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Water Agreement -2- The inclusion of the recited Costs of Operation appear to be entirely proper and your thought of getting a statement from Mr. Hulsizer making known what such charges would be so that we can incorporate them in our Study is entirely satisfactory, except for the possible time it might take to get the figures and then make the adjustments in the Report. under Sections 5 - 9 inclusive of the proposed agreement, I have only this comment to the effect that there might be a question raised as to whether the statement of costs^^f sufficiently definite to constitute their use as the basis of a contract. This being an inter-company agreement, it is probably not necessary that as pach care be exercised as if it were with an outside party. In other words, it would normally be the case that such expenses would be in accordance with thosd actually incurred and charged on the books, and such charges would be in accord­ance with the stated classification of accounts. a depreciated capital base for inter-company billing. While he went along with our proposal for a showing before a Commission, he might be unwilling to recognize that principle for inter-company transactions. It appears to me that the recognition of the accruing depreciation through a reduction in the capital base is essential if charges are to be proper, as long as the Straight Line basis of depreciation is used. ( I presume you have intentionally left out ary provision for working capital ). So here, again, your proposal is entirely sound. appears to be proper and it is my suggestion that you go ahead with it as you have outlined. With reference to the statement of such costs as described I am afraid that Mr. Hulsizer may not be willing to accept These remarks all add up to the conclusion that your proposal Very truly yours, RAW :w Roy a .» wene