Mr. Tate said that for valuation purposes a report should be set up considering only physical lives. Other elements should be considered only in a report dealing in recovery of capital.

Mr. Peper asked if we had considered these other elements in our railroad reports. Mr. Hood stated we did not consider exhaustion of traffic.

Mr. Lomax stated that as time goes on the facts would show up and develop many of the things under dicussion.

Mr. Hood stated he thought we should say that physical life is the thing that governs.

Mr. Tate said that physical lives should be the things that govern in a valuation report, and that the other elements might be considered in determining value.

Meeting adjourned at 4:10 p. m.

The meeting opened on Tuesday March 3, 1936, at 9:30 a. m. There were present at the conference the same personnel as on Monday, with the exception of Mr. Spencer and Mr. Bunje.

The minutes of the previous day's meeting were reviewed and no important exception was taken to same, although Mr. McLaughlin called attention to our allowance of 100-percent condition for engineering on trunklines and a less than 100 or depreciated condition percent for gathering fields. Mr. Hood explained that while on railroad valuations we allowed a condition percent of 100 for engineering, the situation on pipelines was different. He felt that trunklines were generally permanent, although there might be exceptions, whereas the gathering fields eventually would pass out of the picture.

The question was also raised about interest during construction and general expenditures. Mr. Hood replied that they would be depreciated.

Mr. Hood then asked if the committee were going along with the Bureau on this treatment of the subject. After some discussion, Mr. McLaughlin replied in the affirmative.

Mr. Hood stated that in his opinion the engineering report should show physical depreciation and other elements of depreciation, such as obsolescence, inadequacy, depletion, supersession, and asked if any present had any other ideas. Mr. McLaughlin replied that the first aim of a reproduction less depreciation estimate is to find the value of the physical property.

Mr. Hood disagreed, stating that the aim was to find the cost of reproduction as of 1934 based on depreciation as of same date and taking into consideration not only physical life but all elements of depreciation; that our answer must be in line with what Mr. Bunten of the Bureau of Accounts uses; that our field notes now showed the physical lives and he would like an expression from those present as to the extent that physical depreciation should be lowered to take into consideration the effect of depletion or the exhaustion of traffic and other elements of depreciation. He stated that Mr. Hansbury yesterday said that there was very little adjustment necessary for trunklines but that on gathering field lines the average for the country to be applied to all items of property would be approximately 15 percent. Mr. Hood personally was of the opinion that no adjustment of the physical life was necessary to take depletion into consideration. Before further opinions could be secured, discussion was precipitated concerning manner of setting depreciation out in the engineering report. Mr. McLaughlin wanted the report to show physical depreciation separate from other elements. Mr. Tate agreed, stating we should not anticipate the future, that depletion would be extremely important in the case of buildings with a physical life of 66 years, that the value of these buildings should not be discounted at the present time since they had not suffered any loss of capacity for service.

Mr. Weidner disagreed with Mr. Tate. He stated he would like to see engineering report separate factors of depreciation but doesn't think it could be done and that, therefore, one factor should be used to cover all elements of depreciation.

Mr. McLaughlin thought the factors should be considered separately; that is, one column in the report to show the effect of physical depreciation, another one to show the effect of depletion, et cetera.

Mr. Hood said that only one column would be shown for depreciation in the engineering report covering all elements, that the carrier could determine what the effect of the elements other than physical depreciation was since there was an agreement as to physical lives in the field notes. He was of the opinion that physical life, for all practical purposes, was controlling and that all that was necessary was for them to agree to use the physical lives for service lives, stating that all other elements of depreciation had been considered.

Mr. Tate and Mr. McLaughlin still thought that depletion should be kept out of the engineering report and the Commission allowed to handle it separately. There was agreement among committee members, however, that the Bureau representatives were in a far better position and had more data to support them than the Commission, the Bureau of Accounts, or the Bureau of Internal Revenue.

Mr. Weidner stated that the principles of valuation should be the same in all cases and he wished a rate fixed which could be used in valuation for the Bureau of Accounts, for the Internal Revenue, or for State tax officials.

Mr. McLaughlin asked to have furnished the Commission's definition of depreciation. Mr. Shields then read from pages 47, 48, and 51 of the Texas Midland, volume 75, ICC, indicating that the Commission considered exhaustion of capacity to serve, including functional as well as physical depreciation.

Mr. Thompson pointed out that the Bureau of Internal Revenue considers retirements as well as depreciation, and their rate would, therefore, be on a different basis than that of the Bureau of Valuation. Mr. Shields thought that they (Bureau of Internal Revenue) also considered amortization. Mr. Hood disagreed, stating that, in his opinion, they just sat across a table from one another and compromised, as they had no data on which to base an opinion. Mr. Hood then asked what companies wished to sit across the table, discuss and agree upon the reduction, if any, to be applied to physical lives to take into consideration depletion and all other elements of depreciation.

Mr. McLaughlin stated he would be glad to confer at Houston but was not in a position to discuss the question now.

Mr. Weidner agreed to be the first to discuss this subject. Mr. Rosebrugh also agreed to discuss the matter. Both Mr. Lomax and Mr. Shanks agreed to discuss the subject but were not in a position to agree. The general expression of the committee was that they didn't know.

Mr. McLaughlin inquired if we intended to consider condition on each individual line. Mr. Hood stated we would probably pass up small pools and treat the Texas Co. as a whole. Mr. Hansbury suggested that major fields could be considered individually but a composite percentage could be determined on for the company as a whole.

Mr. Rosebrugh stated that, as he understood it, all new property would be depreciated to scrap and all secondhand property to scrap, so that, in effect, all property would be brought to scrap.

Mr. Shields inquired how salvage or scrap value would be determined if exhaustion of field (or depletion) reduced the total service life to a figure less than the physical life reported in the notes. He stated that we should take into consideration conditions of the property at a certain time.

Mr. Thompson said that some property has value at end of depletion. As, for example, assume machinery in place cost $10,000, of which $2,000 was drayage, $1,000 foundations, and $1,000 installation. Only the machines would have any salvage value at end of service life, including depletion. He thought the physical life should go to scrap and service life affected by depletion should go to salvage. Mr. Hansbury said he thought there was confusion and misunderstanding of what was proposed. It was not contemplated that the physical life of pipe should be depreciated to scrap at the end of the service life, but that it should be given a salvage value based on its condition percent; that this value would be determined by applying the condition percent to the difference between the cost new of pipe and a limiting value of $2 as scrap. The cost of recovery would also be deducted from the salvage so determined.

Accounts 103 and 153, line pipe

PRICES

Mr. Hood stated that there should be agreement as to the annual prices f. o. b. the mills or point of origin; that the agreement should cover the different sizes of pipe; that these prices would be determined from the returns to valuation order No. 26 and manufacturers' quotations; that to these prices would be added freight and cost of necessary inspection.

Mr. McLaughlin inquired if cost of enamel would be included.

Mr. Lomax stated that this was not an extra cost if shop coat, but if applied in the field, was taken care of in account 155, pipeline construction.

Mr. Shields stated that we would proceed with the collection of data and would submit results for approval, and asked if carrier representatives had any data prepared, to submit same as soon as possible.

Mr. Feper stated that he had record of prices and changes from April 1928, to date.

Mr. Hood suggested that the committee appoint several men (one a mechanical, one a structural, and one a pipeline man) to assist the Bureau in collecting and interpreting the data.

The committee were unanimous in their expression of confidence in the accuracy and good faith of the representatives of the Bureau but were reluctant to assign any members to work at Washington, due to the unavailability of good men for the several weeks which Mr. Shields estimated the study would take.

Mr. Shields thought the experience with the railroads justified the expectation that in the end it would be least expensive.

Mr. Tate suggested that the Bureau submit a schedule of prices, in a manner similar to the sample report, and they would accept them where they were reasonable. Where they thought prices were in error, they would send a competent man to Washington to discuss them.

Mr. Hood inquired of what companies the various carriers purchased their pipe.

Mr. Rosebrugh said from the National Tube Co., Pittsburgh, Pa., and also from their Lorain, Ohio, plant.

Mr. McLaughlin said from the A. O. Smith Co., Youngstown Sheet & Tube Co., Republic Steel Corp., and Spang Chalfont.

Mr. Lomax said from the same sources and also from the Bethlehem Steel Co. and from Jones & Laughlin Steel Corp.

Mr. Tate said from Republic Steel Corp., A. O. Smith Co., and Jones & Laughlin Steel Corp.

Mr. Weidner said from the same sources as Mr. Tate.

Mr. Peper said from National Tube Co. at McKeesport, Lorain, and Gary. Some old pipe not now manufactured.

Mr. Shanks said from National Tube Co. and from Youngstown Sheet & Tube Co.

Mr. Johnson said from the National Tube Co., Jones & Laughlin Steel Corp., and others.

In response to question by Mr. Shields, Mr. McLaughlin promised to furnish quotations on all types of pipe from 2-inch to 20-inch.

Accounts 104 and 154, line pipe fittings

After some discussion, Mr. Shields promised to furnish Mr. McLaughlin with a list of items for which the manufacturers' quotations could be furnished. It was thought that the National Supply could be used for nipples, ells, and tees, and the Continental and National Tube for the other items.

Accounts 105 and 155, pipeline construction

It was thought that the data in valuation order No. 26 returns was sufficient on which to base a price. It was suggested that agreement be secured for general prices, as it would facilitate agreements with individual carriers.

Mr. Hansbury stated he was ready to discuss prices but committee members were not ready.

Account 156, buildings

Mr. Gasaway stated that there was very little information available as yet on buildings. He said that the cost of material f. o. b., plus the freight and labor, would be included in the price.

In response to question by Mr. Hansbury, Mr. Gasaway stated contract data also would be considered.

Mr. Tate suggested that original cost information had been furnished by all carriers to Mr. Lacey and that there was sufficient information on these forms so that the structures could be identified with the field notes.

Mr. Gasaway was instructed to investigate these data.

Meeting adjourned at 12 noon.

The meeting reconvened at 1:35 p. m. with the same personnel present and, in addition, Mr. Spencer participated in the later discussions.

Account 157, boilers

Mr. Thompson stated that comments for account 157 would apply also to accounts 158 and 159. The cost at the f. o. b. point during the period considered would be used, to which prices would be added freight, drayage, foundation excavation, and installation. On the form 627 the data were sufficient for many items. However, there were many items inventoried for which there were no

These costs

these items are not now manufactured. studying trend of prices of similar machinery items ncluding the year in which the items (not now manu1. In this manner a yearly relationship of prices could ed to the original cost as of any year to determine a e period for which prices are desired, namely, 1929-34. ry to make this study for each item as similar items

ould be desirable to have some man appointed by the e this study.

a freight study should be made, selecting some central and securing the carload rate to such points. After reed that in some cases less than carload rate should be

t the drayage costs as shown on form 627 were ine to arbitrary breakdown. He suggested that the comreproduction purposes, from their own experiences in r of roads and bridges, and types of trucks used. For ly, the items of property in these accounts should be weights. Installations should also be studied by the s by weight. The excavation should be described as to common, loose rock, or solid rock. Structural prices avation, masonry, piling and timber in the foundations. at character of drayage and haulage were described in son pointed out that the costs were not in the special

in connection with large pumps bought years ago, it se a manufacturer's quotation for cost today. Mr. e was not favorable to such data; that the manufactimate, but as he was not now equipped to construct mate necessarily would be prohibitive since he would and machinery.

that the committee should appoint three men for the nd pipeline accounts, and that while prices agreed to individual company, they would serve as a guide in a which the service life schedule was used.

I that he wanted to cooperate, but thought agreement it sending men to Washington. Only wished a fair arious groups submit tentative prices and he would go into them. He did not think it necessary to have to make a detailed check.

that he needed help from the committee, and Mr. Tate u take a longer time since he was in no hurry for the

arrier would have 30 days after preliminary report was out appreciable errors, and in response to question he was not the 30 days referred to in the act; that the 1 be similar to the sample A B C report. He again edite proceedings if committee would send three men

that there are only a few important items, such as the and tanks, in pipeline valuations.

hat for pipeline fittings a percentage of the pipe cost ested that a percentage could be determined from the bury stated that he was in favor of developing a pertual relationship to pipe cost on some typical section, sire to have a detailed report to start with and also 'aluation Order No. 3.

Mr. Hood stated that we would make the first report tail in field notes and then decide on some short cuts, actor.

s Mr. Hood stated that Valuation Order No. 3 required is and betterments; that if a tank were moved from 1 another, the tank would be retired in the first instance in the new location.

1 by Mr. Rosebrugh as to the necessary description and Ir. Hansbury stated that proper description for pricing

Mr. Feper stated that he had record of prices and changes from April 1928, to date.

Mr. Hood suggested that the committee appoint several men (one a mechanical, one a structural, and one a pipeline man) to assist the Bureau in collecting and interpreting the data.

The committee were unanimous in their expression of confidence in the accuracy and good faith of the representatives of the Bureau but were reluctant to assign any members to work at Washington, due to the unavailability of good men for the several weeks which Mr. Shields estimated the study would take. Mr. Shields thought the experience with the railroads justified the expectation that in the end it would be least expensive.

Mr. Tate suggested that the Bureau submit a schedule of prices, in a manner similar to the sample report, and they would accept them where they were reasonable. Where they thought prices were in error, they would send a competent man to Washington to discuss them.

Mr. Hood inquired of what companies the various carriers purchased their pipe.

Mr. Rosebrugh said from the National Tube Co., Pittsburgh, Pa., and also from their Lorain, Ohio, plant.

Mr. McLaughlin said from the A. O. Smith Co., Youngstown Sheet & Tube Co., Republic Steel Corp., and Spang Chalfont.

Mr. Lomax said from the same sources and also from the Bethlehem Steel Co. and from Jones & Laughlin Steel Corp.

Mr. Tate said from Republic Steel Corp., A. O. Smith Co., and Jones & Laughlin Steel Corp.

Mr. Weidner said from the same sources as Mr. Tate.

Mr. Peper said from National Tube Co. at McKeesport, Lorain, and Gary. Some old pipe not now manufactured.

Mr. Shanks said from National Tube Co. and from Youngstown Sheet & Tube Co.

Mr. Johnson said from the National Tube Co., Jones & Laughlin Steel Corp., and others.

In response to question by Mr. Shields, Mr. McLaughlin promised to furnish quotations on all types of pipe from 2-inch to 20-inch.

Accounts 104 and 154, line pipe fittings

After some discussion, Mr. Shields promised to furnish Mr. McLaughlin with a list of items for which the manufacturers' quotations could be furnished. It was thought that the National Supply could be used for nipples, ells, and tees, and the Continental and National Tube for the other items.

Accounts 105 and 155, pipeline construction

It was thought that the data in valuation order No. 26 returns was sufficient on which to base a price. It was suggested that agreement be secured for general prices, as it would facilitate agreements with individual carriers.

Mr. Hansbury stated he was ready to discuss prices but committee members were not ready.

Account 156, buildings

Mr. Gasaway stated that there was very little information available as yet on buildings. He said that the cost of material f. o. b., plus the freight and labor, would be included in the price.

In response to question by Mr. Hansbury, Mr. Gasaway stated contract data also would be considered.

Mr. Tate suggested that original cost information had been furnished by all carriers to Mr. Lacey and that there was sufficient information on these forms so that the structures could be identified with the field notes.

Mr. Gasaway was instructed to investigate these data.

Meeting adjourned at 12 noon.

The meeting reconvened at 1:35 p. m. with the same personnel present and. in addition, Mr. Spencer participated in the later discussions. Account 157, boilers

Mr. Thompson stated that comments for account 157 would apply also to aecounts 158 and 159. The cost at the f, o. b. point during the period considered would be used, to which prices would be added freight, drayage, foundation excavation, and installation. On the form 627 the data were sufficient for many items. However, there were many items inventoried for which there were no