states that it is following the practice of the Wisconsin Railroad Commission."1

§ 254. New York Consolidated Gas Case, 1907.

In the New York City Eighty Cent Gas Case the special master discussed overhead charges as follows: 12

In arriving at his final figures of the value of the plants as a whole, Mr. Mayer adds to the contractor's figures, in the case of the manufacturing stations, 10 per cent., and in the case of the holder stations 5 per cent., to cover engineering and general expenses of the company. This includes the planning of the works, making of drawings, grading, paving, curbing, sewerage and drain pipes, temporary fences, operating tools and other utensils, inspection and supervision of construction, water for holder tanks and apparatus required for operation of plant, as well as miscellaneous expenses for minor apparatus, connections, etc., which cannot be included in a general schedule. He also adds an interest charge of 5 per cent., covering the entire plant, on the supposition that it would take at least two years to produce the plants as a whole, or, in other words, that there would be an average interest charge of one year at 5 per cent. These expenses amount in the aggregate to $1,939,132.00. That expenses of this character are properly to be included as a part of the cost of construction is a a matter of common experience and has been recognized in a recent proceeding analogous to the present case. (Columbus Railway & Light Company v. City of Columbus, post.) The allowance of 10 per cent. for engineering and miscellaneous expense does not appear excessive upon the evidence, which indicates that as high as 15 per cent. is sometimes allowed for this purpose. In assuming a construction period of at least two

"Re Investigation of rates charged by the Consolidated Gas Company of Long Branch, New Jersey, July 25, 1911. New Jersey Board of Public Utility Commissioners.

12 Consolidated Gas Company v. City of New York, U. S. Circuit Court, Southern Dist. of N. Y., Report of Arthur H. Masten, Master in Chancery, May 18, 1907

years for the entire plant, Mr. Mayer is supported by Mr. Logan as well as by Complainant's experts, although Mr. Logan expressed the opinion that the largest of the holders should be built in from 9 to 10 months, and the smaller one in about 4 or 5 months. Mr. Edgerton allowed 3 per cent. for engineering and contingent expenses, although computing it not on the original cost of construction but on his estimate of the present value of the property as depreciated. His estimate of 3 per cent. is based upon the amount which he assumes to have been expended for similar purposes in the construction of the Astoria plant, hereinafter described, but it was shown that such assumption was erroneous, as Mr. Edgerton took into account only a small portion of the expenditures of this character which passed through Complainant's books, while the actual engineering and miscellaneous expenses have amounted thus far at Astoria to upwards of 11 per cent. As to interest, he appears to have allowed at the rate of 5 per cent. and a construction period of somewhat less than two years. Mr. Marks made no specific allowance for either of these items, stating that although proper to do so in making estimates it is not customary in the case of inventories of apparatus already erected. But obviously they are a necessary part of any estimate of reproduction cost, as Mr. Marks admitted.

§ 255. New York Public Service Commission, First District, 1911.

The case of Mayhew v. Kings County Lighting Company, 2 P. S. C. 1st D. (N. Y.) —, decided October 20, 1911, involves the valuation of a gas plant for rate purposes. Commissioner Maltbie discusses the question of overhead charges in part as follows:

As "net cost" covers only the cost of labor and materials, including subcontractors' profits when proper, some allowance should be made for engineering, supervision, contingencies, incidentals and general contractor's profit. In view of the size of the company, the nature of the business, the way in which it has grown and the lack of records showing actual expendi

tures, it is estimated that $340,000 should amply provide for such additional items.

The estimated allowance for these items consists of an allowance of 10 per cent for general contractor's profit and 15 per cent for engineering, incidentals, etc., upon the items to which these charges would properly apply. (See Table II.) It seems proper in this case to allow 15 per cent for the latter group, though in some cases before the Commission, the allowance has not been in excess of 10 per cent or 12 per cent. In such cases there was a thorough examination and checking and rechecking of the property by the engineers, and inventories were made separately by different engineers and corrected from time to time. In the present case, inventories and appraisals have not been made with such great care, and it is proper to make allowance for this fact. Further, the gross amount is not large in this case, and a percentage basis is not always the only accurate standard.

In addition the Commission added $140,000 for "preliminary and development expenses." This was intended to cover promotion expenses, interest and taxes during construction and trial operation, adjustment of parts, etc., before operation begins. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost:

In this case fair value for rate purposes was based largely

on cost-of-reproduction-less-depreciation and the allowance for contractor's profit, engineering, administration, contingencies and incidentals was depreciated to the same extent as the depreciable property to which these allowances were applied. The item for preliminary and development expenses which included also interest and taxes during construction was not depreciated.

§ 256. Oklahoma Telephone Rate Case, 1911.

The case of Pioneer Telephone and Telegraph Company v. Westenhaver 13 involves the valuation for rate purposes of the telephone plant in the City of Enid, Oklahoma, of the Pioneer Telephone and Telegraph Company. The Oklahoma Corporation Commission allowed 10% for engineering and supervision. This allowance was accepted by the State Supreme Court. The Corporation Commission made no allowance for contingencies, piecemeal construction, or interest during construction and such allowances were contended for on appeal to the Supreme Court. The Supreme Court refused to make an allowance for contingencies or for piecemeal construction but allowed $4,000 for interest during construction.

§ 257. South Dakota railroad appraisal, 1910.

In 1910 an appraisal was made of the reproduction cost of all the railroads of South Dakota. The appraisal was intended for rate purposes and was made under the direction of the Railroad Commissioners by Engineer Carl C. Witt. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost: 14

13 Pioneer Telephone and Telegraph Company v. Westenhaver, 29 Okl. 113 Pac. 354, January 10, 1911.

14 Report of Carl C. Witt, Engineer in Charge of railway appraisal to the Board of Railroad Commissioners of South Dakota on the physical valuation of the railroads of South Dakota as of June 30, 1909. In Twenty-first Annual Report of South Dakota Railroad Commissioners, 1910, pp. 29, 33b.

In this appraisal the reproduction-cost-less-depreciation was also determined but the overhead charges were not depreciated. The overhead charges amounted to 16.3% of the inventory-reproduction-cost-less-depreciation.

§ 258. Washington railroad appraisal, 1908.

In 1908, Halbert P. Gillette, consulting engineer to the Washington Railroad Commission made an appraisal of all the railroads of the State. The physical values determined by this appraisal were adopted by the Commission as formal findings of fact and were subsequently used in various rate cases. These findings of fact contain the following in relation to overhead charges for the Northern Pacific railroad (finding no. 29): 15

That a reasonable and fair allowance for engineering expenses would be three and one-half per cent of the cost of reproducing the gradings, tunnels, bridges, trestles, culverts, ties, rails, track fastenings, frogs and switches, ballast, track laying and surfacing, fencing, crossings, cattle guards and

15 See article entitled "Original cost and cost of reproduction of the Northern Pacific Railway in the State of Washington," in Engineering and Contracting, Jan. 12, 1910, pp. 44, 45. See also findings as to the value of railroads and other facts, in Second and Third Annual Reports of the Railroad Commission of Washington, 1907-1908, pp. 127–499.