The petitioner's engineers have valued the property of the Home Telephone Company at a figure considerably higher than that fixed by the Commission's staff. The city's engineers have valued this property at a figure considerably lower than that fixed by the Commission's staff. Particularly is this true in the distribution system, where petitioner's engineers were 10 to 20 per cent. higher than the Commission's staff, and the city engineers were approximately 10 per cent. lower than the Commission's staff. Except variances above referred to, there is no material difference in the figures of the Commission's staff, the petitioner's engineers, or the city's engineers. After a careful investigation of all the appraisals made, the Commission can see no just reason for any great departure from the valuation placed upon the Home Telephone Company's property by the Commission's staff.

GOING VALUE.

The petitioner's engineers fixed the item of going value. at $5,587.95. The Commission is unable to understand by what power of reasoning they arrived at this conclusion. Going value has been calculated by many persons and by many different methods, none of which are infallible. In fact going value, in many cases, is a delusion, in order to get some intangible value into the property, in substitution for the good will of the company.

Going value, however, cannot be made the means of fictitiously increasing values or creating values that do not, in fact, exist.

The fact that the telephone company declared no dividends, set nothing aside as a depreciation fund, expended all its net operating revenue, together with some borrowed money, in additions, betterments and improvements, could not be construed by any just power of reasoning as an element of going value.

When property is devoted to the public use and reasonable care has been exercised in all phases of its management, but the owners have not received a fair return during the earlier years of the operation of the plant in which the property is used for the convenience of the public, the deficit thus incurred must be made up out of the later earnings insofar as this is commercially possible and expedient.

The books and records of the company show a very substantial increase in the subscribers' list within the past two years, but fails to show any money actually expended in securing new business, or that any early losses were sustained before the company was on a paying basis. In fact, the records show net operating revenue for the first two years of operation of approximately $5,000.

In order to establish a reason for allowing going value, it would be necessary to capitalize some financial sacrifices made by the company. This would of necessity include money actually expended in securing new business, and early losses sustained, before the telephone plant could be put upon a paying basis. The element of loss or sacrifice must always be present. Earnings, or what would properly be classed as dividends, must actually pass into some intangible property before there is an element of going value. This, petitioner has failed to show. Therefore, in this case, we are of the opinion that the utility is not entitled to the item of going value.

WORKING CAPITAL.

This item should include cash necessary to meet the running expense of the business, under careful and prudent management. The records show that an operating expense of $4,750 per year is a reasonably adequate amount for operating expense. We consider that approximately one month's expense is sufficient as an allowance of working capital; and hence have allowed $500 for this item.

The Commission finds the fair value of the Home Telephone Company's property, used and useful, for the convenience of the public, in a rate making case to be $20,357.

[Ind.

C. L. 47]

DEPRECIATION.

The Commission's staff has shown an average annual depreciation for the two years of the existence of this property, of approximately 72 per cent. per year, for the reason that many of the poles used in the reconstruction of the plant were poles that had been in use a number of years in the old plant. The same thing can be said of general equipment, messenger wire, wall sets, tools, etc. In reviewing the depreciation as computed by the different engineers in appraising the property, we note that it runs from 10 to 60 per cent. We are convinced of the absolute fairness of the Commission's staff on the average annual depreciation allowed on the reconstructed exchange and plant as shown in their valuation. We are of the opinion that a telephone exchange and plant, which has been constructed out of proper materials, should generally last from 13 to 18 years. This assumption may not be applicable in all cases, but as a general rule it will be found reasonable.

The extent to which provision must be made for depreciation in order to perpetuate the life of the plant, depends largely upon the disposition that is made of the money set aside as a depreciation fund. It should be so placed that it would have the highest earning power consistent with absolute safety.

The money in the depreciation fund may be expended for new construction, extensions or additions to the property, but in no event shall the money expended from this fund for new construction, extensions or additions to the property be credited to, or considered a part of, the capital account of this utility, but shall always be charged against the depreciation fund.

The Commission finds that a depreciation account of 4 per cent. in the future will be found reasonably adequate and sufficient to promulgate the life of this plant, if properly handed. We, therefore, adopt 4 per cent. for depreciation in this case.

SWITCHING SERVICE.

The Home Telephone Company has 155 subscribers receiving switching service from its exchange in Bicknell, Indiana, for which service said 155 subscribers pay the sum of 25 cents per month. These 155 subscribers live outside the city limits, have constructed and own the telephone lines to the corporate limits of the city. Each owns his telephone instrument. On account of this ownership of a part of the facilities used in rendering the service, said subscribers are given a rate of 25 cents per month, while · other consumers of the same service are charged $1.00 per month. This is in direct violation of Section 113 of the Shively-Spencer Utility Commission Act, which act reads as follows:

"Section 113. It shall be unlawful for any public utility to demand, charge, collect or receive from any person, firm or corporation less compensation for any service rendered or to be rendered by said public utility in consideration of the furnishing by said person, firm or corporation of any part of the facilities incident thereto: Provided, nothing herein shall be construed as prohibiting any public utility from renting any facilities incident to its business."

There is nothing in this section prohibiting the utility from renting any facilities incident to its business. The telephone company may rent the facilities owned by the 155 subscribers, paying therefor a just and reasonable rental. Under the law, every user of the service rendered by a public utility must pay the same price for the same service. As the rate for party line service of the Home. Telephone Company is $1.00 per month, the switching subscribers must pay the same rate. The utility may pay each of said 155 switching subscribers the sum of 50 cents per month, as rental for the use of their said facilities. This would be just and reasonable to all concerned.

The Public Service Commission of Indiana, by the authority vested in it by law, caused an audit of the company's books and records to be made, and from said audits the Commission finds the following facts and figures:

That on or about the first day of February, 1912, the

[Ind.

C. L. 47] Home Telephone Company of Bicknell, Indiana, purchased the property of the Bicknell Telephone Company, paying therefor the sum of $6,750. The Home Telephone Company, after purchasing the physical property, as well as the franchise of the Bicknell Telephone Company, commenced the reconstruction of the entire exchange and plant. There was expended in the next two years for new construction, betterments, improvements of the exchange and plant $13,838.12, making a total investment in the property of $20,588.12. Later some country lines were sold amounting to $697.55, leaving an investment of $19,890.57.

The evidence shows the total operating revenues from February 1, 1912, to January 31, 1914, practically two years, was $13,168.02; that the total operating expense for the same two years amounted to $8,332.95, leaving a net operating revenue of $4,835.07.

The records show that on July 1, 1914, the telephone company's subscribers' data was as follows:

SUBSCRIBERS' DATA SHOWING THE NUMBER OF SUBSCRIBERS AND AMOUNTS CHARGED