the Jamestown Telephone Corporation and satisfying itself that the capitalization authorized by this Commission should not be excessive, and at the request of counsel for the telephone company and counsel for the city of Jamestown, the following stipulation which has been made between said parties, is embodied in this order, to wit:

[N. E

"That the Jamestown Telephone Corporation shall stipulate, and by the acceptance of this order, it shall be deemed to have stipulated, with the city of Jamestown, that the properties of the Home Telephone Company and of the New York Telephone Company, located in the city of Jamestown, acquired by it on May 1, 1919, and actually used and to be used by it in the public service in said city within the meaning of Section 97 and collateral sections of the Public Service Commissions Law, as judicially interpreted, or as may hereafter be interpreted by the courts, shall not exceed the sum of $1,000,000 for future rate-making purposes, provided, however, that the aforesaid limitation shall be increased by the amount of the expenditures prior to or on and subsequent to May 1, 1919, incurred or made or which may hereafter be incurred or made, for the purpose of extending and equipping the consolidated system, under the authority of the original order herein dated March 14, 1919, authorizing an expenditure not exceeding $113,000 for the purposes therein specified, and that such limitation shall be further increased by the amount or amounts of any and all expenditures on and since May 1, 1919, incurred or made or which may hereafter be incurred or made for extensions and additions to the plant in the city of Jamestown, provided the same shall have been or be established to the satisfaction of the Public Service Commission, Second District, or its successor in authority."

It will be noted that while the foregoing stipulation provided that the property acquired by the company in the city of Jamestown should not exceed the sum of $1,000,000 for rate-making purposes, plus $113,000 for net additions and expenditures incurred in consolidating and extending the system up to May 1, 1919, and such other net additions to the plant thereafter made, the former Commission determined the value of all the property acquired by the new corporation, both inside and outside of Jamestown, at $1,046,600. This valuation was found after a public hearing had been held and upon a careful examination of the properties involved by the Commission's engineers, and was accepted by all parties, and we are of the opinion that nothing has been developed in this case to warrant a reduction at this time. The company does not

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claim a present day reproduction cost valuation of its properties, but in support of its capitalization as determined by the former Commission caused an actual inventory and appraisal of its properties to be made by the American Appraisal Company as of June 30, 1922, which inventory and appraisal was received in evidence in this case and showed a reproduction cost new of all of the property of the company, of $1,977,788.22, and a structural value, that is, reproduction cost new, less depreciation, of $1,521,868.43. The accuracy of this inventory and appraisal was not seriously questioned by the experts employed by the city except, perhaps, as regards the so-called related intangible accounts.

We therefore find the value of the company's property as of December 31, 1923, for rate-making purposes, to be the amount found by the former Commission, plus net additions to capital accounts since that date, amounting in the aggregate to the sum of $1,204,784.89, less the amount of the fixed capital reserves as of that date amounting to $135,701.28, which, with an allowance for working capital of $75,000, gives a rate base for the year 1924 of $1,144,083.61. We have carefully examined the operating expenses of the company since May 1, 1919, and find that, in that respect, the company compares favorably with other comparable companies of the State in all respects except traffic expenses, which are considerably higher per station in Jamestown than elsewhere. This account consists almost entirely of operators' wages, and in view of the fact that the city of Jamestown is and has been for some years progressing rapidly as an industrial center, the higher scale of operators' wages in force there is undoubtedly due to local labor conditions and beyond the company's control.

As before stated, we have carefully examined the affairs of this company since it began business on May 1, 1919, and notwithstanding two increases in rates since that time it has failed to earn dividends, or even to earn a return sufficient to wipe out its deficit incurred in the years 1919 and 1920. The company begins the year 1924 with a deficit

of $16,947.04. The appended comparative balance sheets and income statements show the financial condition of the company at the end of each year of its operations and the results of its operations. From these income statements, it is obvious that the rates charged by the company have been insufficient to yield a reasonable return upon the value of the property used in the public service and that no part of such earnings should be refunded to subscribers under the stipulation filed in this proceeding.

When compared with the rates of the New York Telephone Company, telephone rates in the city of Jamestown appear to be somewhat high, but it is claimed by the company that its rates are justified by conditions peculiar to Jamestown, and vicinity, with particular reference to low development telephonically and the unusually large free-calling area, including the city of Jamestown, the villages of Falconer and Lakewood, and extending into the the towns of Carroll, Kiantone, Busti, Harmony, Ellicott, Gerry, and Ellery. Before the days of telephone competition in Jamestown there was the usual toll charge between Jamestown, Lakewood, Bemus Point, and Frewsburg, but when the Home Telephone Company entered the field the present free service area began to be developed, and was the result of ruinous competitive measures indulged in by both companies. For many years the public now served by the Jamestown Telephone Corporation has been accustomed to this wide free service area, and probably do not desire to have it restricted. Doctor Maltbie, on behalf of the city of Jamestown, has made some suggestions as to the reduction of this area, but does not claim that his restricted area is the only solution of the problem, and frankly states that the large area which has been developed, and which is served from Jamestown, has created a situation which requires considerable and careful study before changes are ordered. At the same time, there seems to exist a discriminatory situation whereby different rates are effective in different localities within this area for the same service. This is not in accord with the generally

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accepted telephone practice, which would seem to require the restoration of toll charges to outlying points, and thus tend to equalize the rates now charged in the various exchanges. In our opinion this situation, however handled, does not appreciably affect the rates in the city of Jamestown, but with the growth of business it is likely that this feature will become more apparent, and the company should, therefore, at once institute a further study of its rate structure with the establishment of the usual toll charges in view, together with suitable modifications of local exchange rates.

We are of the opinion that the rates now charged in Jamestown are disproportionate, and that the variance between classifications of service is too great and retards growth, and that there should be some adjustment. There was a very satisfactory increase in the number of stations during the past year, but the territory served by the company has not been fully developed, and with the rapid industrial growth of the city of Jamestown, further development is likely to take place. There should be a considerable increase of stations in Jamestown, and such development has undoubtedly been retarded in the past by the business rate structure. As of September 30, 1923, there were only 433 individual line business stations in the city, and 576 two-party line stations, and 221 individual residence, 510 two-party residence and 2,659 four-party residence stations. While the company has not, since the beginning of its operations, been able to earn a reasonable return upon its property, due largely, no doubt, to large operating expenses during the period of consolidation, we feel that the consolidation period being now ended, that the company can devote its efforts to further development, and that the increased business can be carried on with little increase in operating expenses. The present rate structure tends to retard development and to force subscribers to take the lower and less expensive classification of service. While the rates hereinafter proposed may result in a temporary decrease in revenues, the adjustment of such

[N. Y. rates will attract subscribers to the more satisfactory individual line service, and with a continuance of the growth of the company such reduction in rates should be rapidly made up.

We therefore direct that from and after April 1, 1924, the rates charged by this company in the Jamestown and Falconer exchange area, shall be as follows:

TOTAL OPERATING REVENUES.... $147,884 39 $256,750 90 $318,693 77 $350,624 21 $374,070 13

TOTAL OPERATING EXPENSES.... $147,429 66 $247,652 96 $256,976 81 $255,237 97 $283,242 63