signs, interlocking and signal apparatus, telegraph lines, transportation department buildings, shops, round houses, turn tables, road department buildings, shop machinery and tools, water stations, fuel stations, storage warehouses and miscellaneous structures.

That a reasonable and fair allowance for legal and general expenses would be one per cent on the items mentioned in connection with engineering expenses, together with one per cent on the amount paid out for taxes during construction.

That a reasonable and fair allowance for interest during construction would be seven and one-half per cent of the items last herein before mentioned, plus the amount necessary for section equipment, legal and general expenses, costs of engineering and the value of the right-of-way and terminals.

No allowance was made for contingencies. Chief Engineer Gillette in charge of the appraisals says in his report that as a detailed examination was made of the records of the companies to find the original cost, an allowance for contingencies became unnecessary. These percentages are not added to total inventory cost but to various items of cost so that the total percentage overhead charge is not so large as it at first appears. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost:

APPRAISAL OF NORTHERN PACIFIC RAILWAY

Inventory-reproduction-cost..

Overhead charges...

Cost-of-reproduction-new..

$97,408,854

5,673,911

In this appraisal the reproduction-cost-less-depreciation was also determined but the overhead charges were not depreciated. The overhead charges amounted to 6.9% on the inventory-reproduction-cost-less-depreciation.

§ 259. Washington Railroad Commission, 1910.

Very much higher overhead charges than those above indicated were allowed by the Washington Railroad Commission in its valuation of an interurban railroad for rate purposes in 1910. These allowances reduced to percentages of inventory cost are as follows: 16

In this appraisal the reproduction-cost-less-depreciation was also determined but the overhead charges were not depreciated. The overhead charges amounted to 19% on the inventory-reproduction-cost-less-depreciation.

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

In order to determine reasonable rates for telephone service, an appraisal of physical property was made for the Seattle department of public utilities by C. H. Judson

16 Paulhamus v. Puget Sound Electric Railway, Opinion and order of the Railroad Commission of Washington, February 26, 1910, no. 76, p. 63.

and Frank B. Hall, engineers, in 1910. In their report Messers Judson and Hall say: 17

In placing a valuation on the plant, prices on all materials used were procured from manufacturers, agents and dealers, f. o. b. Seattle, at present market prices; from these prices, together with the cost of labor, and the customary allowance of 10% for engineering and superintendence, 10% for general expense and 6% for interest, a unit schedule of costs was prepared covering all parts of the plant except Central Office Equipment, Real Estate and Buildings, and the valuation figured out from the itemized inventory. On Central Office Equipment the original copies of contracts for the installation of apparatus was taken for that part installed in the various exchanges by the Stromberg-Carlson Telephone Manufacturing Company, and a unit schedule of costs prepared covering that part installed by the company, with the usual 10% added to all for engineering and superintendence.

The case was then submitted to the Washington Railroad Commission for determination and Henry L. Gray, engineer to the commission, made an independent appraisal. In regard to overhead charges, Mr. Gray says: 18

There was included in the estimate an allowance for engineering, supervision and organization expense, amounting to 10 per cent of the cost of all labor and material; for interest during construction, 5 per cent of the cost of all labor and material, including engineering, supervision, etc., based upon the assumption that two years would be required to reconstruct the plant and that the sum required would be invested an average of one-half of the time, the interest rate being 5 per

17 Report to the Department of Public Utilities of the City of Seattle on the value of the properties and cost of service of the Independent Telephone Company and the Pacific Telephone and Telegraph Company by C. H. Judson and Frank B. Hall, Engineers, September 26, 1910.

18 Appraisal of the Seattle Telephone Companies for the Railroad Commission of Washington, by Henry L. Gray, in Engineering and Contracting, May 3, 1911, pp. 520–24.

cent per annum. Contingencies were provided for by an allowance of 5 per cent of all preceding items. No item for discount was included, but an allowance of 5 per cent of 75 per cent of the total estimated cost of reproduction was made to cover brokers' fees, based upon the theory that if 25 per cent of the capital stock was paid up, the bonds would sell at par, the brokers' commissions amounting to 5 per cent. The total net loading charge, composed of the percentage allowances for engineering, supervision and organization expense, interest, contingencies and brokers' fees, amounted to 23.82 per cent.

§ 261. Wisconsin railroad appraisal, 1903.

For tax assessment purposes Prof. Wm. D. Taylor, engineer to the Wisconsin state board of assessment, made an appraisal of the railways of the State for the year ending June 30, 1903. In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost: 19

In this appraisal the reproduction-cost-less-depreciation was also determined but the overhead charges were not

19 Report of Prof. Wm. D. Taylor, Engineer to the State Board of Assessment, upon the appraisal of the physical properties of the Wisconsin railways for the year ending June 30, 1903. In Report of the Wisconsin Tax Commission, 1907, pp. 269, 285.

depreciated. The overhead charges amounted to 16.5% on the inventory-reproduction-cost-less-depreciation.

§ 262. Wisconsin Railroad Commission.

In valuations made by the Wisconsin Railroad Commission for rate regulation or for municipal purchase, the general rule as to water, gas and electric plants has been to allow 12% on the total inventory-reproduction-cost to cover engineering, superintendence, legal expenses, interest during construction and contingencies. The 12% allowed is not usually segregated between the above items but in certain cases the Commission has said that the 12% allowance was made up of 5% for engineering and superintendence, 4% for interest during construction and 3% for legal expenses, organization, casualties, omissions, etc.20 In a few cases the total overhead charge has been 10% but 12% seems now to be the general rule. In certain cases the companies have contended strongly for a higher percentage but the Commission has rejected the demand. 21

§ 280. Engineering and superintendence.

Some allowance for engineering and superintendence is made in all appraisals.

The case of City of Ripon v. Ripon Light and Water Company, 5 W. R. C. R. 1, 13, decided March 28, 1910, involves the valuation of a water and gas plant for rate purposes. In regard to engineering and superintendence the Wisconsin Commission says (at page 13):

The allowance of 5 per cent for engineering and superindence is in accord with accepted practice and, when applied on the total cost of the physical plant, will in all probability

20 See City of Ripon v. Ripon Light and Water Company, 5 W. R. C. R. 1, 13, decided March 28, 1910.

21 Re La Cross Gas and Electric Company, 8 W. R. C. R. 138, 157, November 17, 1911.