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Mr. 1* &» iennett Item 6-cj (Mr. Hulsisar’s letter) ’'.... Rental base decreased $7h,667 dm to reducing inwestafflit cost by the estiaated depreciation reserve. Table* I, F, and i set forth the retirement reserves deducted from the capital base figure# in counting the eater cost*. Such treatment w aade independent of Mr. CharskeVs letter of April Ht# 1950. Sob* comments an thin matter of using a depreciated rate base are believed in order. Since it Is aa extensive subject, mm of the more iispcartant features ably will be mentioned. Briefly, where the annual provision for depreciation i» made at a flat rate without consideration of interest (straight line basis), then the net amounts accumulated in the retircJiami reserve should be deducted before counting the interest or return* If the depreciation is set up on a sinking fund basis, and the customer pays only the annuity portion as the direct depreciation charge, then the return smsy be computed « the full 'depreciated capital base* In the report, as well as in the billing, the depreciation charge rods by the L.A.&S.L.R.R. Cospapy is a flat percentage and, if the customer (1.F.L.&W. Company) is not to continue to pay interest on capital already returned through prior depreciation payments, then tip net accumulated reserve must be deducted* The customer is net required to pay a return on what amounts to a capital returned through depreciation* Such is the essence of the U* 3, Supreme Court decision in the Smith vs. Ill* Bill Tel. Company and the Idndheimer eases. These oases have paved the way for the store recent Hope Natural Oas case and many others involving the Federal Power Commission which have all recognised the deduction for depreciation when set up on a straight line basis. In the railroad field of accounting, the Interstate Qarnmem Commission, as early as in the 1920 period, issued Docket# lb?0G and 15100 clearly recognising the requirements under straight line accounting. I, personally, have always been a strong advocate against the straight line method and the resulting depreciated base* I believe in the sinking fund basis. But, with all Federal Commissions and west of the State CoMissions using the straight line method, and court decision# upholding the results fro® such practice, when such a method is used, it must be used consistently in both the provision la operating expenses and the treatment in the earning base. I I do not understand the Stress# Court’s decision in the Brown Shoe Company to be contrary to the straight line thesis. If I understand the decision, it deals in large measure with the talcing of depreciation for income tax purposes on donated property. There is no donated property