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Los Angelas - Bovemfeer 23, 1949 Hr, v. H. Hulslser: (CC - Hr. A. S. Mr. f. W, Hr. f* 0. Mr. H. A. Mr. Iki. Stoddard Boekes Perkins Blonde Adams 1-7334 Beferring to pour letter November 10, file 3703.1* concerning the lee Vegas water situation: X eonour in pour opinion that asp application for Increase la water rates should fee predicated upoa a fair re­turn on the value of the propertp rather than upon our invest­ment or hletorieal ooeta. Undoubtedly the Bevada Public Service Coaaieeloa will call upon ua to support such applieatlon in which event any information that we give to the Commission will fee available to the public* and will have considerable bearing on our negotlatlone for the aale to or condensation of our water aysten by the Lee Vegas Valley Water District. X nots in the Ajar case a weighted average of repro­duction and original coats less depreciation was used. However, as indicated in the attached article by Everett C. MeKeege, Counsel for the California Public Utilities Commission, which appeartd in the December 1948 ieeue of the American Bar Associa­tion Journal, there has been considerable difference of opinion as to the valuation basis to be used in rate making caaea. In Mr. MoKsage's ©pinion the trend of Supreme Court decisions is away from reproduction ousts and toward actual coat and prudent Investment basis. In recent California oases the Public utili­ties Commission has been following this trend and there is the possibility that the Sevada Public Service Commission will do likewise. X do not recall that this feature was discussed at eur recent informal conference at Las Vegas. As previously advised, we do not have a complete record of work order authorisations, and do not know whether or not the accounting was performed according to the authorities; however, tbe redwood lines were originally installed during periods of comparatively low material and labor coats, and were replaced during period# of high oosts, with only the betterment value of material being charged to Investment, all labor costs and such portions of the cost of materials as representsd increased prices being charged to expenses.