the result of this policy been an advantage or disadvantage to the hoard’s ratepayers. A rate or an increase in power charges has the immediate result of curtailing considerably both the nee of , power and the installation of extra electricity consuming devices; after a period, varying with the type of consumer, nor-mal-usage and normal increases again, become prevalent. Had we resorted to ratmg in 1927, our receipts from the sale of power would undoubtedly have been considerably less than those actually obtained. Consequently, though the average’ rat ° “ any one year would not have exceeded |d in the £, our ratepayers would have paid a greater amount in rating by March, 1930, than they are being asked to pay, and in all probability a greater ampunt at the end of the rating period than we at present anticipate their 'having to pay. +i.Pl r ! 9time i\ mus , fc therefore realise that 1927^ oar< * teeh over a concern in

(a) Which had promised that if the loan for £200,000, placed before the i n 1 ? 24 ’ wre carried, it fv pp]y ele ctriwty to everyone £jJflS. a /i ea 1 5 e 0U‘nng power. This Lr .I edly b °F ne out by the fact that all the . premises within the area Were wired up. (b) Had promised the people of the ~ J 3^7 en *f e araa that if they became part of , the board s inner area, they would be reticulated in exactly the same manner as the original district—and “a sras."** of *• b “ rd ’* «► (e) A concern which still had to carry out the construction of approxi--150 miles of 6000 volt line in order to supply its outlying consumers, besides reconstruction in the boroughs and wherever our increased demand warranted it. (d) A concern. Which, owing to delays, strikes, and largely to paying various charges out of capital, had' apent £102,600 out of its total of £200,000 and still had committed itself to the above work m (c). That the board was subsequently short of capital must be obvious. , (e) A concern which at that time had a revenue of £13,200, or 6.85 per Ce */c‘{ , ca P lta l expenditure. (t) A concern which entered into an agreement with the City Corpora10Jii.‘0r a ,SU PP'X °f power to its southern area at what was considered to be a basis from 2 per cent, to 5 per cent, on cost—whereas the hoard is actually paying in excess of 50 per cent, on cost.

The foregoing should be sufficient to ■how our consumers that the present management took hold of anything but a rosy proposition at March 31, 1927, and that the board was fully awake to its difficulties; ■

„ THE OUTCOME, The board could not introduce a guarantee system into a district' in which part of the reticulation hrid been carried out on a non-guarantee basis—but it has done its best by endeavouring to have power consuming devices installed in premises awaiting connection before the lines are erected. The board’s yearly expenditure may be divided into three groups:— (a) Interest, Sinking Fund, and Depreciation Fund. (b) Cost of power. (c) Transport, sales, maintcnauce, s and administration. Interest, Sinking Fund, and Depreciation Fund amounting to approximately 50 per cent, of the total yearly expenditure are charges which must be met and overcome by acquiring sufficient revenue. Cost of power amouting approximately to 30 per cent, of the total yearly expenditure. The present board has made repeated efforts to open further negotiations with the ACity Corporation with a view to obtaining power at reduced rates without success. The agreement was signed 'in 1925, and must stand until either party terminates it by giving due notice. Our one alternative is to obtain power from the Public Works Department, when power from the department’s lines does become available. I have said, and repeat, notwithstanding statements to the contrary, that we will be in a better position when we do receive power from the department. Critics eventually have to realise, as I reported at an early date, that the reduction in our line losses alone must mean a considerable saving to the board. The chief factor contributing to those losses, viz., the* line from Berwick to Clarendon, has of late been the subject of comriient —but, as reported ’ when the subject was -under discussion approximately two years ago, the state of the line, the extra requirements of the Public Works Eegulations, and the importance of continuity in supply, would practically necessitate the erection of a new line at an approximate cost of £4ooo—an expenditure not to be advocated if the department’s supply is available-as anticipated within the next two years. Hence I repeat th\t the board is, and has been, fully aware of the desirability of obtaining. power at as low a cost as possible. Transport, sales, administration, maintenance, amounting to approximately 20 per cent, of the total yearly expenditure. In. this respect the board has done, is doing, and will continue to , exercise the, ■strictest: economy. Taking these items separately: . J TRANSPORT, , Transport ,is a subject that gives grave, concern to both public and private institutions. It may be divided into two parts—-(a) depreciation—of which the most important factor is time, i.e., even if our yehiclea were kept under lock and key for roost of the year a big percentage of ■ our depreciation would, still have to be allowed; (b) running costs, i.e., cost of petrol, oil, tyres, accessories and repairs. We have 13 vehicles as follow: (1) Truck for northern area; (2) linesman’s runabout at Palmerston; (3) linesman’s runabout at ,Waitati; (4) inspector’s runabout for northern area; (5) truck ifor middle area; (6) linesman’s runabout at, Milton; (7) linesman’s run--about at Lawrence; ’(8) truck for Balclutha; (9) linesman’s runabout at Balclutha;r (10) ' linesman’s runabout at Owaka; (11) inspector's runabout for southern area; (12) foreman's car; (13) engineer’s ;car. .. These vehicles are costing us, under this heading, an average of approximately 24s per week per bar, a creditable performance when the difficulty of covering an extra long narrow district as-ours is considered, it being-over 120 miles from Dunback in the north to Owaka in the south. If further saving is to be effected in our transport, it must be in this item. Now. the improvement in the protection of our system, the better knowledge of conditions gradually being acquired by our consumers and the improvement of our roads will in themselves effect a gradual ifservice is to be. given, you will have difficulty, even, with these improvements, of reducing our transport costs by more from the present amount; but I must repeat that , the board has the matter continually before .it and has .spared no pains—and *no one's feelings—in order to effect Whatever possible reduction. One member, Mr Taine, as transport, member, examines carefully : amf in detail the coats and the reasons for each vehicle’s performance. . SALES. >’ •■>.< - - The sales department has been the subject of much abuse; it has also been a source of continual worry to the management. In connection with sales-we are told that this department in itself should be a payable proposition. Now, under the board’s original policy, any of our consumers, are entitled-to buy any. electrical article of,approved make from the board at town retail prices. The result of this policy led to the board having many numbers of different makes of appliances, all used for the same purpose. For example, in 1925, the board procured lair numbers of five different makes of electric irons—the results show that two brands sold well—the . ’remainder are left on qur hands, and new consumers will persist in asking for one of the two good selling lines If we try to sell, those'we nave in stock, we are accused of trying to ioist : an inferior article 1 , upon our consumers, contrary to the board’s - original a- 6 ? - 1- s ' ,^ es Pite our assurance of satisfaction from the article we offer. We have therefore to procure the .necessary article required and still carry our stocks of other makes. The board endeavoured to. supply the consumers* wants by. stocking eight different brands of electric heaters, five different brands .of ranges, and so on. The handicap under which this department is. placed is obvious;, we have not the opportunity to boost a particular line, nor the margin to work on, nor the |serviee behind us that could have been obtained by calling tonders Tor the eupplyof these, articles in +« e J?f S /i “stance and confining onr efforts pnr^tfse™ n,te of a PPJ ian ce for each tL board would gladly rid itself of the tl 00 ™ ha ? d i a s cl confine its attentions H ?orno’ b « fc , Bt °ck in excess of £3500 would have to be sacrificed and nec . essltat ° wr *W off at least £l^lo—a transaction that would at prebe felt by the ratepayer, whereas if delayed for some time it can eflW d p a l Wltl l such apparent - hap? tere af i ain to ° much conratepayer. gIVCn t 0 the effect u P° n the

in^hlwtf£ atlVe J S to do W wit h trading altogether. Now, we dosed our showmanv o*f ®f lclutha ’ and J have no doubt many qt our consumers think we effected a considerable saving thereby ft may K B thl h W k T V that the «av- .■? board, after arranffements for complaint reception and payment of accounts, was made, was less than fl per week., It ia questionable, therefore P if the extra service obtainable when the ahowroom was open, was not worth this Criticism is levied at our method of supplying electricity consuming devices on tjme payment—at town prices and itself intercst. The transaction in b »™n “f sh( ? w a . pro t fit the board, t even if each sale of a range meant a .net loss of £5 to the board thatl* a “once p*ly/- loss, whereas haf range will bring in some £l4 per year bv wfv V ° Ur sales de P ar ,tment was °°.t . at , a "y time, qr ever intended by the k? ard of >ts management, a money-making device, but a means of servicing our consumers in an endeavour to increase our revenue. And let it be thaf “Oerter f im P° rtail t factor that no matter to what extent our policy port S I w rred - i ? re * ard to CnT port, sales, and administration, our one venue. SUCCeSS iß ‘ t 0 our °“

MAINTENANCE. lirße ‘" a , in I teDanC , e a , nd administration Jtttle need be said, other than to remind and “f UniCl ' 1 9 that fbe "question of wages and salaries has continually exercised the minds of the , board members. The quesal 0 w 0 Ki Sta ?i. red u5 tion has been gu-en considerable thought—and 'reductions have tuniti? ng ff l)een Afkmg place as the opporw y J )S ' ers T^ th e matter receiving qCite f ' ot °. £ consideration, even at last meetiDg. As an instance: The tofni nmonnt paid in salaries to the has, been gradually reduced as the work from *2BOO in 1926-27 to a £1760 per year ra*e at t ! - • notwithstanding the fact that the district to be covered has since b,en - area l q Vei wLt P ° f and Owaka areas. What conclusions should our conss sIK/™” ” h “ k " »■

have been accused of wasteful + ° f This cannot be admitted, but certainly more capit-,! < was at first anticipated has been necea. sary. Concisely, £235,000 i7 r “ t u u ,'

the original area instead of £200,000, but of ™ l3 only has been spent since the, appointment of the present management.

2* £40,000. was raised and spent to reticulate. the Lawrence area. 3. With this capital expenditure .of £275,000 we require a revenue of practically £41,250 to make the concern barely self-supporting, and £42,750 to pay our way and pay off losses. 4. Of this total yearly expenditure over SO per cent, is required for interest, sinkdepreciation, and cost of power,., and the exercise of all the economy pos-l sible will not reduce this portion one iota. , >

.L^ ms * le balance of approximately £6OOO pelt year required for administration, maintenance, transport, and sales, accusations of extravagance have been levelled. That economy should be exercised in every desirable way is admitted, and I maintain that my board does,” and is ever ready to economise, as the foregoing statements show; but the position has been a difficult one, for the board must keep upperniost in its mind the necessity for service and for increase in revenue. As an example, the board might possibly save another 5 per cent, of the expenditure under this heading—i.e., £3OO by cutting out sales of every sort, but this would represent a saving of less than 1 per,” cent, of our total expenditure, and is largely overbalanced by the necessity of increasing our revenue. 6. The board desires to reach the figure of £42,750. In 1926-27 the revenue was £13,200; in 1927-28 the revenue was £20,800; in 1928-29 the revenue was £29,255; in 1929-30 the revenue will approximate £34,000, though the estimate was £35,500.' Let our consumers further consider this: The average revenue per consumer in New Zealand at the present time is £l2 10a. This average would yield us a revenue exceeding £43,000, and in thi? alone , the board anticipates the consumers’ assistance.

7. Due to shortage of receipts from sale of electricity, the board has had to supplement its revenue by rating. The board has set out a scheme of rating to bring in'a net amount of £22,000 in four years! .Now the clearest explanationof the position is this.—The board expects the revenue to he received this year and for the next three years, .plus the rating of £22,600, to pay the board’s total yearly expenditure for these four years and reduce its . present loss from £22,000 to £21,000. In other words, and considering that, the New Zealand average would give us a revenue exceeding £43,000. surely we may anticipate revenue’s as follows: SSwr. £ i)S -V- 39.000 1932-33 41,000 Thereafter reach the average, Should these figures-- eventuate the total for forir years would , •• ;••••• £151,000 Add,-receipts from rating .. .. 22,000 Total receipts .. . £173,600 Expenditure, £41,250 x 4 .. £165,000 Anticipated loss reduction .. 1,000 Total .. £166,000 Leaving a margin on the right side of £7.600, which, if the revenue eventuates, the board will reduce. by still further reduction in ther scheme, of rating as set . out. The board also expects the revenue after these four years to reach £42,750, i.e.,' sufficient to. pay its yearly expenditure and to pay £ISOO per, year of the above £21,000, wipipg this off in 14 years. Now surely this position is not at all hopeless !•'./. The consumer must realise from this last paragraph that the board ' contemplates rating only where, there is a. deficiency between total revenue and total expenditure. As a matter of fact the board can rate for such period only—and so the aUegatipn that the Lawrence ratepayers will be rated “ for years and years to come’’ is not correct. While there is a deficiency and therefore rating, each district is hearing the burden of its proportion of loss—but when our total revenue exceeds expenditure (it may be that our original area has a profit more than offsetting a loss occurring in the Lawrence; area) then there will be no rating. Finally there has been much talk of an investigation. The position as outlined must surely show our people the difficulties with which we have had to contend; and the assured manner in which the/present board' intends to overcome its difficulties and put its affairs ih order. The only thing the board with a nrfst difficult scope of\country to control .asks of its consumers is to do what the average consumer in New Zealand- does.. Knowing these facts,our consumers must admit that the board is reasonable.when it can see no advantage to be gained by such investigation—and is therefore reluctant to spend £2OO or so for such a purpose. . Nevertheless, sir, if such an investigation is still considered necessary by themajority of our ratepayers, and such investigation by relieving many unwarranted fears would give our revenue a much desired boost, then, sir, for that reason alone, I would still consider the advisability of procuring the services of a disinterested authority for the purpose.