(dissenting). This Court has found that: 1. The Board either underestimated or wholly excluded from its valuation certain of the Company’s properties.
2. The rates named by the Board provide no return for service of die properties excluded.
3. The rates fixed are to that extent confiscatory.
The history of this case is well told and the questions involved admirably stated in the clear opinion of Judge WOOLLEY. About these diere is no contention. The Company complains of the action of the Board in appraising the physical cost of the properties at $70,000,000 (though for the purpose of this application it accepts this valuation); in deducting $13,500,000 for depreciation; in adding only $12,000,000 for appreciation; in allowing only $12,000,000 lor going value; in not giving specific instead of potential value to the power contract; in not allowing fares sufficient to enable the Company to pay its debt of $2,500,000 to the Electric Company; in rejecting as part of the cost of reproducing the properties the amount expended in procuring capital required for the work of construction; in not allowing a rate sufficient to enable the Company to procure new capital, to reimburse deficiencies for past operation, to recoup past unearned profits; in estimating the amount 1 cent per transfer would produce and in not allowing a larger amount for accident liability and taxes for the ensuing year. The Court found that the Board underestimated or wholly rejected some of these properties for the reason that if all the properties, which the Company claims were not taken into account in making up' the physical cost, be given the lowest value that the experts, Dean Cooley and Ford, Bacon & Davis, placed upon them, they aggregate a larger amount than was allowed for appreciation and going value combined in which alone they coidd be included, if considered at all.
It would not be profitable to discuss every contention, either of the Companj” or of the intervening municipalities, concerning the various properties alleged to have been underestimated or wholly excluded. The important contentions relating to appreciation and going value which materially affect the final valuation will illustrate the character of all contentions on both sides of this question and the treatment of them by the Board.
The Board found that the physical cost of the properties in 1915 veas $70,000,000, less depreciation of $13,000,000, leaving the actual cost value at that time $56,500,000. The Company admits for the purpose of this application that $70,000,000 is ihe value of its properties, but strongly urges that no depreciation whatever should he deducted from that valuation. The intervening municipalities accept the valuation of $70,000,000 as correct, but contend that the depreciation was far greater than $13,500,000.
During the war prices advanced generally and the Company strenu-" *992•ously contends that the value of its properties increased at least $43,-000,000. The intervening municipalities urge that, while prices have advanced and properties appreciated, yet these prices are fluctuating and transitory, and so cannot be made the basis of valuation for the purpose of fixing rates. In this contention they were supported by the affidavits of Milo R. Maltbie and Edward W. Bemis, experts of wide reputation and' large experience in appraising public utility properties. The Company is entitled to a fair return upon the reasonable value of its properties at the time they are being used for the public convenience. Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819; San Diego Land & Town Co. v. National City, 174 U. S. 739, 19 Sup. Ct. 804, 43 L. Ed. 1154; Stanislaus County v. San Joaquin & Kings River, Canal & Irrigation Co., 192 U. S. 201, 24 Sup. Ct. 241, 48 L. Ed. 406; Lincoln Gas Co. v. Lincoln, 223 U. S. 349, 32 Sup. Ct. 271, 56 L. Ed. 466. But the Supreme Court recognized as an exception to this rule that it would be unfair to the public to base a return on enormously increased values. Willcox v. Consolidated Gas Co. 212 U. S. 19, 52, 29 Sup. Ct. 192, 53 L. Ed. 382, 15 Ann. Cas. 1034, 48 L. R. A. (N. S.) 1134. That Court has not yet been called upon to determine how great an increase must be before it would be unjust to the public to base a rate upon it. but this has been done by other courts and public utility commissions.
Hon. Charles E. Hughes, former Justice of the Supreme Court of the United States and the present Secretary of State, and the writer of the opinion in the Minnesota Rate Cases, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18, was master in 1918 in the case of Brooklyn Borough Gas Company v. Public Service Commission of the State of New York, P. U. R. 1918F, 335, 347, 348, and in that case on an application to increase rates he said:
‘•To base rates upon a plant valuation simply representing a hypothetical cost of reproduction at a time of abnormally high prices, due to exceptional conditions, would be manifestly unfair to the public. * * * It would be difficult to find any basis more just than the appraisal carefully made by public authority and based on reproduction cost before the outbreak of the European war, with proper consideration of the actual investments Since that time.”
The Supreme Court of the District of Columbia in an opinion rendered on March 2, 1920, when prices were advancing and six months before they reached their peak, quoted approvingly the opinion of Mr. Justice Hughes in the Brooklyn Borough Gas Company Case, supra, and in speaking of valuation of the capital invested and used for public convenience as the basis of fair and just rates said:
“It [valuation] would lose all value if made as of an abnormal period when prices were abnormally low or high. To be of any assistance or real use, it must be made as of a normal time and the unit cost as applied thereto should extend over a sufficient number of years to show a normal trend of prices. * * * The large utilities whose service and rates are supervised by this commission have not considered it a wise policy to even suggest that considerable accretions be taken into account in arriving at proper rate schedules. * * * It is quite possible that by the time the first case is presented which *993embodies in full the controverted question, the need for the decision will, in large part, at least, be gone.”
It is evident that the valuation of property used for public convenience must be valued when conditions are normal and prices permanent. This is the only course fair both to public utilities and to the public. In abnormal times, when prices advance, public utilities suffer. In periods of depression, when prices become abnormally low, utility companies have the advantage. In the present year the Public Utility Commission of Illinois, in the case of In re Public Service Company of Northern Illinois, Pub. U. Rep. 1921B, 439, said:
“It would be equally as unfair to the consumer to fix the rate at a figure which would produce a reasonable income on a .value determined by the cost of reproduction new at a time when the cost of construction was abnormally inflated, as it would be unfair to the public utility to compel It to servo the public for a rate that would produce a reasonable income on a value determined by the cost of reproduction new at a time when the cost of construction was abnormally low.” '
Within a month, the Public Service Commission of the State of New York refused to allow the New York State Railways to increase its fare beyond six cents on the ground that—
“It would be grossly unfair to the public to use the extraordinary dislocation in prices due to a world war as the groundwork for the fixation of a proper rate base.”
If Mr. Justice Hughes was right in 1918, when prices were increasing by leaps and bounds, in saying:
“Tt would be difficult to find any basis more just than the appraisal carefully made by public authority and based upon reproduction cost before the outbreak of the European War.”
—a fortiori, at this time, when prices have been falling for more than a year,, is it unjust to use the appreciated value of the Company’s properties of a year, six months or even three months ago, as the basis upon which to fix a fair and just rate of return. The evidence shows, in my judgment, that prices are not yet permanent but transitory. Within a week.the following quotations on common material appeared:
Tt was alleged at the hearing, and not denied, that copper is even lower than it was before the war. Unskilled labor is gradually approaching pre-war prices. Skilled labor, however, is trying to maintain war prices, and as a result building operations are comparatively at a standstill. While a general average reduction on all commodities may not be based on these prices, yet it is common knowledge that *994they are approximately correct, and indicate that prices generally are in a procession downward, and are not 119 per cent, above pre-war prices, as they were alleged to be in September, 1920. It is unfair to base a return upon transitory prices, either high or low, for the basis of the proposed rate may disappear before it is put into effect. Consequently the Board might have authoritatively said that it would be unfair to the public to base rates upon appreciated valuation due to abnormal war prices but it did not and in its effort to be fair, allowed $12,000,000 appreciation to go into the final valuation for the purpose of fixing a rate of return.
The next large item over which there is a sharp contention between the Company and the intervening municipalities is the amount allowed by the Board for “going value.” The Board said:
“It is settled law in this State and in the United States that the question of making an allowance for going value is no longer open to discussion. That a going concern has a value over and above the value of the physical properties employed is self-evident.”
The Company contends that going value includes the cost of developing the business to its present efficiency, not returned in earnings; losses incident to running unprofitable lines in rural districts; cost of consolidating many separate lines into a unitary system under one management; the value of obsolescent or superseded properties. The Company declares that—
“Here is a discrepancy evolved out of the minds of the members of the Board of $81,000,000 on this item alone.”
The municipalities, on the other hand, contend that while $70,000,-000 represented the pure, physical cost of the properties new, this was a cost of the properties as a going concern, as a unitary system, and not as bare, disconnected, junk value, and that all constituent elements which the Company seeks to have embraced under going value, and which can properly be so embraced, were included in the physical cost. They contend, therefore, that no allowance should have been made for going value and cite the case of Des Moines Gas Co. v. Des Moines, 238 U. S. 153, 35 Sup. Ct. 811, 59 L. Ed. 1244, in which going value was disallowed by the Supreme Court as supporting their contention. There is confusion and uncertainty as to whether some of the elements properly embraced in going value were not included in the physical cost of the properties by the Board. The case is so involved in a mass of contradictory affidavits and evidence that it is impossible to determine, without serious doubts, in this preliminary application just what was included by the Board of physical cost and going concern value. Again the Board sailed between Scylla and Charybdis and allowed $12,000,000 for going value. The Board did not give specific value to the power contract, but did consider its potential value, counsel says, in fixing going value, just as it considered every property in fixing physical cost, appreciation or going value. In making these valuations the Board did not accept fully the opinions of opposing experts, but doubtless considered what all said and used its own judgment.
*995If, however, some of the properties' have been underestimated, or even excluded, when the Board’s action as a whole is considered, does its order at this time amount to confiscation within the meaning of the Fourteenth Amendment to the federal Constitution? This court does not mean to increase the return of slightly over 7 per cent, on the properties valued. It does not declare that a. return of 7 per cent, is confiscatory. It has sought to provide a return, on the properties it has found to be used in serving the public and underestimated or wholly excluded by the Board in its valuation. The Court’s order will permit the Company to charge 8 cents for a single fare and 30 cents for 4 tickets or tokens and one cent for a transfer. This is an increase of i cent oti a single fare and one-half cent on a fare if tickets or tokens are purchased, and a reduction of 1 cent on a transfer. Assuming that riders will generally buy .tickets, one-half cent on each of 361,130,000 estimated fares for the ensuing year, exclusive of school fares, which are to remain the same as before, amounts to $1,805,650. If this amount' is reduced by $715,000, the amount the Board estimated 1 cent on a transfer would return, the yearly increase in consequence of Ihe court’s order will be $1,090,650. The increase as a matter of fact would be greater, because some persons riding only one time would pay a .single, flat fare of 8 cents. If, to account for these single fare riders, enough is added lo make the aggregate increase $1,400,000, this amount is 7 per cent, on $20,000,000, which must represent the extent of the value of the underestimated or wholly excluded properties. This sum, added to the valuation of $82,000,000, makes a valuation of the properties, according to the Court, as I gather the basis of its conclusion, of $102,000,000. After paying all operating expenses and taxes, the rate allowed by the Board will give a return to the Company of $5,842,500, which is 5.727, or nearly 5% per cent, on the increased valuation. After paying’ all operating expenses, not including taxes, the return would be nearly 7% per cent, on the new valuation, without increasing the rate of fare above that allowed by the Board. The Interstate Commerce Commission, composed of men of ability and experience and having at their command an advisory board of noted experts, allows the railroads a return of only 514 per cent. If the court in this case is right, the Interstate Commerce Commission lias confiscated the property of every railroad in the country — a. most unlikely assumption. Assuming that the Board did underestimate or wholly exclude the properties to the extent of $20,000,000, in view of the rate of return that the Board’s order permits, I should hesitate to say on a preliminary application, without the benefit of a full hearing, with many questions in doubt, that it was confiscatory.
It: is apparent that the Company has sought to magnify the valuation of the various constituent elements of its properties and the municipalities, on the other hand, have sought to minimize them. As I have studied this record and weighed the opposing arguments, I have been profoundly impressed with two facts: First, the difficulty of the task which the Board has performed under unusual conditions and trying circumstances; and, second, its earnest effort to make a *996valuation o£ the properties and promulgate a rate of return which would at the same time be fair and just to the Company and to the public. The determination of this question has called for the exercise of the Board’s best business judgment, and I am persuaded that with a strong desire to be fair it has conscientiously done its best. Its order is presumptively right and should not be disturbed, unless it clearly appears to be wrong. Knoxville v. Knoxville Water Co., 212 U. S. 1, 29 Sup. Ct. 148, 53 L. Ed. 271; Phœnix Railway Co. v. Geary, et al., 239 U. S. 277, 36 Sup. Ct. 45, 60 L. Ed. 287; Darnell v. Edwards, 244 U. S. 564, 37 Sup. Ct. 701, 61 L. Ed. 1317. As was said in the case of Des Moines Gas Co. v. Des Moines, supra:
“WMle this case is close to the border line, I cannot say on the whole case that the evidence, beyond any just and fair doubt, satisfied me that the rates (provided in the Board’s order) will prove confiscatory.”
And I therefore, with regret, am constrained to dissent from the conclusion of my colleagues.