Burlington weekly free press. [volume] (Burlington, Vt.) 1866-1928, 1913-12-18
WESTERN EXPERT
ON RATES HEARD
He Explains Depreciation Re.
serve and Cost of Establish
ing a Growing Concern.

rate cases by reason of his former connec-
ton with the Wisconsin public service
commission, was put on the stand in the
telephone inquiry this morning and did
not finish until 2:3O this afternoon. He
was followed by ice-Presldent Hall who
explained certain statistical data asked
for in his direct examination. The tele-
phone company Is nearing the end of It's
evidence. There are only n few more
witnesses to be examined II the cross
examination is short this will probably
be concluded this week. In that event
adjournment will be taken Friday until
after the holidays when the state VIII
begin It's side of the case. state Treas
urer Deavitt. one of the counsel for the
State was not at the hearing to-day lie
is In New York attending hearing Of
national insurance commissioners, being
a member Of the committee on reserves
other than life. He Is expected home to-
morrow or the next day.
Mr. Hagenah in the direct examination
said that he was a public utility statis-
tician; that he began active work in this
line about 10 years ago In Wisconsin I'M
der Governor la Toilette. He had been
chief statisticlan Of the bureau of Indus
trial statistics, later deputy commissioner
of that bureau and subsequently chief
statisti tan FOR the public service COM
mission In 1910, he was given leave or
absence to assist the city of Chicago in a
rate case against the Chicago Telephone
company, and is now in private practice
a. a public utility statistician.
In answer to questions by Counsel
Jones of the telephone company he
explained the necessity Of a deprecia-
ton reserve and how it should he ap-
piled. He said he had examined the
life tables of different classes of prop
erty, as presented by chief Engineer
Manson. AMI said that the units used
by Mr.. Manson are substantially the
same units that he himself employs.
PRESENT VALUE OF a PLANT.
MIR Jones submitted a Hypothetical
question as to what tho condition Of
| n plant ought to be assuming that it
had been fairly we'll maintained from
| a depreciation reserve. The witness
said from Is to 90 per cent. In other
words such plant ought TO be so to
! IS per cent as good as a new plant
built to-day.
In determining his own unit costs,
Mr. Hagenah said ne had followed the
Wisconsin classification OF accounts,
and that while he had adopted pro-
cess somewhat dissimilar to Mr.. Man
sons he had arrived at substantially
the same results,
Asked how ne would arrive at the
present value Of telephone plant,
he said he would get all the informa
tion he could regarding its age and
upkeep. He would then apply the
standard life tables of the different
/ classes of property, and then by an
inspection of the plant determine the
amount of depreciation and its fair
i present value.
| Mr. Hagenah said that another rec
D ognized factor in rate cases was the
cost of the development of the bust
ness, which in this particular case
! has been described in the inventory
sheets as tho cost OF establishing the
! business as a going concern"
! Mr.. Hagenah said that he would
innate it would require three or four
years to develop the business, and
that during that time stockholders
might have to forego Il or 90 per
cent of the return they might have
! received had they invested in some
other line of business. Many dec-
sions of courts and commissions allow
10 per cent. as the cost of establishing
the business, others allow 90 per cent.
and some as high as 30 per cent
eff I would obtain no data" he siad,
II would he guided by what other
commissions hal allowed in similar
cases"
ESTIMATES FAIR PERCENTAGE
Asked if he had formed any opinion
of what would be a fair percentage In
this case. he said. he had no definite
figure in mind. because he had not
J. had access to records or time to fam
ilarize himself. Based on such facts
as he had he thought the allowance
for establishing the business as a 60
ing concern range1 between 10 and 20
per cent or possibly % per cent Of
the value of the property
! Chairman Bacon ami the witness
discussed briefly the propriety of hav-
ing the time of working capital In
clude the item Of material and sup
plies General Auditor Longley had
| differentiated these items In His state
ment, but Mr., HaEenah thought the
term working capital should include
the cost of material and supplies
! In response to direct question
as to what he considered a fair
return for telephone utility. the
witness answered, Eight per cent.
and said he based this estimate on
the inherent risks in the business and
/ the general unwllinEness of the
| public to invest in public utilities, un-
der conditions which pertain to the
, indivi iual properties.
| The next point touched upon was the
contractual relation between the Amer
lean Telephone and Telegraph company
and its various subsidiaries by which the
latter paid TO the former 4 1-2 per cent.
of their gross income I'm return for vari-
Gus engineering, accounting, financial and
legal services and also for the rental of
instruments. Mr. Iagenah said that he
analyzed this item for the city of Chicago
| in 1871. He said that although he ap-
! preached the subject with feeling OF
| prejudice he camce to the conclusion that
| the subsidiary company was receiving
! very substantial benefits under that con-
tract He found. however, that a consld-
cradle portion of these legal, engineering
and accounting services related to con-
| 3truCton rather than to operating and he
recommended that $4,000 should be
charged to construction rather than to
operating expenses.
AS to the value Of the instrument charge
that appears in this il-2 per cent, ac-