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Normally, where straight lino depreciation accounting is employed, that capital which is returned through annual depreciation charges to operating expenses is deducted in arriving at the rate base. In this case, it might, with much force be claimed that, inasmuch as the amortisation charges were actually never earned, the Capital base should not be decreased by such amounts* Tou know, frost a legal standpoint (much better than I do}, that this raises the question of past g alns and leases* To urge that past losses may be recouped from future rates is a very questionable position to take, in my opinion* It has many ramifications. At the present time, this is becoming a very live question before the California Commission in respect to over-accruals of depredation reserves* Certain members of the Staff mould so treat the over—accrual as to lessen future depreciation expenses chargeable to operation - only another may of reaching back to recoup past gains for the future - in effect, retroactive rate making. Tou mill recall that, in the 1926 Hew Tork Telephone Case, Justice Butler, in writing the Decision for the U*$«$uprsme Court, definitely ruled against any such practice* In more recent Supreme Court eases, such as the Illinois Bell and the Hope natural Cas, it la probably correct to say that one cannot be to© certain whether the Hew York Telephone pronouncement is still the lam of the land* In any event, I wool! hesitate to use past losses as the basis for not deducting the amortisation accrual, other than an incidental reason. The California Commission, to the best of my knowledge, has permitted the Btility to continue to earn on the amortised portion of its defense investment, provided such properties were used and useful. It