A part of the total energy available to an electric utility from generation, purchases, and interchanges is lost between the time when it becomes available and before it reaches the customers' meters. The percentage of energy losses to total energy available to the petitioner from 1935 through 1945 varied from a low of 12.3 in 1943 to a high of 16.0 in 1938.

An electric utility produces or purchases power as it is used. It must be ready at all times to meet the demands of its customers, including peak demands which are not precisely foreseeable in timing or magnitude. As a consequence, the utility must have ready for immediate service at all times generating facilities which, together with power available under firm purchase agreements, will be adequate to meet demand even in the event of breakdown or other outages. The capacity of the petitioner's largest steamplant during all of the base period was 55,000 kilowatts which represents the petitioner's necessary steamplant reserve. Its hydro reserve must reflect the most adverse waterflow conditions which can be expected.

Electric utilities operate around the clock, but the rate of production varies as the load varies at different hours of the day, week, and month to meet the demand. The peak loads of the petitioner's system during each month of the base period are stipulated.

In addition to the increases made and commenced during the base period to the generating facilities owned by it, petitioner also increased during that period the mileage and voltage of its transmission and distribution lines and increased the capacity of its transmission and distribution substations. The total costs of these additions were $2,362,757.

On December 31, 1935, petitioner had 6,492 miles of distribution lines. During the base period, petitioner increased its distribution lines by 6,734 miles so that on December 31, 1939, petitioner had 13,226 miles of distribution lines. The petitioner had at the end of 1939 67,421 rural customers and 9,492 prospective rural customers. 41,130 rural customers were added during the base period, 40,567 of the rural customers at the end of 1939 were farm customers and the 1939 income from those customers was $959,000. Set forth below is a schedule showing the net additions to miles of distribution lines installed by petitioner in each of the years 1936-42, most of which were rural lines:

The cost of the petitioner's distribution properties at the end of 1939 was $128,184,712 of which $12,256,810 was expended during the base period.

Set forth below is a schedule showing for the years 1935-45 the total dollar revenue from electric sales by classes of customers:

TOTAL REVENUE FROM KILOWATT-HOUR SALES

Duke's hydroplants produced excess power when water conditions were favorable and it entered into secondary and dump contracts at a lower rate for 3-year terms to sell that excess. Those contracts required the customer to take stated minimum amounts of industrial power but permitted Duke to interrupt or cut off the service if insufficient power was available to protect its prime or regular contracts. The prime contracts were never interrupted. The interruptable contracts were not renewed as they expired after the base period but reduced rates caused customers to enter into prime contracts.

The petitioner, during the base period, interrupted service as shown below:

These interruptions were made because of insufficient available power and they reduced the actual power delivered under these contracts to 20,404,480 kilowatt-hours less than the estimated use.

Set forth below is a schedule showing as of December 31 for the years 1935-45 the total number of customers in each class of customer to whom petitioner sold electricity:

TOTAL NUMBER OF CUSTOMERS AT DEC. 31

1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945

Electric railway.

Total....

150, 330 166, 604 187, 591 203, 089 223, 993 245, 326 268, 038 272, 774 276, 137 301, 686 315, 665

The "domestic" classification embraced the residential users of electric energy—that is, persons living in urban and suburban areas and also rural areas including farms. The "commercial" classification embraced retail stores, offices and business establishments of various kinds. The "industrial" classification included various kinds of industrial plants using electricity for lighting, manufacturing or production processes. The "other utilities" classification embraced other public utilities in the nature of wholesale customers supplied with energy for resale to their own customers. It also included rural cooperatives and municipalities purchasing for their own use and for resale. The "street lighting" classification consisted of cities and towns in which petitioner owned and operated street-lighting facilities. The "electric railway" classification consisted of sales to the Piedmont & Northern Railway Co. It was classified as two separate customers because its trackage in North and South Carolina is not connected and it therefore took deliveries of power in both States. The "interdepartmental" classification reflects energy used by petitioner's gas, water, transit, and nonutility departments.

The number of petitioner's industrial customers decreased in the period 1939-43 due to a reclassification of certain customers resulting from new rate schedules which went into effect in June 1939. These customers were reclassified as commercial customers.

During the base period years, the petitioner sold all types of household electrical appliances. Set forth below is the number of such appliances sold for the years 1935–39:

The petitioner during the base period in cooperation with the regulatory bodies of North and South Carolina made a number of rate reductions at times and with estimated savings to customers as shown below:

Petitioner made no further rate changes until 1944, when it revised rates charged to REA and rural co-op customers. It did not again change rates until 1948.

The petitioner's experience had been that a reduction in rates would initially cause a reduction in receipts from sales of power but eventually the increased use of power would result in increased sales of power. This recovery usually required a year or more after the reduction in rates.

There is set forth below petitioner's disposition and sources of energy in kilowatt-hours for the years 1936-39:

Set forth below is the index of petitioner's base period electric department net income:

Petitioner endeavored during all of the base period to sell as much power and accessories as it could. In 1939, it was trying mostly to sell appliances which would use most power. However, it kept in mind that its necessary reserves should not be endangered by excessive sales.

Petitioner's excess profits net income for the years 1941-45 was as follows:

Petitioner's net income for income tax purposes for the year 1940 was $8,373,939.75.

Before 1940, the period 1936-39 was the period of petitioner's most rapid growth in the expansion of its electric system and in the sales of electric energy. There was a large untapped market for electricity in petitioner's territory which petitioner in this period went after to sell both among existing customers and potential customers. As petitioner began to exploit this untapped market in the base period there resulted a substantial growth in petitioner's kilowatt-hour sales, dollar revenues, and number of customers.

All stipulated facts are incorporated herein by this reference. The petitioner during the base period changed the character of its business by increasing its capacity for production and distribution of electric power for which it made commitments during the base period