months' previous notice in writing shall have been given of the intention of the City to take over the telephone plant system of the grantee, or its successor or successors, within the City of Chicago, including all appurtenances, appliances, equipment, lines, leaseholds, buildings, stores, furniture and fixtures, suitable to and used by it for the purposes of this grant, taking into consideration the then condition of the art, and in the event that the City Council shall so terminate this grant, or that said grant shall have expired, and the City Council shall take over the property of said Company above mentioned, then the City shall pay therefor in cash the then cost of the duplication, taking into consideration the then condition of the art, less depreciation, of said telephone plant and system and other property aforesaid, together with, if the said grant shall not then have expired, five per cent. (5%) thereon in addition as compensation for the compulsory sale, but there shall be no allowance for earning power, or for the value of the rights and privileges hereby granted, or for any franchise or license value.

In the event that the City shall desire to purchase the property of the company within the City of Chicago, as aforesaid, the purchase price of said property shall be determined by appraisement as follows:

One appraiser shall be appointed by the City in such manner as the City Council shall direct; one shall be appointed by the company and a third shall be appointed by the two so selected. Either party may appoint its appraiser at any time after the giving of the notice of intention to take over the telephone plant and system of the grantee, and serve written notice of such appointment upon the other party, and said other party within thirty (30) days after service of notice of such appointment shall appoint its appraiser and serve written notice of such appointment upon the other party; whereupon the two appraisers so appointed shall appoint a third appraiser.

In the event that the party first receiving the notice of the selection of an appraiser by the other party, shall refuse or fail to appoint an appraiser and give notice thereof as above provided, or in the event that the two appraisers first appointed shall fail to agree upon a third appraiser within thirty (30) days after the giving of notice of the appointment of the second appraiser, either party, upon giving a written notice of ten (10) days to the other party, may apply to the then judges of the Appellate Court for the First District of Illinois, or a majority of the judges of the said Appellate Court, for the appointment of an appraiser, and if the appraiser appointed by the judges of the said court, or by a majority of them, shall be the second appraiser, then the third appraiser shall be selected by the two appraisers, or if they fail to agree, by the said judges of the said court, or a majority of them, in the manner hereinbefore provided, and any appraiser or appraisers appointed by said judges, or a majority of them, shall have the same powers and duties as if regularly appointed in the manner as first hereinabove provided.

The appraisers shall determine what tangible property, real and personal, owned by the said company and used for the purposes of this grant is reasonably required for its continued operation, taking into consideration the then condition of the art, and in determining the fair cash value of said property they shall not take into consideration its earning power, or the value of the rights or privileges hereby granted, or the value of any license or franchise, but shall allow for the property the then cost of duplication, taking into con sideration the then condition of the art, less depreciation. In considering the cost of duplication of underground conduits, wires, cables, electrical conduc

tors and any other underground construction located in any street, alley or other public way which was or were placed therein at a time when such street, alley or other public way was unpaved, the said appraisers shall not take into consideration the cost and expense of removing or replacing any paving, or part thereof, in such street, alley or other public way. An award in writing, signed by a majority of the appraisers, shall be valid and binding upon the parties.

Within ninety (90) days after the making of said written award by the said appraisers, or a majority of them, the Chicago Telephone Company shall cause to be duly made, executed and delivered proper bills of sale and deeds of the said telephone plant and system and tangible property covered by said award, and the City of Chicago, upon the delivery of said bills of sale and deeds, and the delivery of, or the transfer of control over, said telephone plant and system and tangible property, shall make payment in cash therefor, as hereinbefore provided.

If said award shall not have been made until after the date named in the written notice given by the City of its intention to take over the telephone plant and system of the grantee, or its successor or successors, as hereinbefore provided, such delay on the part of the said appraisers, or a majority of them, in making their award, shall not affect the right of the City of Chicago to take over the said telephone plant and system and tangible property of the Chicago Telephone Company.

Said City of Chicago shall pay the expenses and charges of the said ap praisers for their services under a contract which shall be authorized by the City Council and entered into by each of said appraisers at the time of his appointment. Such contract shall not allow to each of said appraisers more than one hundred dollars per day as compensation and shall bind them to complete their award within a stipulated time, or be subject to a specified reduction per day in compensation. Such contract shall also forbid any of the said appraisers from contracting for or accepting any other or additional compensation for his or their services (from any person, firm or corporation) except that provided in said contract. The other terms of said contract shall be such as may meet the approval of the City Council. Provided, that the City of Chicago may deduct from the purchase price fixed by said award onehalf of the total amount paid as the total expenses and charges of said appraisal.

The appraisers selected in the manner aforesaid, or a majority of them, shall have and may exercise at all times the right to make a complete examination of the records, books of account, vouchers, bills, contracts and documents of said company, for the purpose of fully informing themselves as to the actual cost, value and depreciation of the plant and system of said company, includ ing all appurtenances, appliances, equipment, lands, leaseholds, buildings, stores, furniture and fixtures and other property.

Any vacancy or vacancies occurring at any time in said Board of Appraisers by death, resignation, disqualification or inability to act, may be filled within fifteen days, by the party or body making the original appointment, and if not so filled, by the judges of said court, or a majority of them, upon the application of either party thereto, provided five days' previous notice in writing of such application shall have been given to the other party.

The Chicago Telephone Company by the filing of the acceptance hereinbefore provided for shall be understood as granting and does hereby grant to the City of Chicago, and the said City of Chicago hereby reserves to itself the

right to designate any person, firm or corporation having lawful authority to acquire, own and operate a telephone line or lines or a system in said City of Chicago (hereinafter called the "licensee") who or which shall have the right to purchase the plant, system, rights and property of said Chicago Telephone Company at the expiration of the term of this grant, or within thirty (30) days thereafter, in the same manner which the City hereunder has the right to purchase the same within such time, and any person, firm or corporation so designated by said City of Chicago as licensee twelve or more months prior to the expiration of this grant shall for all the purposes of this section stand in the position of said City of Chicago. The right of the licensee of said City of Chicago to acquire said telephone plant, system, rights and property by purchase under the provisions of this ordinance shall in no way be impaired or diminished by any lack of authority or power on the part of the City of Chicago itself to acquire the said telephone plant, system, rights and property for municipal or other use and operation.

Nothing in this section, however, shall have the effect or be construed to have the effect of lessening or limiting the right of the City of Chicago to alter, change or reduce the charges, rates, tolls or other compensation to be charged by said licensee in the operation of said plant and system, or of lessening or limiting any of the authority, power or rights reserved by said City of Chicago to itself by this ordinance, or of changing, lessening or limiting any of the duties, obligations or restrictions imposed by this ordinance upon the grantee.

Nothing in this ordinance shall have the effect or be construed to have the effect of extending, so far as the licensee is concerned, the term of this grant beyond January 7, 1929. Upon the purchase of said plant, system, rights and property under the provisions of this section either by the City of Chicago, or by any licensee of said City, all the rights of said Chicago Telephone Company, its licensee or assigns, in or to said plant, system, rights and property, or any part or parts thereof, or the operation thereof, or receipts therefrom, shall wholly cease and determine. If at the expiration of this grant the City shall not have elected to purchase the plant, system and other property of said company hereinbefore mentioned, and shall not have designated any licensee, the failure on the part of the City to purchase, or elect to purchase, or elect to designate a licensee, shall not be construed as an extension of this grant, or any of the rights and privileges hereby granted.

The authority, powers, privileges and rights by this section reserved by and granted to the City of Chicago to itself purchase the plant, system and property of said Chicago Telephone Company are so reserved and granted upon the understanding that they and each of them may be exercised only if at the time said City of Chicago seeks to exercise the same, or any of them, it shall possess the charter power so to do. But said Chicago Telephone Company by the acceptance of this ordinance shall be understood as precluded from in any manner attacking or questioning the power of the City of Chicago to exercise the authority, powers, privileges and rights hereby reserved or granted, or any of them.

DIVERGENT VIEWS ON DEPRECIATION 1

JAMES CAMPBELL ON DEPRECIATION

Under the heading of "General" in the annual report of the North American Company for the fiscal year ended Dec. 31, 1913, James Campbell, formerly president of the Company and now chairman of the Board, says in discussing the question of depreciation:

"The fact that the subsidiary companies in which your company is interested appropriate large reserves each year for the present maintenance and future preservation of their physical properties should not be without its influence on the value of your equities. Many other public utilities are at present operated under the assumption that a provision for ordinary maintenance is sufficient to arrest depreciation. Examination, however, of the causes leading to the abandonment of various items of physical property shows that in the majority of instances the replacement becomes necessary before the item has been worn out. Maintenance will do little other than permit the realization of the expected life, whereas depreciation is designed to insure the replacement which will increase the useful life of the property.

"The determination of the proper allowances for maintenance and depreciation of properties is not without its difficulties. In fact, it calls for the exercise of conservative judgment and possibly modification from time to time as the necessity therefor develops. The estimates made by regulating commissions in cases involving the regulation of rates are at best crude guesses, and are rarely substantiated by accurate statistical information. That the principle of providing for depreciation is sound appears evident when it is recognized that it is necessary to provide to-day replacements to be made in later years in order that to-day's users of service may bear the cost thereof."

During the year the companies controlled by the North American Company expended $10,528,891, which was charged to capital account, and provided out of earnings reserves for depreciation aggregating $3,401,029, and in addition thereto expended $3,116,082 on maintenance. The proportion of gross revenues expended on maintenance and appropriated for depreciation during the year 1913 by the rail1Reprinted from the Electric Railway Journal.

ways controlled by the company are shown by the following tabula

H. M. BYLLESBY ON DEPRECIATION

In the recent annual report of the Northern States Power Company, H. M. Byllesby, president of the Company, gives the following interesting discussion concerning the manner of appropriating amount out of the earnings of public utilities for depreciation:

"All of the properties of the Company have been fully maintained to 100 per cent efficiency. The cost of this maintenance has been charged to operation. Beyond this no arbitrary charge has been made out of current earnings to represent any accruing depreciation which has not become evident, except in certain particular instances amounting to the sum of $67,861. The question of an allowance for accruing depreciation beyond the full maintenance of the property is one which is under discussion at the present time and upon which the most divergent views are expressed by operating officials. On the one hand, it is contended that beyond maintenance to 100 per cent efficiency no further arbitrary depreciation should be charged. On the other hand, it is contended that in addition to the full maintenance a certain definite allowance for accruing depreciation should be made. The amounts so to be allowed, whether based on percentages of gross income or percentages of depreciable value of the property, vary from the smallest amounts to amounts which are far beyond the possibilities of any property to sustain with present rates.

"In the meantime, no distribution has been made on the common stock of the Northern States Power Company since its formation. The earnings which have accrued on the operating statements as applicable to that purpose have been reinvested in the plant and extensions to the service. This policy will be continued until such time as a more definite program as to depreciation has been generally