Tram Firm Attacks 'Opinion' on Profits

R. D. Guy, K.C., counsel for the Winnipeg Electric Co., today charged that the accountant's report, estimating a profit instead of a loss to the city railway, was based on "opinion."

For two hours this morning Mr. Guy cross-examined W.C. MacDonnell, consultant accountant to the Municipal and Public Utility Board, who had computed a net profit of $149,683 for transport operations in 1948 instead of a loss of $790,000 figured y the company.

The board is hearing an application by the Winnipeg Electric Co., for an increase in fares.

Mr. Guy submitted that Mr. MacDonnell's report to the board was based on "opinion" and not on experience in the operation of the public utility.

Asked why he had cut down the company depreciation figure on gas buses from $264,925 to $156,282 Mr. MacDonnell replied it was based "on the past experience of this company."

Is this not the function of an accountant but an engagement?" asked Mr. Guy concerning his estimate on depreciation.

"No," replied Mr. MacDonnell. "I'm afraid we disagree," replied Mr. Guy.

"The two work together," said Mr. MacDonnell referring to the engineer and the accountant.

In his report, Mr. MacDonnell charged provision for depreciation of $363,504 was excessive.

"You are allowing no depreciation for street cars for which the company has set up $110,812," continued Mr. Guy.

"Why do you set yourself as an expert on the rate of depreciation and apply the British Columbia rate to Winnipeg?"

"I did not set myself up as an authority," replied Mr MacDonnell. "I had to go to the B.C. Electric as an authority because it was the only one readily available and was referred to in the reports."

"Are you comparing the climatic conditions of Vancouver to that of Winnipeg?" asked Mr. Guy. "Are the costs comparable?"

Mr. MacDonnell replied that the effect of weather on transportation was only on the cost of maintenance.

"The climatic conditions have not affected depreciation."

Mr. Guy noted that there was approximately $600,000 for under-depreciation on street cars on the books of the company.

"You disregard this and give nothing to the company for depreciation while the company proposes to write it off in five years," continued Mr. Guy.

"That's right," said Mr. MacDonnell."

Mr. MacDonnell stated that at the present rates the company had been using, the street cars had already been fully depreciated.

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• A large portion of present trolley bus operations, converted from street cars and gas buses ... (missing portion of article — garbled)
• Transportation revenue was down 2.2 per cent for the first six months of 1848, but there is no substantial indication the revenue will continue downward.

For rate-making purposes, the report suggests that transportation revenue be estimated at not more than 2 per cent below 1947.

If the weekly permit is withdrawn, as suggested by the company, there would be an increase in revenue of possibly $294,000 under the present fare schedule.

If the monthly ticket is also withdrawn, as requested by the company, there would be a further possible increase of $385,000 under present fare schedule.

• Other revenue estimated by the company does not include other revenue of the Selkirk Company's railway utility in the city fare zone, approximately $2,600.

It also does not include earnings of special reserve funds of the railway utility. At three per cent the report says they should amount to $16,570.

• Cost of wage increase awarded, estimated by the company at $482,500 should be $452,000. Increases applicable to capital and to special reserve charges and interurban bus service were not eliminated in the company's calculation.
• Increases in expenses other than wages were estimated by the company at $185,000. The report estimates these increases at $100,000.
• Snow removal costs in 1947 were abnormal and after allowing for 1948 increases in these costs, the report estimates they should be cut by at least $30,000 to reduce them to normal.
• Operating costs seem to include some factor of deferred maintenance, properly chargeable against reserves now provided.

The report also pointed out that general and administrative expenses are largely allocated to utilities on (the) basis of gross revenue. This basis of allocation in the past few years had thrown a heavier burden on the railway utility to benefit other utilities. It is not certain the railway utility bears an unfair share of these expenses.

The rental charge to the interurban bus service should be increased to absorb at least $5,550 of present operating costs, exclusively of wages.

Certain loses in suburban municipality are properly a cost of securing exclusive light and power franchises. The report says the amount cannot be properly estimated, but on bus lines alone, it would appear that a lost of somewhere between $50,000 and $140,000, at present costs, should be charged to the electric utility of the companies.

The increase in taxes paid to the City of Winnipeg constitutes a major item in the increased cost of operating the utility. Gross earnings taxes, fixed assessment tax and vehicle tax , have increased in 1947 over 1939 by $150,000.

If the fare schedule applied for were adopted these taxes would increase in 1948 by approximately $48,000.

The company estimated depreciation would be similar to 1947, or $800,000. The report added that, in the opinion of its author, the depreciation base is too high and the rates are high.

It recommends a maximum of $440,000 depreciation be allowed the company in revision of 1947 results.

In calculating $440,000 the report says the rates applicable to way and structures have been adjusted but have included gas buses at the 20 per cent rate and trolley buses at the rate of 8.3 per cent, but as approved by the Board.

Depreciation on street cars was eliminated because they were considered to have been fully depreciated of rates used by the company.

The report recommends rate of depreciation for gas buses be set for 1948 at 10 per cent and for trolley buses at 6.56 per cent, on the basis of a 15-year life.

It also recommends that the Utility Board review all rates set for the company's utility in a former order.

The net investment in railway utility property at December 31, 1947 was $6,000,000.