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3 approval of Mr. Bockes, were set forth in my letter of Decem­ber 1, 1949. The statement called for by your questionnaire can be readily prepared. However, I believe the Consulting Engineer will agree with me that the subject and the state­ment requested have no place whatever in the contemplated hearing. Item C-I - "HAVE THERE BEEN ANY CHARGES TO THE RE­TIREMENT RESERVE SINCE IT HAS BEEN ESTABLISHED?" I feel no embarrassment In saying that no retire­ments have been charged to this reserve. Here again the question of accounting would be without point in the proposed hearing as I assume no one denies that we are entitled to a reasonable return on a rate base established on "historical" or "original” cost to date. On account of Income tax features the best efforts of all concerned should be directed toward avoiding any reference to this reserve in the proposed hearing. The rates used in accumulating the reserve are in excess of those allowed by the BIR for income tax purposes. The resultant balance, therefore, Is not usable in the rate base; neither are the annual charges in computing a fair return on the value of the property. In the example set forth on statement "C" sent you with ngr letter of November 10, 1949, I computed depreciation for a normal average year at 2%. I think this rate should be adhered to. In making this statement, I am fully aware of the fact that in the final analysis we may have to accept a rate of 1.25% or even 1.0%. The service life of cast iron pipe is not definitely known. There Is a possibility, however, that the Commission may consider that 50 years is reasonable. It is difficult for us to understand how the Con­sulting Engineer of his own Initiative, is particularly in­terested in the subjects referred to briefly in the foregoing. (Signed) W. H. HULSIZER m l