C. L. 147] furnishes Class A, or switching service, to 142 rural patrons and furnishes Class B service to 288 subscribers and Class D service to 104 subscribers. The company has connection with toll or long distance lines of other telephone companies.

The Commission caused its accountants to make an audit of the books of the company for the year ended the twenty-sixth day of February, 1923. As a result of that audit, it appears that the company's total operating revenues for that period amounted to $19,359.26, of which $1,579.00 was from toll service. The total operating expenses of the company for the same period amounted to $15,745.14. The operating expenses charged to toll service for the same period were $1,963. After deducting uncollectable operating revenues and taxes, the net operating income available to the company for return on investment and federal income tax from its entire business for the year ended the twenty-eighth of February, 1923, was without deduction for depreciation, the sum of $5,756. Annual depreciation was estimated to be $3,122.

The accountants report that the books of the company are not properly kept and they had difficulty in ascertaining the revenues and expenses of the company. Owing to the fact that the books of the company were destroyed by fire in 1917 there were no books from which the accountants could ascertain the original cost of the company's property.

The Commission engineers made an inventory and appraisal of the company's property as of the thirty-first day of December, 1922, of which the following is a summary:

The said appraisal made by the Commission engineers is an estimate of the amount of the investment in the property of the company as now used by it for serving the public. The total investment cost as thus estimated of the physical property, including stores and supplies and working capital, is $61,678 which, less accrued depreciation, was estimated to be $34,422.

The company also submitted an inventory and appraisal of its property as of the first day of July, 1922, made by the Topping Valuation Company, of which the following is

a summary:

The Topping appraisal was made on the basis of reproduction cost. The cost of labor and materials at the date of the appraisal was used in ascertaining the said reproduction cost.

The difference in the totals shown by the Commission's appraisal and that made by the Topping company is accounted for by reason of the difference in the unit prices

applied to the labor and materials used in the construction of the company's telephone exchange and in the amounts deducted for accrued depreciation.

The Commission's appraisal was an estimate of the investment cost and the accrued depreciation. The Topping appraisal was an estimate of the cost to reproduce the property of the company at present prices, less accrued depreciation. The fact that prices of all labor and materials of the kind used in the company's plant are much higher than when the plant was built, is the source of the difference between the appraisals. Also the Commission engineers estimate the accrued depreciation at 44 per cent. of the total of their appraisal, which is $27,256. Topping deducts from his estimate cost of reproduction new of the company's property, $18,964 for accrued depreciation, which is approximately 24 per cent. of his estimate of the cost to reproduce the property.

In the recent case of State ex rel. Southwestern Bell Telephone Company v. Missouri Public Service Commission, et al., 67 L. Ed. 619; P. U. R. 1923-C. 193, decided by the United States Supreme Court on the twenty-first day of May, 1923, the court held that in determining the present fair value of public service corporations for ratemaking, consideration must be given to present day costs and that the same can not be wholly disregarded.

Hence, to comply with the rule for determining present fair value of property for rate-making, there must be substantial addition made to the investment cost of the property of the company as estimated by the engineers of the Commission.

We reach a conclusion as to the present fair value of the company's property by the method following:

[Mo

L. 147]

Commission engineers estimated investment..

Deduct:

Construction overhead cost..

Materials and supplies..

Working capital......

Investment in physical property..

Add to cover increased cost due to present prices.

Deduct for accrued depreciation.

Restore above deductions..

Add for going value...

TOTAL PRESENT FAIR VALUE.

$58, 951

3, 049

$62, 000

We find the present fair value of the property of Home Telephone Company of Centralia, as of the thirty-first day of December, 1922, to be $62,000.

Objection was made to the amount paid annually by the company for general office salaries. The detail of that item is as follows:

The foregoing item is excessive to the amount of $1,200. Taking that amount from the operating expenses, we make adjustments as a forecast of the sums to be yielded for a return by the present rates as follows:

Annual operating revenues $19,359; operating expenses without allowances for depreciation $12,413; net annual income for depreciation, return and federal income tax $6,946, which is less than 12 per cent. upon the present fair value of the property of the company.