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.

Inventory-reproduction-cost. .
Overhead charges. . . .

Cost-of-reproduction-new.

$5,132,272.50

1,971,434.79

$7,103,707.29

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.

5.8

Legal expense, interest and contingencies . . . 294,149.37
Conducting work, furnishing equipment and
brokerage (not a true overhead charge but a
construction bonus)

Total Overhead Charges..

926,570.52

18.

$1,971,434.79 38.4

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

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

way Company in 1909. This valuation was made the basis of a settlement ordinance fixing the terms of future municipal purchase and also fixing rates of charge. Special percentages of from 3% to 10% were first added to specific items, on account of conditions making necessary a special charge. In addition, to the total inventory value a percentage of 10% was added to cover organization, engineering, interest during construction, etc. The following is from Judge Tayler's decision: 4

I have divided overhead charges into two general classesthose which apply to the specific thing, and those which apply to the enterprise as a whole; the specific things which are done vary in the amount of overhead charge necessary in order to complete the work, that is to say, the contingencies and uncertainties and accidents are larger, for instance, in track laying than they would be in the purchase or construction of cars or other things of that character.

So that I have allowed as specific overhead charge applicable to track, ten per cent; to pavement, three per cent; to cars, land, buildings, overhead construction, return circuit, power stations, storage batteries, miscellaneous rolling stock and equipment, five per cent; and, to the other items, nothing specific, as applied to them, as, for instance, shop stores, auditors' stores and bookkeeping credits. The result of those is to make a total value up to that point of $15,175,565.28.

Now, we come to the subject of the general overhead charge which is applicable to the whole investment and cannot be separated or divided among the several items; some of them, if you took a separate item and undertook to apply the general overhead charge, might not have an application peculiar to that particular item, but I have undertaken as best I can to arrive at a fair statement of what is the general overhead charge in the construction of a property of this magnitude,

Decision of United States District Judge Robert W. Tayler in the matter of the arbitration of the valuation of the property of the Cleveland Railway Company, December 16 and 17, 1909.

for financing, engineering, legal expenses, organization, administration, insurance, including accident insurance, superintendence, interest during construction, delays not covered by the specific allowances, consents, litigation with property owners, incidentals and contingencies not applicable to specific items, fifteen per cent; making the total actual physicalvalue $17,511,305.62.

In the following tabulation the overhead charges allowed in this appraisal are shown in percentages of inventory cost:

Inventory-reproduction-cost-less-depreciation.

Total overhead charges.

Cost-of-reproduction-less-depreciation..

$14,333,000

3,178,305 $17,511,305

In the above the allowance for overhead charges includes allowance for financing, engineering, legal expenses, organization, administration, insurance, superintendence, interest during construction, delays not covered by specific allowances, consents, litigation with property owners, incidentals and contingencies. The total allowance amounts to 18% of the inventory-reproduction-costless-depreciation.

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

Columbus Railway and Light Company v. City of Columbus is an electricity rate case. The master reported in favor of a permanent injunction and his report was approved by the court. No itemized reproduction cost is approved by the master but from his discussion of overhead charges and the total cost of reproduction as found by him the following may be taken as a fair statement:

5

5 Columbus Railway and Light Company v. City of Columbus, no. 1206, in equity, U. S. Circuit Court, Southern Dist. of Ohio, Eastern Division, Report of Special Master T. P. Linn, June 8, 1906.