property be made the subject of invidious discrimination in this respect, in order to limit the extent of their profit upon the value of the property used by them, by the enforcement of a schedule of rates, affecting the owners of railroad property alone, which prevents them from earning the usual current profit from the use of their property, which the owners of other property used in like investments are permitted to earn upon the value thereof? . . . The courts have, therefore, generally taken as the standard of proper return the legal rate of interest, contrasted with the current rate of profit from the use of other property in like kinds of business. While the percentum of profit allowed upon loans of money between private individuals is not, in many respects, a fair standard for determining just profits from the use of other kinds of property under conditions of greater hazard, yet the rate is the result of long experience, and is tantamount to a legislative declaration that such measure of profit is in general a just return upon investments in property. The evidence shows that the current rate of profit upon property used in business enterprises similar to railroads gives a net income, upon the value of such property, not lower than 8 per cent. per annum. Whether we take the legal rate of profit by way of interest on loans of money, or the rate of profit which common experience shows to be the average, and, therefore, approximately a just, return from the use of other forms of property, both modes lead to the same result. We can find no better standard by which to measure what is a fair and just return for the use of railroad property under the conditions governing the business of conducting railroad transportation in this state. The court, therefore, holds that these complainants can rightly complain of any schedule of maximum rates which prevents them from earning, upon the fair value of that portion of their property employed in intrastate business, a profit, above the necessary expense of conducting such business, equal to 8 per cent. per annum upon the value of the property so employed, so long as the business is done without unjust discrimination, and at just and reasonable rates. Any schedule of maximum rates which prevents them from earning that much net profit, under those conditions, denies that just compensation which the Constitutions, both state and federal, secure to them. § 748. United States District Court, 1908-5% a reasonable return-Water Company. Spring Valley Water Co. v. San Francisco, 165 Fed. 667, October 7, 1908, is a water rate case. District Judge Farrington says (at page 684): It is insisted that rates of interest have recently increased by one to two per cent., and consequently a 5 per cent. net income on its property in use is no longer just to the company. This reason is not conclusive. The conditions which have caused interest rates to rise are probably temporary. In times of financial distress, when money is very much needed and not easily obtained, rates of interest go up, and many of those who most need money are forced to throw on the market property which otherwise they would hold. When unusual quantities of property are for sale by owners who must have cash, prices fall. Thus it often occurs that high rates of interest are followed and counterbalanced by lower prices. Higher rates of interest do not necessarily indicate that complainant's services have become more valuable, nor do they justify a higher rate of income without a corresponding adjustment in the value of the property on which the income is computed. Steenerson v. Great Northern Ry. Co., 69 Minn. 353, 387, 72 N. W. 713. An income of 5 per cent. net, after all taxes, operating expenses, and other legitimate and proper charges are deducted from the gross income, is neither unreasonable nor confiscatory. § 749. Consolidated Gas Case-State commission holds 8% a fair return. February 23, 1906, the New York Commission of Gas and Electricity issued an order reducing the price of gas to be charged by the Consolidated Gas Company of New York to eighty cents. The opinion filed with this order contains the following: 5 See Second Annual Report of the New York Commission of Gas and Electricity, 1907, p. 88. In allowing a fair return upon the value of the property actually employed in the gas-making business, account has been taken of the nature and hazard of the business and of the return allowed on similar investments. The commission thinks that 8 per cent. is a reasonable return upon the actual value of the property owned by the company and used in the manufacture and distribution of gas. It will be remembered that this return is not based upon the capitalization of the company, but upon the actual capital engaged in the manufacture and distribution of gas. § 750. Consolidated Gas Case-District Judge Hough holds 6% a fair return. District Judge Hough in granting a permanent injunction against the above order discusses the rate of return as follows: 6 In respect of gas and electric companies, the conditions for the state of New York are well summarized in the prevailing opinion in Trustees of Saratoga Springs v. Saratoga Gas, etc., Co. (Sup. Ct. N. Y., App. Div., Third Dept. Nov. Term, 1907), 107 N. Y. Supp. 341; but they must be further localized in the case of a corporation monopolizing the gas service of the most crowded portion of the largest city in America. Such a business situation is secured against competition, because the monopoly is beneficial. To have the streets of the borough of Manhattan torn up to afford room (if room exists) for the mains of a rival is unthinkable. For the same reason, and because the population and its wants will increase, so far as human foresight can perceive, the amount of business will also increase. So that the inquiry here is: What is a fair and reasonable rate of return upon the most favorably situated gas business in America, not forgetting that all gas businesses are inherently subject to many of the vicissitudes of manufacturing? Much testimony has been introduced to show that certain investors in gas works well known throughout the country • Consolidated Gas Co. v. City of New York, 157 Fed. 849, 870, December 20, 1907. expect to obtain from 8 to 15 per cent. upon the price of what they can buy. Such testimony is not relevant. It must be admitted that investors are entitled to real large rewards, if they can, from the hazards of a new business, or the rebuilding of a broken one. Such ventures are for exploitation, and the day for exploiting the business of selling illuminating and fuel gas in New York City is past-or certainly ought to be. The exploitation value in this case is represented by the enhancement over cost of land, mains, and services, arising from local conditions beneficial alike to this complainant and many other New Yorkers, who by judgment or luck purchased or constructed, perhaps generations ago, what many men desire. An interest in the gas business of this city is as nearly a conservative investment as any private manufacturing enterprise can furnish, and, although each case depends upon its special facts, there is, after problem conditions are ascertained, one question that can always be asked: What would that prudent man acquainted with business (so familiar to the readers of legal literature) do regarding such an investment, if it were offered to him? I think he would take it, not with enthusiasm, but as fairly safe local property, promising a rate of return sufficiently above the local mortgage market, to compensate for the additional and noninsurable hazard. He would expect, and have just and reasonable right to expect, a return of 6 per cent., not because that happens to be the interest rate by law established in the state of New York, but because it is the return ordinarily sought and obtained on investments of that degree of safety in the city of New York. § 751. Consolidated Gas Case-United States Supreme Court holds 6% a fair return. In Willcox v. Consolidated Gas Company, 212 U. S. 19, 29 Sup. Ct. 192, 53 L. ed. 382, decided January 4, 1909, the Supreme Court of the United States sustains 6% as a fair return. Justice Peckham says (at pages 48, 50): There is no particular rate of compensation which must in all cases and in all parts of the country be regarded as sufficient for capital invested in business enterprises. Such compensation must depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted and the rate expected and usually realized there upon investments of a somewhat similar nature with regard to the risk attending them. There may be other matters which in some cases might also be properly taken into account in determining the rate which an investor might properly expect or hope to receive and which he would be entitled to without legislative interference. The less risk, the less right to any unusual returns upon the investments. One who invests his money in a business of a somewhat hazardous character is very properly held to have the right to a larger return without legislative interference than can be obtained from an investment in Government bonds or other perfectly safe security. The man that invested in gas stock in 1823 had a right to look for and obtain, if possible, a much greater rate upon his investment than he who invested in such property in the city of New York years after the risk and danger involved had been almost entirely eliminated. In an investment in a gas company, such as complainant's, the risk is reduced almost to a minimum. It is a corporation which in fact, as the court below remarks, monopolizes the gas service of the largest city in America, and is secure against competition under the circumstances in which it is placed, because it is a proposition almost unthinkable that the City of New York would, for purposes of making competition, permit the streets of the city to be again torn up in order to allow the mains of another company to be laid all through them to supply gas which the present company can adequately supply. And, so far as it is given us to look into the future, it seems as certain as anything of such a nature can be, that the demand for gas will increase, and, at the reduced price, increase to a considerable extent. An interest in such a business is as near a safe and secure investment as can be imagined with regard to any private manufacturing business, although it is recognized at the same time that there is a possible element of risk, even in such a |