The measure of damages in the taking of the property of bridge, turnpike, and similar corporations for public use is well settled in this state in numerous cases, of which Montgomery County v. Bridge Co., 110 Pa. 54, 20 Atl. 407, is perhaps the one most cited. The rule is also declared in Clarion Turnpike & Bridge Co. v. Clarion County, 172 Pa. 243, 33 Atl. 580; Mifflin Bridge Co. v. Juniata County, 144 Pa. 365, 22 Atl. 896, 13 L. R. A. 431, and West Chester, etc., Plank Road Co. v. County of Chester, 182 Pa. 40, 37 Atl. 905. Such companies are entitled to compensation, not only for the physical property taken, but for their franchises. It is not necessary to more than refer to the rule, for the question before us is whether in the order appointing appraisers, the franchises should be included as part of the property to be appraised, in the view of the terms of the charter and of the contract between the city and the company.

The report of the appraisers did not mention the franchise but fixed the value of "the physical property as a going concern." The appraisers say that they considered "with the physical property the intangible elements so far as they add value to the plant, rightfully for use as water works in the hands of the water company, with the company's right to charge reasonable tolls." This method of valuation is approved by the court.

§ 669. Summary.

The above cases though few in number clearly establish the legal principle that a franchise is property for which the company is entitled to just compensation in case the entire property is taken by condemnation for public use.* It seems however, that the value of this principle to the company may be greatly reduced by the application of the Massachusetts plan of permitting the municipalities to compete with the existing plants unless the existing

In addition to the franchise condemnation cases quoted in this chapter, see also Galena Water Company v. City of Galena, 1906, quoted in § 532.

company agrees to sell on terms that exclude the consideration of the value of the franchise. In Wisconsin many companies have voluntarily given up their term franchises for indeterminate permits, which while possessing the advantage of securing them against competition, cannot be capitalized in case of municipal purchase. Unless therefore the franchise is absolutely exclusive it would seem that the positive value inherent in the franchise which the people have granted is at least no greater than the negative value of the power of competition still retained by them.

Through a better understanding of the economics of the public utility problem, competition is recognized as destructive, wasteful and in most cases unjust; and through a better understanding of public service relationships the capitalization of rights granted by the public except as a means of giving just compensation for actual service rendered is recognized as contrary to equity. The growing conception of this latter principle is shown by the fact that in much of the more recent discussion of franchise values it is asserted that such values should be based on earnings under reasonable rates. This is recognized In re Monongahela Water Company (see § 668) and is clearly developed in the rules laid down by Judge Savage in the Maine Water Plant Condemnation Cases (see § 666).

CHAPTER XXVII

Franchise Value in Rate Cases

§ 680. San Francisco Water Rate Case, 1903-No distinction between condemnation and rate regulation.

681. Columbus, Ohio, Electricity Rate Case, 1906-Franchise has value but no specific value assigned.

682. Consolidated Gas Case-Opinion of State Commission-Franchise value excluded.

683. Consolidated Gas Case-Preliminary injunction.

684. Consolidated Gas Case-Report of special master.

685. Consolidated Gas Case-Permanent injunction granted.

686. Consolidated Gas Case-Appeal to Supreme Court of the United States.

687. Consolidated Gas Case Summary.

688. Lincoln, Neb., Gas Rate Case, 1909-Franchise value excluded. 689. Wisconsin Railroad Commission-Question discussed-Franchise value should be excluded.

690. San Francisco Water Rate Case, 1908-District Judge FarringtonPreliminary injunction.

691. San Francisco Water Rate Case-Permanent injunction grantedNo separate franchise value found.

692. Appraisal of Chicago gas plant, 1911-Franchise value excluded. 693. Louisville, Ky., Telephone Rate Case, 1911-Franchise value excluded.

694. Missouri Supreme Court in Telephone Rate Case, 1911-Franchise value excluded.

695. Stanislaus County, Cal., Water Rate Case, 1911-Franchise should be included, but omitted in present case on account of lack of evidence.

696. Savannah Street Railway Fare Case, 1912-Franchise value excluded by Georgia Railroad Commission.

697. Valuation of a lucrative contract excluded-New York Public Service Commission, First District, 1911.

698. Alabama Railroad Rate Cases, 1911, 1912-Franchise value included based on tax value.

699. Summary.

§ 680. San Francisco Water Rate Case, 1903-No distinction between condemnation and rate regulation. In Spring Valley Waterworks v. San Francisco, 12!

Fed. 574, decided June 29, 1903, an injunction was granted against the enforcement of water rates fixed by the board of supervisors of San Francisco. No specific franchise value was determined but Circuit Judge Morrow quotes at length from Monongahela Navigation Co. v. United States (see § 662) and says (at page 594):

It is true this was a condemnation proceeding, and the question was to determine what was just compensation for the appropriation of corporate property to a public use, while the case before this court relates to the fixing of water rates which shall be a just compensation for the appropriation of complainant's property to a public use. It is not perceived that there is any difference in the principles applicable to the two cases, and this appears to have been the view of the Supreme Court in San Diego Water Co. v. San Diego (118 Cal. 567, 50 Pac. 633).

§ 681. Columbus, Ohio, Electricity Rate Case, 1906-Franchise has value but no specific value assigned.

Columbus Railway and Light Company v. City of Columbus is an Electricity Rate Case. The special master held that the value of the franchise of the company should be included. No definite value is, however, attributed to the franchise. Special Master Linn says: 1

Complainant also, as successor to the rights of its lessor and predecessors, has certain rights arising under and by virtue of the ordinances of the city of Columbus, above referred to, granting it the privilege to erect in the streets and alleys of the city, poles and pole lines for the purpose of carrying its current, and to lay in the streets and alleys conduits for like

1 Columbus Railway and Light Company v. City of Columbus, no. 1206, in equity, Circuit Court of the United States, S. D. Ohio, E. D., Report of Special Master T. P. Linn, June 8, 1906. This is an application 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 approved by the court without opinion.

purposes. No specific valuation can, of course, be placed upon these privileges, which may be called franchise privileges, but that they have a certain legitimate value belonging to complainant, is unquestionably true. The valuation fixed upon these rights by the parties prior to the lease to complainant was $17,500. Whether that be the correct valuation or not, some value should be assigned to them in fixing the fair value of complainant's property.

§ 682. Consolidated Gas Case-Opinion of state commission-Franchise value excluded.

February 23, 1906, the New York State Gas and Electricity Commission issued an order reducing the price of gas charged by the Consolidated Gas Company from $1.00 to 80 cents. Shortly afterward the state legislature passed an act to the same effect. In the valuation upon which the state commission based its order, there was no allowance for franchise value. The Commission says: 2

It was strenuously urged before the commission on behalf of the company that the commission should allow the capitalization of the company's franchise as it was assessed by the State Board of Tax Commissioners at $7,781,000. And upon this the company paid a yearly tax, which entitled the company as a matter of law to such capitalization. On the evidence before the commission it is questionable whether the Consolidated Gas Company has franchises of any considerable value. The commission believes that these franchises, granted by the people without compensation, should not be capitalized against the public, thereby compelling the public to pay a profit upon the value of the favor granted by it. The seeming injustice of requiring a corporation to pay taxes upon a franchise and at the same time refusing to allow the capitalization of that franchise is sophistical, not real. The franchise tax is paid by the corporation but charged against the public as an expense

2 See second annual report of the New York Commission of Gas and Electricity, 1907, p. 88.