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developed, show the amounts used. lhador the Investment basis, the actual reserve set up cm the books for the jrater utility, less the defense plant amortisation, has been used for the year 1949* For the de­fense plant amortization write-off, the regular depreciation accrual has been computed for plant capital of that age, and thus a new reserve requirement was calculated send used. In further reference to the defense plant amortisation, attention Is directed to fable I which shows that during the 4 years 1942 to 1946, inclusive, f160,482.97 was written off as an accounting transaction* However, during these years, the water company not only failed to earn a fair return tut, as a matter of fact, the net earnings were in the red to the extent of $66,628* Since this defense capital, so called, is, as a matter of fact, represented by cast Iron water mains that are present­ly used and useful in rendering water service to the regular customers of the Water Company, that capital, reduced by the regular depreciation accruals, is left In the rate base. In figuring the allowance for the annual depreciation expense requirement, no amount is provided for the expense allowances for defense capital. This latter item will be further discussed under Results of Operation* For the Original Cost and Present Day Cost rate base figures, as shown In Tables F and 6, respectively, reserve requirements have been computed on somewhat shorter lines than currently employed* „ _ j / For the production frsmpswy, the 4JT/depreciation rate as X/ The 4% depreciation rate was not looked upon as providing for depreciation alone, but for management expense costs that were not charged under the current method of billing.