sent a condition of affairs has been established in the accounts of your company, through the acceptance of false doctrines and economic theories, which jeopardizes your interests and adds immeasurably to the task of protecting your property from confiscation. If an action is brought against your company to reduce its rates, see that only such lawyers, engineers and financial experts are engaged to defend it as have studied this subject and are familiar with every phase of it and are prepared and qualified to protect their clients' interests. It was not the intention of the writer to cite any opinions, either of courts, commissions, economists or engineers, sustaining the views herein expressed. There is one case, however, that of the Pocatello (Idaho) Water Company, which so well illustrates the application of sound economics, sound law and sound. common sense that he ventures to subjoin an extract from the opinion of Public Utility Commissioner Ramstedt, which was practically sustained by the Court, the opinion of the majority having been overruled; an extract from the opinion of the Court in that case, in which it was finally decided that so-called "accrued depreciation" should not be deducted from the value of the properties of public utilities; and an editorial comment on the case which appeared in the New York Commercial. It may be assumed, in respect of the first sentence of his opinion, that Commissioner Ramstedt would qualify it in respect of such units. as are only displaced because of obsolescence or inadequacy, and which, being composed of stone, concrete, iron and steel, would last as long as the walls of Carcassonne. Stephenson's second locomotive was still in use in 1911 (“Engineering and Contracting," October 11, 1911). The cast-iron water-pipes leading from the river Seine to the fountains at Versailles were installed in 1658. The only repairs that have been necessary after two and a half centuries of service is the occasional replacing of bolts ("Engineering and Contracting," May 27, 1914). Rome is still supplied with water by an aqueduct the construction of which was begun by Quintus Marcius in 144 B. C. Tunis is now supplied by an aqueduct built by Hadrian in A. D. 120. The aqueduct at Nimes has been in use for nearly twenty centuries. There are many other instances of masonry and concrete structures which have survived many hundreds of years of useful service. The italics are ours. Extract from Commissioner Ramstedt's opinion: "Physical depreciation, resulting from use, decay and the action of the elements, is a constant factor commencing simultaneously with construction and ending with replacement. A person, having invested his money in a continuous business enterprise for the benefit of others, as in the case of the petitioner herein, and in so doing having subjected his property to the control of the state, from which control it cannot be withdrawn, must always be ready and able to meet the public demand and to replace the constructive portions of his plant from time to time as they wear out and decay. A person having embarked on such an en terprise is justly entitled to compensation to cover this depreciation in addition to a fair return, over and above expenses, upon the reasonable value of the property which he has employed for public use, for the same reason that a laborer using his tools is entitled to wages which will not only compensate him for his services, but enable him to replace his tools as they wear out. Allowance for depreciation cannot, in my judgment, be considered as profit or an earning factor in the business. The expenditure necessary to make replacements at any time may exceed the amount received up to that time to cover the cost of such replacements; on the other hand, the cost of making replacements at a certain time may be very much less than the amount received up to that time to cover depreciation. The theory of allowance to cover depreciation must be that in the long run the owner will be reimbursed for the money which he must spend in making replacements, which in the very nature of his business he must make from time to time. The fact that the amount he has received from the public at any time is either greater or less than the amount which he has expended for replacements, if the allowance for depreciation is correctly computed, does not affect the returns to which he is justly entitled on his original investment. He is entitled to a fair return on his investment and to hold the undepreciated property, or its equivalent in value, which he has employed for public use. "The fact that in an investigation of the petitioner's property, undertaken at this particular time, for the purpose of fixing rates, it is found that the market value of his physical property employed for public use has depreciated $77,188.39, does not, in my judgment, justify the Commission in its determination of a fair value for rate purposes, to deduct the amount of depreciation from the present estimated cost of reproducing the property now, and thereby reduce the earning power of his property. The petitioner has undoubtedly in the past twenty years made such replacements from time to time as the public service demanded, and must at all times be prepared to make such replacements as the public service justly demands. The depreciation which we now find in the physical value of the property is somewhat in the nature of incumbrance which must be taken care of sooner or later and without increase in rates by reason thereof; in fact, a large portion of the improvements which under the order of the Commission, he is required to make within the year is really replacements, and I cannot see how we can justly decrease the earning power of his property by decreasing the investment on which he may earn a fair return. Whenever the time comes when any great amount of replacement is necessary, and that may be at any time, he may be required to expend all that he has ever received to cover depreciation and a good portion of his earnings." Extract from the Court's opinion: "So far as the question of depreciation is concerned, we think deduction should be made only for actual, tangible depreciation, and not for theoretical depreciation, sometimes called 'accrued depreciation.' In other words, if it be demonstrated that the plant is in good operating condition and giving as good service as a new plant, then, the question of depreciation may be entirely disregarded.” Editorial from New York Commercial: "Rate-making is based on the costs of operation and maintenance and on the money invested in the plant, no matter what may be the nature of the service rendered to the public. It is usually easy to estimate current expenses and income. The sticking point is almost always the valuation of the plant of any public utility. Its original cost may be proved beyond dispute but the allowance for depreciation is always a bone of contention. "Why should a private corporation be asked or forced to forego returns on money actually invested because some years have elapsed? If a municipality constructs a water system the ratepayers bear the cost. If mistakes were made at the beginning the bonds issued must be paid at maturity no matter how the money was spent. Every great public work is liable to contain some defect which must be replaced. Human skill has never prevented all mistakes. The engineers who dug the Panama Canal have been powerless to stop the slides in the Culebra Cut and dredging them out will add to the cost of the Panama Canal unknown millions of dollars. If inventors and engineers did not experiment we would make little progress, and money so spent is not wasted though it yield no direct profits. "When a public utility company scraps old equipment and installs improved machinery it serves the public and should receive a fair return on all it spends in this way. Physical depreciation is a constant factor and is balanced by repairs and replacements. The Supreme Court of Idaho has reversed an order of the Public Utilities Commission of that state by disallowing a deduction from the value of a water company's property of so-called 'accrued depreciation' which was theoretical and not actual, the plant being in condition to give as good service as when first constructed. The Court found that the company made such replacements as were necessary to serve the public and that an arbitrary decrease in the investment on which it was entitled to a fair return was unjustified. The sum involved was $77,000, the deduction of which would be equivalent to confiscation without recompense. This case upholds the right of investors to receive a return on money properly expended in the first place." AMENDED BY-LAWS of the ACCOUNTING SECTION NATIONAL ELECTRIC LIGHT ASSOCIATION As Adopted at the Thirty-eighth Conven- ARTICLE I-NAME The name shall be: National Electric Light Association Accounting Section. ARTICLE II-STATUS The Section is an internal organization of the National Electric Light Association, organized in accordance with Article XVI, Sections 1, 2, 3 and 4 of the Constitution of said Association. The By-Laws of the Section are an adaptation of the Constitution and By-Laws of the National Electric Light Association to the immediate needs of the Section and to enable it more effectively to achieve its “objects.” ARTICLE III-OBJECTS The objects of the Section shall be to bring together those engaged in the fiscal, accounting, statistical, purchasing, and store departments of member companies, for the interchange of ideas, to promote the adoption and dissemination of sound financial and accounting theories and methods, and to work for the establishment of a single uniform system of accounts by concerted action of the Interstate Commerce Commission, the various regulating bodies, and this Section. ARTICLE IV-MEMBERSHIP Section 1.-Members shall be divided into two classes, Active and Associate. Section 2-Active members shall be Class A or Class B Members of the National Electric Light Association who shall become affiliated with the Section. Each Active Member shall |