*1 TERM, 1926. 272Ü.S. Syllabus, INDIANAPOLIS WATE McCARDLE et al. R COMPANY. FOR APPEAL FROM DISTRICT COURT THE UNITED STATES INDIANA. Argued April 16, 19,
No. 37. 1926. 1926. Decided November determining public, 1. In present property the of of a the must, utility rate-nfaking purposes, given for' to consideration be (cid:127) prices wages prevailing investigation; and, and the time of the at light circumstances, the of all there must be an the and honest intelligent, probable during forecast as to price wage and levels period in reasonable the immediate future. 408. P. the, must, every case, 2. In present confiscation the future as well as regarded. complained be It must be determined whether the rates yielding yield, of aro and will over and above the amounts pay proper operating charges, taxes and a sum sufficient to just compensation property employed constitute for the I use of ho service; to furnish the is, a reasonable of the rate return on value of investigation the at the time of the for a and reasonable time in the immediate future. P. 40S.
3. It is utility well established that values properties fluctuate, of owners bear must the. decline and are entitled to the ' increase. Ik . 410. weight given 4. original present to the costs of con- be struction, other or evidence, items of classes deter- light mined the facts in hand. 410. P. .case - pric.es In5. this case greatly and values so changed have paid early amoifftt land enterprise of the. of plant prior elements constructed great prices to the rise not, any due to the war do constitute real indication of their value present
at time. P. 410. system 6. The reasonable cost of a of waterworks, planned well public good efficient for the service, is evidence of its value at the time of construction. And such fairly actual cost will continue well to measure the amount to be physical attributed to long elements so change there is no in the level applicable prices. P..411. tendency If trend definitely not upward or downward and appear probable it does not there will abe substantial, change .prices, present then the plus value" of lands
McCAÍtDLE v. INDIANAPOLIS CO.
4Ü0 Statement of the Case. present any, constructing plant, cost of depreciation, if physical'
is a fair measure of the value of the elements of the property. P. 411. *2 validity public utility depends
8. The of rates property fixed for value as of the effective date of the order and for a reasonable time thereafter. P. 411. properties
9. While the values of such vary frequent do not prices required minor fluctuations in the of material and labor produce they them, generally are affected the rela- and follow tively permanent prices. levels and trends of such 411. P. year 10. Judicial notice taken of the facts since the end general there has been no in decline of labor materials; upward and that the trend has been than rather downward. P. 412. valuing In company
11. of a water works for rate- making, rights, the value of its included, water should be ” going likewise the value of plant. concern 413. P. determining In depreciation, 12. what shall be deducted ‘ testimony competent engineers valuation who examined the respect lie and made estimates of its condition is to preferred averages to mere calculations based on and assumed probabilities. P. 416. plant plant give to be valued is the
13. used to the service and under, plant. not the estimated cost of a different exceptional Save required comparison circumstances, the court is not to enter into a systems. of the merits of different P. 417. reasonable more than as a
14. Evidence held sufficient to sustain 7% company. rate of return for a water P. 419. yield plus brokerage
15. Rates of on investments bonds sub- are stantially just the rate of return to constitute compensation properties public for the use of 419. service. P. findings In specific 16. a suit like the District Court should this make net, value, return, earnings. as to rate of reasonable 420. P. prolonging litigation But such may to avoid deter- this Court justify below, mine whether facts in the record the conclusion findings. remand for further rather than P. 420.
Affirmed.
Appeal members Public Service Commis- sion Indiana and the City Indianapolis from a decree
23468° —27-26 TERM, 1926. 272 TJ.S. enjoining opinion, without Court, of the District entered the rates fixing order the Commission’s enforcement of Company. the Water In- Gilliom, Attorney General Arthur
Messrs. L. Ed- with whom Taylor Groninger, Messrs. diana, E. General, M. White, Attorney James Assistant ward M. brief, were on and Clair McTurnan Ogden, appellants. Ransom, with whom Messrs. Albert
Air. William L. Baker, were on* Daniels, Mclnerny A.W. Joseph J. brief, for appellee. opinion delivered the Court. Justice Butler
Mr. 8, 1923, June the com- company filed with petition mission its its rates were which it stated *3 too and proposed higher city low schedule. The Indianapolis answered, the force alleging that rates adequate. were After the the commis- hearing parties, that, 31, 1923, sion found as of the value the May prop- annual erty $15,260,400; used was not than that the (cid:127) return approximately under rates would be existing cent, $800,000; that seven was rate of per a reasonable return; that the.rates force were insufficient and that those proposed discriminatory. would be and exorbitant And order, 1, the commission made an effective January 1924, some of the rates. prescribing increasing schedule In its report it stated the rates not might authorized that produce a seven for the future; return immediate belief, but it expressed that average on the over a period of approximately three the schedule would produce an adequate return.
This suit was brought by company against the mem- the bers enjoin commission to the enforcement of that order on the ground that the prescribed rates are confisca- tory. The members of the commission answered. The CO. INDIANAPOLIS
McCARDLÉ n the Court. Opinion of involved the There was answered. intervened city earnings, operating used, probable the property value of just constitute com- the amount expenses, Amendment. Fourteenth safeguarded pensation opinion given in an court, states The decree that of the averments the material proved sustained as orally, the com- found as that the and held amount complaint, as of fair value of was less' than the mission “ the that $3,500,000, more 1, 1924, by than January time was at said said property fair of complainant’s value water rates and that $19,000,000, and is not less low and confis- are toó are order .... that imposed enjoins ”; and it complainant’s catory of said the com- The members of enforcement of the order. Code. 238, Judicial jointly. city appeal § mission the meas- adopted that the court contend Appellants deprecia- new less cost of ure of January as of of spot prices the basis tion, estimated ap- controlling weight. figure or gave less depreciation, cost of reproduction pellee says more than* shown at such prices, estimated such costs adopt the court did not $22,500,000, ,a as evidefice weight them undue give as measure value. three reports
The record contains of. commission In company’s property. valuations dealing March commission, reported No. Case 1, 1917, company’s the value of the January as of *4 not less than public used was property service January 6613, commission, In Case the $9,500,000. No. valua- 1923, 31, 1921, that as of December 2, reported company’s prop- and operative nonoperative tion commission, $16,455,000. 7080, In erty was case No. 28, 1923, made the order this suit. November attacked May that as-of the value of the com- reported It operative $15,260,400. was not less than property pany’s TERM, 192G.
Opinion of tho Court. 272U. In No. commission stated: The accounting its complainant and predecessor defective in that there was not a careful expenditures division of between capital account and operating expenses. The ac- plant count of the predecessor company owning operating 1S69 plant from to 1881 was ex-. $1,574,840.04, but it $200,000 pended more than is not that included in that figure. According complainant’s books it expended be- tween April 23, 1, 1917 January for construc- tion, in- $6,112,320.80. The moneys actually amount of vested exceeded plant $8,000,000; and real estate value had appreciated $1,500,000.' more than The com- mission did definitely original not state the cost of con- struction or total expenditures for im- permanent provements. It found the cost of new —in- cluding $328,000 for going value and for working capital $10,406,431, less depreciation that —to $9,670,191. The estimate on prewar was based prices— in 1916 prevailing those It prior years. reported that could not be duplicated “to-day [January than $12,500,000.” figure This covered 1917] only operative the physical property. Nevertheless the commission fixed the value of all the . . . is used and useful for the convenience the public at not less than This sum of $9,500,000.” $8,000,000, is the stated as minimum money expended amount of produce $1,500,000, increase in the plant, company’s apparent value of the land. land enhancement the value of the other than plant account, nothing was not taken and that was included into intangible- capital, cash elements of value. working be- reported In Case No. the commission tween and November January 1, 1917, 31, 1922, capital $1,639,146, which additions amounted added .to No. $12,500,000, duplication (as reported in Case 1400) company It said the made “would. *5 405
McCARDLE v. INDIANAPOLIS CO. 400 added to this sum entitled to have reasonable allow- working cash, going rights,
ances for value, may such elements as not have included other been figure non-operative and also the value of the original apparently which was not included in property on, exceed The would original figure. value this basis any $16,000,000 for the whole without property giving consideration the enormous enhancement of value since all which has occurred good property Indianapolis 1, 1917.” commission out number January And the set its price levels, by of estimates based on different made Carter engineering own staff which Earl L. Mr. only, shown, There is physical the head. as to less estimated on reproduction depreciation the cost on price different bases. Some of these estimates were on were prices market of cast iron and some quoted pipe ten cent. less. This made prices approximately $375,000. lower of about The estimates on the difference basis follow: $13,979,744
Average prices years ending 10 with 1920............ 6S9,07S years ending with 1921............ 15,232,676 years ending with 1922............ 1922;........... 18,335,974 years ending with 17,328,249 prevailing Prices October 1922...... supplies. materials include to cover These submitted various estimates made company and Erickson. engineers Hagenah valuation There below, respect property only, shown cost physical depreciation. reproduction 1920............$16,020,456 years ending
Average prices 10 20, 535, 543 years ending with 1921 ............ 19,447,193 prevailing Prices October 1922..... $100,000, added materials and supplies There were for $500,000, $135,000, rights for water working capital going company also and appraisals submitted estimates Porter.' made Sanderson and engineers, valuation TERM, Opinion of the ü. S. Court. They bare estimated ” 1922; at physical of October *6 ending and $19,087,560, years average prices ten 1920, $16,169,257. any- with at Neither included of these going thing on account of working capital, rights water n value. To cover added and working capital $267,312 was rights .for $2,355,050. water and value going n By order the of the its commission fixed the value report figure at Its shows that have been made as up follows: engineering appraisal, Commission’s staff’s cost of re- production average less on basis depreciation, 10-year prices level of labor and material for the period ending 1921, including December mate- supplies..................... n .......... $14,689,0001 rials and Capital April 1, from 1922 additions to October 215,000 at actual cost............................. physical property........:............ $14,904,000
Total Going 1,416,000 and water rights, value 9%%................
$16,320,000 capital.............................. 135,000 Working cash $16,455, 000 Total value................................ In No. 7080, the commission’s valuation of case company’s properties public used service, as 1923, is May 31, $1,194,600 by less than the amount found the commission to be the of all value its property— operative non-operative, as of October working rights total of capital, value going $571,000, and tangible property reduced ;623,600.
1 $648,921 by includes Mr. items of This estimated Carter to cover non-operative. Metcalf; him consult classified Mr. as ing engineer $68,000 for the company, finds to be value of the n items he classifies as Hagenah And non-useful. Mr. so classifies assigns he $119,000. items to which 407 INDIANAPOLIS McCARDLE v. CO. introduced court, company trial lower At depreciation, cost of estimates of the follows: by Hagenah Erickson, made as $22,669,026 prevailing 31, 1923........(cid:127)......... Prices December 22,652,799 Average years ending with 1923............ prices 21,625,358 years ending with 1923............ 19,624,354 years ending with 1923............ working cover To each these were added $500,- cash, materials, supplies capital, consisting going value. rights, $2,000,000 000 for water introduced similar estimates company also And Porter, follows: Sanderson and $21,898,662 prevailing Prices December 1923.......... 21,863,858 Average years ending 1923 ............ with 20', 968,127 years ending 1923............ with 18,931,979 ending 1923............ *7 $361,245 working to cover To each of these were added be- $127,939, and supplies of materials capital (consisting 1923, on hand and amount ing average $500,- year’s gross earnings), one cash, one-eighth of being value. $2,098,000, going and rights, 000 for water estimate, $14,689,078, his testified that Mr. Carter 6613, in No. was based on commission adopted by ending 1921, with on the years in the ten average prices 1922. He said based 1, of April inventory with ending the cost years ten average prices ,$16,006, 370, was and that depreciation less' reproduction had December there 1922 and April 1, between mak- amounting $1,010,105, tó net additions made been he also figures of And in round ing total January prices prevailing on the basis of testified that $19,- depreciation reproduction the*cost physical property, All fixed 500,000. his estimates covered for cash work- nothing include supplies, material and but value. rights going ing capital, TERM, Opinion U. of the Court. commends highly in No'. 6613 report The commission’s his assistants. and engineer made its chief estimates by the employed engineers the valuation It states that unques- and reputation national firms of company are apprais- difference between that the standing, and tioned for the presented staff and those its own als made as. to the “ opinion ap- to differences are due company ten- theory to cost of of the plication con- necessary work details of the year period prices,” for structural included amount to be property, struct the prop- of certain items overheads, and the condition analyzed have been differences erty. says these analysis and that further explained by parties, and likely to would be of the evidence weighing and careful extremes. between the two compromise figure to a lead inclined to be, the Commission is may However that believing its staff as a basis of accept report all the Considering it to be conservative accurate. evidence all the other facts, including appraisals is of the the Commission concerning prices, the trend for the ten- average prices in this case the opinion that ten avail- the last full year ending period the fair value of able, nearly represents petitioner’s most physical property.”. value, consideration must determining present
But in at the time of the wages prevailing given all and, light circumstances, investigation; forecast as to intelligent there must be an honest during levels a reasonable price wage period probable *8 case, In confiscation the every in- the immediate future. It must regarded. future as well as the must be present complained yield- whether the rates óf are be determined yield, and will over and above amounts ing the operating charges, a sum suffi- pay proper taxes and just compensation for the use of the cient to constitute service; is, furnish the employed to reason- on the value of the at the able rate of return n CO. McCARDLE INDIANAPOLIS. investigation for a in time of the reasonable timé future. Tel. Pub. Co. Serv. W. the immediate Comm., v. Pub. Serv. 276, 287, 288; 262 U. S. Bluefield Comm., Utility Board Commis 692. Cf. 262 U. S. Co., York Telephone sioners v. New “ further said: If The commission it were known that level continue price indefinitely would present purchasing power future and that the of the dollar would then the cost of at the time same, remain the , . . . true measure of value. be the inquiry would from the be some reduction likely is there will fixed not being . The is level. . . present price in the future. period a reasonable today, for but for average the use of the feasonableness of Consequently, any if at time extremely It is doubtful prices apparent. is as the ten will be as low years prices within the next in the 10 with years ending 1921] used prices [those average prices certain that equally . . . and it is as thé high as say, five will be at least next, iron in this . . . The ten-year average used valuation. increased busi- enjoying greatly and steel industries are cent, in twenty per general ness and a increase of about in wage The increase scale wages has been made. pipe has increased cost of iron been reflected of lower prospect other material. There seems to be no may deplore However much we prices products. such permanently fact is that are on a situation, times and there no compared prewar level high near anywhere ap- level price likelihood whatever that a fqr will prevail times prewar the low level of proximating out pointed The commission many years in future.” there may occur, first, when that enhancement of value of the dollar power no change purchasing in- such as the natural reason of various circumstances* second, by city, and, growing in a crement of land values or value of dollar.” power purchasing a decrease affect property.” “Both this added, And it factors *9 TERM, 410 S.U. In used, the commission explanation price of levels the “ said, By the adopting appraisal estimate of of cost [the reproduction less made own by its depreciation staff] the of basis of labor and material for average prices the the ten-year period' ending Commission the recognizes the influence of the original cost factor. believed fair original cost of the physical prop- cent, erty from 12 $14,904,000 used as a hand, basis herein. On the othér the evidence shows that the cost of reproducing physical property today would be from $4,500,000 or $5,000,000, from 30 to 35 per more than the sum of said .. . nois original doubt the element of cost There has been recognized sufficiently. There doubt as to whether or not the. element the cost of today new has been given weight.” sufficient It is well established that values of utility properties fluctuate, and that owners must bear the decline and are entitled to the increase. The decision this court in Ames, Smyth 466, 547, v. declares that to ascer tain value present compared with original ” are, cost of construction among other things, matters for consideration. But this does not mean original present cost cost or figure some arbitrarily chosen between these two is to be taken as the measure. The weight to be given to such cost.figures and other items Or classes of is to be evidence determined in light ’ facts of the case By hand. far the greater part of the company’s land-and plant was acquired constructed before Jong the war. The present value of the land is much greater than cost; its and the present con struction those parts plant is much more than their original reasonable cost. In fact, prices and values changed have'so the amount paid .that land early years of the enterprise arid the cost of plant ele ments constructed prior to great rise due to INDIANAPOLIS
McCARDLE v. CO. Opinion the Court. of their real indication any not constitute the- war do Standard Oil at time. Co. So. the present Pacific Comm., Ry. R. 146, 157; Georgia R. Co., S.U. Comm., *10 630—631; 262 U. S. Pub. Serv. Bluefield Co. Comm., supra, S. W. Tel. Serv. 691-692; Pub. sys cost of a reasonable supra, Undoubtedly, the pub the well-planned tem and efficient waterworks, of of the time of its value at service, good lic is evidence fairly actual will continue construction. And such cost to physi to attributed the well to measure the amount be change- no the as there is long cal elements of so by And, as indicated prices. in the level of applicable if the tend report commission, the of the it is true is not or down ency definitely upward or trend of prices appear does not there will probable ward it of of then value change prices, present substantial the less, the cost of constructing lands plus present plant, a fair of the value of the any, if measure depreciation, validity The of the property. of the physical-elements on question January in value depends rates following. and for a reasonable time While frequent do minor vary of súch not with values properties in of labor prices fluctuations material and fol them, they generally to affected produce aré low the levels and of such relatively, permanent trends fact that 12 to original probably The cost was prices. cent, than the per less estimate of the 20 commission’s of engineer average prices years based the ten on ending years with 1921—two the rate before order be came effective —does not tend to support commission’s , adoption that estimate. The cost of reproduction prevailing levels 1923 price January was found to be cent, per 30 to 35 or from $4,500,000 $5,000,000 more. in the average prices ten 1923— years ending with date of the effective rate order —was shown the' testimony of the chief engineer commission’s produce cent, result nearly higher the figure adopted; than 1926; TERM,' .
Opinion of the Court. effective date on the and, prices prevailing on the basis , would depreciation order, of the by the com taken than that higher be about 32 per level, in wages prevailing prices high mission. finding taken into should be and. account immediately years January as of nothing record Moreover, there following. . effective date at the the prices prevailing indicate that treasonable within likely order to decline rate were average n time— or three the level one, years two —to may take 1923. And we in' ending ten . no has notice that there been substan 'judicial fact and materials of labor decline general tial rather upward has that time. The trend beén since' . commission— by the level adopted The price downward *11 1921—was too low. ending years for ten with average the aver higher And it of prices clear that level .than is 1923 ending with should in- the ten age prevailing ele of the structural as be taken the measure date of the rate order following ments on and the effective complained of. working engineer
For commission’s chief capital, $102,997 to cover materials He supplies. included working to cover cash anything capital; did not include adopted commission his total and added in making $237,997 The.testimony all.- of the com- cash, supports higher witnesses á and there was pany’s figure, subject. no other evidence orí the is low' The.amount those compared when included other cases.2 in 2 Queens 284; 269 Fed. Newton, & v. New York Co. New Gas (2d) Queens 351, 363; F. Prendergast, & York Gas Co. v. Brook (2d) 118; F. Nixon Union Gas Co. v. lyn Kings County Lighting (2d) 192, 201, F.7 Prendergast, 217; New York & Richmond (2d) Prendergast, 167, 209, 10 F. Gas Co. & Bronx Gas 210; Dept. Rep. State Commission, v. Public Electric Co. Service N. Y. 208 App. 780). (aff’d Div. McCARDLE v. INDIANAPOLIS CO. in commission No. 6613 discussed company’s
water It said: rights. Petitioner has. acquired and now owns the right privilege of all taking using in water White River and Creek for in- the purposes Eall cident its right business. This is an extraordinarily valuable part whole value this property. The right use the water of White River has saved the water company and likewise the citizens of Indianapolis millions of dollars over what it would have to secure cost suffi- cient water for the needs other city any possible way. . .. The water company is entitled to share the benefit of this valuable possession by reason of the fact that its foresight, ingenuity, and initiative it has taken this stream of uncertain of impure flow water and it into has an immense asset both to converted itself and- to the public. . . . This whole . . . has been plant planned and ingenuity with an and economy constructed foresight for the future needs of the un- city that equalled any under similar anywhere circumstances country. the most unfortu- Indianapolis probably nately any large city situated of far the natural so avail- water, able is concerned, yet the possibilities insig- of an stream flowing through nificant a thickly populated countryside have been so thoroughly developed that now if Indianapolis has, and it doubles in population will an have, ample supply potent [potable], at a cost much below the other many cities more favorably development located. This rights, its water which has *12 accomplished by company been the water at times with extreme does difficulty, actually largely increase the value of the property.”
The value of these must included. San rights water Joaquin Co. County, Stanislaus 454, 459. report further “A good stated: has in- property an tangible value or going over concern value and above the of the component value parts physical of .the property. TERM, 1926. S. of the U.
Opinion Court. this prop- knowledge a of man with Any reasonable ... affirm unhesitatingly conditions-would and the local erty pipe, the value of the far in excess of it had a value earning its Consider machinery. and grounds buildings, fine it its attached, has rates, low the business power city and relations, credit, its the nature public is way the property certainty growth, of future large needs is with the future being extended planned efficiency and standard city operating its view, similar compared with maintenance, desirability its utilities of com- other in other cities and with properties ele- things up These make an city. size parable this speculative. not ment of is actual value or seller of the buyer would be considered ,a its by buyer or seller of securities.” an there is declare: "That The.decisions of this court plant, and established element of value in an assembled not over one earning money, doing búsiness and thus.ad value vanced, prop This element is self-evident. determining considered erty right,, and should be r-ight the owner has a which upon the property, same is a fair when the make return owned privately Des Moines Gas use.” although public dedicated v. Denver Moines, 153, 165; Denver v. Des 238 U. S. And see Na Co., 178, 191, Union 246 U. Water 853, 865; City, 62 Fed. tional v. Kansas Waterworks Co. 218 U. S. Co., Omaha Water v. Omaha cited. cases in No. 6613 January 2, 1923 included commission the amount attributed 9.5
$1,416,000, being water elements, rights going to cover to' the physical only in’ No. it included value. November working rights going capital, $980,000 to cover n assigned the amount specification no There is value. amount was a smaller per each. It stated physical centage value of *13 415 McCARDLE INDIANAPOLIS CO. v. Opinion 400 of the Court. in such cases. There is
usually nothing allowed record to the reduction. justify Deducting cash the amount included working capital, rights for water cent, per value is less than of the value going six of the physical by Having elements as fixed it. regard to the is clearly character of the that amount system, too low. The valuation called engineers by the com rights pany appraised water arid going sep Each arately. rights fixed the value at $50,000, $2,000,000 and one value at put going the other slightly figure. at a higher The commission’s no engineer appraisal rights made or going of water value. is more than evidence 9.5 per sufficient sustain cent, for going reported value. And the showing cases amounts generally included commissions courts intangible to cover elements of value ten indicate value of the elements would physical impressive low when reported by facts the commis .3 sion this case are taken into account city commission and the submit the same brief. opposed' Some of their contentions are to the commis- sion’s above findings They referred to. an support esti- mate or made appraisal by Walter S. Bemis, engineer an 3 180, v. 202; 218 U. S. v. Co., Omaha Omaha Water Denver Den 178, 184; 246 Co., U. S. v. Pub. ver Union Water Co. Bluefield 679, 686; Aqueduct 262 v. Com., Smith, Serv. Streator Co. 390; Westinghouse 385, 295 Fed. Co. v. Denver Tramway Electric (2d) 298; 285, F. Co., 3 v. Railroad Bell Tel. & Southern Tel. Co. (2d) 87; F. 5 Commission, N. Y. v. Consolidated Gas Co. (2d) 243, 259; Kings 6 F. Prendergast, County Lighting Co. v. (2d) 217; F. 7 Prendergast, Gas v. Citizens Co. Public Service (2d) 632; F. Commission, 8 York & Richmond Gas Co. v. New 210; Prendergast, Co. v. Telephone F. (2d) 167, Pioneer 448; Okla. Westenhaver, Utility v. Public Public Service Co. 463, 479; Bd., 84 N. J. L. v. Railroad Oshkosh Water Works (cf. 122, 129, 131; Wis. Commission, Appleton Works v. Water 121); Commission, Ry. Wis. Co. Railroad Northern Pacific 510; 236, 241, State 115 Kans. State, Telephone Co., Wash. TERM, 1926. 272 U. Court.
Opinion city. reported called He as of December *14 $12,216,508.05 the cost of new was reproduction $9,220,214.18. and that less The estimate depreciation “ is based ten 1920.” year average prices on from 1911 to gives It no consideration to the prices prevailing The years-preceding three the effective date of the order. price basis is than the substantially average lower for ten 1923. ending approximately There is deducted cent, per of estimated cost-new to cover accrued deprecia tion. The an inspection deduction was not based on “ ” the property. straight result of a line was the calculation age based on and the estimated or assumed useful life of The commission’s re perishable elements. port well-planned, indicates that well- Its chief engineer inspected it, maintained and efficient. by giving estimated its condition effect to results of the examination and to age property. He deducted per depreciation. about six to cover Mr. Hagenah made an estimate of existing depreciation based inspection actual and a consideration the probable future life as indicated the conditions found. He de Mr. ducted less than six cent. Elmes testified that he an and estimate of all the inspection made actual depreciation. He estimated would be appraisal to restore the to its condi date in put practical when installed and operation. tion first The testimony He that amount. of competent deducted the property who examined engineers valuation and made its condition- to be respect-of preferred estimates in based on averages prob mere calculations assumed in made the city’s deduction abilities. The estimate Gas Co. v. Francisco, San approved. cannot be Pacific Standard Oil Co. v. 406; So. Co. Pacific , v. Court Industrial Relations, Landon supra, 159; Winona v. City 433, 445; Wisconsin-Minnesota Fed. Fed. Co., 1004; New York Telephone & P. Light McCARDLE v. INDIANAPOLIS CO. Tel. Prendergast, 300 Fed. Bell 826; Southern
& Tel. Commission, (2d) Co. v. Railroad 5 F. a canal in water flows from company owns which the river below them, to filter beds and to a power plant where that pump not taken for filtration is used into the for distribution. estimate of Mr. mains Bemis for the of the canal city eliminates the lower'part and suggests plant. This substitution of steam $1,073,539.63 reduces cost of new $785,013.11. The whole canal depreciation by was which included the estimate Mr. Carter adopted. The No. 7080 commission its de- report scribed canal and the uses which it is put including the production said: This power pumping, shows the work competent engineer.” of a construction *15 And in No. 6613, the commission said: “The canal ap- pears have been become a perfectly adapted part of plant city. water of It intercepts waters of Ripple. White River Broad far near This so upstream is that the source of from the supply has been free contami- nation arising densely city from settled districts of the for nearly half a century. lift of ... saves the millions daily of gallons water from White River to the level of filter beds. The . economic of the . . value canal is very large, given when regard savings to the effects, it and the produces revenue it .- great . . Its value lies in fact that it never has failed efficiently to do the work must be done some instrumentality of the water steel or plant. a concrete main or condüit, far that would carry a less quantity water, would exceed cost of reconstruction of the canal, and its Thd entire parts. structural canal property is used in the performance of the useful service this utility was . to perform.” created
There is to be ascertained value of the plant used to the service and not the estimated cost of give a different 23408” —27-27 TERM, 1926. 272 TJ.S. circumstances, the court
plant. exceptional Save under not of the merits upon comparison to enter of different Such an lead to col- systems. inquiry would remote investigations only lateral bear- having issues and on ing found, the fact to be viz. the value public. devoted to the service of the city guide estimate made for the is not useful as for company’s property of value of the ascertainment Eor there a statement comparison, convenient follows prices prevailing January 1, of the estimates based on average on in the ten prices those based ending with 1923. Average
Spot prices prices $19,500,000 $17,000,000 Carter............................. Hagenah 22,669,000 19,624,000 and Erickson............... 21,898,000 18,931,000 Sanderson Porter................ expressions judge While some of the district indicate that dominant or opinion controlling weight that he was given to cost deprecia- should on spot prices January 1, 1924; tion estimated as it is $19,000,000 fixed him clear that as minimum not have been could arrived at value basis. The engineer chief commission’s testified that his estimate on of that $19,500,000. was date This ex- .working clusive cash capital, rights going Hagenah which $2,735,000 Erickson included and Sanderson and Porter But the commis- *16 6613 sion No. added for such- working capital. cent, 9.5 of It also added of per physical to rights elements cover water and going value, amount- If ing $1,416,000. only to these additions be Mr. made-to estimate, Carter’s there spot price produced is cent, if 9.5 And, $19,500,000 of per were taken to cover rights going value,' total would exceed $21,487,'000. Moreover, the estimates of the basis* on. 419 INDIANAPOLIS CO. v.
McCARDLE considerably company are by introduced spot figure. Mr. Carter’s higher than found 1923, in November No. commission, cent, of return. It be reasonable rate to a per seven Mr. E. W. city’s appraiser, stated that was rate trial, At the the com be reasonable. Bemis, testified to rates. Mr. higher testimony pany supporting introduced cent, was a eight per Mr. Elmes Hagenah and testified Mr. Metcalf, consulting engi rate of return. reasonable cent, from 7.5 to per a rate company, supported neer for the Mr. E. W. study by a offered eight per Appellants cent. public on certain yield of to investors Bemis of rates put. account out into flotations utility took bonds. He February, 1924, 1921, and July, at different times between six months of average yield last inclusive. The cent, February, per 6.11 7.33 per 1921 was (cid:127) throughout not downward whole The trend was cent. through from the half last of upward It period. And he there should added testified all of cent, brokerage.- cover obvious per .4 of one to are in bonds brokerage investments yield plus on rates required rate return con less than the substantially properties the use compensation for just stitute constitute the source of all rarely Bonds public service. n money finance utilities. And in public higher yields insist on on stock rates vestors than current money Obviously, of interest bonds. the cost finance the whole interest enterprise not measured only plus brokerage part rates on bonds floated investment. The evidence is more sufficient to of seven found the commis sustain the rate higher support recent decisions sion. And rate return.4 256, 268; v. Lincoln, 250 U. Lincoln Gas Galveston Co. Elec. S. 400; v. Pub. Serv. S. Galveston, 258 U. Co. Bluefield 679, 692, seq.; London Industrial U. et Court Com. *17 OCTOBER TERM, 272 U.S.
There was controversy as to probable earnings net 1924. The company’s is $958,000; estimate city’s $1,121,550.19. The principal difference arises from the city’s contention that company’s estimate of revenue $67,758.92 was too low by and of operating expenses was high by $95,791.27. too
While the facts stated the court’s decision are suffi cient to sustain decree, findings as to value, reasonable return, rate of as the' net earnings are not n specific good practice requires. litigation As the would prolonged if considerably remanded case were further we findings, have examined the record deter mine whether the facts con proved justify the court’s Co., 212 Knoxville v. Water 1, 8; Chicago, clusion. Ry. M. P. Tompkins, & St. v. 176 U. 167, 179; S. Lincoln Lincoln, Gas Co. v. S. 349, 361; U. Denver v. Denver Co., Union Water Cole supra, 182; Ralph, v. 252 U. 286, 290.
And we aré satisfied that indi- right. decree is As cated reasonable rate of return is not less aboveda cent. In per seven his decision the judge district plainly intimated that opinion he was of earn- probable net for 1924 ings were not sufficient to pay more than per five cent; The amount of net earnings as estimated by appellants, is only pay sufficient to cent, on $16,022,145; seven requires evidence that, finding exclusive of the items classified Mr. as non-operative, Carter much property is more than that amount. shown if con- due given to price sideration be prevailing level trend Relations, 433, 445; Minneapolis 269 Fed. Rand, v. 818, 830; 285 Fed. Gas Patterson, Mobile Co. v. 208, 221; 293 Fed. Southwestern Bell Telephone v. City Smith, Co. Fort 108; 294 Fed. New York Telephone Prendergast, Co. 822, 826; 300 Fed. Southern Bell Tel. & Tel. Commission, Railroad 89; Brooklyn (2d) 77, 5 F. Prendergast, Union Gas Co. v. 7 F. (2d) INDIANAI CO. McCARDLE v. OBIS dissenting. Stone, J., J. Brandéis dur- probable and those before immediately *18 of effective date following time the. a reasonable ing Mr. estimated $17,000,000 by 1924, the order, January 1, ten in the average prices of on the basis Carter than the amount substantially less with 1923 is ending prop- of physical to the elements attributable fairly ten in excess of an amount The sustains erty. evidence also rights going value to cover of .On a consideration capital. working for cash of as of the property held that the value it is evidence, less, was not immediately following January Decree affirmed. in the result. Holmes concurs Mr. Justice Brandeis, dissenting. Justice Mr. bar, as in Electric Co. v. Gal
In
at
Galveston
the case
v.
Railway
Power Co.
Georgia
&
veston,
258 U. S.
Commission,
625, both the
262 U. S.
Railroad
rate-mak
rule
adopt the
ing
purported
and the lower court
body
Ames,
466, by
which the value
Smyth
v.
U. S.
the.
as
taken
hehring;
as of the time'of
rate
property,
rule —the
the soundness of that
Hence,
the rate base.
rel.
divided in Missouri ex
on which this Court
question
Bell
Public Service Commis
Telephone
Southwestern
v.
sion,
and in
Gas
Co.
262 U. S.
& Electric.
Pacific
Nor
Francisco,
here.
The The was as cost to value. reproduction evidence that . they on which differed these. Is questions are primary finding cost tantamount' to a finding reproduction cost should be ascer- reproduction value? Is the which tribunal, by “spot” reproduction cost— tained hearing? is, prices prevailing cost at at the time of the TERM, 1926. dissenting. Stone, J. U. S. J.,
Brandéis and of' I its answered both Court, opinion, District read judge as- The' questions these learned affirmative.1 sumed, legal equivalent is the spot reproduction evi- was,- on the' He found $19,000,000 value. lowest, He cost. dence, "the conceivable spot this willing accept utility assumed since the. no amount less than that reproduction cost, minimum as He rate value, him base. could to be found him recent decisions of this Court believed that n In clearly this he was error. so hold. belief That not conclusive evidence reproduction cost Court. a unanimous been stated repeatedly has Ames, Smyth 466, 547, requires rule *19 con only each evidence of value be not that class of-other but,-also giveh sidered, evidence "each-class'of “be that case;” in just right each :máy such weiarht tas- be 1 “Granting that these cases Bell ex rel. Southwestern [Missouri Commission, 276; Tel. Co. v. Public Service U. S. Water Bluefield Ry. Commission, 679; Georgia & Works v. Public Service a Commission, 262 at Power were decided Co. v. Railroad U. S. 625] history particular in this had, the Court as a matter of time when cognizance probative, jurisprudence, full of field of the character considering propriety popularly of evidence such as is called evi the reproduction cost, upon historical evidence of dence of cost a certain value, price level, prudent of value which is called evidence investment and, fourth, strictly technically reproduction evidence of what spot depreciated inquiry; press upon us at the time of the these cases sharply query why cases, of in .results, these their em disclose the evidence; phasis given to the last of these four named of character[s] I entirely accept by am to characterization made content Judges in case; the Sixth Monroe Gas that the Circuit so-called necessary implication dominating from their results is that considera reproduction given tion should be to and, evidence value that if that, anything, reproduction, means it means at spot evidence of inquiry primarily the time of the must be considered as evidence of a different from character either of other three kinds of evidence. Now, me, to'apply the Court is as seems to required, . . . principles are be anu accepted, to discussed to I indicated that as what, preliminary my remarks, Supreme meant as to Court '
McCARDLE v. INDIANAPOLIS CO. Stone, J., dissenting. J. Brandéis Similarly, stated it was in the Georgia Railway Power & 262 U. S. 630: case, “ The refusal of the Commission and of the lower court
to hold for rate-making purposes, physical prop of a utility erties must be valued at the replacement depreciation was clearly correct. As said Min ‘ Cases, Rate nesota 230 U. 434: The ascertainment of that value is not controlled artificial rules. not of formulas, matter but must judg be a reasonable there ment having its basis in "a proper consideration all ” relevant facts.’ is,
There I so far as no recall, statement Court this that value is reproduction tantamount cost. I Nor do find in the decisions this any Court support “ ”
for the view a peculiar that sanction attaches spot reproduction as cost, distinguished from the amotmt that it would actually cost to reproduce if plant task ” were undertaken at date the hearing. Spot reproduction would be impossible accomplishment with- by what it .possible said in these three cases. Is it ... can say rationally Court now and, the Commission here in order out, can, by any test it include here, the Court sort examination evidence, evidence, upon unimpeached reach a conclusion that showing spot minimum of $19,000,000, values at it will $15,260,000? brings still find Now, reasonable value at . .. us and, said, to the evidence case I can this can the Commission or now, say this Court that there can abe rational reconcilement betw'een *20 unimpcached of $19,000,000, evidence as a minimum cost spot, any price level, value particularly showing other one a dis parity of five million dollars—four five? am not I confronted ... problem fixing range dispute upon with the a valuation within the spot say problijm, reproduction. I I am not confronted with that complainant accept because the this comes into Court and offers to $19,000,000, valuation, though, as a fair basis of even says, as it say support reason, it, could, upon I think has to could it “ higher sustain a The record, valuation.” decree itself recited that complainants’ the fair said was and not less $19,000,000.” TERM, 1926. Stone, dissenting.
Brandéis and J., J. 272 U. S. out the aid of Aladdin’s lamp. The actual cost a plant may conceivably indicate its actual value at the time of completion or at some time thereafter. Estimates may conceivably approximate what the cost of reproduc- tion would be at a given time. But where a would plant require years for completion, estimate would be neces- ” delusive if it sarily were based on spot prices of labor, materials and money. estimate, to in any way be worthy trust, must be on based a consideration of the varying costs of labor, materials, and for a money period least as as would be long at the plant' construct it into put operation. Moreover, the estimate must light longer be made of a experience and with due for allowances the hazards which all attend prophesies The search for respect prices. value can hardly be aided a estimate of hypothetical the cost of replacing moment, at plant particular actual- reproduction when require would a period that must be measured by years. a court declares that When rate shall be the basé instead of the historical value, cost or the amount pru- dently invested in the it selects the enterprise, standard for measuring which compensation down a rule of paid. lays be and in the law; per- formance of that function there is always legitimate field theory. when, But having selected value as the stand- base, ard rate the court undertakes to find what is at the date of the it hearing, purports that value rate .to- make a finding process fact. of determining facts inevitably misleading will each unless bears a close step relation'to the realities of life.
The evidence introduced before the trial which court, seems to be in substaiice the same as that introduced before the Commission, is now before this Court. We have power to examine the evidence and to enter such decree as may be appropriate. Compare Denver v. Denver Union Co., practice Water U. But the better *21 v. MINNESOTA.
GRAVES n Syllabus. Court, be remanded case District requires that in may light be re-examined there so the evidence rules. Oklahoma Natural Gas Co. v. applicable Russell, & Tel. Co. v Tel. 290, 293; 261 U. S. Pacific & P. Compare Chicago, M. St. Kuykendall, 265 U. 196. S. 179; Lutcher & Ry. Moore Tompkins, Co. v. 167, U. S. v. Flet Knight, Lumber Brown 267; Co. v. 257, cher, Lustgarten, Gerdes S. 583; U. U. in be my end decree should, opinion, 327. To this reversed. I add misunderstanding, possibility
.To avoid the record, in considered merely that, my opinion, the facts notice, judicial those of which we have connection with yield rates which return justify holding do not as to be unreasonably be so low than 7 would confiscatory. joins
Mb.- Justice this Stone dissent.
GRAVES MINNESOTA. OP THE STATE OP ERROR. TO THE SUPREME COURT MINNESOTA. Argued 1926. October 1926. Decided November
No. 320. 5757-5763, requirement of 1. The Minnesota Gen. Stats. §§ dentistry pro- practice shall every applicant for a license to diploma his from some board of dental examiners duce before the standing,” shall college good of which the board dental Fourteenth Amendment. 426. judge, not violate the P. does may, consistently Amendment, pre- Fourteenth A State possessing reasonably necessary quali- only'persons scribe that learning dentistry. practice skill shall medicine or fications of .427. P. judge regulations required primarily
3. The State safety police may public welfare, and its statutes interest of arbitrary only they where or un- unconstitutional are be declared reasonable. P. 428.
166 Minn'. affirmed.