241. Appraisal of Chicago surface railways, 1906.

242. Appraisal of Chicago Consolidated Traction Company, 1910. 243. Appraisal of Chicago gas plant, 1911.

244. Cleveland street railway appraisal, 1909.

245. Columbus, Ohio, Electricity Rate Case, 1906.

246. Des Moines, Iowa, Water Rate Case, 1910.

247. Lincoln, Neb., Gas Rate Case, 1909.

248. Appraisal of street railways for Massachusetts Validation Board,

1911.

249. Appraisal of N. Y., N. H. & H. R. R. for Massachusetts Validation

Board, 1911.

250. Memphis, Tenn., water plant appraisal, 1902.

251. Michigan railroad appraisal, 1900–1901.

252. Minnesota railroad appraisal, 1908.

253. New Jersey Public Utility Commission, 1911.

254. New York Consolidated Gas Case, 1907.

255. New York Public Service Commission, First District, 1911. 256. Oklahoma Telephone Rate Case, 1911.

257. South Dakota railroad appraisal, 1910.

258. Washington railroad appraisal, 1908.

259. Washington Railroad Commission, 1910.

260. Seattle, Wash., Telephone Rate Case, 1910-1911.

261. Wisconsin railroad appraisal, 1903.

262. Wisconsin Railroad Commission.

280. Engineering and superintendence.

281. Contingencies.

282. Contingencies-Michigan railroad appraisal, 1900-1901.

283. Contingencies-Massachusetts appraisal of N. Y., N. H. & H. R. R.,

1911.

284. Contingencies-St. Louis Public Service Commission, 1911.

285. Contingencies-Oklahoma Telephone Rate Case, 1911.

286. Contingencies-Wisconsin Railroad Commission, 1911.

287. Contractor's profit.

288. Contractor's profit-St. Louis Public Service Commission, 1911. 289. Contractor's profit-New York Public Service Commission, First

290. Contractor's profit-Valuation of Falmouth, Mass., water plant. 291. Interest during construction.

292. Interest-Minnesota Railroad Rate Case, 1911.

293. Interest-Oklahoma Telephone Rate Case, 1911.

294. Interest-Wisconsin Railroad Commission.

295. Interest-St. Louis Public Service Commission, 1911.

296. Interest-New York Public Service Commission, First District, 1911.

297. Interest-State railroad appraisals.

298. Interest-Massachusetts appraisal of N. Y., N. H. & H. R. R.,

1911.

299. Promotion and organization.

300. Promotion-St. Louis Public Service Commission, 1911.

301. Promotion-New York Public Service Commission, Second District,

1908.

302. Promotion-New York Public Service Commission, First District, 1912.

$240. Introductory.

Under the term overhead charges as here used are included percentages on the cost of reproduction for the following purposes:

1. Engineering and superintendence.

2. Contingencies.

3. Contractor's profit.

4. Interest during construction.

5. Legal and general expense, company organization, taxes and insurance.

6. Promotion.

Bond discount, working capital, piecemeal construction, adaptation and solidification, franchise and going concern while sometimes classified with overhead charges have not been included here but have been made the subject of separate chapters. Brokerage is treated with bond discount in chapter 13. In a few appraisals, however, an allowance for brokerage has been included with overhead charges so that the tabulated overhead charges contained in this chapter contain a few brokerage allowances. A comparison of percentage allowances for overhead charges

is

very difficult owing to the fact that specific percentages for specific purposes apply to different items of the inventory in different appraisals. In the following tabulations of overhead charges the percentage allowance has been placed on a comparable basis by giving the allowance in terms of percentage of inventory cost. The inventory cost is a term used to denote the total cost less all overhead charges. It is the cost of all of the items of the appraisal inventory prior to the addition of the overhead charges. But even with the greatest care to reduce percentages to a comparable basis, great caution is necessary in making comparisons. It is possible that in certain cases the unit prices taken include certain overhead charges. For example the unit prices may or may not include a subcontractor's profit. In the earlier appraisals the question of overhead charges received little consideration, but with the more intensive study of valuation problems there has been a remarkable development in the classification and amount of overhead allowances. It is a question whether the present swing of the pendulum is not fully as strong in the direction of excessive allowances as it has previously been in the opposite direction. The more equitable application of the reproduction method assumes reproduction at present or average prices but under the actual physical conditions and conditions as to overhead expense under which the existing plant was actually and necessarily constructed. In most cases a company should be able to substantiate its claims for overhead allowances by actual vouchers and other records of such expenses incurred in the construction of the plant. There is no necessity for leaving this matter entirely to expert opinion as to such costs, based on somewhat hypothetical conditions of assumed reconstruction. This seems to be the position adopted by the St. Louis Public Service Commission (see §§ 295, 300). The Wis

consin Railroad Commission has taken a conservative position in this matter and while allowing percentages for overhead expense considerably above customary percentages in the earlier appraisals, has resisted the recent trend toward high estimates (see § 262). Though there can be no question as to the existence and necessity for these overhead expenses there are a few decisions that seem to question their validity. Thus in the rate case, Cedar Rapids Gas Light Company v. Cedar Rapids, 144 Ia. 426, 120 N. W. 966, 970, decided May 4, 1909, the Iowa Supreme Court says:

Included in plaintiff's estimate of values are: Interest on capital during construction, $22,415; promotion and organization, $14,943.69; and engineering, $18,679.61. These are mere estimates of what might be expended for these purposes in the construction of a new plant. Of course, all the money required would not necessarily remain idle during construction, and the witness admitted that the only expense for promotion and organization he could think of would be attorney's fees in preparing proper papers. The expense for engineering was said to be the percentage taken into consideration by those contemplating such enterprises. Manifestly these estimates are largely speculative. Nothing can be allowed for the promotion and organization of the company, for it is immaterial by whom the plant may be owned in estimating its value.

To the same effect are the remarks of U. S. District Judge Evans in the rate case, Cumberland Telephone and Telegraph Company v. City of Louisville, 187 Fed. 637, 646, 647, decided April 25, 1911:

First, what are called "overhead charges," which are made up of various items of expenses incurred in the organization of the company and its work, the details of which need not be stated, but which it is claimed could not be avoided, and which enter, as is insisted, into the present value of the plant. These charges amounted to $90,000. . . .

"Overhead charges" consist of expenses much of which were incurred long ago. Probably those expenses may have aided very materially in increasing the present value of the plant. That present value we must ascertain, but it does not follow that "overhead charges" as a separate item should be included as such. It seems to us that they are too intangible to be available for that purpose.

§ 241. Appraisal of Chicago surface railways, 1906.

The property of the Chicago City Railway Company and of the Chicago Union Traction Company was appraised in 1906 by the Traction Valuation Commission consisting of Bion J. Arnold, Mortimer E. Cooley and A. B. DuPont. The appraisal was made under the authority of a committee of the city council and was used as the basis of the franchise settlement ordinances passed February 11, 1907. The Traction Valuation Commission explains its allowance for overhead charges as follows:1

In computing the values of the physical properties of the companies, your commission has recognized the usual practice of engineers and financiers in respect to percentages to be added to the various items of an estimate so that the total may fairly represent the sum required to be invested in order to bring the properties to an operative condition.

These percentages applied to different parts of the estimate include organization, engineering, superintendence, and incidentals, the latter item including contractor's profits, when such are justly a part of the estimate. The total for this group of percentages varies on the different items from 5% to 15%, as set forth in detail in connection with the items themselves. To the sum of the separate estimates thus obtained it is customary to add further percentages to cover:

'Report on the values of the tangible and intangible properties of the Chicago City Railway Company and the Chicago Union Traction Company submitted to the Committee on Local Transportation of the Chicago City Council by Bion J. Arnold, Mortimer E. Cooley and A. B. DuPont, Traction Valuation Commission, December 10, 1906, p. 9.