be used the operator shall at once inform the person calling that it is not recognized as a call and that such operators shall thereupon require the person calling to use a proper call word.

(5) It is hereby further ordered, That the New York Telephone Company institute and enforce a rule or rules for the government of its employees and switchboard operators such that the observance of said rule will result as follows:

(a) If an inquirer asks of an exchange operator for telephonic connection with a telegraph company not subscribing to the exchange, the inquirer shall be informed of the fact of such non-subscription, and of the telegraph company, or companies, subscribers to said exchange, in the alphabetical order in which the names of such subscribing telegraph company or companies appear in the printed telephone directory.

(b) Where an inquiry is made for telephonic connection with a designated telegraph company, and said designated telegraph company does not or cannot answer with promptitude, the inquirer shall be apprised of the situation, and at the inquirer's request so to do, and so only, the exchange operator shall designate the other telegraph company or companies that can be reached through the exchange, naming the companies, if more than one, in the order indicated in (a) supra. (c) Where an inquirer informs the exchange operator of the inquirer's desire to transmit a telegram, but either fails to indicate the telegraphic company to be employed, or expressed indifference thereto, the exchange operator shall desist from directing or advising or designating any particular telegraph company, and shall inform the inquirer that the inquirer must designate the telegraph company to be employed. The operator shall name the company or companies connecting with the exchange, in the same order as designated in (a) supra, and shall connect only at the inquirer's specific designation of telegraph company.

This order is effective February 1st, 1913.

Dated January 7th, 1913.

IN THE MATTER OF THE COMPLAINT OF GATELY AND HURLEY, et al., AGAINST THE DELAWARE AND ATLANTIC TELEGRAPH AND TELEPHONE COMPANY,

and

IN THE MATTER OF THE COMPLAINT OF BOARD OF CHOSEN FREEHOLDERS OF THE COUNTY OF CAMDEN, AGAINST THE DELAWARE AND ATLANTIC TELEGRAPH AND TELEPHONE COMPANY.

ABSTRACT OF THE DECISION*.

The original complaint was filed by Gately & Hurley. Joining with them were some twenty-three of the largest commercial, manufacturing and banking houses in Camden. The testimony taken covered not only charges to all complainants, but to all patrons in the entire territory of the company in the State.

The essential issues raised in this case were (1) Unjust Discrimination; (2) Absence of a Reasonable Classification of service offered; (3) Unjust and Unreasonable Rates.

I. Unjust Discrimination.

Unjust discrimination was alleged to consist in the non-simultaneous termination of all non-standard rates. It was also alleged to exist against the County of Camden by reason of the Company's according to the City of Camden more favorable rates than to the Sheriff's office.

It is Held that the particular complainants who had long enjoyed preferential rates in comparison with the bulk of consumers on standard schedule were in no equitable position to complain that they had been first singled out and required to pay the standard rates regularly filed with the Commission. This is no condonation of the company's failure simultaneously to put the standard rates into force universally.

It is Held that requiring the complainants to pay standard rates (which standard rates are higher than the rates long enjoyed by the complainants) is not to be construed as an increase of rates but

*Prepared by Board of Public Utility Commissioners of New Jersey.

as a standardization of non-standard or unjustly discriminatory rates; nor is it to be construed as a change in an "existing classification" of rates, but an excision of what was essentially akin to illegal rebates. Consequently the burden of proof cast by the statute on a public utility raising rates or changing an existing classification was not applicable to the standardization of the complainants' rates. As regards the complaint of the County of Camden, the company contended that there is a disparity of circumstances and conditions in that very valuable privileges are accorded to the company by the City and not similarily accorded by the County. This contention was not rebutted by the County. The County's claim of unjust discrimination is therefore dismissed.

II. Absence of Reasonable Classification of Service Offered.

The allegation of the absence of a reasonable classification of service was based on two contentions: First, that as between large and small users of telephone service, the respective classification of service offered was not reasonable; Second, that as between measured and unmeasured service outside the city limits, the classification of service offered by the company was not reasonable. The record disclosed that different rates are quoted for service to large and small users respectively. Whether the rates per se are just or not is discussed under the third head of the Report. The relative fairness of the rates to large and small users was not successfully impugned by the testimony offered. Apparently the contention that the company did no longer quote flat rates for intercommunity service hinged on the fact that the annual flat rate covering Philadelphia and Camden is no longer quoted by the respondent. So long as the annual Camden rate is not successfully attacked, the absence of a quoted rate by which the complainant can obtain unlimited service to Philadelphia can not be remedied by this Board. Being interstate traffic, it is Held that this Board has no jurisdiction thereover.

III. Unjust and Unreasonable Rates.

Under this caption the valuation of this particular property for . rate making purposes, and the more general question of the principles underlying such valuations are considered.

The complainants desired an appraisal of the company's property in Camden, and an inquiry into expenses incurred and revenues received in Camden.

The company contended that these facts, if known, would furnish no adequate data for a determination of the case inasmuch as the toll and local service are inextricably intertwined. The company contended that the inquiry and valuation should be coterminous with the company's property in territory it served; and that a proper classification of the various cities, towns and districts served within said territory would allow a determination as to the property of rate schedules, for each community served. After consultation the Board adopted the view presented by the company, and allowed

the inquiry to cover the entire territory served by the company in this State.

Consequently it is Held "inasmuch as intercommunication across distance, irrespective of municipal boundaries, or the availability of such service, is of the essence of telephone service, it is either not practicable at all or would involve undue and unnecessary delay to segregate and isolate service costs within restricted municipal areas."

It is also Held "that to reach a proper basis on which a reasonable return may be earned, the entire property of the system of the Delaware and Atlantic Telegraph and Telephone Company inventoried will suffice; and that when this information is in possession of the Board, data respecting population and class of service, required in various places will allow a proper fixation of rates for each particular locality."

The company contended that it was entitled to earn a return upon a base which is the sum of the reproduction cost of the physical property, new, plus the cost of establishing the business. Underlying all valuations for rate-making purposes are certain fundamentals. "The general principles which underlie all just valuations for ratemaking purposes are simple. These great general underlying principles are two in number. The first aims at securing for consumers generally a prompt and adequate supply at reasonable rates, of those services which they require of public utility companies. To insure this end, a sufficient incentive must be held out to enterprisers and investors. Such an incentive is the assured prospect of a sufficient return upon outlay in supplying service. The first general principle is prospective in its reach; it looks to the future. It is comprehensive in its aim; it is bent on obtaining the adequate supply of community wants.

"The second general underlying principle seeks to conserve the legitimate value of investments in public utility enterprises. It regards the past rather than the present; the individual investors rather than the community of consumers. It is perfectly consonant with the first general principle enunciated. For unless the legitimate value of past investments is preserved by rate-making decisions, the effective incentive for individuals to take similar risks in the future is impaired or extinguished.

"In the light of these two general principles, it is Held that a fair present day estimate of the capital necessarily and judiciously sunk in establishing the business and not thereafter recouped from revenue should enter as an element into the base upon which a fair return should be allowed. Not to include such part of the outlay or investment as is necessarily and judiciously made at the start in canvassing for and enlisting customers, or as is necessarily and wisely incurred by reason of foregoing returns during the construction period when money is locked up acts to repel future enterprisers from similar ventures. Not to allow a fair return on such outlay when made, is to extinguish in part the value of the necessary investment requisite to afford service to the community as a whole. The allowance on this score must, it is true, be made with circumspection.

Living consumers must not be held in the power of the dead hand stretched forth from the grave of fictitious or injudicious investment. Cognizance must be taken of the fact that the individual merchant ordinarily calculates his percentage of profit on his stock, not on his stock plus the good will of his business. Cognizance must be taken also of the fact that an estimate of reproduction cost reflects in part one value attributed to a mechanism whose end is assumed. to be the rendering of specific services, and not to become a mere pile of potential junk. But when all is said by way of abatement or allowance, it is Held that the inclusion of a proper estimate for the cost of establishing business, a cost quite distinct from the bare structural value of the apparatus, cannot be gainsaid.

"The Board allowed for cost of establishing the business $797,800. "For this item the company claimed $1,184,600."

Apart from estimating an allowance for the cost of establishing the business, is the value to be put on the physical property for rate-making purposes. One extreme contention is that replacement cost new, of the company's property used and useful in supplying service should be taken as the basis. The other extreme contention is that unexpired service value of the company's property, used and useful in rendering service should serve as the basis. A middle ground is that replacement cost new minus an allowance for demonstrated wear and tear should be taken as the basis.

It is Held that both extremes are likely to be erroneous. To take replacement cost new, without any abatement, would be relatively unfair to companies whose tangible property is at present as large in value as the tangible property represented by its replacement cost new. There is in the latter case a warranty of the judiciousness both in time and amount of the investment which is lacking where a large accrued depreciation in physical plant exists.

The contention that only unexpired service value of tangible property should be taken as a basis fails to give proper regard to the unique obligation incumbent on a public utility of maintaining a service in extent and adequacy equal to what the company holds itself out to provide; and this too without improper additions to capital account. It is Held that as the company's 66* * responsibility is measured by a sum in excess of the unexpired service value of its tangibles, * * the equitable base upon which it is entitled to a return is in excess of the unexpired service value of its apparatus, and approaches as a limit the total replacement cost new of its tangible property."

As a tentative approach to this basis it is Held that an abatement from replacement cost new, of expired service of wearing value ascertained to be due to actual age and wear should be made. "In the case at bar, it would make no difference, so far as the disposition of the pending case is concerned, which basis for a return is chosen. On the basis of reproduction value new, or upon the basis of an abatement such as is contemplated in the Knoxville case, or on the basis of such deduction as might be calculated upon expired service value estimated from life tables, it is demonstrable that the past returns to this company have not been excessive, unjust or unreasonable."