223 U.S.

Argument for Plaintiff in Error.

v. Kansas City Stock Yards, 183 U. S. 79; Reagan v. Farmers' L. & T. Co., 154 U. S. 363; Spring Valley Waterworks v. San Francisco, 124 Fed. Rep. 574; Southern Pac. Rd. v. R. R. Commissioners, 78 Fed. Rep. 261; Memphis Gas & Lt. Co. v. Memphis, 72 Fed. Rep. 952; Brunswick Water Dist. v. Maine Water Co., 99 Maine, 371; Water Co. v. Cedar Rapids, 118 Iowa, 234; Lewis on Eminent Domain, §§ 462, 477; Metropolitan Trust Co. v. Houston, 90 Fed. Rep. 683.

It is the market value that is to be ascertained and considered as the fair value of the property. Henry v. Dubuque & Pac. Ry., 2 Iowa, 300; Steenerson v. Great Northern Ry. (Wis.), 72 N. W. Rep. 715; Beale & Wyman, R. R. Rate Reg., § 355.

The owner of property devoted to a public use is entitled to the benefit of any appreciation in value above the original cost, and cost of improvements, which is due to good management, or any natural causes. Cases supra; Detroit v. Detroit H. & P. Co., 43 Michigan, 140.

The value of the plant is the fair value for which it might be sold to any other corporation or investor and its original cost or cost of reproduction. Smyth v. Ames, 169 U. S. 524; San Diego v. Jasper, 189 U. S. 439; Ames v. Union Pacific, 64 Fed. Rep. 165; Beale and Wyman, R. R. Rates, § 255; Steenerson v. Great Northern Ry., 72 N. W. Rep. 715.

It is immaterial in what way the property was lawfully acquired, whether by labor, gift or by making profitable use of a franchise previously granted, it is enough if it has become private property. Monongahela Nav. Co. v. United States, 148 U. S. 312; Spring Valley Waterworks v. San Francisco, 124 Fed. Rep. 574; Metropolitan Trust Co. v. Houston &c., 90 Fed. Rep. 683; Detroit v. Detroit H. & P. Co., 43 Michigan, 140; Brunswick Water Dist. v. Maine Water Co., 59 Atl. Rep. 540.

Good will or going value should be considered in arriv

Argument for Plaintiff in Error.

223 U.S.

ing at the value of plaintiff's property, upon which it is entitled to earn dividends. Cases supra and National Water Works v. Kansas City, 62 Fed. Rep. 853; People v. O'Brien, 111 N. Y. 41; Smyth v. Ames, 169 U. S. 544; Reagan v. Farmers' L. & T. Co., 154 U. S. 362, 410; Ames v. U. P. Ry. Co., 64 Fed. Rep. 165; San Diego Water Co. v. San Diego, 118 California, 556; Fairbank v. United States, 181 U. S. 300; United States v. Gettysburg Elec. R. Co., 160 U. S. 668; Kennebec Water Dist. v. Waterville, 97 Maine, 185; Water Co. v. Newburyport, 168 Massachusetts, 541; Water Supply Co. v. Gloucester, 179 Massachusetts, 365; Bristol v. Water Works, 23 R. I. 274; Ames v. P. R. R. Co., 64 Fed. Rep. 178; Omaha v. Water Co., 218 U. S. 180.

"Going Value" or "Franchise" should not be discarded because of difficulty in ascertaining its value. Howe Machine Co. v. Bryson, 44 Iowa, 166; Richmond v. D. & S., 40 Iowa, 272; Chicago Ry. Co. v. Tompkins, 176 U. S. 167, 172.

The franchise is an easement or right of way in the streets, and hence is real property. Cases supra and Milhau v. Sharp, 27 N. Y. 620; Ghee v. Northern Union Gas Co., 158 N. Y. 510; Metropolitan Street R. Co. v. State Tax Comrs., 174 N. Y. 435; Water Comrs. v. Westchester Waterworks Co., 176 N. Y. 239; Kronbein v. Rochester, 76 App. Div. 494; Re East River Gas Co., 122 App. Div. 890; Bowman v. Wathen, 2 McLean, 376; Citizens' St. R. Co. v. Detroit, 64 Fed. Rep. 643; West River Bridge Co. v. Dix, 6 How. 507; Gue v. Tide Water Canal Co., 24 How. 257; East Alabama R. Co. v. Doe, 114 U. S. 340; Chicago v. Baer, 41 Illinois, 306; Stockton Gas & Electric Co. v. San Joaquin County, 148 California, 313. As to the rule in England since the early days of gas lighting see Railroad v. Brighton Gaslight Co., 5 Barn. & C. 466.

A corporation cannot be deprived of its franchises except under the power of eminent domain and upon payment of their full value. Sixth Ave. R. Co. v. Kerr and Water Comrs.

223 U.S.

Argument for Plaintiff in Error.

v. Westchester County Waterworks, 176 N. Y. 239; Coney Island, Ft. H. & B. R. Co. v. Kennedy, 15 App. Div. 588; Spring Valley Waterworks v. San Francisco, 124 Fed. Rep. 574; Monongahela Nav. Co. v. United States, 148 U. S. 312.

The power of the Federal Government to regulate commerce does not authorize it to destroy a franchise of this kind without making just compensation for it. United States v. Bellingham Bay Boom Co., 176 U. S. 211; Monongahela Nav. Co. v. United States, 148 U. S. 312.

Plaintiff's franchise is entitled to the same protection as any other property. Parker v. Elmira C. & N. R. Co., 165 N. Y. 274; 59 N. E. Rep. 81; Railroad Cases, 116 U. S. 307, 331.

The action of the state court in excluding many items of value was arbitrary and without foundation in the evidence. It is the present value of the plant that should be taken into consideration. Cases supra.

Working capital should not have been eliminated in fixing value.

The elements entering into a fair rate to be charged for gas are the actual cost of all labor, materials and immediate repairs necessary to manufacture the gas and place it at the disposal of the consumer. Cases supra; Reagan v. Farmers' Land T. Co., 154 U. S. 362; U. P. Ry. v. United States, 99 U. S. 700; Southern Pac. Rý. v. Board of Com., 78 Fed. Rep. 265; Gas Co. v. Memphis, 72 Fed. Rep. 952; Clyde v. Richmond Elec. Co., 57 Fed. Rep. 436.

A reasonable amount must be allowed for depreciation of the plant. Willcox v. Gas Co., supra; Knoxville v. Water Co., supra; San Diego Land Co. v. National City, 174 U. S. 739; Milwaukee E. R. & L. Co. v. City, 87 Fed. Rep. 577; Brymer v. Butler Water Co., 179 Pa. St. 231.

Depreciation is due to three general factors. Inadequacy; where by reason of increased demand the machinery or mains, or some parts of them, become too small.

Argument for Plaintiff in Error.

223 U.S.

Obsolescence; where by reason of new invention and advancement in the art, the machinery in use can no longer be economically operated; and physical decay.

No ordinance fixing prices charged for a public service is reasonable which, in addition to the foregoing elements, does not allow to the investors a fair return on the money invested in the enterprise, with due regard to the nature and hazards of the business. Cases supra.

The earlier leaning of the courts toward the doctrine that the legislative power to fix rates stops only at confiscation has been supplanted by the rule that rates must be reasonable, that is, such as to earn a fair, just and adequate income on the investment. Cases supra and Atlantic Coast Line v. Nor. Car. Corp. Comm., 206 U. S. 1; C., B. & Q. Ry. Co. v. Chicago, 166 U. S. 226; Covington & L. Turnpike Rd. Co. v. Sandford, 164 U. S. 578; C., M. & St. P. Ry. v. Minnesota, 134 U. S. 418; Munn v. Illinois, 94 U. S. 141; Central R. Co. v. Railroad Commission, 161 Fed. Rep. 995; Southern Pac. v. Board, 78 Fed. Rep. 265; Allnutt v. Inglis, 12 East, 527; Des Moines v. Water Works Co., 95 Iowa, 348; Water Co. v. Cedar Rapids, 118 Iowa, 234.

The rule that the fair return must not be less than the legal rate of interest is justified on reason and authority. Cases supra and Pennsylvania R. R. Co. v. Philadelphia County, 220 Pa. St. 115; Chicago Traction Co. v. Equalization Board, 114 Fed. Rep. 561; Louisville & N. R. Co. v. Brown, 123 Fed. Rep. 951; Milwaukee Elec. R. & L. Co. v. Milwaukee, 87 Fed. Rep. 585; Southern P. Co. v. Railroad Comrs., 78 Fed. Rep. 261; Jamaica Water Supply Co. v. Tax Comrs., 128 App. Div. 13; International Bridge Co. v. Canada Sou. R. Co., 7 Ont. App. Rep. 226, aff'd L. R. 8 App. Cas. 723.

It is not enough that something is earned for the stockholders. They are entitled to fair compensation. Cases

supra.

223 U.S.

Argument for Plaintiff in Error.

To deprive the plaintiff of a fair and reasonable earning capacity, such as the citizen enjoys, as to his money and as to all types of his property, is to deprive it of the equal protection of the laws. C., M. & St. P. Ry. Co. v. Minnesota, 134 U. S. 418.

The State may be

plant to public use.

said to have appropriated the gas For the appropriation it is bound to make a just, fair and reasonable compensation. Water Co. v. San Diego, 62 Am. St. Rep. 261.

The question as to rate of income is what rate of dividends would induce prudent men to invest in stock of the company representing the real value of the property as a going business. Willcox v. C. Gas Co., 212 U. S. 19.

It is proper to apply the prescribed rate to the past experience of the company, taking into consideration the increased cost of operation after the time when the new rate is applied. Seaboard Air Line Ry. Co. v. R. R. Com., 155 Fed. Rep. 792.

Annual income of 4.41 on value of property or 3.30 per cent on stock after deducting fixed charges is unreasonably low. The compensation should be for the real substantial value employed, and no legislation can diminish by one jot the rotund expression of the Constitution. Railroad Co. v. Henry, 8 Nebraska, 170; Spring Valley Water Co. v. San Francisco, 124 Fed. Rep. 574.

The power to regulate is not the power to destroy, and limitation is not equivalent to confiscation. C., M. & St. P. Ry. Co. v. Minnesota, 134 U. S. 418; S. Pac. Ry. Co. v. Bd. of Com., 78 Fed. Rep. 236.

Whatever the State may do, even with the creation of its own will, it must be in subordination to the inhibition of the Federal Constitution. Vicksburg v. Vicksburg Water Works Co., 202 U. S. 453; Water Co. v. Omaha, 147 Fed. Rep. 7; S. C., 218 U. S. 180; Railroad Tax Cases, 13 Fed. Rep. 754.

The state court erred in reducing depreciation to five