Charles Evans Hughes

“ We find this point to be a critical one. The questionable amounts annually charged to operating expenses for depreciation are large enough to destroy any basis for holding that it has been convincingly shown that the reduction in income through the rates in suit would produce confiscation.
The case has long been pending and should be brought to an end. The company has had abundant opportunity to establish its contentions. In seeking to do so, the company has submitted elaborate estimates and computations, but these have overshot the mark. Proving too much, they fail of the intended effect. ”

“ According to the practice of the company, the depreciation reserve is not held as a separate fund, but is invested in plant and equipment. As the allowances for depreciation, credited to the depreciation reserve account, are charged to operating expenses, the depreciation reserve invested in the property thus represents, at a given time, the amount of the investment which has been made out of the proceeds of telephone rates for the ostensible purpose of replacing capital consumed. ”

“ According to the principle of this accounting practice, the loss is computed upon the actual cost of the property as entered upon the books, less the expected salvage, and the amount charged each year is one year's pro rata share of the total amount. [21] Because of the many different classes of plant, some with long and some with short lives, some having large salvage and others little salvage or no salvage, and because of the large number of units of a class, the company employs averages, that is, average service life, average salvage of poles, of telephones, etc. ”

“ The number of telephones in Chicago increased from 690,000 at the end of 1923 to 940,000 at the end of 1931, and was 987,000 at the peak in 1929.' During the nine years 'a greater amount of plant was added new to the property than was in service at the beginning of the term.' The company informs us that the property was kept 'at a high and even standard of maintenance throughout the years involved' and 'was at all times capable of giving adequate telephone service abreast of the art.' The property has been efficiently and economically operated, and the company has enjoyed excellent credit. ”

“ Amounts sufficient to create a reserve balance that is the same percentage of total cost of depreciable items as their age is of their total service life cannot be accepted as legitimate additions to operating expenses. ”

“ The gradual deterioration and ultimate retirement of units of property which may be satisfactorily individualized, such as buildings, machines, valuable instruments, etc., to the end that by the time such units of property go out of service there shall have been accumulated a reserve equal to the original money cost of such property plus expenses incident to retirement less the value of any salvage. ”

“ The depreciation accruing in property which cannot be readily individualized, such as pole lines, wires, cables, or other continuous structures, where expenditures for repairs or replacements of individual parts ordinarily are not actually made until the later years of the life in service of such property, and when made may, therefore, be classed as extraordinary repairs. ”

“ Comparing the percentage in each year (during the period covered by table V) with the percentage in each of the other years, the lowest is 31.5 per cent. (1924) , the highest is 39.5 (1931) .
From the foregoing it justly may be inferred that charges made according to the principle followed by the company create reserves much in excess of what is needed for maintenance. ”

“ The coin boxes are in private residences and places of business and are not public pay stations.↑ It appears that in 1923 there was used in the intrastate service approximately 95 per cent. of appellee's total property in the Chicago area. This percentage progressively decreased in the succeeding years, and in 1931 was somewhat less than 91 per cent.↑ The amounts of net revenue thus involved, which appellants contend should not have been allocated (under the rates in suit) to the interstate service for the respective years, are as follows: 1923, $245,042 ”