properly supplying the public, but the surplus is much larger than can be utilized for any such purpose.

It is unnecessary at this time to give particular consideration to the wisdom or unwisdom of creating a surplus of this size and character, but rather to consider how it has arisen and how it should be treated as an existing fact. It does not appear that it is due to extravagant prices for gas or to a niggardly policy toward the public; the prices have in fact been as low or lower than in other companies of its class in the State, while the quality of the service, so far as the Board has been able to ascertain, has been equal to the best. This accumulation appears rather to have been due in part to exceptional care in the management and in part to a rapid gain in wealth and population in the community supplied. Its growth has been steady through a long series of years and not excessive in any single year. Its existence thus appears to be due in part to causes over which the company has had no control and for which it is entitled to no particular credit. Accumulated, as it has been, out of profits in the performance of a public service, its existence affords exceptional facilities and imposes peculiar duties upon the corporation in its relation to the public.

As the company has applied this surplus to the cost of improving and enlarging its plant as has been needed to satisfy the public demand, the property in which it has been invested must otherwise have been represented by new capital contributed by the shareholders. Such use of surplus may properly be made of substantial benefit to the consumers and shareholders alike: to the former, by relieving them of some portion of the burden which the investment of fresh capital necessarily imposes, by affording the most ready facility for minor extensions of the company's lines, for superior excellence in its product and by aiding to the most satisfactory performance of its varied duties toward the public; to the latter, by strengthening the corporation in enhancing the security of the original investments of the shareholders, and in bringing to them a return somewhat higher than that to which they might otherwise be entitled. Such a surplus is by every principle of law the property of the corporation. It has an undoubted legal right to

distribute it as a dividend as it is acquired, or pro rata to its shareholders in case of liquidation; but, notwithstanding this, the circumstances attending its accumulation impose upon the company, so long as it continues to exercise the functions of a public monopoly, the duty to employ it for the joint advantage of the consumers and the corporation. It need not be dealt with as the exclusive property of either.

Fortunately, in the majority of companies of this class in this State, the recognition of this duty by the directors has been a part of the policy of their management; until recently this has been true also of the company in Haverhill. Now, however, its policy appears to have undergone a very decided change. The company brought an action in the Circuit Court of the United States to restrain the enforcement of the Commission's order reducing the price to eighty cents. The case dragged along for many years and was finally compromised. Another petition asking for a reduction in the price charged by the Haverhill Company is now before the Commission, and the decision will doubtless hinge largely on the treatment of property constructed out of surplus. Under the Massachusetts system of regulation, there is an argument in favor of the consumer's equity in the surplus which probably could not be so effectively used in other states. The laws have since 1894 prevented a capitalization of property constructed out of surplus and have required the sale of new shares at approximately the market value. And with the supervision over rates exercised by the legislature and the state commissions, it seems probable that if a company, such as the Haverhill Gas Light Company, had attempted to pay out all its profits in dividends instead of using surplus profits for betterments, the legislature or the state commission would soon have reduced its rates.

§ 201. Pennsylvania Supreme Court in Brymer v. Water Company, 1897.

In Brymer v. Butler Water Company, 179 Pa. 231, 36

Atl. 249, 251, decided January 4, 1897, it is held that additions constructed out of surplus earnings are entitled to a fair return. Judge Williams says:

In determining the amount of the investment by the stockholders, it can make no difference that money earned by the corporation, and in a position to be distributed by a dividend among its stockholders, was used to pay for improvements and stock issued in lieu of cash to the stockholders. It is not necessary that the money should first be paid to the stockholder and then returned by him in payment for new stock issued to him. The net earnings, in equity, belonged to him, and stock issued to him in lieu of the money so used that belonged to him was issued for value, and represents an actual investment by the holder.

202. Maine Water Plant Condemnation Case, 1902.

In the case of Kennebec Water District v. City of Waterville, 97 Me. 185, 54 Atl. 6, 17, decided December 27, 1902, the Supreme Judicial Court of Maine lays down rules to govern appraisers in making the valuation of property of the Maine Water Company for purposes of purchase by the Kennebec Water District.3 Judge Savage in his opinion says (at page 17):

Plaintiff's request 13 asks that, if it be found that the companies have actually received more than reasonable rates for the services rendered since operations began, then the amount of such excess shall be deducted from the amount to which the companies would otherwise be entitled. It is not approved. It is sufficient to say that this is not a process of accounting, but one of condemnation of property, for which the owner

The court while complying with the provisions of a state statute providing for such purchase, appreciates the possible difficulties if not dangers in attempting to formulate rules which are to be applied to facts not yet ascertained. This is the first of two similar cases, the second one being that of the Brunswick Water District, decided in 1904.

is entitled by statute and constitution to just compensation at its present value, without any deduction.

As noted below in § 795, Judge Savage held the excess earnings of earlier years could nevertheless be considered in fixing the present fair rate of return.

§ 203. Interstate Commerce Commission in Spokane v. Northern Pacific, 1909.

In Spokane v. Northern Pacific Railway Company, 15 I. C. C. R. 376, 415, decided February 9, 1909, the Interstate Commerce Commission states that in determining what will be reasonable rates for the future, the Commission may properly consider that under the rates in effect a large surplus has been accumulated in the past, but that it should not make rates for the purpose of distributing such surplus to the public. to the public. Commissioner

Prouty writing the opinion in this case says:

We come now to the complainants' claim that the surplus which has been accumulated by these defendants from earnings should be first subtracted from the value of their properties in determining the amount upon which they may properly earn. The contention of counsel is that this surplus is a fund held by the railway company as trustee for the public, which this Commission should in some way manage to redistribute to the public in the establishment of just and reasonable rates. The railway is certainly an agent of the Government in the construction and operation of its property, and it is only allowed to charge for its services a reasonable compensation. Does it from this follow that the surplus of the Great Northern Railway, for example, which is said to be $70,000,000, is held by that company in trust for the public? Does it follow, even, that the value of this property to-day should be decreased by $70,000,000 upon the theory that the public has paid into the property that amount?

It is well understood that rates by all lines to Spokane from a given eastern destination must be the same. We have already

held that in establishing a reasonable rate the strongest line should not alone be considered; the necessities of the weaker line must also be taken into account. In the application of this principle it is evident that a rate might be fixed which would pay a very moderate return by one line and a very handsome return by the other. Under the operation of these rates the Great Northern, by reason of its cheaper construction and its easier operation, might accumulate a surplus while the Northern Pacific did not. If so, could it be said that the surplus of the Great Northern had been improperly accumulated when its rates had been just and reasonable? Does the mere fact of the accumulation of a surplus by a particular road show that the rates upon that road have been excessive?

But assume that they have been. This $70,000,000 to which the complainants refer in case of the Great Northern surplus is the result of the operations of the Manitoba and the Great Northern companies since the year 1880; that is, for twenty-seven years. During all that period this surplus has been gradually accumulated and has gone into the property. Should the Government to-day take note of that surplus for the purpose either of so reducing the rates of the company that no earnings can be made upon this much of the property or with a view to in some sense turn that surplus back again into the hands of the public?

There is no absolute test of a reasonable rate, and the Government has supplied none. During all this period the excess has gone into the property, which has gradually become more valuable, and this increased value has reflected itself in the market price of the securities of that company. It is impossible to restore what has been improperly taken in the way of excessive rates to those persons from whom it has been received. The Government, under those circumstances, can not lay hold on this surplus as a fund held in trust for the public.

This case strongly illustrates the fact that if any Government tribunal is to do justice between the railway and the public, if it is to feel any confidence in the correctness of its conclusions, its supervision must be continuous and not spasmodic. There must be some point of departure and from that point