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\ V Le* Angeles - Movombor 23, 1949 1-7334 Hr, w. a, imltimers (06 * Hr. A. S.' Sfdiiarfl Ml*, f * W, Boakii H**. W. 0. Perkin* Hr. 2. A. Blonds Hr. Chas. Mams ) deferring to poor letter ffovombor 10, file 3703.1, concerning the he* Vega* water situations 1 eonour in pour opinion that any application for inoreaee in water rates should be predicated upon a fair re­turn on tho value of the property rather than upon our invest- •ant or historical costa. Undoubtedly the ievada Public Service Condition will call upon us to support aueh application in ehioh ovent any information that we give to tho Coaalselon will bo available to the publio, and will have considerable bearing on our negotiations for the sale to or condensation of our water ayeten by the Lae Vegas Valley Water District. t note la the Ajax case a weighted average of repro­duction and original oosta lass depreciation wae used* However, ss Indicated in the attached article by Everett C. MoKeage, Counsel for the California Public Utilities Commission, which appeared in the December 1948 leeuc of the Antriean Bar Associa­tion Journal, there has been considerable difference of opinion as to the valuation basis to be used in rate caking eases. In H e* . McKtags's opinion the trend of Supreme Court decisions le away fron reproduction ooste and toward actual cost end prudent Investment basis. In recent California easts ths Publie Utili­ties Condsslen has been following this trend and there is ths possibility that tho Hevada Publie Service Condition will do likewise. X do not recall that this feature was dieouesed at our recent infernal conference at Las Vegan. As previously advised, we do not have s complete record of work order authorisations, and do not know whether or net the accounting wae performed according to the authorities; however, the redwood lines were originally installed during periods of comparatively low material and labor costs, and were replaced during periods of high ooate, with only the betterment value of material being charged to Investment, all labor costa and such portions of the cost of materials as rapreaantad inereasad prloas being charged to expenses. w : R J. DEC 6 1949 NOV 23 1049 L. C. C.