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b. Payments to holding or parent company.

In Re Cumberland Teleph. & Teleg. Co. No. 3052, Order No. 2397, Feb. 26, 1921, the Louisiana Commission held that the 4 per cent charge of the American Telephone & Telegraph Company as compensation for certain services rendered to a subsidiary company, was reasonable and proper.

In Southwestern Teleg. & Teleph. Co. v. Houston (1920) 268 Fed. 878, it is held that a charge of 4 per cent, made under the regular contract of the American Telephone & Telegraph Company for certain services rendered to the telephone company, is valid in the absence of evidence that the price paid was excessive for the services received.

c. Charges to depreciation.

In Re Dearborn Teleph. Co. Case No. 2740, Feb. 18, 1921, in an application for suspension of rates of the telephone company, the Missouri Commission held that 10 per cent of the property valuation was a proper return for depreciation and return.

In Re St. Charles Lighting Co. Case No. 2832, March 8, 1921, the Missouri Commission refused to allow a large depreciation reserve on the ground that the valuation of a public utility was based on prewar prices, and that replacements would be made at increased prices. The Commission stated that if items valued at prewar prices are replaced at increased cost it is entirely proper to capitalize an amount equal to the increase in cost so that the funds in the depreciation reserve account need only cover the actual capital expenditure for the original item.

III. Factors to be considered in determining reasonableness.

a. In general.

In Re Campbell Brothers Water Co. Case F-396, Order No. 752, Feb. 25, 1921, the leano commission ne at increased water ra.e: sufficient to produce a fair return upon an overbuilt plant should not be allowed, stating that since applicants had installed a plant of capacity larger than was necessary to serve for some time to come, they should look to the future in part for return, or in other words, must still be considered as going through the development period. In Re Cumberland Teleph. & Teleg. Co. No. 3052, Order No. 2397, Feb. 26, 1921, the Louisiana Commission held that the return on the property of a public utility should be large enough not only to meet fixed charges, but to establish a basis of credit.

In Flemming v. Troy Gas Co. Case Nos. 7697, 7712, March 1,

1921, the New York Commission, Second District, holds that a public utility should accumulate a reasonable surplus fund with which to meet at least those ordinary contingencies and inequalities of income which are common to all enterprises, and that a fund of about $10,000 accumulated by a gas company should not be disturbed for the purpose of a contribution to dividends or given consideration as affecting rates.

In Re Viking Teleph. Co. U-2374, Feb. 1, 1921, the Wisconsin Commission permitted a rate for telephone service which would be insufficient to produce funds for depreciation and for return upon. the investment, where it was shown that all the subscribers were stockholders in the company.

b. Past and future earnings.

In Re Citizens Gas, Electric & Heating Co. No. 8126, Dec. 29, 1920, the Illinois Commission, in denying an application for increased rates for gas, took into consideration the fact that the downward tendency of prices had begun and was likely to continue.

In Re Central Illinois Utilities Co. No. 7711, Jan. 7, 1921, the Illinois Commission held that the possibility of a general decrease in prices should not prevent increased electric rates, where it appears that a recent wage increase was likly to continue, and that increased wages of coal miners, under a two-year agreement, would keep the price of the utility's coal at a high level.

In Empire State R. Corp. Case No. 7922, Jan. 25, 1921, the New York Public Service Commission, Second District, denied the application of a street railway for higher rates, which application was based upon operating loss during a period of two months during which it had tested the possibility of operating one-man cars. The Commission held that existing rates should be given a more extended trial, and also stated that the increased fare would be so high that it would induce many people to walk and the revenue would be no greater than under the former rates.

In Flemming v. Troy Gas Co. Case Nos. 7697, 7712, March 1, 1921, the New York Commission, Second District, holds that the law does not sanction the consideration of excessive stock dividends lawfully disbursed in the early years of a utility in fixing present rates.

In Re Johnstown Traction Co. Application Docket No. 4036, March 1, 1921, the Pennsylvania Commission holds that in anticipation of decreased wages, rate schedules should be made which provide adequate protection in a tentative adjustment and which will permit corrective measures to be applied when the occasion arises, as a safety valve which would afford prompt and adequate relief to the public in the event of any material decline in cost.

In Re Southern Wisconsin Electric Co. U-2261, Jan. 25, 1921, the Wisconsin Railroad Commission allowed an electric company an increase in rates sufficient to produce a sum equal to the amount of shortage for the previous year, stating that although the company estimated that its increase in expenses for the coming year would make the shortage greater than the previous year, probable decreases in costs would offset this amount.

c. Character of service.

In Re Perkins, Decision No. 8389, Application No. 5816, Nov. 27, 1920, in an application before the California Commission for permission to increase water rates, the Commission said: "While throughout this proceeding facts have been substantiated which justify an increase in the rates of this utility, yet it appears that in justice to those consumers who receive inadequate service by reason of low pressure, any increase of rates which may be granted, should be made contingent upon such improvement of the system as will insure satisfactory service from the standpoint of pressure."

In Re Mattoon Gas Light & Coke Co. No. 8467, Jan. 5, 1921, the Illinois Commission held that a rate of 7 per cent per annum upon the fair value of a gas company's property was fair and reasonable, where the service rendered was poor and unsatisfactory.

In Re Central Illinois Light Co. No. 9384, Feb. 9, 1921, the Illinois Commission holds that adequate service is a corollary to adequate rates, and justice must be done the public as well as the utility. In this case, the Commission suspended, annulled, and canceled the rates proposed, on the ground that, considering the character of service rendered, they were unjust and unreasonable.

In Re Plymouth Electric Light & P. Co. No. 5522, Jan. 29, 1921, the Indiana Commission said that a Public Service Commission must demand service for the public and a living rate for the utility, but the first duty of a Commission is to the public in seeing that adequate service is provided, after which the utility's investment should be protected.

In Citizens of Chelan v. Chelan Electric Co. Causes Nos. 5047, 5049, 5093, March 15, 1921, the Washington Commission directed a water utility to improve its system in some particulars with the promise that when this object was accomplished, the company would be given a rate which would enable it to earn a return on the fair value of its property.

In Re Eastern Wisconsin Teleph. Co. U-2249, Feb. 28, 1921, the Wisconsin Commission allowed an increased rate schedule which was to go into effect as soon as service conditions at the exchanges should become satisfactory.

d. Efficiency of management.

In Re Illinois Bell Teleph. Co. Nos. 5563-5570, March 29, 1921, the Indiana Commission allowed increased rates to a telephone utility, although a decrease of prices was expected, where it appeared that the management had been competent and service efficient, and that the utility had been unable to earn sufficient revenue to pay operating expense and a reasonable return on the value of its property.

In Re Union Teleph. Co. Application No. 4422, Feb. 28, 1921, the Nebraska Commission held that 8 per cent return on a public utility was reasonable provided the management was economical enough so that the rates were not too high. In this case, the Commission provided for only 7 per cent on the bonded indebtedness and 8 per cent on the stock.

IV. Emergency relief.

In Re Galesburg U. Teleph. Co. No. 10561, Dec. 20, 1920, the Illinois Commission allowed as an emergency relief a temporary increase in telephone rates which would produce a return of 8 per cent on an assumed minimum valuation, with the provision that if these rates should prove to be excessive after a fuller investigation, a refund would be made to subscribers.

In Re City Light & Traction Co. Case No. 1662, April 2, 1921, the Missouri Commission holds that, where an emergency exists, it should grant increased rates, although full facts concerning valuation had not been presented to the Commission.

In Re Central U. Teleph. Co. No. 1900, Feb. 4, 1921, the Ohio Commission granted temporary increased rates during the termination of an investigation to decide just and reasonable rates, which investigation had extended over a period of more than three years and was likely to continue for some time.

V. Reasonableness of specific amounts.

In Re Danielson Docket No. 3475, Jan. 27, 1921, the Connecticut Commission held that where a company is given the benefit of present day prices in the reconstruction valuation of its property, which property includes additions and betterments paid for out of surplus earnings, a rate of return should be tempered accordingly. The Commission said: "Without ruling that 8 per cent return is too high under present economic conditions and the general industrial rate of return, we are of opinion in this case that a 6 per cent return on the present fair valuation of the respondent's property is a reasonable return. An 8 per cent dividend on the stock issued and outstanding would be $10,000. A 6 per cent return on the valuation of the property would be $10,800, or a difference of only $800 per annum."

In Re Anderson Brothers Express & Storage Co. No. 9980, Dec. 28, 1920, the Illinois Commission held that a return of 10 per cent, with a proper allowance for depreciation, was reasonable in the warehouse business. The court said: "Considering how different are the conditions under which the warehouse business is operated from those under which other monopolistic utility business is conducted, particularly the seasonal and competitive elements affecting it, a greater rate of return should reasonably be allowed than is usual in the case of other public utilities."

In Re Muncie Water Works Co. No. 5807, Feb. 25, 1921, the Indiana Commission made an allowance of 7 per cent for return upon the property of a water utility, stating that it considered the hazards of utility operation reduced to the minimum in the case of a water utility.

In Re St. Charles Lighting Co. Case No. 2832, March 8, 1921, the Missouri Commission allowed a return of 9 per cent on the value of the property, being 2 per cent for depreciation reserve, and 7 per cent for return, contingencies, and surplus.

In Re Citizens Teleph. Co. Case No. 1781, March 30, 1921, the Missouri Commission allowed a return of approximately 11.6 per cent on the value of a telephone utility.

In Re Ft. Scott & N. Light, Heat, Water & P. Co. Cases Nos. 2804-2806, March 31, 1921, the Missouri Commission allowed a return of 8 per cent for interest and depreciation on a street railway property.

In Re St. Joseph R. Light, Heat & P. Co. Case No. 2605, April 6, 1921, the Missouri Commission allowed a return of 8 per cent on the fair value of a steam-heating property.

In Re West Allis Gas Co. U-2324, March 26, 1921, the Wisconsin Commission allowed to a gas company a return of 6.5 per cent exclusive of depreciation.

In Re Oconto Rural Teleph. Co. U-2328, March 28, 1921, the Wisconsin Commission allowed a telephone utility a return of approximately 14 per cent of the value of the property, for return and depreciation.

P.U.R.1921C.

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