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In 1944 the Railroad received necessity certificate under Section 124 of Internal Revenue Code covering amortization of cost ($150,250) of drilling 4 wells and constructing necessary pipe lines (items 23 to 30, inclusive), to assure adequate water supply for hous­ing projects incident to defense plants under construction, of which $12,521 was written off in Railroad accounts in 1944 and the remainder of $137,729 in 1945* General Auditor advised that such amortization charges were not substituted for depreciation on such facili­ties in determining the Railroad's operating expenses for apportionment with the Vater Company but that depreciation at t& per annum has been and is being included in such expen­ses. Under agreement dated April 1, 1908, the Railroad furnished vater to Pacific Fruit Express Company for operation of the latter's ice plant at Las Vegas, That agreement was superseded by 5-year agreement effective December 1, 1929 (extended for 1 year from December 1, 1934, and thereafter until terminated by either party on 30 days' notice), pro­viding for payment by PFE for water furnished at rate of 3.1/ per 1,000 gallons, subject to annual adjustment to conform with Railroad's actual cost, made up of maintenance and oper­ating expenses of the Railroad's water facilities plus carrying charges consisting of interest at 6£ per annum on cost of the facilities and taxes and depreciation thereom. General Auditor advised that no part of the amortisation charges on facilities referred to above was included in the computation of the Railroad's cost for determining the ***^.*®. be paid by PFE but that depreciation on such facilities at I& per annum has beenand is be­ing included in determining the rate. For 1948 the actual rate was 3.2/ per 1,000 gallons. General Auditor advised that 16" pipe line from Reservoir #1 to Ogden Avenue (Item 14) "in addition to delivering water to Water Company, is also used by Railroad to supply water to its west side industries and its North Main Street Club House. Question arises as to why the Railroad instead of the Water Company furnishes water to the industries Statements are attached hereto showing fort (A) The Railroad's water system for the years 1939 to 1948, inclusive! (1) of vater used by the Railroad and Water Company and per cent of total for each year. (2) Investment in vater facilities at December 31at of each year. (B) The Water Company's water system for the years 1929 to 1948, inclusive* (1) Gallons of vater sold. (2 ) Average number of consumers. (3) Revenues. (4) Rent for pipe lines. (5) Maintenance expenses. (6) General expenses. (7) Depreciation and amortization. (8) Taxes (other than Federal income taxes). (9) Total expenses and taxes (other than Federal income taxes). (10) Net income before Federal income taxes. (11) Estimated Federal income taxes. (12) Net income after Federal income taxes. (13) Net average investment in facilities, (14) Per cent return on net average investment. New fork, October 11, 1949. HR L. J. T.