upr000274 230

W M . R. DEC 14 1949 OFFICE Ot Mr. W.H. Hulsizer - Omaha u : P. R. R co. ? LOS . (ecs Mr. Vta. Reinhardt:) Los Angeles - Pile: 80 Referring to your A-492 of December 9th relative to proposed management fee between the Union Pacific and the Water Company in which you suggest the amount which might reasonably be charged. For your information, I have discussed the question of management fee with representatives of some of the util­ities as well as with Mr. Wehe, who m s formerly with the California Public Utilities Commission and who is now engaged in private practice as a consulting rate expert being re­tained and employed by a large number of public utilities in this state in connection with rate hearing®. He stated that in the past, in connection with hearings in which management fees were involved, the Commission was accustomed to per­mitting 5$ of the gross but that lately, due to numerous attacks on such management fees, that has been out down to, in many Instances, 1-1/2$ of the gross and in a recent hear­ing by the AT&T, the latter company had voluntarily agreed to reduce its management fee rate to one of its subsidiaries to 1$ of the gross. Of course, these low percentages may be reasonable where the management fee is charged to a subsidiary which has a substantial gross Income and where such management fee is primarily in connection possibly with financing or general executive supervision and where the subsidiary really has Its own complete organization, and operates through its own officials and employees. In our case, however, as you know, practically all of the executive officers of the Water Company are railroad officers and in addition, the railroad furnishes considerable engineering services. I think, therefore, that the situation in our case is soravh&t different from that of the ordinary management fee relationship. I I am endeavoring to secure further information with respect to the volume of such fee from other utilities and will be interested In knowing what you develop from the Omaha Public Power District but I rather feel that the fee suggested in your wire would not be approved by the Nevada Public Service Commission*