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227

Argument for Appellant.

real estate has because of its special adaptability to bridge purposes, not franchise value. This special value should have been included in the rate base.

Although the measure of fair value for rate-making purposes may not in all cases correspond to the measure of just compensation where private property is condemned, we think it is clear that where there is a special value inherent in private property which can not be taken by eminent domain without just compensation, the use of that property value can not be taken by the public without just compensation by a refusal to allow a return upon it when it is devoted to public use. Spring Valley Water Works v. San Francisco, 124 Fed. 574, 594.

The claim of appellant for addition of this special value to the rate base is supported by the numerous decisions in condemnation cases, in which it is held that the owner must be compensated for such value. Citing: Boom Co. v. Patterson, 98 U.S. 403; Mitchell v. United States, 267 U.S. 341, 344; and North Shore R. Co. v. Pennsylvania Co., 251 Pa. 445, among other cases.

The proper method of determining the amount of accrued depreciation is by estimate of the actual depreciation observed by inspection, and not by the application of mathematical computations based upon the age and life of the property. McCardle v. Indianapolis Water Co., 272 U.S. 400, 416.

The court below assumed that the public was entitled to the interest accruing from year to year on the depreciation reserve, and concluded that the allowance of $7,678 was sufficient because, when the interest was added, the accumulated total in the depreciation reserve at the end of fifty years would equal the fair value of the property. Whether the public or the appellant is entitled to interest on the money paid annually into the depreciation reserve, is a question of law; and if it has been

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Argument for Appellant.

erroneously decided and results in confiscation of appellant's property, this Court should correct it.

It is not inconsistent to base accrued depreciation upon actual depreciation, and at the same time to base annual depreciation upon theoretical depreciation where depreciation proceeds much more slowly during the early, than during the late, years of the life of the property.

The purpose of an appraisal of the reproduction cost new, less accrued depreciation, of a utility property, is to arrive at the fair present value of the property. The appraisal is intended to reflect the actual, not the theoretical value, at the time of the appraisal. When we turn to the matter of annual depreciation, the question then is, what is the just and equitable method of collecting from the consumers during the life of the property a sum sufficient to replace the property at the end of its useful life, or to return to the owners their capital at that time. The consumers throughout the life of the property receive service from it, and it is assumed that they all receive the same service and that it is equally valuable and satisfactory. It is fair, therefore, to spread this depreciation charge equally over the life of the property so that the consumers in each year will bear the same proportion of this burden. It is merely an accounting device designed to produce an equitable distribution of depreciation charges over the life of the property, and it has no necessary or direct relation to the depreciated value of the property in any particular year. United Railways v. West, 280 U.S. 234, 264.

The disparity between the accrued depreciation and the total of the annual depreciation allowances in the early years of the property is marked because in those years actual depreciation lags.

The rate of return should be greater than seven per cent. Bluefield Co. v. Public Service Comm'n, 262 U.S. 679, 692; United Railways v. West, 280 U.S. 234, 251–

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Opinion of the Court.

252; Smith v. Illinois Bell Tel. Co., 282 U.S. 133, 160–161; Wabash Valley Elec. Co. v. Young, 287 U.S. 488, 501; Los Angeles Gas Co. v. Railroad Comm'n, 289 U.S. 287, 319.

The order makes the line of confiscation the maximum which the company may receive. It is impossible for the company to design a tariff which will produce " an annual gross revenue of not more than $85,455," unless it estimates a margin so far below the line of confiscation that no reasonable fluctuation of traffic will carry its revenue into the forbidden territory. Such a tariff must necessarily result in confiscation.

The Attorney General of the State is even now suing the company to recover penalties of $50 for every day the company had in effect its former tariff producing more than the allowed gross annual revenue.

Under the practical construction placed upon the commission's order by the Commission and the Attorney General, the company must, at its peril, devise a schedule of rates which will not produce more than $85,455.

Mr. E. Everett Mather, Jr., with whom Mr. John Fox Weiss was on the brief, for appellee.

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

The Superior Court of Pennsylvania affirmed (as modified) an order of the Public Service Commission of that State prescribing a tariff of tolls to be charged on the bridge of the Clark's Ferry Bridge Company over the Susquehanna River, 108 Pa. Superior Ct. 49; 165 Atl. 261. The Company brings this appeal.

In its review of the facts the Superior Court states that the bridge is comparatively new, having been completed in May, 1925. The bridge replaced and was con

Opinion of the Court.

291 U.S.

structed near the site of a wooden bridge which had been acquired by the incorporators of the present Company. In August, 1925, a complaint was filed with the Public Service Commission alleging that the rates in effect were unreasonable. By its order of June 8, 1926, the Commission found the fair value of appellant's property to be $767,800 and that appellant was entitled to receive a gross annual revenue of $85,905, on the basis of a return of 7 per cent. on that fair value, after allowing operating expenses, taxes, an annual depreciation allowance, and amortization of bond discount. An appeal from the Commission's order was taken to the Superior Court, but was withdrawn, and in February, 1927, the Company filed a new tariff. The rates thus fixed were continued in effect until July, 1929, when the Company made a voluntary reduction. In January, 1930, the Commission began the present proceeding on its own motion and, after hearings, determined that the fair value of the appellants' property, as of February 2, 1932, was still $767,800, and that the annual gross revenue which should be allowed was $84,124 on the basis of a return of 7 per cent. on that fair value, after allowing expenses and annual depreciation. 11 Pa. P.S.C. 222.1 In this calculation, an item of $1,331 for annual bond amortization was omitted. The Superior Court held that it should be included and modified the Commission's order accordingly, that is, so as to provide that the allowable gross revenue should be $85,455.

1

The order of the Public Service Commission, of February 2, 1932, is as follows:

"That Clark's Ferry Bridge Company file, post and publish, effective thirty (30) days from date hereof, upon not less than one (1) day's notice to the public and this Commission, a new tariff calculated to produce an annual gross revenue of not more than $84,125.

"It is further ordered: That said tariff contain as tentative rates intended to produce said gross annual revenue of $84,125, and effective

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Opinion of the Court.

First. Appellant contends that the Commission and the Court treated the valuation in the Commission's decision of 1926 as res judicata in the present proceeding. We do not so construe the Commission's report or the Court's opinion. The Commission received evidence as to alleged changes in value and estimates of the cost of reproducing the property. The Commission determined that "cost conditions" had not "changed materially" since 1926, and "upon a complete examination of the entire record in both proceedings " the Commission found that the fair value of the property was $767,800 as of February, 1932. 11 Pa.P.S.C. at p. 231. The Superior Court, in construing the action of the Commission, said: "When the subsequent complaints were filed, the Commission evidently did not consider its previous findings as barring appellant from raising the question of the fair value of its property in 1930 and the proper allowances to be made for operating expenses and depreciation, but instituted an investigation, and, as already stated, admitted in evidence appellant's reproduction cost estimate and its supporting testimony, and put in evidence the reproduction cost estiuntil further action by this Commission or the Company in conformity. with said determination of allowable gross revenue the following charges:

"(1) A rate of 8 cents cash toll for all ordinary passenger automobiles and wagons now paying 10 cents.

"(2) A ticket without time limit salable at the rate of two for 15 cents for all such automobiles and wagons..

"(3) A 20-trip ticket non-transferable as between vehicles good any time within thirty (30) days from date of issue and salable for one dollar ($1) for all such automobiles and wagons.

"(4) Rates for all other types of vehicles as are now provided in tariff P. S. C. Pa. No. 5.

"It is further ordered: That said Company file with this Commission monthly statements of income and operating expenses, showing the number of vehicles passing over its bridge in each class of traffic as contained in its tariff."

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