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/ V aluation o f water system; Mr. F. H. Knickerbocker, General Manager, Los Angeles, C a lifo rn ia . Dear Sir: Pursuant to the meeting with Mr. Haugh and y o u rse lf, held in my o ffic e l a s t n ig h t, Mr. Connolly and myself reviewed our records th is morning and submit the follow ing: Ju st what b a sis the Auditor’ s o ffic e used to arriv e a t the amount o f fl0 4 .7 7 d ep reciation fo r March 1932, we are unable to say. However, i t appears th a t they are using a b a sis o f approximately 2 per cent on valuation estab lish ed by the Pub­l i c U t i l i t i e s Commission a t the recen t hearing in Las Vegas, which would mean retirem ent in a period o f 5 0 y ears. v»e know th a t redwood pipe w ill not l a s t th at long, and while we have a guarantee o f 20 years on th is pipe and a n tic ip a te s a tis fa c to ry serv ice from i t fo r a period o f 20 to 25 y ears, I b eliev e depre­c ia tio n should be accrued on our wood pipe a t the ra te of 6 per cent per annum, which w ill amply p ro te ct our investment by r e ­tirem ent in 17 y ears. Cast iron pipe, engineering departments and others have assured us, we could depend on fo r 50 years of l i f e . How­ever as suggested by Mr• Haugh, we b eliev e retirem ent should be completed in about 25 years and the ra te of 4 per cent per annum should be used. She question of a proper rep resen tativ e fig u re fo r our investm ents was also talk ed over, and while no d e fin ite conclu­sion was reached, I am of the opinion th a t where the large expen­d itu res of 1924 and 1926 were charged to O.E. an adjustment in our Investment accounts should be made to show these amounts in C apital Account, as th is is the b a sis fo r our earn in gs. - 1 -