annual depreciation of the plant from natural causes resulting from its use; and a fair profit to the company over and above such charges for its services in supplying the water to consumers, either by way of interest on the money it has expended for the public use, or upon some other fair and equitable basis. Undoubtedly, all these matters ought to be taken into consideration, and such weight be given them, when rates are being fixed, as under all the circumstances will be just to the company and to the public. The basis of calculation suggested by the appellant is, however, defective in not requiring the real value of the property and the fair value in themselves of the services rendered to be taken into consideration. What the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public. The property may have cost more than it ought to have cost, and its outstanding bonds for money borrowed and which went into the plant may be in excess of the real value of the property. So that it cannot be said that the amount of such bonds should in every case control the question of rates, although it may be an element in the inquiry as to what is, all the circumstances considered, just both to the company and to the public.

§ 26. Justice Holmes in San Diego Land and Town Case, 1903-Reasonable value at time used.

In San Diego Land and Town Company v. Jasper, 189 U. S. 439, 23 Sup. Ct. 571, 47 L. ed. 892, decided April 6, 1903, an action in equity was brought in the Federal Circuit Court against the board of supervisors of San Diego County and others for the purpose of having certain water rates which had been fixed by the board declared void on the ground of being unduly low. The Circuit Court dismissed the complaint (San Diego Land and Town Co. v. Jasper, 110 Fed. 702, see also § 22, supra) and on appeal to the United States Supreme Court the dismissal was affirmed. Justice Holmes, writing the opinion of the court, says (at pages 442, 443):

The main object of attack is the valuation of the plant. It no longer is open to dispute that under the constitution "what the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public." San Diego Land and Town Company v. National City, 174 U. S. 739 and 757.5 That is decided, and is decided as against the contention that you are to take the actual cost of the plant, annual depreciation, etc., and to allow a fair profit on that footing over the above expenses. We see no reason to doubt that the California statute means the same thing. Yet the only evidence in favor of the higher value in the present case, is the original cost of the work, seemingly inflated by improper charges to that account and by injudicious expenditures (being the cost to another company which sold out on foreclosure to the appellant), coupled with a recurrence to testimony as to the rapid depreciation of the pipes. In this way the appellant makes the value over a million dollars. No doubt cost may be considered, and will have more or less importance according to circumstances. In the present case it is evident for reasons, some of which will appear in a moment that it has very little importance indeed.

§ 27. Circuit Judge Morrow in Spring Valley Water Case, 1903-Reasonable value at time used.

In Spring Valley Waterworks v. San Francisco, 124 Fed. 574, decided June 29, 1903, upon a motion for a preliminary injunction to restrain the city and county of San Francisco and its board of supervisors and consumers from enforcing an ordinance of the board which prescribed certain water rates, Circuit Judge Morrow, in granting the motion, says (at pp. 591, 595) with reference to the valuation of complainant's water plant:

It may be considered as established that it is the reasonable value of the property at the time it is being used for the public service, but how this value is to be ascertained, and what ele

5 Quoted above, § 25.

ments are to be included in the estimate, are still subjects of controversy. . . .

The principles of just compensation established by the courts in the several cases they have had under consideration are of great assistance in solving many of the difficult questions involved in this character of litigation; but the application of these principles to the facts of a particular case is, after all, the simple rule of determining what, under. all the circumstances, is reasonable and just as between the rate payers and the corporation engaged in performing the public service.

§ 28. Justice Peckham in San Joaquin Irrigation Case, 1904Present value.

In Stanislaus County v. San Joaquin and King's River Canal and Irrigation Co., 192 U. S. 201, 26 Sup. Ct. 241, 48 L. ed. 406, decided January 18, 1904, Stanislaus County, California, appealed to the United States Supreme Court from a decree of the Circuit Court setting aside an ordinance adopted by the board of supervisors of the county prescribing the water rates to be charged by the water company for the ensuing year. In reversing the decree of the court below, Justice Peckham, delivering the Supreme Court's opinion, says (at pages 213, 214):

It is not confiscation nor a taking of property without due process of law, nor a denial of the equal protection of the laws, to fix water rates so as to give an income of 6 per cent. upon the then value of the property actually used, for the purpose of supplying water as provided by law, even though the company had prior thereto been allowed to fix rates that would secure to it one and a half per cent. a month income upon the capital actually invested in the undertaking. . . . The original cost may have been too great; mistakes of construction, even though honest, may have been made, which necessarily enhanced the cost; more property may have been acquired than necessary or needful for the purpose intended.

§ 29. Columbus, Ohio, Electricity Rate Case, 1906-Fair present value of tangible and intangible property.

In the case of Columbus Railway and Light Company v. City of Columbus, an application was made for an injunction against the enforcement of a city ordinance reducing electricity rates. The special master reported in favor of a permanent injunction and his report was confirmed by the United States Circuit Court without opinion. The special master, after quoting at length from the decisions of the courts in relation to fair value, says (at pages 29, 49): 6

In other words, fictitious values will be disregarded, improvident and unwise expenditures will not be taken into account, but only the fair value of the property will be used as a basis, including, however, in such fair value not only the tangible property devoted to the public service, but such intangible value as may be legitimate and may be justly, under all circumstances, credited to the producer on the one hand, and debited to the consumer on the other, so as to bring about the just compensation rightly belonging to the company, and legitimately to be paid for by the consumer.

Necessarily the ascertainment of such value is in all cases a difficult matter, and its final adjustment by the court can rarely, if at all, be made with mathematical exactness. All the court can do is, from the evidence, to arrive at such a value as will, all things considered, be fairly equally just to both parties. . .

Considering all of the above elements as entering into the valuation of complainant's property, viz., the total cost thereof $2,000,000, the rental or purchase price $1,650,000; the fair replacement value of its tangible property at about $1,600,000; the depreciation properly to be allowed for property not necessary for present use in supplying the service demanded; the addition after the purchase from complainant's lessor of over

• Columbus Railway and Light Co. v. City of Columbus, No. 1206, in equity, United States Circuit Court, Southern District of Ohio, Eastern Division, Report of Special Master T. P. Linn, June 8, 1906.

$350,000 in cash by way of improvements and extensions; the market value of its securities at the time and shortly prior to the lease $1,700,000, and without attempting to fix any definite value upon the intangible assets, I conclude that the fair value of complainant's property devoted to the public service upon which it is entitled to ask a fair return, and for which the public should be required to pay a reasonable price for its use, is, at least, the sum of $1,650,000. Manifestly this valuation cannot be made with mathematical accuracy, but in view of the testimony, which can not be reviewed here in detail, it is a valuation which seems to me just to both complainant and defendant as a basis for determining whether or not the ordinance in question will result, upon this valuation, in taking complainant's prop erty without due process of law.

§ 30. Justice Peckham in Consolidated Gas Case, 1909-Fair value generally includes appreciation.

In Willcox v. Consolidated Gas Co., 212 U. S. 19, 29 Sup. Ct. 192, 53 L. ed. 382, decided January 4, 1909, where it was sought to restrain the enforcement of gas rates prescribed by the New York state legislature, and the Gas Commission, Justice Peckham says (at page 52):

And we concur with the court below in holding that the value of the property is to be determined as of the time when the inquiry is made regarding the rates. If the property, which legally enters into the consideration of the question of rates, has increased in value since it was acquired, the company is entitled to the benefit of such increase. This is, at any rate, the general rule. We do not say there may not possibly be an exception to it, where the property may have increased so enormously in value as to render a rate permitting a reasonable return upon such increased value unjust to the public. How such facts should be treated is not a question now before us, as this case does not present it. We refer to the matter only for the purpose of stating that the decision herein does not prevent an inquiry into the question when, if ever, it should be necessarily presented.