1. Legal expenses, including those incurred in securing the right-of-way and frontage consents. 2. Interest, or carrying charge for the money expended during the construction period and up to the time the property goes into operation. 3. Brokerage, or the expense of securing the necessary moneys. 4. Contingencies, to cover incomplete inventories, unforeseen difficulties of construction, and any and all other items of expense which cannot be foreseen. These items vary considerably in different classes of construction, but for the purpose of this appraisal, your commission feels that it has been conservative in assigning a total of 10% to cover the four items. The 10% charge to cover legal expenses, carrying charges, brokerage and contingencies was added to the total estimated cost of reproduction; 15% to cover organization, engineering and incidentals was added to reproduction cost of track, electric power distribution system and buildings; 10% for organization, engineering and incidentals was added to reproduction cost of power plants; 5% for organization, engineering and incidentals was added to reproduction cost of cars and car equipment. No percentage was added to reproduction cost of real estate, patent rights, tools, machinery, stores, supplies, office furniture and fixtures, horses, wagons and miscellaneous. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost: Organization, engineering, superintendence and incidentals... Legal expense, interest, brokerage and contingencies.. Total Overhead Charges.. In this appraisal the reproduction-cost-less-depreciation was also determined and the overhead charges were depreciated to the same degree as other depreciable property so that the percentage allowance for overhead charges remains the same. § 242. Appraisal of Chicago Consolidated Traction Company, 1910. The ordinances passed February 11, 1907, for the reorganization and rehabilitation of the Chicago surface lines were based on the above valuation. These ordinances provide for purchase of the surface lines by the city on payment of the agreed valuation at the time of the passage of the ordinance, plus reimbursement for any subsequent capital investment. In determining the amount of such an investment, actual cost and expense to the company shall be taken plus an allowance to the company of 10% for conducting the work and of 5% for financing the work. The following is from § 7 of the Chicago City Railway Ordinance: The company shall purchase materials and equipment, and employ engineers, superintendents, clerks, foremen and workmen and shall pay all expenses of every nature, including legal expenses necessary to the proper, complete and prompt performance of the above mentioned work, upon the lowest advantageous terms and subject to the approval of the said Board of Supervision Engineers, and to the actual amount paid by the Company in and about carrying out each and all of the requirements of this section, shall be added ten per cent of such amount as a fair and proper allowance to the company for conducting the said work and furnishing said equipment and five per cent for its services in procuring funds therefor, including brokerage. In 1910 the Chicago Railways Company acquired the property of the Chicago Consolidated Traction Company within the city limits (Ordinance of October 10, 1910). In order to bring this property under the general provisions of the ordinances of 1907, its present value was appraised and a bonus of 15% added as provided under the 1907 ordinances for new capital investment "as a fair and proper allowance to the company for conducting the said work and furnishing said equipment" and "for its services in procuring funds therefor including brokerage.' This 15% therefore is not a true brokerage charge but a bonus to be paid by the city in case of municipal purchase and to be considered also in apportioning profits between the company and the city. The other overhead charges are the same as in the appraisal of 1906 noted above with the exception that there was an allowance of 5% for legal expense, interest during construction and contingencies, while in the 1906 appraisal there was an allowance of 10% for the same items and brokerage. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost: 2 APPRAISAL OF CHICAGO CONSOLIDATED TRACTION COMPANY. 2 Report on the values of the properties of the Chicago Consolidated Traction Company inside the city limits submitted to the Committee on Local Transportation of the Chicago City Council by Bion J. Arnold, George Weston, Traction Valuation Commission, August, 1910. 14.6 294,149.37 5.8 Organization, eneering and incidentals. ... $750,714.90 Total Overhead Charges... 926,570.52 18. In this appraisal the reproduction-cost-less-depreciation was also determined and the overhead charges were depreciated to the same degree as other depreciable property so that the percentage allowance for overhead charges remains the same. § 243. Appraisal of Chicago gas plant, 1911. William J. Hagenah, in his valuation of the property of the Peoples Gas Light and Coke Company of Chicago, with a view to determining a reasonable rate for gas, based his allowance for overhead charges not on present estimated charges in reproducing a similar plant complete, but upon actual charges shown by the company's books on work performed and upon the supposition that the entire plant would be reproduced piecemeal during a ten year period. He says: 3 Although the valuation of the property is to be determined largely on the theory of the reproduction cost, it does not necessarily follow that these costs should be determined upon a basis more or less hypothetical, but, on the contrary, that consideration should also be given to the actual costs incurred in constructing the plant in question. The records of the company are the best evidence as to what such overhead expenses should be, and full weight has, therefore, been given to the cost shown for expenditures of this character for Report by William J. Hagenah to the Gas Subcommittee of the Chicago Council Committee on Gas, Oil and Electric Light, in the investigation of the Peoples Gas Light and Coke Company, April 17, 1911, p. 31. a number of the items during the last few years. The figures used are based on the theory of the plant being constructed over a number of years, or what is generally called the piecemealconstruction plan. If all the overhead charges were based on the company's records for recent years the amount would clearly be too small. It is, therefore, assumed for the determination of this question that the plant will be reproduced over a period of approximately ten years, but it does not seem reasonable that the same units of cost which are incurred in the construction of the first half, or the first third of the plant, should be used for the entire plant. In arriving at a fair overhead charge, the assumed years of construction have been divided into three periods and the items of expense increased or reduced as shown to be justified from actual construction records and the history of the plant in question. For the purposes of the above investigation, Mr. Hagenah estimated charges as follows (pages 31-33): 1st Period of 2d Period of 3d Period of Construction Construction Construction The above shows an average overhead charge of 17% which is the percentage used by Mr. Hagenah in his valuation for items other than land. Upon land he adds an overhead charge of 12%. Although not included as an overhead construction charge, Mr. Hagenah also includes an item of 6% for discount on bonds. § 244. Cleveland street railway appraisal, 1909. Judge Robert W. Tayler acting as arbiter for the parties made a valuation of the property of the Cleveland Rail |