Transcript of Record — Ottinger v. Brooklyn Union Gas Co.

Supreme Court brief1926

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ALBERT OTTINGER, AS ATTORNEY GENERAL OF

THE STATE OF NEW YORK, APPELLANT,

vs.

KINGS COUNTY LIGHTING COMPANY

(31,903)

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1926

No. 365

ALBERT OTTINGER, AS ATTORNEY GENERAL OF

THE STATE OF NEW YORK, APPELLANT,

vs.

KINGS COUNTY LIGHTING COMPANY

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE EASTERN DISTRICT OF NEW YORK

INDEX

Original Print

Record from the district court of the United States, eastern

ee OE SO NE 2d diana dmdwadwaaews ka seaeeeeana wee 1 1

es ee CO cane ccd ee ddewe wavs canner ce aeaaene 1 1

ge ee er re er eT rere 20 13

Answer of William A. Prendergast et al... ........... 25 16

Notice of order appointing special master.............. 31 20

Order appointing special master.............2c0e2e0- 32 20

CEO, ROOK, BUGGER CHRONO. inc vcaaecacsesatedscnaas 34 =

eeen GE SUI GE cian cas aensanr sdowekaecdesano 86 58

Notice of plaintiff's exceptions to report of special

co EEL PEE EEE EE PEP TOEFL PPC EE ET EC TCT EeT 106 7

Plaintiffs exceptions to report of special master........ 107 75

Notice of attorney general's exceptions to report....... 109 76

Attorney general's exceptions to report................ 110 77

Notice of exceptions of Wm. A. Prendergast et al. to

SOONE cise ase scan da caren se DUACIAebaAReurisaabie ak 119 S4

Jupp & DeTwriLer (Inc.). Printers, Wasnineton, D. C., Jury 23, 1926

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INDEX

Exceptions of Wim. A, Prendergast et al te reqeert......

(dpluadom, Manton, Bo... cece eee eee e eee e ene ee eee enees

Judgment ......... senoe ke eeaGseseseesncacdaseeseoase

Summons on Public Service Commission te join in ap

| a. Sete r itr rr ieee eee

Assignments of error of defendant Ottinger..........-.

Petition for appeal... .. 2.6... 6c eee cence renee

CREO . oc cc cccccccccccccceses (omitted in printing: .

Petition for appeal pw order allowing same... ........-

Statetwent of evidenoe. .. 0... 6.6 cee cee ee ewer ne ees

Appearances of counsel... 6.600.666 eee ee eee eee eens

Motion to Gimmlas. .... 6.6.66 cece cece eee ee eeees

Testimony of Andrew J. tionmoud... 2.6... 6666666

Henry BR. Burt... . 2.2.6.6 ee een ee eens

David Porter. .......cccccccsssccess

lawis HH. Pounds. ..........-.-655-

Solem B48. Ueenwmts. .. ....ccccccccsesss:

Heury BR. Burt (recalled) .......

Alten S. Miller... ... ‘

Andrew J. Gonneoud (veraiied.

Colloquy between master ated cotteel. oo... 6.6...

Testimony of Paul Bucher... ........-- .

Alten S. Miller (recalled)...

Robert R. Bogie... peas

William A. Moerrix...... say

ie. Solem F. Wim. .. 22 cccecses

Robert R. Bogie trecalieds

Robert M. Searle...

A. Gerdon King.. rune ae

John H. Duncan... .. pub ueueuet

Alten S. Miller Creealleds “

Edward F. Hayes.............«+- +

Jacob H. Hollander... .

Ripmet TAGE. co cc ccvces

eee

Benjamin Cohen. ..................--

| PPT TTT TT Eee

Archibald 8S. B. Little....... Jetess

Mark Wolff (reealled).............

Archibald 8. B. Little trecalled)....

Dr. E. W. Kemmerer...........---

Awmirew J. Gonnouwd Crecalled)

Robert R. Bogie recalled)...

Andrew J. Gonmeart Creealled>

Bien off GRIEa, «oc asncccsscacceenss wa oa

Plaintiffs Exhibit No. 3 Summary statement of

BOOBETD cc cccceccseseccsccscasesecsesseces

Plaintiff's Exhibits Nos. 32 and Meter life sum

mary, May, 12%, and April, Met...

Stipulation re Plaintiff. Exhibit Ne. 4

Original

i a |

inv

iil

L ery

let

INDEX

Phiintitt. batibit Ne Sb Inventory awd apprainal,

trectures amd appartenanees as of June 1, 18...

Mlainti®s Exhitdt Neo Burt's list of repairs that

tanigeind Gee snasncher feo sO rameters... ccc cece ce cees

Viaintif. Exhibit Ne. 8) Dranean’s statement of

reproduction costs of mains. serviees. and paving.

Stipulation re Mlaintif™s Exhibit Ne. MM. 0...

Piaintift!s Exhibit Ne. 0 laventery and appraisal

Wn GE Oe By Bick cacacdncascnsnscice YT eTT

Piaimtit!s Exhibit Ne 4 List ef expenditures

necessary te restere certein works te condition as

OO oi x vb ctnane ccndtddeeckdbdeudcsadaessss

Piaieis Exhibit Ne 12 Summary of operating

CRGUGIGA, TEs 6 « ones eennkindssnieceaanasstacas

Miaimi®s Exhibit Ne 1 reduction and distribu

tien cost< and quantities items, MMB...

Miaimtii®s. Exhibit Ne. St Analysis of repairs, 1923.

Maint’. Exhibit Ne St Net increase of meters on

Ss DE ackavdvcks vabdsevakenedcabiashaaea

Mainti! Exhibit Ne. 54 Average monthly work-

ee SU, Geena bseeconddaschees daar eadbnacen

Miaintit!s Exhibit No. 36 Capital expenditures an-

SEG DO SU | enss 4 ckdndhweatsresavGarns

Plaitifs< Exhibit Ne. 50 Order, PS. ene No.

1s, fixing standard at S37 0. T. Uls, August 3A,

CEE. bckaedwec baec ene ss ddatwss cwneenans ckaeanes

Plainti!.< Pxhilat Neo 6 Order POS. CO. case Ne.

1S. A, fixing standard at 525 BT. Us... ok...

Miaintii’s Exhibit Ne 1) Fixed eapital additions

between Dune Toned Dtecenmber [8 18. 2...

Maint. Exhibit Ne G2. Statement of tar made

Oe CS EF I, FO a chk ecco dniWacsneokas

Maintit’ Exhibit Ne 70) Yearly graph of com

SR a, Se Ws 5 050656 ndinnscn basbdccas

Mhaintif!s Exhibit Neo 71 Menthiy graph ef com

moadity gpatewn, GURE-DUEE. 2... .ccscccceccves Shepes

Plainti’s Exhibit Ne. 72 Monthly average of

ih. TU. quality of gas furnished, year 123. .....

Plainti’s Exhibit Ne. T-Cost of cas making ma-

terials adjusted te making gas of a standard of

Te Ot Ws OU ve pekpccconctecnuubnesSGneasenan

Miaintif™< Exhibit New 76 Tnerease in cost of oak

ing cas of ee BT Us based on present day

GENO Kuna danas ctddécaccunes cthenddctueseens vs

Plaintiff. Exhibit Neo 77) Statement ef various

heating value standards adepten by State commis-

MRS 5044s kn anucuscn bbs neue oeeneseeueheren

Maintit’s Exhibit Ne. 7S—Calorifie standards of

See Gas MNS onc) Sadbnadeveuendesdoaccs

Original §=Print

iu re

18s Tu

17 7

16 TMs

12s no

Lon bat |

Lies S33

ie 7

be si

bss) sil

1336 “Mil

Lz M2

133s S42

1343 sis

Lae NOS

nas Poe |

| ee See

Lika Sno

a) | 6

12 SOT

1258 Ns

1304 eo

1855 S61

~ Ere AetgmE

INDEX

Miaintiff’s Exhibit No. 70 Coke contract, Mareh 1%.

Epp apnnddes sAhda eh eehsdheeeenshees ;

Plaintiff's Exhibit No. SO—Dr. Hollander’s chart of

PONCON 2.0 c cece ccc c cscs see sccaconsenseseceses

Plaintiff's Exhibit No. Sl Costs as per hooks of

plaintiff and its predecessor... .....-666-- 55000

P. S.C. appraisal of December 51, 1916, and sub-

quent eS PPP ECTT PPC eT Tee Ee

Details of P. S. C. appraisal in its case No.

Co cadecpanksdesanadnasedhachuneeenesd oi

Plaintiff's Exhibit No. S2--Outstanding securities

as Of May 8, 1924......... cece cece ener eee cece

Plaintiff's Exhibit No. S3—Comparative balance

etroote, WOBB-TOGD. .. 2 once even sccccwcasssenssess

Plaintiff's Exhibit No. S4-—Statement, cost of mak

ing gas in 1923, on basis of cost of 124 materials

Plaintiff's Exhibit No. So—Cost of gas seld, March

31. 1923. to Mareh 31, 1024............-.. appara

Plaintiff's Exhibit No. S7-—-Number ef consumers

and sales of gas. 4 months, January April, 125

and January-April. 1924............-+.-+-- ;

Plaintiff's Exhibit No. SO—Tabulation ef comt of

paving over mains and services... ...-...++

Defendants’ Exhibit No. G—Statement of tests made

by P. 8. C., 1997... . 2... cc eeenenes:

Defendants’ Exhibit No. 19--Pinding~ tote pron sien

in case of Kings County Lighting Co. v~. New

ton, supreme court of New York. ......-...---

Defendants Exhibit No. 21—Net fixed capital addi

Choma, 2904 Go BIO. . 2.26 c ence cen cnsccese Fa

Defendants’ Exhibit No. 22— pening journal entry.

Belig 2, BOG... 2 ccc cees esc ccnccccsatennass

Assets and liabilities, June :#) 14H...

(original

Comparative balance sheet of vendor and vender

companies, June and July, 104........ ;

Defendants’ Exhibits Nes. 23 to 35. Inclusive — State-

ments of fixed capital additions, M11-125......--

Defendants’ Exhibit Ne. 36—Statement of net addi

tions to fixed capital (exclusive of land:, Jann

ary. 1911, to May, 1923... . 2.22.66... e ee eee eee

Defendants" Exhibit Ne. 37— Amount expended fer

repairs, June. 1925. to Mareh, I124......--.--.

Defendants’ Exhibit No. 3S-—-Statement of net cur

pomt mamete, WB... occ cc ccerescsearseceecsas

Defendants’ Exhibit Ne. 30— Bond offerings as ad

vertised for year from April 1, 1925...........--.

Defendants’ Exhibit Ne. 40—Public utility preferred

stock offerings as advertised............-....---

Defendants’ Exhibit No. 45-——Summary of reports te

State tax department. 1905-1916. ..........--..-.

Irint

st)

ss!

—/

INDEX Vv

Original Print

Defendants’ Exhibit No. dia Order fixing maxi-

mum price of gas in cause of Mayhew et al. vs.

Kings County Pighting (o., 1. 8. C.............. lit 1

Defendants’ Exhibit Neo dib Order on rehearing in

case of Mayhew et alo vs. Kings County Lighting

SG. Oe Ok Grane n tinder Se eeeheaRaeherkeos canon 1426 9b

Defendants’ Exhibit No. 45 Estimate of reasonable

investment in gas property as of June 1, 1925.... 0° 14z9 915

Defendants’ Exhibit No. 460 Statement of fixed eap-

ee we OE Seer Se, Wes si cb ccs es nveccwassas cs 1s 1

Defendants’ Exhibit No. 47 Estimate of working

ee ee er en eee ézass BSE 920

Defendants’ Exhibit No. 4S —Estimate of reasonable

SE UE ether cxkeaeeu dead caiwawdedaaaae 1439 2

Defendants’ Exhibit No, 49 —Little’s graph of costs,

RE ee ee ee oe DTA is RE 1445 41

Defendants’ Exhibit No. 50 Public utility bond

sales on New York Stock Exchange for week

CREE NTE TR Ss x ads vod ocx whee dn kee 1446 oN

Defendants Exhibit No. S1--Publie utility stock

sales on New York Stock Exchange for week

PGE A Bar ES 5d eA ds oa Ac ea an wa 1449 941

Defendants’ Exhibit Ne. 52 -Chart showing course

of English commodity prices, ISZO-I1B. 00.00... 1450 ot

Defendants’ Exhibit No. 53-—Chart of gold produc.

EIS Ee ery OT EE PD Dy tae GA age ea it i BP 1451 oat

Clerk’s cvrti—fieate..........6.56- (omitted in printing)... 1452

Stipulation re transeript of record. ..............0000 1455 42

Statement of points to be relied upon and stipulation to print

eet ND TN 5 ao 5 ox Sc a ea ak hha 1454 we

Sage EEE OORT ELIE IRE LIRR Satria Oran

a ser sabe

[fols. a-1]

IN UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF NEW YORK

In Equity. No. —

Kines County Licutinc Company, Plaintiff,

against

Winuiam A. Prenpercast, Wittiam R. PooLtey, CHARLES

Van Voorhis, Oliver C. Semple, and James A. Parsons,

Constituting the Public Service Commission of the State

of New York, and Carl Sherman, as Attorney-General

of the State of New York, Defendants

JILL OF COMPLAINT

To the Judges of the District Court of the United States

for the Eastern District of New York:

Kings County Lighting Company, a corporation duly or-

ganized and existing under and by virtue of the laws of the

State of New York, having its principal place of business

in the Borough of Brooklyn, City and State of New York,

brings this its complaint against William A. Prendergast,

William R. Pooley, Charles Van Voorhis, Oliver C. Semple

and James A. Parsons, constituting the Public Service Com-

|fol.2] mission of the State of New York, and Carl Sher-

man, as Attorney-General of the State of New York, and

thereupon plaintiff alleges:

1. Plaintiff was duly incorporated on the 26th day of May,

1904, under the Transportation Corporations Law of the

State of New York, and since July Ist, 1904, has been and

still is engaged in the business of manufacturing, furnish-

ing and selling gas for publie and private use in the ter-

ritory comprising the 30th Ward and a small part of the

jist Ward ef the Borough of Brooklyn, in the City of New

York, which is a city containing a population of one million

or over.

2. The Kings County Gas and Illuminating Company was

incorporated December 17th, 1889, under and pursuant to

1—-365

Chapter 40 of the Laws of 1848, and several acts amendatory

thereof and supplementary thereto, and on or about Decem-

ber 26th, 1889, received the consent of the municipal author-

ities of the town of New Utrecht, Kings County, to lay con

ductors for conducting gas through the streets, lanes, alleys

and squares in said town. Said Kings County Gas and

Hhuninating Company commenced supplying gas for public

and private use in the town of New Utrecht, Wings County,

on or about September Ist, IS891, and continued to supply

the same until its merger with the plaintiff as hereinafter

shown. Pursuant to the provisions of Chapter 451 of the

Laws of IS94, the territory comprising the town of New

Utreeht on July Ist, P8984, was added to the City of Brook-

Ivnyas the 30th Ward thereof, and now is and since January

[fol OS] Ist, TSYS, has been the 50th Ward of the Borough

of Brooklyn, in the City of New York. Upon such annexa-

tion July Pst, i894, the Kings County Gas and Tlnminating

Company became subject to the provisions of Section 70

of Chapter 566 of the Laws of 1890, fixing $1.25 per thou-

sand cubie feet as the maximum price of gas in cities of

the first class,

3. On July Ist, 1904, plaintiff then being the owner of all

the issned and outstanding capital stock of the Kings County

Gas and Hluminating Company, duly merged into and with

itself said Kings County Gas and Iuminating Company in

accordance with the provisions of the Stock Corporation

Law of the State of New York, and therenpon acquired and

beeame and since has been possessed of all the estate, prop-

erty, rights, privileges and franchises thereof,

4. Plaintiff owns a valuable piece or parcel of land

hounded on the east by First Avenne, on the north by the

center line of 54th Street extended, on the west by New York

Bay, and on the south by the center line of 55th Street ex-

tended, in the Borough of Brooklyn, on which is located its

manufacturing works equipped for the manufacture of

carburetted water gas having seven generators with a com-

bined rated capacity of 17,400,000 cubic fect of gas per

twenty-four hours. Plaintiff also is the owner of another

valuable piece or pareel of land at 9th Avenue and 65th

Street, in the Borough of Brooklyn, on which are located its

shops and its gas holders, having a storage capacity of

2,900,000 cubic feet of gas, which are connected with its

manufacturing works by a 20-inch high pressure transmis

[fol. 4] sion main one and one-half miles in length. Plaintit?

has approximately 204 miles of gas mains laid in the streets,

avenues and public places of said 30th and 31st Wards, with

26,000 service pipes connected and has installled on the

premises of consumers 50,200 gas meters. Its said mains

are connected with 1,604 street lamps maintained by the

City of New York, through which it furnishes eas for street

lighting.

o. The territory served by plaintiff is entirely a suburban

community still in the process of development for residen-

tial purposes, with a present population of approximately

200,000, Due to the constant growth and development of

sald territory and the more extended use of eas for domes-

tie purposes, there las been an increase from vear to year

in the consumption of gas furnished by the plaintiif, which

has required plaintiff to inerease its manufacturing facili-

ties, extend its mains for the distribution of gas and instal-

additional services aud meters each year. The annual

consumption of gas by private consumers of plaintiff has

increased over d0¢ inthe past five years. Inthe vear 1917,

plaintiff had $4,835 private consumers, who used 977,119,372

cubic feet of gas, and in 1922, plaintiff had 48,809 private

consumers who used 1491204000 cubie feet.

6. Prior to September 2nd, 1916, plaintiff! furnished the

gas and maintained the street lamps for lighting the streets

of said 50th Ward under the provisions of two contracts,

dated respectively December 26th, 1889, and Mareh 19th,

1891, made between the Kings County Gas and Hluminat-

ing Company and the Board of Improvement of the former

[fol. 5] town of New Utrecht. Since the termination of

said contracts on September 2nd, 1916, plaintiff has supplied

gas to the City of New York for street lighting at the price

of 7) cents per thousand cubie feet, as fixed by Chapter 736

of the Laws of 1905, Plaintiff also supplies gas to the City

of New York for use in municipal buildings at the rate of

79 cents per thousand eubie feet, likewise fixed by said stat-

ute. The amount of gas supplied to the City of New York

is only about 2% of plaintiff's total sales, in the vear 1922

amounting to 31,709,035 cubie feet.

spares

7. On information and belief, the present fair value of

plaintiff's plant and property used in the public service ex-

ceeds the sum of $8,500,000, exclusive of franchises and

voing value. The going value of such a plant with upwards

of 50,000 consumers, using annually upwards of 1,500,000,-

000 cubic feet of gas, is not less than $1,000,000. At the

time of the merger by plaintiff of the Kings County Gas

and Illuminating Company on July Ist, 1904, as aforesaid,

the said Kings County Gas and [luminating Company

owned the lands hereinbefore deseribed, had a manufactur

ing works and distributing system supplying approxi-

mately 5,000 private consumers, and Was lighting the streets

and highways of the 30th Ward under the aforesaid con-

tracts made between it and the Board of Improvement of

the former town of New Utrecht. Since July Ist, 1904,

plaintiff has expended for additions, extensions and im-

provements to said plant and property the sum of $3,660,-

T0902.

ffol.G] 8. Plaintiff has issued and outstanding $2,000,000

of common eapital stock, divided into 20,000 shares of the

par value of $100 each, and $370,000 of Soo cumulative pre-

ferred stock, divided into 3,700 shares of the par value of

£100 each. It has issued and outstanding in the hands of

the public $750,000 of its first mortgage 0% bonds, due Oc-

tober Ist, 1940, secured by a mortgage made by said Kings

County Gas and Hluminating Company to the Peoples

Trust Company of Brooklyn, as trustee, dated October Ist,

1890, and $4,211,000 of first refunding mortgage hounds due

July Ist, 1954, secured by its mortgage to the Central Union

Trust Company of New York, as trustce, dated July Ist,

1904. $1,822,000 of said first refunding mortgage bonds

bear interest at the rate of 64677, and $2,589,000 thereof

bear interest at the rate of 5%.

9 An act of the Legislature of the State of New York,

being Chapter 125 of the Laws of 1906, taking effect May

Ist, 1906, provided that a corporation engaged in the busi-

ness of manufacturing, furnishing or selling illuminating

eas in the territory served by plaintiff, should not charge

or receive for gas manufactured, furnished or sold a sum

per thousand eubie feet in excess of one dollar. Plaintiff

on July Ist, 1914, reduced its charge for gas to private con-

sumers from $1 to 95 cents per thousand cubic feet. An

act of the Legislature of the State of New York, being Chap-

ter 604 of the Laws of 1916, amending said Chapter 125 of

the Laws of 1906, taking effect July Ist, 1916, provided that

a corporation engaged in the business of manufacturing,

[fol. 7] furnishing or selling illuminating gas in the terri-

tory served by plaintiff, should not charge or receive for

gas manufactured, furnished or sold therein a sum = per

thousand eubie feet in excess of SU cents.

10. Heretofore, and in or about the month of July, 1916,

plaintiff commenced in the Supreme Court of the State of

New York, for the County of New York, an action to en

join the enforcement of said chapter 604 of the laws of 1916,

on the ground that the SO cent rate preseribed was con-

fiscatery. Said action resulted ina judgment entered March

29th, 1920, dismissing plaintiff's complaint, which judement

on appeal was reversed and judgment entered in said ae-

tion on the 10th day of August, 1922, declaring said statu-

tory rate confiscatory, and restraining and enjoining the en-

forcement of said amendatory statute, and such judement

of reversal was affirmed by the Court of Appeals of the

State of New York on April 17, 1923. Pending the ap-

peal from the aforesaid judgment and on or about the 24th

day of May, 1920, plaintiff commenced in the Distriet Court

of the United States for the Southern District of New York,

asuit to enjoin the enloreement of, and to have declared

unconstitutional and void, said ehapter 125 of the laws of

1906, as amended by said chapter 694 of the laws of 1916.

Such proceedings were thereafter duly had in said suit that

on or about the 20th day of October, 1920, a deeree was made

and entered therein, declaring that chapter 125 of the laws

of 1906 and chapter 604 of the laws of 1916, in so far as

such statutes, or either of them, limited the rate to be

charged for gas supplied by plaintiff in the territory served

by it were confiscatory, unconstitutional and void, and en-

|fol. 8] joining and restraining the enforcement thereof.

Such decree was thereafter and on or about the 6th day

of March, 1922, aflirmed by the Supreme Court of the United

States,

11. After the entry of the deeree in said suit and on or

about the 25rd day of October, 1920, plaintiff increased its

rate or charge for gas from 95 cents to $1.50. On May Ist,

1922, plaintiff reduced said rate or charge to $140 per

thousand. Thereafter and by order dated August 30, 1922,

the Publie Service Commission of the State of New York,

defendant herein, under the authority vested in it to fix

and establish rates for gas supplied notwithstanding that

another or different rate was fixed by statute, fixed and

established $1.80 per thousand cubic feet as the maximum

rate or charge for gas supplied by the plaintiff from and

after the Ist day of November, 1922, for the period of one

year and until otherwise ordered by said Commission. No

other or further order or direction with respect to the rate

to be charged by the plaintiff has been made by such Public

Service Commission, and the plaintiff since November Is‘,

1922, under provisions of the Public Service Commission

law and orders of the Publie Service Commission has

charged, and is now charging the rate so fixed by said order

dated August 30th, 1922.

12. An act of the Legislature of the State of New York,

approved by the Governor of said state June 2, 1925, and

taking effect immediately, being Chapter 899 of the Laws

of 1923, entitled

‘“*An Act to amend the publie service commission law, in

relation to the charge for illuminating gas in cities contain-

[fol. 9] ing a population of one million or over,”’

amended the Public Service Commission Law of the State

of New York, being chapter 480 of the laws of 1910, by in-

serting therein a new section to be known as Section 67-a

reading as follows:

667-a. Charge for gas in cities of one million or more. A

gas corporation engaged in the business of manufacturing,

furnishing or selling illuminating gas in a city containing a

population of one million or over shall not charge or re-

ceive for gas furnished or sold in such city a sum per one

thousand eubie feet in excess of one dollar, nor furnish in

such city gas of a standard less than six sundred and fifty

British thermal units per cubie foot, measured under normal

conditions of temperature and atmospheric pressure. The

public service commission, notwithstanding any other provi-

sion of this chapter, shall not allow a rate or charge in the

case of such cities in excess of such sum.’’

‘

13. The rate of $1. per thousand eubie feet) preseribed

by said chapter 899 of the laws of 1923, is unreasonable

and confiscatory, and the enforcement of such statute

against plaintiff will deprive it of its property without due

process of law. Said statute is in violation of section 10

of Article 1 of the Constitution of the United States, in that

it impairs the obligation of plaintiff's contractual rights

and is also in violation of the Fourteenth Amendment to

the Constitution of the United States in that the enforce

ment thereof will deprive plaintiff of its property with

out due process of law, take its property without just com-

[fol 10] pensation and deny to it the equal protection of

the law.

14. In the calendar year 1922 plaintiff manufactured

1.845,870,000 cubie feet of gas, and its sales were 1,525,829,

435 cubic feet. The actual total cost to plaintiff, inclad-

ing the expenses incident to the sale of gas appliances, of

manufacturing and distributing gas manufactured and sold

as aforesaid was $1,668,308.42. Plaintiff's gross profit from

the sale of gas appliances was $59,129.38, which is more than

the expense incident to such sales, but deducting the whole

of such gross profit from the actual cost aforesaid, the net

cost to plaintiff of manufacturing and distributing gas in

the year 1922 was $1,609,179.04, or $1.0546 per thousand

cubic feet of gas sold. The operating expenses aforesaid

include only the cost of materials, supplies, labor and taxes

incurred by plaintiff in making and distributing said eas.

There is no charge therein for so-called depreciation. The

only charge made over and above the aetual expense for

repairs is 8 cents per thousand eubic feet of gas sold to

provide for renewals and replacements of fixed eapital or

plant withdrawn from = service, aggregating $45,051.55.

Such expenses include no item which is not a proper charge

to operation. They do not inelude any charge or expendi

ture by the plaintiff for interest upon its bonds, temporary

loans, or other indebtedness, and include no return upon the

‘apital or property employed in any form whatsoever.

15. In 1922 plaintiff used 5,483,080 gallons of gas oil, or

2.97 gallons per thousand eubie feet of gas made, which gas

oil, ineluding the handling charges, cost plaintiff #501,

[fol. 11) 043.82, or 32.83 cents per thousand cubie feet of vas

sold. It requires not less than 4.65 gallons of gas oil per

thousand cubic feet of gas made to produce gas of a mini-

mum of 650 British thermal units, or 1.68 gallons more per

thousand cubic feet of gas made than that used by plaintiff

in 1922. To furnish gas of 650 British thermal units equiv-

alent to the quantity of gas made in 1922 would require 8,-

583,295 gallons of gas oil, which at plaintiff's present con-

tract price of 5.25 cents per gallon, plus handling charges,

would eost $451,052.15, or 29.57 cents per thousand eubie

feet of gas sold, which is 3.26 cents les than the cost of

gas oil in 1922 and makes the cost of manufacturing and

distributing 650 British thermal units gas $1.022 per thou-

sand cubic feet of gas sold without any return upon capital

or property. The increase in the heat content of gas is ef-

fected through the use of additional gas oil Without a re-

duetion in other materials used or a saving in labor or

other manufacturing expense.

16. There has been no reduction in the cost of manu-

facturing and distributing gas from the cost of 1922, except

in the price of gas oil which plaintiff is obtaining at the

present time at 5.25 cents per gallon. On the contrary the

tendency is toward an increase in cost of manufacture. To

manufacture and distribute 650 British thermal unit gas,

including taxes, in the current year, at current prices, will

cost plaintiff not less than $1 per thousand eubic feet with-

out any return upon the capital or property employed in

the service.

[fol. 12] 17. Through the normal increase in the popula-

tion of the territory served by plaintiff an average of 2,000

consumers have been added annually for the last fifteen

years and 7,000 consumers have been added in the past

sixteen months. Owing to the present shortage in housing

facilities a pronounced impetus has been given to build-

ing operations in said territory, which is one of the most

rapidly growing sections of New York City. There are

now under construction over 1,100 private houses and

apartments, calculated to accommodate between 4,000 and

5,000 families. During the current year plaintiff will be

‘alled upon to furnish gas to more than 6,000 additional

consumers. The new residences constructed and now in

process of construction are equipped for the use of gas for

cooking, and in many of them no flue is installed, which

is necessary for the use of any other fuel, except gas.

Plaintiff is the only corporation supplying gas in the ter

ritory, and unless it is able to supply service to such

premises, they must remain unoccupied and the investment

therein remain idle to the great loss of the owners and in-

vestors, Unless plaintiff can secure new eapital it will be

unable to make the necessary increases in its plant facilities

to serve such new consumers, and it cannot secure any new

eapital unless it is able to show prospects of a fair and

reasonable return not only upon the eapital employed, but

upon the new capital sought. If the rate of $1 per thou-

sand cubic feet of gas fixed by said chapter 899 of the laws

of 1925 is put in effect and enforced, the result will be dis-

astrous to plaintiff, depriving it of a reasonable, or any,

return upon the value of its property, and making it im-

[fol. 13] possible to find a market for the securities plaintiff

must issue and sell in order to provide funds with whieh

to make the improvements, additions and betterments which

are necessary if it is to furnish proper and adequate serv-

ices to the community in which it operates.

18. Since October 1, 1922, plaintiff has supplied gas in

compliance with an order of the Public Service Commis-

sion of the State of New York dated August 30, 1922, fix-

ing a monthly average of 537 British thermal units per

eubie foot and a minimum of 525 British thermal units per

eubie foot. At no time since January 1, 1918, has plaintiff

furnished gas of more than 600 British thermal units per

cubic foot. The gas-consuming appliances of plaintiff's

consumers are now adjusted to utilize economically and

efliciently gas of an average of 537 British thermal units per

cubic foot. Such gas-consuming appliances without read-

justinent or new parts cannot utilize efficiently or without

danger to life, gas of 650 British thermal units per eubie

foot, as prese ‘vibed by said chapter 899 of the laws of 1923.

I'f plaintiff should send into its mains gas containing as

much as 600 British thermal units per eubie foot with its

consumers’ appliances adjusted as they now are, ineom-

plete combustion would result, with the release of poisonous

gases injurious to the lives and health of its consumers and

their families. Not until all of plaintiff's consumers pro-

cure suitable new appliances, or adjust existing appliances,

ean plaintiff safely furnish or supply gas of 650 British

thermal units per cubic foot. Great difficulty would be ex-

[fol. 14] perienced by plaintiff's consymers in an attempt

either to secure new appliances or to adjust existing ap-

pliances to utilize said gas. To properly adjust existing ap-

pliances would require a reduction of the gas orifice, which

in many instances cannot be done. Appliances suitable for

650 British thermal units are not on the market because

nowhere in this country is gas of as high a heat content as

650 British thermal units used. Manufacturers supply the

demand that exists for gas appliances suitable for a max-

imum of 600 British thermal units, which are easily ad-

justed downward for the utilization of 525 British thermal

unit gas, the standard extensively in use.

19. The provision of said chapter 899 of the laws of 1923,

requiring the furnishing of gas of a standard of not ‘less

than 650 British thermal units per eubie foot, measured

under normal conditions of temperature and atmospheric

pressure,”’ is arbitrary and unreasonable and deprives

plaintiff of its property without due process of law, and

amounts to the taking of plaintiff's property without com-

pensation, and is an undue interference with the right and

liberty of contract between plaintiff and its consumers.

Efficient service can only be rendered plaintiff's consumers

by supplying them with a gas of a substantially uniform heat

content. It is impossible to furnish gas of a substantially

uniform heat content of 650 British thermal units per cubic

foot as the natural variations in the temperature and pres-

sure of the gas as it is distributed through the territory

cause a variation in the heat content of the gas to which

gas of such a high heat content is peculiarly subject. In

[fol. 15) the nature of things plaintiff's consumers cannot

adjust and readjust their appliances to meet the varying

heat content of such a gas, and the result is inefficient serv-

ice and consequent dissatisfaction on the part of plaintiff's

consumers, engendering a prejudice among plaintiff's eon.

sumers against the plaintiff over a situation beyond its con-

trol. Even under a rate fully compensatory for the ad-

ditional expense entailed in the furnishing of such a gas,

plaintiff would suffer irreparable injury and damage in

the loss of the good-will of its consumers. The impossibil-

ity of furnishing gas of a substantially uniform heat eon-

tent of 650 British thermal units per cubie foot exposes

plaintiff to a multiplicity of actions for the recovery of

penalties for a violation of the statute, and to a multiplicity

of proceedings by mandamus and injunctions for the en-

forcement thereof, and to proceedings before the Public

Service Commission, involving its alleged non-compliance

With the statute, to the great and irreparable damage and

injury of the plaintiff for which it has no adequate remedy

at law or otherwise than in this suit.

20. Defendants, William A. Prendergast, William R.

Pooley, Charles Van Voorhis. Oliver C. Semple, and Jawes

A. Parsons, constitute the Publie Service Commission of

the State of New York and are now acting as such com-

mission, each of them having been duly appointed ander

and by virtue of the provisions of chapter 48 of the Con-

solidated Laws of the State of New York, and each of said

defendants resides in and is a citizen of the State of Now

[ fol. 16] York, and at least one of them is a resident in the

Eastern District of New York.

21. Defendant, Carl Sherman, is the Attorney-General

of the State of New York and resides in and ix a citizen

of the State of New York.

22. Under the statutes of the State of New York, said

Public Service Commission of the State of New York

may institute suits for mandamus or for injunetion

against the plaintiff, to prevent the violation of any pro-

Vision of the Public Service Commission law of the State

of New York, and said Public Service Commission and the

defendant, Carl Sherman. as Attorney General of the State

of New York, under said statutes may prosecute plaintiff

for a violation of such statutes, and endeavor to enforce

and collect the penalties preseribed for their violation. On

information and belief, the defendants or some of them

will attempt to enforce or have enforced against plaintiff

said chapter 899 of the laws of 1923 unless they are en-

Joined from enforcing said statute. Plaintiff has no ad-

equate remedy at law against the enforcement thereof and

the injury and damage to plaintiff from its enforcement

is and will be irreparable. Unless the defendants he re-

strained from enforcing said statute. plaintiff will be sub-

jected to a multitude of actions and proceedings brought

to seeure its enforcement. The penalties prescribed for

its violation are so oppressive and burdensome and will

amount to such a sum in the aggregate as to result in

the entire destruction and confiscation of plaintiff's prop-

erty. The amount in controversy herein greatly exceeds

the sum of $8,000, exclusive of interest and costs.

{fol. 17] Wherefore plaintiff prays that it be adjudged

and decreed, (1) that said chapter 899 of the laws of 192:

is void and unconstitutional and is in contravention of

Section 10 of Article 1 and the Fourteenth Amendment

to the Constitution ef the United States: (2) that the en

forcement of said statute in respect to the rate to he

charged for gas furnished by plaintiff be suspended and

restrained; (3) that the enforcement of said statute in re

spect to the quality or standard of gas to be supplied by

plaintiff be suspended and restrained; (4) that the de-

fendants, and each o: them, their and each of their sue-

cessors, deputies, assistants and employees be restrained

and enjoined from enforcing the provisions of said chapter

899 of the laws of 1923, or any part thereof, and from in-

stituting or causing to be instituted any suit, action or pro-

ceeding to enforce the said statute, or any provision

thereof.

And further, plaintiff prays that during the pendeney

of this suit an interlocutory injunction issue suspending

and restraining the enforcement of said statute, and for

such other, further or different relief as to the Court may

seem just and equitable.

And may it please your Ilonors to grant unto plaintiff a

writ of subpeena to issue out of and under the seal of this

Court, directed to the said William A. Prendergast, Wil-

liam R. Pooley, Charles Van Voorhis, Oliver C. Semple,

and James A. Parsons, constituting the Publie Service Com-

mission of the State of New York, and to the said Carl

[fol. 18] Sherman, as Attorney-General of the State of New

York, commanding them and each of them at a certain time

therein to be named, and under a certain penalty therein to

be limited, to be and appear before this Court there and

then to answer unto this complaint and perform and abide

by such order and decree in the premises as to this Honor-

able Court shall seeni meet and be required by the prin-

ciples of equity and good conscience.

Ingraham, Page & Moran, Solicitors for Plaintiff.

Office and Post-Oflice address: 14 Wall Street,

Borough of Manhattan, City of New York. Alfred

R. Page, Samuel F. Moran, Travis H. Whit-

ney, John D. Monroe, Counsel.

[fols. 19& 19a] Duly sworn to by Paul Bucher. Jurat

omitted in printing.

[fol. 20] Ix Unxirep Stares Districr Court

| Title omitted |

Answer or Arrorney Gexenat.

The defendant, Carl Sherman, as Attorney General of

the State of New York, for his answer to the bill of eom-

plaint herein alleges:

First. Denies that he has any knowledge or information

thereof sufficient to form a belief as te each and every

allegation contained in the paragraphs of said bill of com-

plaint marked and wumbered 3.77 4077 “a Ge 7

“ey *RS,”” **34,** 4495" ped 4497 >>.

Second. That upon information and belief the defendant

denies each and every allegation contained in the para-

graphs of the bill of complaint thereof marked and num-

hered **13,"" **16,°" **18"" and 19",

[fol.21] Third. The defendant admits that on or about

the Ist day of July, 1916, the plaintiff commenced an action

in the Supreme Court of the State of New York to have

adjndged and deereed that Chapter 604 of the Laws of 1916

as alleged in paragraph marked and numbered **10°? was

confiscatory as to it and that upon the trial thereof the eom-

plaint in the said action was dismissed and that such deter-

mination was reversed and that such reversal was affirmed

by the Court of Appeals of the State of New York on April

17, 1923. Further the defendant admits that on or about

the 24th day of May, 1920, the plaintiff began an action in

the District Court of the United States for the Southern

District of New York for the purpose of having declared

unconstitutional and void said Chapter 604 of the Laws of

1916 and that the plaintiff succeeded in its said last-named

action and the decree of the United States District Court

therein was affirmed by the Supreme Court of the United

States on the 6th day of March, 1922. That the defendant

denies that he has any knowledge or information sufficient

to form a belief as to each and every other allegation con-

tained in said paragraph so marked and numbered.

Fourth. The defendant admits that under the statutes of

the State, the Public Service Commission of the State of

New York may institute suits for mandamus or injune-

tion against the plaintiff to prevent the violation by the

plaintiff of any law of the State or any order of the Commis-

sion issued with respect to the public utility companies over

which said Commission takes jurisdiction and may for the

refusal of the plaintiff to obey the order of the Commission,

bring a suit for the recovery of penalties forfeited to the

people of said State but the said defendant denies that he

has any knowledge or information sufficient to form a belief

as to each and every other allegation contained in the para-

[fol. 22] graph of the bill of complaint marked and num-

bered ‘22°’,

Fifth. The defendant further alleges by way of answer

to the bill of complaint herein upon information and belief

that the plaintiff does not operate its business in a eareful

and efficient manner and does not practice reasonable econ-

omies in the purchase of its coal, gas oil and other materials

used in the manufacturing of gas and that cheaper and more

available forms of fuel for the purpose of such manufac-

“ture may be obtained by the said plaintiff as a substantial

reduction in the present cost of manufacture of its product.

That further the said plaintiff does not keep its books of

account in compliance with an order issued by the Public

Service Commission aforesaid which requires the said plain-

tiff to keep such books in accordance with a system known

as the Uniform System of Accounts. That by reason

thereof and the inadequacy of the force of employers under

the direction and control of the said Cemmission, the Pub-

lic Service Commission and the public do not and cannot

readily ascertain the cost to the said plaintiff of the manu-

facture and distribution of its product.

Sixth. That the defendant further answering the bill of

complaint herein, alleges affirmatively, upon information

and belief, that the said rate of $1.00 per thousand cubic

feet, and the standard of quality of 650 British Thermal

Units per cubie foot fixed by said Chapter 899 of the Laws

of 1923, constitute together a fair, reasonable and valid

enactment by the Legislature of the State of New York, is

a constitutional regulation by the said Legislature, does not

exelude the said plaintiff from the equal protection of the

laws, nor is the said Act in any respect violative of any of

the provisions of the Constitution of the United States.

Further, the defendant is informed and verily believes that

[fol. 23) the said fixation by the Legislature of the stand-

ard of quality of 650 British Thermal Units per cubic foot

for gas sold in the City of New York is exclusively within

the scope of the legislative power of the State of New York

and that the judicial power of the Federal Government has

no jurisdiction or control in the premises.

Seventh. That the defendant, further answering the bill

of complaint herein, and in addition to the denials inter-

posed to paragraph marked and numbered “11” thereof,

alleges affirmatively upon information and belief that the

standard of quality of gas fixed by the said Public Service

Commission, and the rates concurrently fixed thereby to-

gether constitute an unreasonable charge for gas service in

the City of New York, and that the said fixation by said

Commission of said quality of gas was by a reduction in

the quality thereof from that having a heat content on an

average of 650 British Thermal Units per cubic foot, to

that of 537 British Thermal Units per cubie foot, now re-

sults and has resulted in making the cost of gas service to

the consumers of the plaintiff excessive, unreasonable and

more than necessary to compensate the said plaintiff for

its public service, as well as to pay all of its reasonable op-

erating expenses, its taxes and to pay a fair return upon a

fair valuation of the investment of the said plaintiff en-

gaged in such public service.

Eighth. That the defendant is informed and verily be-

lieves that the said plaintiff has made no experimentation

with the rate or standard of quality of gas fixed by the leg-

islature of the State of New York in chapter 899 of the

Laws of 1925 of said state and has no information or knowl-

[fol 24) edge upon which to base its conclusion as set forth

in the bill of complaint as to the cost to it of the manufae-

ture and distribution of eas of 650 British Thermal Units

per cubic foot based on the rate of $1.00 per thousand cubic

feet.

Wherefore the defendant prays that the bill of complaint

herein be dismissesd with costs.

Carl Sherman, Attorney General of the State of New

York. James A. Donnelly, Solicitor for the Attor-

ney General,

Office and Post Offiee address: 51 Chambers Street, Bor-

ough of Manhattan, City of New York.

[fol. 25] Ix Unirep States Distrier Courr

[Title omitted |

Axswer or Derenpants Wituiam A. PrenpverGasr ET AL,

ConsTireTING THE Pusiic Servick COMMISSION

The above named defendants, William A. Prendergast,

William R. Pooley, Charles Van Voorhis, Oliver C. Semple

and James A. Parsons, constituting the Public Service

Commission of the State of New York, by Ledyard P. Hale,

their Solicitor, answer the Bill of Complaint herein as

follows:

These defendants, answering Paragraph 1 of plaintiff's

complaint, admit the allegations thereof.

[ fol. 26] II

These defendants, answering Paragraphs 2 and 38 of plain-

tiff’s complaint, are without knowledge as to the allegations

therein contained and therefore deny the same.

Il]

These defendants. answering Paragraphs 4,5 and 6 of

plaintiff's complaint, admit that the plaintiff is engaged in

the business of manufacturing, furnishing and selling gas

in the Borough of Brooklyn, and that its manufacturing

works are located in the Boroueh of Brooklyn with gas

mains laid in the streets, avenues and publie places of said

Borough of Brooklyn. As to the other allegations eon

tained in Paragraphs 4,5 and 6 of plaintiff's complaint,

these defendants are without knowledge and therefore deny

the same.

¢ of plaintiff's

complaint, deny, upon information and belief, the alleea-

tions therein contained, and further deny that the plaintiff

is possessed of voing value, or other intangible assets, of

the value of $1,000,000,00, or of any value, and deny that

the present fair value of plaintiff's plant and property

used in the publie service, exelusive of franchises and going

Value, is the sum of $8,500,000.00, or any amount in excess

of $7,765,105.06. These defendants are without knowledge

as to the amounts the plaintiff alleges that it has expended

for additions, extensions and improvements to its plant and

property since July 1, 1904, and therefore deny the same,

These defendants, auswering Paragraph

[fol. 27] é V

These defendants, answering Paragraph 8 of plaintiff's

complaint, admit, on information and belief, the allegations

therein contained.

These defendants, answering Paragraphs 9,10 and 11 of

plaintiff's complaint, admit. the allegations therein eon

tained, except these defendants allege that said orders of

said Public Service Commission of August 30, 1922, pre-

scribing classifieations and rates to be charged for was, as

in plaintiff's complaint set forth, were based upon faets

found hy the Commission in its said investigations and

hearings, and that the Commission found on the date each

2—365

INP arg

said order was made that said rates so fixed were just and

reasonable rates to be charged by the plaintiff to its con-

sumers in the Borough of Brooklyn, and in the said opinion

filed by the said Commission contemporaneously with the

making and entering of said orders it was stated and de-

termined by the Commission that said rates and classifica-

tions of service so fixed should be established to be effective

for one year from the Ist day of November, 1922, and to

continue in foree until the 380th day of October, 1923, and

thereafter until the Commission should otherwise order.

Vil

These defendants admit the enactment of Chapter 899 of

the Laws of 1928, as alleged in Paragraph 12 of plaintiff’s

complaint, and allege that on or about the 4th day of June,

1923, said Public Service Commission of the State of New

York duly served on the plaintiff an order as follows:

[fol. 28] *‘Srare or New York, Pusiic Service COMMISSION

At a Session of the Public Service Commission Held in the

City of Albany on the 4th Day of June, 1923

Present: William A. Prendergast, Chairman; Charies

Van Voorhis, Oliver C. Semple, James A. Parsons, Com-

missioners.

Case No. 1360

In the Matter of Rates to be Charged for Gas in the City

of New York

The Commission having under consideration the pro-

visions of Chapter 899 of the Laws of 1923 in relation to

charges for gas in cities of over one million inhabitants;

Ordered: That each and every gas corporation engaged

in the business of manufacturing, furnishing or selling

illuminating gas in the City of New York be and hereby

is required forthwith to comply with such statute, and be

and hereby is authorized to file and publish a new schedule

of its rates for gas effective forthwith in accordance with

said statute.

Further Ordered: That the Secretary serve by mail

forthwith a copy of this order on every such gas corpora-

tion.

By the Commission.

(Signed) Harry M. Ingram, Acting Secretary.’’

(Seal.)

[fo]. 29] VIII

These defendants, answering Paragraphs 13, 14, 15, 16,

17, 18 and 19 of plaintiff's complaint, deny, upon informa-

tion and belief, each and every allegation therein con-

tained, exeept that in pursuance of and in compliance with

the requirements of the said order of the said Public Service

Commission of August 30, 1922, hereinbefore referred to,

the plaintiff proceeded to effect changes in the adjustment

of various gas appliances used by plaintiff's consumers

in order to comply with the terms and conditions of said

order and to adapt said consumers’ gas appliances to the

safe and efficient use of gas of the standard preseribed by

the said order of said Commission.

These defendants, answering Paragraphs 20 and 21 of

plaintiff's complaint, admit the allegations therein con-

tained.

These defendants, answering Pa ‘agraph 22 of plaintiff’s

complaint, deny that plaintiff ean only obtain relief in a

court of equity and that the interposition of the power of a

court of equity is necessary in any manner or at all to

protect the alleged rights of plaintiff or plaintiff's property

herein, against any action which can be taken by these de-

fendants under and pursuant to the statutes of the State

of New York.

Wherefore, These defendants pray that the Bill of Com-

plaint herein be dismissed with costs; and said defendants

[fol. 30] pray for such other relief in the premises as to the

TTT vo.

Honorable Court may seem meet and in accordance with

equity.

Ledyard P. Hale, Solicitor for Defendants, 91 State

State, Albany, N. Y. Charles G. Blakeslee, Ed-

ward M. Deegan, Sherman C. Ward, of Counsel.

[fol. 31] In Unirep States Disrricr Courr

Notice oF Orper AppoiINTING SPECIAL MASTER

Sir: Please take notice that the within is a true copy of

an order made herein and entered in the office of the Clerk

of the United States Distriet Court for the Hastern Dis-

on”

trict of New York on the 11th day of October, 1925.

New York, October loth, 1923.

Yours, ete., Ingraham, Page & Moran, Solicitors for

Plaintiff, 14 Wall Street, Borough of Manhattan,

New York City.

To Charles G. Blakeslee, Esq., Solicitor for Defendant

Publie Service Commission; Hon, Carl Sherman, Attorney

General; James A. Donnelly, Msq., Solicitor for Defendant

Sherman, as Attorney General.

[fol. 32] In Unitrep States Districr Courr

[Title omitted ]

Orper APPOINTING SpeciAL Master—October 11, 1923

Issue having been joined in this case by the filing of the

answers of the above-named defendants and the plaintiff

having moved for the appointment of a Special Master

herein,

Now on motion of Ingraham, Page & Moran, solicitors

for the plaintiff, it is

Ordered:

1. That Almeth W. Ifoff be and he is hereby appointed

Special Master to take the testimony and evidence upon

the issues herein, make all needed computations and tully

hear the facts and re; ort to the Court his findings of faet

and conelusions of law, together with the evidence for the

advisement of the Court: provided that nothing herein

[fol. 33] contained shall be construed as meaning that the

Special Master's findings of. fact shall be final but only

that he shall find the facts for the purpose of aiding the

Court and making his recommendations. The Special

Master shall, before submitting to this Court his final re

port, prepare and serve on the solicitors for the respee

live parties hereto a draft of such report.

inter,

Marens B. Campbell, U.S. D1.

[fols. 88a & 33h | Copy received Oet. 15 22.

James A. Donnelly, Solicitor for Defendant. Car!

Sherman, Attorney General,

[ fol. 34) Ix Uxrrep Srares Districer Courr

| Title omitted]

OPINton or Tue Spectr. Masrer.—Filed April 20, 1925

This is a suit in equity brought by the plaintiff challenge

ing the constitutionality of an Aet of the Legislature of the

State of New York, known as Chapter 899 of the Laws of

1923, relating to the price and quality of gas furnished in

cities of one million or more.

The plaintiff is one of the corporations affected by the

said Act and the defendants are public officers charged

With duties in respect to the enforcement thereof,

[fol. 35] Upon the institution of the suit, the plaintiff ap-

plied for and obtained from the Court an injunction

pendente lite.

Appearances :

Samuel FL Moran (Samuel F. Moran, John D. Monroe,

Travis H. Whitney, and Robert H. (Grimes, of Counsel),

solicitor for plaintiff,

Charles G. Blakeslee (Sherman (. Ward, of Counsel),

Solicitor for Defendants William A. Prendergast, William

Ra ae) Ad eg eee ONE OM BO WIE

Peey Beara Pag eee

R. Pooley, Charles Van Voorhis, George R. Lunn, and

George R. Van Namee, constituting the Public Service Com-

mission of the State of New York.

James A. Donnelly (Judson Hyatt, of Counsel), Solicitor

for Carl Sherman, as Attorney-General of the State of New

York.

John Holley Clark, Jr. (Anthony P. Luddon, of Counsel),

Solicitor for Albert Ottinger, substituted for Carl Sher-

man, as Attorney-General of the State of New York.

This action was referred to me, as Special Master, by

an order of Hon. Mareus B. Campbell, United States Dis-

trict Judge for the Eastern District of New York, dated

October 11, 1923, directing me to take the testimony and

evidence upon the issues herein, make all needed computa-

tions and fully hear the facts and report findings of fact

and conclusions of law, together with the evidence.

[fol. 36] In accordance with the order and following con-

ferences with the District Judge, for the purpose of ar-

ranging hearings so as not to conflict with sessions in other

like cases, it was agreed that hearings should ‘be held two

days a week, and in accordance therewith and by agreement

of counsel, hearings were begun on December 4, 1923, and

continued until June 10, 1924, in which there were taken

more than 4,000 typewritten pages of testimony and 142 ex-

hibits introduced by the parties. With my report I file a

typewritten copy of transcript of the testimony, together

with the exhibits.

In accordance with the requirements of the order of my

appointment and the practice and trial of rate suits in

equity, I submitted to the Counsel for all parties on Febru-

ary 26, 1925, a preliminary draft of my report and findings.

On March 5, 1925, I received from counsel written and

verbal suggestions and criticisms regarding such prelim-

inary drafts. Thereafter, | completed and now submit and

file my report and opinion in its present form which should

be deemed to embody my findings and conclusions.

Prior to the taking of testimony and during its progress

through their representatives, defendants were afforded

by the plaintiff full opportunity to inspect and examine the

property, works, accounts and records of the plaintiff and

therefore the defendants were in a position to secure and

present to me any matters they deemed of importance on

the questions before me. In addition, accompanied by

counsel and engineers of the parties, I' visited and inspected

the manufacturing plant, shops and holder station and

territory served by the plaintiff.

[fol.37] This is a suit to test the constitutionality of

Chapter 899 of the Laws of 1923, approved by the Governor

June 2, 1923, which inserted in the Public Service Com-

mission Law (Chapter 480 of the Laws of 1910), a new see-

tion as follows:

**S67-a. Charge for Gas in Cities of One Million or More.—

A gas corporation engaged in the business of manufactur-

ing, furnishing or selling illuminating gas in a city eon-

taining a population of one million or over shall not charze

or receive for gas furnished or sold in such city a sum per

one thousand cubie feet in excess of one dollar, nor furnish

in such city gas of a standard less than six hundred and

fifty British thermal units per cubie foot, measured under

normal! conditions of temperature and atmospheric pressure.

The Publie Service Commission, notwithstanding any other

provision of this chapter, shall not allow a rate or charge

in the ease of such cities in excess of such sum.”’’

Preliminary to the passage of this act, the Legislature

did not cause any investigation te be made by a special

Legislative Committee or otherwise, or a report concerning

the facts to be made by the Publie Service Commission, the

Legislative agency charged with the duty, among others,

to keep informed with respect to utilities under its juris.

diction.

At the time of the enactment of this statute, the plaintiff

was charging $1.30 per thousand eubie feet, as a maximum

rate, in compliance with an order of the Public Service Com.

mission, made on August 30, 1922, after an investigation and

hearings by the Commission, and was supplying gas of a

Standard fixed by the order of such Commission at 537

British thermal units per cubic foot with a minimum of 925,

[fol. 38] and has so continued under the temporary injune-

tion herein granted.

The plaintiff bases its case on the contention that the

Statute, if enforeed, would be confiseatory and deprive it °

OER AERO Rit tC

WERRIQUN

its property without due process of law, contrary to the

Fourteenth Amendment to the Constitution of the United

States.

The primary question herein is whether the rate so pre-

seribed will yield the plaintiff a fair return upon the fair

and reasonable value of its property employed in the publie

service. A further question relates to the standard at-

tempted to be fixed by the statute in question.

As to the rate question, there need to be determined,

what is a fair return, what is the fair and reasonable value

of the property, what are the proper operating expenses

and whether such expenses will ‘eave a sufficient margin

out of the proposed rate of one dollar per thousand to af-

ford a fair return on the fair and reasonable value of the

property used and useful in the public service.

As to the standard, it is to be determined whether it may

be considered independent of and as separable from the rate

provisions of the statute, and, if se, whether it is reasonable

and within the police power of the Legislature to enact, or

whether it is an arbitrary enactment not justified on any

of the grounds comprehended within the legitimate police

powers of the state.

Territory, Piant, and Property of Plaintiff

The plaintiff is a corporation organized under the Trans-

portation Corporations Law of New York and engaged in

{fol. 39] manufacturing and selling gas for publie and pri

vate use in the 30th Ward and a small portion of the 31st

Ward in the Borough of Brooklyn. This territory con-

stitutes a substantial portion of Brooklyn and, because of

the extension of rapid transit facilities has, since the war,

had exeeptional residential development which is likely to

continue for some years,

Plaintiff's gas works or manufacturing plant is located

ona pareel of land fronting on the New York Bay, extend-

ing to First Avenue, between 54th and 55th Streets, having

a total area of 462,208 square feet, of which 286.454 square

feet are used in the conduct of its business. The balance

is leased to the Morse Dry Dock & Repair Co., no consid

eration being asked or given for such leased portion in mak.

ing any determinations in this suit. At the works or plant

site there are seven gas generators of a combined rated

‘apacity of 17,400,000 cubic feet of gas per twenty-four

hours, together with other buildings and equipment in-

cidental to the operation of a gas plant. Its gas holders,

shops, yards and booster station are located on four parcels

of land at or near Ninth Avenue and 65th Street, having a

combined area of 139843 square feet. Its gas storage

holders have a capacity of 2.500.000 eubie feet. It was

brought out on the hearing before me that in order to meet

the demands upon it and to adequately serve its customers

the plaintiff had contracted for and was erecting a new

storage holder of 5,000,000 eubie feet capacity, but in mak-

ing the findings and determinations herein no consideration

is given or allowance made for the new holder. This ap-

plies likewise to a new office building and to a new booster

station in course of construction. On June 1, 1923, plain

| fol. 40) tiff had approximately 205 miles of gas mains laid

ia the publie streets, connected with the premises of its

consumers by 26,168 service pipes and had installed on such

premises 90,717 gas meters. The evidence shows, and it

was admitted before me, that the plant, machinery and

equipment of the plaintiff have been well maintained and

are in efficient operating condition for the economical pro-

duction and distribution of gas.

Rate of Return

The development of the plaintiff's territory and the con-

sequent demands for new and additional service have re-

quired and will continue to require the Company to raise

and invest substantial amounts of new capital in enlarge-

ment and extensions of its facilities. The situation pe-

culiarly therefore is one where an adequate return is es-

sential to the company and to the publie. Additional eapi-

tal must be provided to enable the company to meet the de-

mands arising from the growth of population, but this

capital will be difficult to raise if the rates charged do not

afford a sufficient return to pay the annual charges of pres-

ent investors and te afford confidence that such charges

will continue to be paid. It appears to be settled that a

utility *s entitled te such rates as will afford a return suf-

ficient to keep and attract capital, giving consideration to

the risks of the business and to the return that eapital,

through open competition, can secure in other channels.

> ey

OLE EE LP PF) -

”

The Supreme Court of the United States has said in Blue-

field Water Works and Improvement Company v. Public

Service Commission (262 U.S. 679, 692-3):

‘*A public utility is entitled to such rates as will permit

it to earn a return on the value of the property which it

[fol. 41] employs for the convenience of the public equal to

that generally being made at the same time and in the same

general part of the country on investments in other business

undertakings which are attended by corresponding risks

and uncertainties; but it has no constitutional right to

profits such as are realized or anticipated in highly profit-

able enterprises or speculative ventures. The return

should be reasonably sufficient to assure confidence in the

financial soundness of the utility and should be adequate,

under efficient and economical management, to maintain and

support its credit and enable it to raise the money necessary

for the proper discharge of its public duties.”’

While the Supreme Court, in 1909 (Willeox v. Con. Gas

Co., 212 U. S. 19, 50), held that the Consolidated Gas Com-

pany of New York was entitled to 6% as a fair return, it is

generally recognized that, since the World War, the return

expected and obtained by capital has materially increased.

As said by the Supreme Court in a more recent case

(Lineoln Gas Co. v. Lincoln, 250 U. S. 256, 267-8), after

noting that costs of labor and supplies had materially ad-

vanced, ‘‘annual returns upon capital and enterprise the

world over have materially increased, so that what would

have been a proper rate of return for capital invested in gas

plants and similar public utilities a few years ago furnishes

no safe criterion for the present or for the future.’’

The plaintiff called Edward F. Hayes, who is a member

of Blair & Co., bankers, with experience in the sale to in-

vestors of securities, incuding utilities, and who handled the

{fol. 42] last issue of bonds of the plaintiff. He gave it as

his opinion that by comparison with other undertakings in

New York City, and the current requirements for capital,

it was necessary for the plaintiff to show earnings of at

least 8 per cent in order to maintain and support its credit

and to enable it to secure new capital in competition with

the requirements for capital. He further stated that un-

less the Company had such earnings as to afford an 8 per

cent return, the smallness of the margin over its fixed

charges would adversely affect the confidence of new in-

vestors. The bonds sold for the Company by the witness

yielded 64% per cent to the investor. In 1921, and follow-

ing, the plaintiff sold to investors & per cent cumulative pre-

ferred stock and in the early part of 1924, it offered and

sold 7 per cent cumulative preferred stock. While the de-

fendants called no witnesses on rate of return they intro-

duced tabulations showing offerings in utility securities and

transactions in such securities on the New York Stock KEx-

change in 1924. Consideration of these tabulations indi-

‘ates that the testimony of Mr. Hayes was sound and I

therefore conclude that 8 per cent is a fair and proper re-

turn to adopt in this case for the plaintiff.

Ascertainment of Value

This case presents the question of alleged confiscation of

property and therefore involves a determination upon the

elements or items of that property and the value to be

adopted therefor. A company, such as the plaintiff, is en-

titled to earn a fair return upon the fair value of its prop-

erty and it is entitled to protection against uninst or un-

reasonable interference with such right by statute, or ad-

[fol. 43] ministrative or other governmental ruling.

In Cotting v. Kansas City Stock Yards Co. (183 U. S.

79), Justice Brewer said:

‘‘As to parties engaged in performing a public service,

while the power to regulate has been sustained, negatively

the court has held that the legislature may not prescribe

rates which, if enforced, would amount to a confiscation of

property. But it has not held affirmatively that the legis-

lature may enforee rates which stop only this side of con-

fiseation and leave the property in the hands and under the

care of the owners without any remuneration for its use.

It has declared that the present value of the property is the

hasis by which the test of reasonableness is to he determ-

ined, although the actual cost is to be considered. and that

the value of the services rendered to each individual is

also to he considered. It has also ruled that the determi-

nation of the legislature is to be presumed to he just, and

must be upheld unless it clearly appears to result in en-

forcing unreasonable and unjust rates.’ (p. 91.)

In Willcox v. Consolidated Gas Co. (212 U. S. 19), the

Court said:

‘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 prop-

erty, which legally enters into the consideration of the

question of rates, has increased in value since it was ae-

quired, the company is entitled to the benefit of such in-

erease.’’ (p. 52.)

And in Bluefield Co. v. Public Service Commission (262

U.S. at 690), the Court said:

[fol.44] ‘*Rates which are not sufficient to vield a rea-

sonable return upon the value of the property used at the

time it is being used to render the service are unjust, un-

reasonable and confiseatory, and their enforcement de-

prives the public utility company of its property in viola-

tion of the Fourteenth Amendment.’’

It appears to be the settled rule that protection will be

afforded against a rate that does not afford a fair or rea-

sonable return upon the fair value of property as of the

time of the inquiry. This may well mean that a new valua-

tion must be ascertained whenever and as often as a change

of rate or other interference is proposed. It might be more

satisfactory of prompt determination if value were a mat-

ter of fixed accounts, capable of immediate conclusion

whenever a rate question involves ascertainment of value.

Such a method, however, has not ben recognized and, there-

fore, under the rulings it is necessary to determine each

time the value of the property as of the time when it is

alleged that confiseation is threatened.

In the Minnesota Rate cases (230 U.S. 352, at p. 484) the

Court has said:

“‘The basis of calculation is the ‘fair value of the prop-

erty’ used for the convenience of the public. * * *

The ascertainment of that value is not controlled by arti-

ficial rules. It is not a matter of formulas, but there must

be a reasonable judgment having its basis in a proper con-

sideration of all relevant facts. * * *”

The parties herein have presented the facts as to what

may be termed the historical or investment cost of the

“ones Oe

- TI

Baie |

physical properties, and the plaintiff has presented in de-

[fol. 45] tail the reproduction value of such properties as

of June 1, 1923. The defendants have not aided the inquiry

by evidence of such reproduction value other than through

cross examination of the plaintiff's witnesses. Each side

also produced an expert witness as to fluctuations in prices

and price levels, and probable future tendencies thereof,

to aid in ascertaining the present value of the property

that is fair or reasonable as a rate base. In the opinion of

both of these experts there is likely to be little recession

from the price levels at the time of their testimony, either

in respect to labor or materials, and I have accepted this

theory in consideration of values herein and of continuation

of operating expenses.

The Supreme Court has indicated the elements that should

be considered in arriving at a present rate basis, from

Smyth v. Ames (169 U.S. 466) to the many eases that have

reached that Court within recent years. The tendency has

been to give increased consideration to reproduction cost

new as a basis for determining fair value. Asa fixed rule

has not as yet been laid down, I have given consideration to

the historical or investment cost of the property, to the re-

production cost new, and | have undertaken to find out a

present fair value as well as a finding as to going coneern

value in order that the Court may have before it these facts

upon any determination of the principles that may be urged

by the parties. With respect to these values, I have also

given consideration to the decree of maintenance, present

conditions, the range of price levels as well as the fact that

a considerable portion of the property has been installed

during the period of high prices.

[fol. 46] Historical Cost of Structures

The defendants contend that the fair value should be

based upon the historical costs, exclusive of land which it is

conceded should be accepted at its present value. While

the cases do not justify any such strict limitation in ascer-

taining value, nevertheless it is a proper inquiry, in seek-

ing to base a proper judgment, to examine original or his-

torical costs as well as all matters which may aid in striving

to arrive at a fair determination.

ig SRR RAT ERP NG a oN tae og te

EDD Le

The plaintif Company on or about July 1, 1904, merged

with and became the successor of the Kings County Gas &

Iuminating Co. The books and exhibits show that the

total cost to the predecessor company of property

existing on July 1, 1904, exclusive of land,

Was ‘ $2,302,997

That between July 1, 1904, and December 31,

1925, net additions to fixed capital amounted

to ‘ 4,198,604

making ; $6,501,601

Which may be said to be the original or historical cost of

the structural property and plant of the plaintiff, so far as

the same may be fairly ascertained, exclusive of land and

working capital.

Reproduction Cost New of Structures

The plaintiff produced evidence of the reproduction cost

new of its property as of June, 1928. It called witnesses

who testified at length and submitted exhibits giving full

details of their appraisals.

[fol. 47] Buildings.—Henry R. Burt, with a long experi-

ence in the construction of buildings in and around New

York City, testified that the reproduction cost new of the

buildings was $752,134.

Gas Mains and Service Pipes.—John H. Dunean, who

for several vears has had the contract with the plaintiff for

the laying of mains and services, testified with respect to

the distribution system, basing his testimony upon his actual

experience in the laying of a considerable part of such dis-

tribution system. He testified that the reproduction cost

new of mains was $2,898,617 and of service pipes, $1,109,-

686. The size and length of mains and services were testi-

fied to by the former Superintendent of Distribution of the

Company, who through his long service with the Company

was personally familiar with the entire distribution sys-

tem. Mr. Duncan further estimated that the cost of re-

storing present street paving over gas mains and services

was $1,444,347. A very great part of such paving, however,

was laid after the installation of the distribution system,

and, while cost of restoring existing paving over mains

might conceivably be at part of reproduction cost new of

a distribution system as of a particular date, the plaintiff

has asked that there be included in the value of the Com

pany’s property only the cost actually incurred by the plain-

tiff, from time to time, in restoring such paving as had

actually been cut in extending the distribution system. The

books of the Company showed that, as of June 1, 1923, this

amounted to $97,696.65.

Manufacturing Apparatus and Holders.Colonel Alten

S. Miller, called as a witness as to gas equipment and gen-

eral overheads, is an officer of the Bartlett Hayward Com-

[fol. 48] pany, a coporation, extensively engaged in supply-

ing equipment and apparatus needed by gas companies, that

has furnished s considerable part of plaintiff's equipment

and at the time of hearings was erecting a new eas holder

for plaintiff. He testified that the reproduction cost new

of machinery and equipment, including gas holders in use,

Was $1,090,291,

Overheads.-Colonel Miller also testified that there

should be allowed, from the point of view of a general

contractor, supervising all of the construction work, 13 per

cent. on the cost of machinery and apparatus and buildings

and appurtenances and 5 per cent. on mains and services

for engineering, superintendence and general contractor's

expense and profit; that there should be allowed for ad-

ministrative, legal and miscellaneous general expense dur-

ing construction, 24 per cent. on the cost of all property

except meters; that interest at the rate of 8 per cent. for

one year should be allowed for interest during construe-

tion on the cost of all structures except meters and instal-

lation of meters and that there should be allowed for taxes

during construction $25,646.04, which is one-half of the

annual taxes in 1921,

Colonel Miller testified that he had not computed depre-

ciation in his estimate of his reproduction new costs for

the reason that the property by reason of adequate current

maintenance was as good as new and therefore able to

perform fully the functions for which the items of property

were intended. Ile and Mr. Burt submitted lists of minor

items of repair that should be made to restore the proper-

ties to complete condition, totalling $1,855.50 on buildings

and $16,557.92 on machinery, apparatus and equipment.

SER Ce

}

[fol. 49] He stated that while the property was as good as

new ail eXamination at any given date would show similar

items of repair that are really matters of routine mainte-

nance. The mains and service pipes have an indefinite life

with occasional repairs such as are necessarily being done

as current maintenance.

The defendants produced no witnesses upon reproduc-

tion costs. It has therefore been necessary for me to rely

entirely upon the testimony of the plaintiff’s witnesses

upon this subject, modified by cross examination. The de-

fendants have objected to Colonel Miller’s estimates of

overhead allowances. When it is borne in mind that Mr.

Burt on buildings, Mr. Dunean on distribution system and

Colonel Miller on equipment included percentages for cer-

tain overheads, including contractor’s profit, it has seemed

to me that Colone! Miller’s allowances for general over-

heads are unduly liberal and beyond what would be re-

quired. IL have therefore used 5 per og in the place of

his 13 per cent.-—2 per cent. instead of 242 per cent. for

administrative, legal and miscellaneous pba expenses

during construction, 6 per cent. instead of S per cent. for

interest during construction and taxes in the amount testi-

fied to by Colonel Miller.

Meters.—A. J. Gonnoud, Auditor of the plaintiff com-

pany, testified from the records of the Company, as to the

prices paid for meters. At the prices actually paid in June,

1923, the reproduction cost of meters on consumers’ prem-

ises June 1, 1923, was $527,071.23, and in stock $24,943.24.

Colonel Miller testified that the reproduction cost of install-

ing the meters installed by plaintiff at his own expense, was

$264,855.50. The costs so given by Colonel Miller were in

|fol. 50) agreement with the actual expense of installations

made in 1923. The total for meters and installation of me-

ters is $816,870.

It appears that meters are removed and overhauled regu-

larly in accordance with a schedule and that they are there-

fore always in a condition as good as new.

Summarizing the foregoing, it would appear that the

value of the above property upon a reproduction basis,

treated in the manner indicated for the purpose of being

considered as part of a proper rate base, may be fairly

set down as follows:

Buildings ; MINTS Rete Pete Og: $750,278

Mains : een Fn tM ee eae 2,898,617

Services | ; , Ando 1,109,686

Gas Apparatus |. Roce ho psn ed 2. Sgoiayhae

Kngineering, Superintendence, General Con-

tractor’s expense and profit... REA os 317,536

Interest during construction —. 421,623

Taxes during construction ; 25,646

Administrative, legal and miscellaneous gencral

expense during construction ; 127,014

Meters and installation of meters. ! 816,870

$8,041,003

Paving over Mains.—As before noted in reviewing Mr.

Dunean’s testimony in relation to mains and services, he

testified in his reproduction estimate that to restore pres-

ent street paving over mains and service connections would

cost $1,444,347. For the reason there pointed out, that most

of the distribution system of the plaintiff had been in-

stalled in dirt streets before paving, the plaintiff has

asked that only the amount actually expended by it in re-

[fol. 51] storing paving actually eut be included in a valua-

tion of its property. This seems only fair and proper. The

amount is $97,696.65.

Miscellaneous General] Equipment.—As additional physi-

‘al property the Company has laboratory apparatus, office

and storeroom furniture and fixtures, stable and garage ve-

hicles and accessories and small tools which have cost the

Company, according to its accounts, $102,541.

Additions Subsequent to June 1, 1923.—In addition to

properties included above, the plaintiff expended between

June Ist and December 31st, 1923, for additions, extensions

and improvements $565,414.25 in excess of the cost of prop-

erty withdrawn from service during that period.

lor its general and branch offices, the Company occupies

leased premises, but Mr. Bucher, its Vice President, testi-

fied that a plot had been acquired for the Company upon

which to erect at considerable expense, a modern office

building, deemed necessary to accommodate the business

and employees of the Company. Although he stated that

this building would be started during 1924, I have not in-

3—365

cluded any allowance therefor. Other construction work

in progress in 1924 was the building of a booster station

and the erection of a new 5,000,000 cubie feet gas holder,

for which no allowances are included.

Land

The plaintiff produced two witnesses, David Porter and

Lewis IH. Pounds, as expert witnesses on the value of real

estate owned and used by the Company. Both of these wit-

[fol. 52] nesses have high standing in the appraisal and

handling of real estate in Brooklyn. The defendants ealled

no witnesses on the value of such real estate other than City

assessors Who testified as to the assessed valuation of such

property. The plaintiff's manufacturing plant is located

between Ist Avenue and the water front and 54th and 55th

Streets, being an important parcel in this stretch of water

front of New York Bay which is entirely developed. With

the care and consideration obviously given by the plaintilf’s

two witnesses to the relative valuation of water front prop-

erties and their experience and standing, | am convinced

that their valuation of this water front property should be

accepted. A portion of the property owned by the plain-

tiff is leased to another concern and is therefore not used

in the gas business. The value of such leased portion has

accordingly been excluded from present consideration, and

I find the value of the portion used by plaintiff in its gas

business to be $811,650.

The plaintiff has its holder stations, shops and yards in

the center of its district, using the parcels of land compris-

ing the four corners of 65th Street and 9th Avenue. Certain

other parcels, not now in use for gas purposes, have not

been considered. Messrs. Porter and Pounds testified with

respect to the properties used by the Company at 9th Ave-

nue and 65th Street, that gas holders are prejudicial to the

value of surrounding land which in turn depresses the as-

sessed valuation of the plaintiff’s real estate itself. They

stated, therefore, that they had disregarded the existence

of gas holders in arriving at a proper valuation of such real

estate, just as they disregarded the existence of the gas

plant on the water-front property and its special advantages

[fol. 53] for gas-making purposes. They therefore based

their estimate on comparison with value of other land sim-

ilarly situated with relation to transit facilities. On such

basis they fixed a total value of $182,352. I am convinced

that the assessed valuation does not in any way represent

the value of such real estate as it should be consided in

this case and that it should be considered as land free of the

existing structural property of the Company, just as the

water-front property was considered by the witnesses, as

water-front property without regard to its peculiar and

special value to the plaintiff for gas-making purposes. In

the latter case, this Company should not be given a special

value for its water-front property nor penalized in the

former case for detriment. | have, therefore, accepted the

Witnesses’ valuation in this instance also, making the total

value of the land used by plaintiff in its gas business,

$994,002.

Working Capital

The Company is entitled to have an adequate working

capital to provide, promptly, materials and supplies, eur-

rent maintenanee and repairs chargeable to operating ex-

pense and other contingencies so as to permit the Company

to carry on its operation as a going concern without delay

or extra expense. It must have an adequate cash and credit

standing. The proper allowance may be deduced from the

actual experience of the Company, supplemented by opin-

ion evidence, Paul Bucher, Treasurer of the plaintiff, testi-

fied that the actual average monthly working capital dur-

ing the year 1923 was $868,372.47 made up of average

[fol. 54] monthly working capital as represented in the fol-

lowing accounts:

Accounts receivable $503,988 GO

Material and supplies 219,233 80

Cash 195,142 20

Gas supplied but not billed 125,000 00

General storeroom expense 12,162 40

Coal handling suspense 649 68

Prepaid insurance 9,837 41

Prepaid taxes, ete. 5,358 38

Deposits—publie authorities performance of

contracts 1,000 00

$868,372 47

So eer Cdr ow a ”

ee ee

Colonel Miller, for the plaintiff, testified that in his judg-

ment $855,227 should be allowed for working capital.

For the defendants, Mr. Little presented the figure of

$446,051 as his estimate of an adequate working capital.

Mark Wolff, an accountant witness for the defendants, based

his conclusion, that $496,142.04 was the proper allowance,

on the difference between the total current assets and total

current liabilities for the year 1923, and the defendants

have argued that such rule should be the proper test for

the ascertainment of working capital. They have also called

attention to consumers’ deposits, totalling $423,020, and to

certain special deposits and reserves with the suggestions

that they should be given consideration in determining

working capital. Considering the various items of current

assets and liabilities and other items to which attention has

been called and having regard to the current requirements

of the Company, including considerable construction work,

I am of opinion that $600,000 should be allowed as working

capital.

[ fol. 55] Going Value

The plaintiff, in support of its claim to an allowance for

going value, examined Colonel Miller, who testified that,

based upon his knowledge and experience, there existed a

value to the plaintiff, as a going concern, of $1,750,000 over

and above the value of the tangible property. He arrived

at the value upon a base of approximately $35 per meter

in service. Colonel Miller stated, as his definition of such

element of value, that it was

‘‘the difference between the value of an operating prop-

erty with an organized plant and personnel, and serving its

customers and having regular dealings with them, and a

plant which is merely built and not operating, having no

customers, and doing no business.’’

This question has been before the courts in a number of

rate and acquisition cases where the rulings have been

such as to require consideration and determination of the

plaintiff’s claim. The defendants contend that no allowance

is to be made thereon. If the claim involved capitalization

of early losses merely, it might be disregarded, but the

plaintiff claims that between a completed plant merely

ready for business and a completed plant serving the entire

community, there has been a cost to the Company that

should be allowed, of creating and developing that business

and of adjusting and fitting its personnel and properties

thereto. Inthe assumption of a reproduction of an existing

and going concern it is presumed that the community exists

with all facilities except the one in question and that within

a fixed period of time the entire property is created. If it be

[fol. 56] a gas property it cannot necessarily be assumed

that the residents are anxious and ready to take the service,

for they presumably have in service other means for pro-

viding the service otherwise to be rendered by gas. They

must be persuaded to have their homes piped, to discard

coal stoves and furnaces as means of providing heat, all

matters of expense to them for which they must be shown

that there are superior advantages. Even at the present

time the Company maintains a force to persuade residents

to use additional appliances and to substitute gas for other

means of cooking, hot water supply and heating. I have no

doubt that in extending the use of gas for industrial pur-

poses considerable expenses are incurred in salesmanship

to industrial managers. There seems no difficulty, there-

fore, in understanding that there is a value involved in the

difference between an inert property and a going property.

In National Waterworks Company v. Kansas City (62

Fed., 853), Mr. Justice Brewer dissects this question in the

following language (p. 865) :

“It is obvious that the mere cost of purchasing the land,

constructing the buildings, putting in the machinery, and

laying pipes in the streets—in other words, the cost of re-

production-——does not give the value of the property as it is

today. A completed system of waterworks, such as the

company has, without a single connection between the pipes

in the streets and the buildings of the city, would be a prop-

erty of much less value than that system connected, as it is,

with so many buildings, and earning, in consequence thereof,

the money which it does earn. The fact that it is a system

in operation, not only with a capacity to supply the city,

but actually supplying many buildings in the city,—not only

with a capacity to earn, but actually earninge,—makes it

[fol.57] true that ‘the fair and equitable value’ is some-

Mere eis: Men es

Se OT Ms Eo ee Ew Oe

thing in excess of the cost of reproduetion. * * * Such

a system would be a dead structure, rather than a living

and going business. The additional value created by the

fact of many connections with buildings, with actual sup-

ply and actual earnings, is not represented by the mere cost

of making such connections. Such connections are not

compulsory, but depend upon the will of the property

owners, aud are secured only by efforts on the part of the

owners of the waterworks, and inducements held out

therefor. The city, by this purchase, steps into possession

of a waterworks plant,—not merely a completed system for

bringing water to the city, and distributing it through pipes

placed in the streets, but a system already earning a large

income by virtue of having secured connections between the

pipes in the streets and a multitude of private buildings.

It steps into possession of a property which not only has

the ability to earn, but is in fact earning. It should pay

therefor not merely the value ef a system which might be

made to earn, but that of a system which does earn.”’

The Supreme Court, in Des Moines Gas Co. v. Des Moines

(238 U.S. 153, 165), referring to and recognizing this ele-

ment of value, says:

‘That there is an element of value in an assembled and

established plant, doing business and earning money, over

one not thus advanced, is self-evident. This element of

value is a property right, and should be considered in de-

termining the value of the property, upon which the owner

has a right to make a fair return when the same is privately

owned although dedicated to public use.’

[fol. 58] See also Omaha v. Omaha Water Co. (218 U.S.

180); Denver v. Denver Union Water Co. (246 U.S. 178).

Again, in State P. U. Com. v. Springtield Gas & Elee. Co.

(291 Ill., 209; 125 N. E. 891, 900), the Court, in affirming a

judgment which reversed the Commission which had made

no allowance for going value, states the rule of law appli-

cable thereto as follows:

‘**This element of value is always present in every as-

sembled and established plant doing business and earning

money. It is a property right, and must be considered by

the commission in determining the value of the property

upon which the utility has a right to make a fair return.”’

In Kings County Lighting Co. v. Willeox (210 NX. Y. 479),

the Court clearly recognized going value as an item to he

appraised and included in a rate base. While certain phases

of this decision may be considered to have been disan-

proved by the United States Supreme Court in Galveston

Electric Co. v. Galveston (258 U.S. 388), yet the main prin.

ciple that going concern value must be valued and allowed,

when properly presented and supported, was not disturbed.

See also the recent case of N. Y,. Telephone Co. v. Pren-

dergast (300 Fed Rep. 822, 826), where the Court held:

**The denial of any allowance for going value was also

error of Jaw. * * * There has been, and probably will

continue to be, much difference of opinion as to how to

measure this kind of property; but in its nature it is a

mere function or attribute of suecessful co-ordinated effort.

A garment is made out of cloth and silk, buttons, and

[fol. 59] thread, and by labor; but when completed and we!l

made its value is more than the aggregate cost of the items.

It is a going concern, aud as such has going value.’

A number of cases have been cited to me in which such

going value has been determined at figures which were from

10 to 30 per cent. of ascertained value of the physical prop-

erty.

While it is true that in some eases this element of going

concern value is considered with and made a part of the

estimates of structural values (Des Moines Gas Co. v. Des

Moines, 238 U. S. 153: Galveston Electric Co. v. Galveston,

208 U.S. 388), in the present case it was considered and

estimated separately as seems to be the more general prac-

tice.

It is obvious that the element of value as here considered

cannot readily be proved by direct evidence because of the

intangible nature of such element of property. Opinion

evidence is therefore of value. Colonel Miller is a man of

wide experience, with a knowledge of the development and

maintenance of a gas business that qualifies him to present

an opinion that is entitled to weight. I have considered

carefully his testimony in this respect and, in connection

with my conclusion on the value of other elements of prop-

erty herein, I deem an allowance of $800,000, as reasonable

for going value to be considered as a part of the rate base

herein.

‘

FO A EES tte DRIED BRD cE ig, Rate el ht ele 0

Fair Value

The plaintiff has urged that the reproduction cost of its

structural property should be taken as the fair value in de-

termining whether the proposed rate will give a fair and

[fol. 60] reasonable return thereon. In support of this

claim the plaintiff presented separately and in detail the

structural property and introduced evidence, uncontra-

dicted, of the reproduction cost of such property as herein-

before referred to. I am convinced, from the standing of

the witnesses and the thorough examination and cross

examination of them as to details of their appraisals that

such appraisals represent, as nearly as could be ascertained,

what it would cost to produce a gas property identical with

the plaintiff's at prices for labor and materials prevailing

in June 1923, if undertaken by a gas company already or-

ganized, with a franchise and possessed of adequate capital.

There is much force in the plaintiff's contention that such

reproduction costs represent actual costs through applica-

tion of present day index number to costs incurred during

the period preceding the high price level. That is, because

of the depreciated value of the dollar, the structural repro-

duction cost represents what it actually did cost the com-

pany in the dollar of today to install such property. The

aggregate reproductior{ cost before stated is $8,041,003.

The actual or historical costs with present day index num-

ber 150 applied only to the cost of the property installed

prior to December 31, 1915, are shown below.

Cost to plaintiff’s predecessor of property

existing June 30, 1904, exclusive of land $2,302,997 40

Net additions to fixed capital, June 30, 1904,

to December 31, 1915 ; ; 1,316,775 54

$3,619,772 94

Applying index number 150 9,429,659 41

Net additions to fixed capital, December 31,

1915, to December 31, 1923 2,881,828 15

8,511,487 56

{fol.61] While this method cannot be accepted as an in-

fallible rule, nevertheless it is a check on the reasonableness

Sa te a ee a ere ee

ai ra

of the estimated present day reproduction costs. This

original cost as thus adjusted by the application of the in-

dex number is greater than the reproduction cost as here-

tofore modified and stated herein. The difference is in

part accounted for by the fact that the cost of restoring

pavement actually cut in the laying of the mains is included

in the original cost figure, while there is no allowance for

pavement in the reproduction figure of $8,041,003 found

herein.

Giving consideration to the various matters herein dis-

cussed, and to the authorities applicable thereto, a few of

which I have cited, I have come to the conclusion that the

fair value of the plaintiff's property employed in the public

service herein is as follows:

Land ‘ ses 994,002

Plant, distribution system and other structural

property 8,041,008

Restoring street paving over mains and services

cut in laying same , 97,696

Miscellaneous general equipment — . 102,541

Working Capital 600,000

Going Value . 800,000

$10,635,242

Cost of net additions to fixed capital June 1 to

December 31,1923... 000 obo,414

Fair value as of December 31, 1923 $11,200,656

This fair value of $11,200,656 is not what it would cost

to reproduce as an entirety the plant and property of the

plaintiff. In the reproduction of such property there would

he the expense of organization and development prior to

[fol. 62] construction, which Colonel Miller estimated at

$650,000. There would be the cost of financing, which he

estimated at the sum of $680,000, There would be interest

and taxes on land during construction, besides numerous

other items which I have not ineluded. To organize a cor-

poration, secure the necessary capital and construct the

plant as the same existed June Ist, 1923, including working

capital but exclusive of going concern value, Colonel Miller

testified would cost $13,694,371. Adding his independent

0 nin lan IIS

Prat)

€

Prd

bar

estimate of going value, $1,750,000, increases his estimate

to $15,444,371. No testimony in contradiction of these esti-

mates was given. While I have given due consideration to

Colonel Miller’s estimate of reproduction cost of the plant

and property as a whole, J have endeavored to ascertain,

and the figures found by me attempt to reflect, what it would

have cost the plaintiff to build and develop its plant and

property as it was built and developed had the same level

of prices for materials an labor prevailed throughout the

whole period of its construction as prevailed in June, 1923;

in other words to measure and state the investment in the

property in the dollar of the present.

Counsel for the Attorney-General has urged that there

should be taken into account and deducted the amount of

the reserve set up by the company in the retirement account

known as ‘‘Plant Withdrawn from Service.’’ This retire-

ment reserve amounted, at the end of 1923, to $201,910 and

had been built up over a period of years by charging to

operating expenses a sum equal to 3 cents per thousand

cubic feet of gas sold.

Several cases have been cited in support of this conten-

[fol. 63] tion, among them the decision of the Michigan

Public Utilities Commission in the case of Michigan State

Telephone Company (P. U. R. 1923A, page 30), and the de-

cision of the Public Service Commission of the State of

New York in the case of the New York Telephone Company

(P. U. R. 1923B, 545). I refer particularly to these two

eases which have been cited by the defendants’ counsel, be-

cause the rulings of the Michigan Commission and the New

York Commission, on this very point have been reversed by

the Federal Courts in eases which were brought following

those rulings by these Commissions. The view taken by

the New York Public Service Commission upon this point

was reviewed by the Special Statutory Court in the South-

ern District of New York, which is in this Circuit, in New

York Telephone Company v. Prendergast, decided July 26,

1924 (300 Fed. 822), where the Court expressly held that

the ruling of the Commission deducting the reserve was er-

roneous, saying (pages 824, 825):

‘*These accumulated charges are not a separate fund.

The total bears no definite relation to the actual condition

of the property; for one item may have been and was

— ow

ae DE Ak atehh a eet

charged years ago against the cost of an article scrapped

long since, while another was charged yesterday against one

just entering upon its life of usefulness. In fact, the de-

preciation reserve is a piece of bookkeeping, a monthly

charge against earnings, to provide means, not only of cov-

ering deterioration from use and time, but of minimizing,

and only minimizing, future possible losses of any kind,

from storm or fire to changes of fashion. The funds or

credits thus reserved are, and always have been, expended

in strengthening the company’s useful property, but what

[fol. 64] particular property it is neither possible nor use-

ful to ascertain.

* * * - * * *

To deduct from the fair value of plaintiff’s property the

entire book reserve for depreciation, in order to reach a

rate base, was error of law.

* *—* the book charges represent what observation

and experience suggested as likely to happen, with some

margin over. The legal error is in not recognizing that

the law requires deduction only for actual depreciation,

just as actual as the present value, and the extent of that

depreciation must le ascertained by the same kind of evi-

dence; in the last analysis, opinion based on contemporary

investigation.’’

The following recent cases likewise seem to be authority

for holding that the retirement or depreciation reserve, by

whatever name designated, being merely a book aecount, is

no evidence of the extent of depreciation and should not be

deducted in arriving at fair value; that the entire property

must be valued regardless of the amount of such reserve.

People ex rel. Penn. Gas Co. v. Publie Service Com-

mission (204 App. Div. 73, 76) ;

Bronx Gas and Elec. Co. v. Publie Service Commis-

sion (28 N. Y. State Dept. Rep. 329; P. U. R. 19234

299; aff’d. without opinion 208 App. Div. 780) ;

Monroe Gaslight and Fuel Co. v. Michigan Publie

Utilities Commission (292 Fed. 139) ;

[fol. 65] Michigan Public Utilities Commission v. Michigan

State Telephone Co. (decided October 30th, 1924,

200 N. W. 749; 25 Rate Research 407).

APIS

Fa Reece tits ae eg ace

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LORE AR,

SEES

PEEP ONE LLIN PU ae

CAR SANE TS NDIA SIERO SS ab Nal Dina sO | Ai SocicipauiN © AlswgBALEC ot

I therefore feel constrained by the weight of author-

ity to hold that it would not be proper for me to deduct

from the amount found by me as the fair value of the prop-

erty of the plaintiff the credit balance in the retirement re-

serve kept by the plaintiff In finding the reproduction

value of the plaintiff's property, | have, however, deducted

the amount which was testified as representing the expen-

ditures necessary to place or restore the physical property

of the plaintiff in a condition as good as new. The plain-

tiff’s witnesses testified that there was no depreciation be-

yond these amounts. No testimony was presented in be-

half of the defendants conflicting with the testimony of the

plaintiff’s witnesses on the question as to the condition of

the plaintiff's property and of any actual depreciation exist-

ing therein. There is no substantial evidence in the record

to the contrary of that testified to by the plaintiff's wit-

Hhesses.

Ohio Utilities Company v. Public Utilities Commission

of Ohio (decided by United States Supreme Court, Mareh

2, 1925, not vet reported), is significant on the question of

the weight to be aeeorded the testimony of experts where

there is no contradictory evidence.

Operating Expenses

The plaintiff manufactures carburetted water gas at its

water front plant whence it is distributed through its mains

[fol. 66] and distribution system to its consumers through-

out thedistriet served. The plaintiff keeps and maintains

very complete and detailed books and records showing its

operations and dealings. Both before and during the trial

these were accessible to the defendants and their account-

ants did, in fact, inspect and study them, In the course of the

examination of witnesses many of the books and records

were produced before me, and as required, or requested,

original records were produced throughout the hearings.

The plaintiff presented detailed evidence in respect to its op-

erating expense during the year 1928, including the methods

of handling the material necessary to the making of gas

and the charging of all items of expense in accordance with

the Uniform System of Accounts prescribed by the Publie

Service Commission, During the year 1923, the plaintiff

manufactured 1,977,410,000 cu. ft. of gas and its sales were

1,794,969,872 cu. ft. The total cost thereof, including ex-

b , , ’

penses incident to the sale of gas appliances, in manufactur-

ing and distributing gas was $1,640.279.49 or 91.38 cents per

thousand cu, ft. of gas sold, made up as follows:

Cts. per M

Production expenses........0 0.2... #892 501 13 49 73

Distribution expenses. .......0.00.. 143,686 40 & 00

Street lighting expemses.... 002.0... O15 94 O05

Commercial expenses. .......00 00... 14461 36 6 938

Promotion expenses... ....... ee 49,425 58 2.75

a 156,651 13 8 72

Retirement expense.... 0.0.0... : 53,990 21 3 O00

Federal income tax................ GS.303 61 3.81

Se .... 140,987 02 7 86

Umoollectitiie bills. ................. 9409 11 53

Total operating expenses... $1,640,279 49 91 38

[fol. 67] The defendants have not questioned the fairness

or reasonableness of such operating costs. In faet, Mr.

Little, the only witness called in the matter of operating ex-

penses commended the excellent condition of the property

and the efficiency of its personnel and operation. They

did, however, call attention to two items. One of these re-

lates to the charging and crediting of the cost of tar boiler

fuel. In the use of oil in the making of gas there is a cer-

tain amount of tar recovered as a residual which may -be

sold or made use of by the company as boiler fuel in place

of purchased boiler fuel. As it is reeovered, it is the prac-

tice of the company, which has continued for some years, to

eredit such recovered tar at the price per gallon paid for the

oil in use at the time of recovery. When it is used as boiler

fuel, it is charged at the price at which it was credited when

it went into storage. During the vear 1922, there was a

considerable quantity of tar recovered, a portion of which

Was not used until the calendar year of 1923. The oil price

under the 1928 contract for oil was a little less than that

for 1922, and the defendants contend therefore that tar

should be charged at the price of oil at the time when the

taris used. Tn accordance with this contention, there would

therefore be a slight reduction of operating expenses dur-

ing 1923. Tam unable to see the force of this contention.

20 en a]

08 2 ali ete

orate yrs,

et) 5

The Company is following a practice extending over a

period of years under which the tar is credited at the oil

price current at the time of recovery and charged at the

same price when used. This may result in the charge price

being higher or lower than the oil price on a given date, de-

pending upon whether the tar in storage was recovered at a

time when the price of oil was higher or lower. In the long

[fol. G8] run it does not make any difference whatever for

it means that all of the oil, including the tar residual, is

used up in the making of gas, and under its practice is

charged at the cost price. Furthermore, the Company

suowed that at the price charged for such tar used as boiler

fuel, the cost was less than would have been the equivalent

of coal boiler fuel which the Company would need to have

purchased had the tar not been available as fuel.

Although bearing only slightly on this point, the defend-

ants have commented on the low percentage of tar recovery

during 1923 and urged that it should have been higher. I

am unable to see the force of this. Gas engineers in the

making of gas do not strive to produce a recovery of tar.

On the contrary, the more efficient the process of gas manu-

facture is, the more complete is the breaking up of the oil

and the less there is of residual. Any comparison with a

higher pereentage of tar recovery by other companies is

apparently a comparison in relative efficiency of manu-

facture.

The other point of criticism by the defendants is the

charge of three cents per thousand eubie feet to an ae-

count known as Plant Withdrawn from Service, a retire-

ment account, and so designated in the above table.

Mr. Little, for the defendants, testified that he had made

ap examination of the accounts of the plaintiff covering

a period of years for the purpose of ascertaining the actual

amount of retirements charged to this account which, on the

average, amounted to a little less than one cent per thou-

sand. The amount credited to this account at the end of

1923 was $201,910.62, which is the net aggregate resulting

[fol. 69] from the charge of three cents per thousand over

a period of years. Mr. Little recognized the need of mak-

ing a charge to operating expenses to take care of plant

withdrawn from service but contended that the result of his

examination of the account indicated that a charge of three

TROIS ER RIP IE MS Ea, OY Re, A SR VALe

pee BS

cents was in excess of the actual experience of the Company

and was not needed. I am inclined to agree with him on this

point on the evidence presented before me and, therefore,

conclude that, for the purposes of determining the ques-

tions involved in this case, such charge should be taken at

one and one-half cents.

The gas furnished and sold by the plaintiff during the

year 1923 showed a monthly average of heat content slightly

above the standard of 537 monthly average prescribed by

the Publie Service Commission. This appears to be good

practice, for, because of fluctuating temperature and other

conditions, it is necessary to manufacture gas of a heat con-

tent above the prescribed standard to insure the furnish-

ing to consumers of gas in compliance with the standard.

In the manufacture of this gas, the plaintiff used 2.83

gallons of gas oil, 33.98 pounds of generator fuel and 5.24

pounds of solid boiler fuel per thousand eubie feet of gas

made. In order to produce a gas of a higher heat content,

it is necessary to use an additional quantity of gas oil

which results in a reduction in generator and boiler fuel and

an increase in the amount of tar recovered. In considering

the quantities of material necessary to produce a standard

of 650 British thermal units, it is necessary to rely upon

opinion evidence for the reason that the witnesses were un-

able to cite, within their own experience and knowledge,

any situation where a gas company had undertaken, for

[fol. 70] a considerable period of time, the manufacture of

gas with such a high heat content. It seems safe, however,

from the testimony before me, to assume that to furnish gas

at 650 British thermal units would require not less than

4.65 gals. of gas oil, 32 pounds of generator fuel and 3.98

pounds of solid boiler fuel per thousand cubie feet of gas

made, with a tar recovery of approximately 16 per cent

of the amount of gas oil used. Applying the cost figures of

1923 to these items, indicates that, to make gas of a standard

of 650 British thermal units would increase plaintiff’s costs

0.44 cents per thousand cubic feet.

As itemized and shown in the Findings accompanying

this opinion, the operating costs, exclusive of Federal in-

come tax and by reducing the retirement expense from 3 to

1% cents, become 86.08 cents per thousand cubic feet of gas

sold in 1923, at the 537 British thermal unit standard, and

‘

LLORES ol DOE IE

RD ee oe

adding the 5.44 cents as the additional cost of making 650

British thermal unit gas, gives 91.52 cents per thousand as

the cost had the plaintiff undertaken to furnish gas of the

higher standard.

Operating Expenses for 1924. On the hearing of the ob-

jections to my tentative report, plaintiff, at the request of

one of the defendants, furnished for the record the amount

of its sales of gas in the twelve months ended December

3ist, 1924. Such sales were 1,947,207,840 cubic feet, an in-

erease of 152,237,968 cubic feet over the sales of the pre-

vious year. The chief items in the expense of producing

gas are the costs of materials used, labor and taxes. The

assessed valuation of real estate and improvements is fixed

so that taxes therefore can be ascertain. The cost of labor

is unlikely to change. The materials used in the making

[fol. 71] of gas are gas oil and coke for which the Company

makes contracts. As the Company has now reached the

point of large production volume, it appears that any in-

crease in sales will not reduce the unit cost of making and

furnishing gas. Consequently any changes in the operating

expense per unit are limited to those caused by differences

in the cost of materials. The Company was able to secure

contracts for its supply of gas oil and generator fuel for

1924 at slightly lower prices than it had in 1928. Applying

these reductions to the unit cost of 1923 shows a reduction

of approximately 1.58 cents per thousand. So that if the

plaintiff had operated in 1923 under the oil and coke con-

tracts made for 1924, the total operating costs would have

been 84.50 cents per thousand of gas sold which may be

taken as the total of operating expenses for 1924 to be con-

sidered herein, with a corresponding reduction in the as-

sumed operating expenses for the making of gas of a stand-

ard of 650 British thermal units. Each of the expert wit-

nesses produced by the parties on price levels agreed, fur-

thermore, that there were no indications of lowering prices

for a considerable period.

Mr. Little undertook to make a forecast of probable

operating expenses for the year 1924 by setting forth the

exact amount of money required for each of the sixty ac-

counts included in operating expenses although he presented

no criticism of operating expenses of 1923 other than as

above indicated. It would appear, from the nature of

Oe ee eee — - orcntes Laide Raw hides “ P me set = <i eN a |

= &

PS te ant

the gas business and the method of keeping accounts, that

it may be difficult to assign a particular sum of money for

each item of expense for the year but that the total cost

per thousand for each item of expense may be forecast from

[fol. 72] the experience of the Company and the price paid

for labor and materials. I have therefore taken the above

figure of 84.50 cents per thousand cubic feet of gas sold

as the proper cost of gas for the year 1924 at the 537 British

thermal unit standard actually furnished, and 89.94 cents

per thousand as the cost during that year had the plaintiff

undertaken to furnish a 650 British thermal unit eas.

In the operating expenses, but not segregated in the books

of the Company, are included expenses for conducting the

business of selling gas appliances. It is the practice of this

and other gas companies to conduet such business, partly

to aid consumers in securing gas applianees manufactured

under standard specifications that will thus render most

efficient service to the consumers, and partly, by thus pro-

moting the sale of appliances to be used for additional pur-

poses, to increase the sale of gas. A company, in order to

secure these advantages, may sell such appliances either

at actual cost or at a slight advance, crediting to revenue

the amount realized therefrom. During 1923, the plaintiff

derived therefrom and from other sourees, a revenue of

4.57 cents per thousand. In all ealeulations made herein,

as specifically shown in the Findings, this item has been

added as an operating revenue and computed accordingly.

hj. a Rae nate Te AWE, atone, ad TRE PPM eStpryy

Return to the Company

For the year 1923, with the above operating expenses of

86.08 cents per thousand cubic feet of gas sold at the pre-

seribed rate of $1.00 per thousand, plus the miscellaneous

operating revenue of 4.57 cents per thousand, making a total

| fol. 73] revenue of 104.57 cents per thousand. there would

be left 18.49 cents per thousand as a return to the Com-

pany. Applying this to the 1,794,969,870 cubic feet of gas

sold gives $331,876.82. Federal income tax in the sum of

$2,848.81 would be payable, leaving $329,028.01 available for

return on property.

Had the Company undertaken to furnish gas of 650 Brit-

ish thermal units, the corresponding net return to the Com-

4— 369

ssiliceattartatintnntineitid tn hte nan hig ee

pany would have been 13.05 cents per thousand or a total

of $234,230.26, with no income tax payable.

For the year 1924, with the operating expenses 84.50 cents

per thousand cu. ft. of gas sold at the prescribed rate of

$1.00, plus the miscellaneous operating revenue, there would

be left 19.71 cents per thousand as a return to the Com-

pany. Applying this to its sale of 1,947,207,840 cubic feet

in 1924, gives $383,775.53. Federal income tax in the sum

of $9,336.15 would be payable, leaving for return on prop-

erty $374,439.38.

Had the Company undertaken to furnish gas of 650 Brit-

ish thermal units in 1924 the net return to the Company

would have been 14.27 cents per thousand or a total of $277,-

$47.59, with no income tax payable.

Thus, the return of $329,028 in 1923 for gas of the stand-

ard actually furnished, 537 British thermal units, would be

an 8 per cent return on only a value of a little over $4,000,-

000, or a 6 per cent return on approximately $5,500,000.

The Public Service Commission defendant herein ad-

mitted in its answer a value of approximately $7,500,000

and the Attorney-General has urged a finding of present

{tol. 74] cost of not to exceed $7,500,000. On any basis,

therefore, of value or rate of return, the return for 192:

does not constitute the fair return to which the Company

is entitled. On the basis of the fair value of $11,200,656

as found by me the above return is only 2.94 per cent

thereof.

Had the Company furnished gas of 650 British thermal

units during 1923, the return of $234,230 is 8 per cent on

less than $3,000,000, 6 per cent on less than $4,000,000, and

only 2.09 per cent on the fair value of $11,200,656. Conse-

quently the proposed rate of one dollar per thousand cubic

feet must be deemed confiscatory as to 1923.

For 1924, a return of $374,439.38, would have been 8 per

cent upon a value of a little over $4,600,000, a 6 per cent

return on less than $6,150,000 and 3.34 per cent on the fair

value as herein found, without consideration of fixed capital

installed during 1924 in addition to the fair value as of

December 31, 1923.

Had the Company been furnishing gas of 650 British

thermal units during 1924, the return of $277,847.59 would

LLL ESN ALGO LEE SY TNA ERO 4 =.

have been an 8 per cent return on only $3,400,000, a 6 per

cent return on only $4,600,000, and 2.48 per cent on the fair

value found as of December 31, 1923. The statute must

therefore be deemed to impose a rate that is confiscatory as

to 1924.

Gas Standard

The statute in « uestion, besides fixing a rate of $1.00 TO-

1 F

vided as to such Yas Companies

D5 ’

= * * “nor furnish in such city gas of a standard less

[fol. 75] than six hundred and fifty British thermal units

per cubic foot, measured under normal conditions of tem-

perature and atmospheric pressure.’’

Questions are herein raised whether this provision is

constitutional and whether it is separable from the rate pro-

vision. It is obvious that in giving consideration to a rate

for gas there must be a particular standard of quality for

which such rate is to be charged.

In granting powers to the Publie Service Commission, the

Legislature, initially and by amendment, has provided:

. * * “the commission may, by order, fix just and rea-

sonable prices, rates and charges for gas * * * not-

withstanding that a higher or lower price has been there-

tofore prescribed by general or special statute, con-

tract, ° * *.” (See. 72, P. 8. C. Law) and

‘* Have power by order to fix and change from time to time

standards of the purity, illuminating power and heating

power, and standards for measurement thereof, of gas

* * * potwithstanding that other standards * * *

may have been fixed by general or special statute. * * *”?

(See. 66—Subdiv. 3).

The witnesses before me were unanimously of opinion

that present day use of gas requires a standard based upon

heat content. In earlier days, when gas was used for light-

ing, chiefly with open flame burners, a candle-power stand-

ard or measure of light content, was the proper standard.

A candle-power standard preserided by the Legislature was

in effect throughout New York City until the Publie Serv-

ice Commission, by its orders of August 30, 1922, prescribed

CLONE BDI SE A URED ha ty

}

[fol. 76] a heat standard and fixed such standard at a

monthly average of 537 British thermal units per cubic foot

with a minimum of 525. The statutory powers of the Com-

mission and its orders as to such a standard remain in

effect except as they may be limited by the statute herein

in question. This statute undertook to fix a rate of $1.00

for gas of not less than 650 British thermal units. I have

already found that the $1.00 rate would be confiscatory

based upon the furnishing of gas of a monthly average of

537 British thermal units as prescribed by the Commission’s

order and that the $1.00 rate would be confiscatory for gas

furnished of a standard of 650 British thermal units as pro-

posed by the statute. Two questions remain—whether the

provisions as to the rate and the standard are separable

and whether compliance with the $650 British thermal unit

provision is reasonable and practicable.

Upon the question whether provisions for a rate and

standard in the statute are intended to be regarded as in-

separable, it may be pointed out that the Legislature of New

York has never, except when fixing a rate, fixed standard

for gas and it is not likely that it would have passed a

statute containing only a provision as to a standard. It

would appear that the Legislature intended to fix a rate

for a certain standard, particularly when we consider that

the provision as to a standard was inserted in the bill after

its introduction. Had the Legislature intended to fix a

rate for gas of a standard, already fixed or to be fixed by

the Commission, the amendment would not have been in-

serted. The rate and standard therefore were intended

to be so tied together as to be inseparable and that if one

fell the statute failed.

[fol. 77] Considered independent of the rate limited by

the statute, the standard fixed is void as an unreasonable,

arbitrary and destructive enactment not warranted by the

police power of the state. Four witnesses of extended ex-

perience in the gas business testified that it was not only

altogether impossible for plaintiff to furnish its consumers

anything like satisfactory service under the 650 British

thermal unit standard, but that the furnishing of gas of

such standard would be attended with hazards to life and

property. They were Mr. Robert M. Searle, the president

of the Rochester Gas and Electric Corporation, a consult-

ER ee, OF 8 Sw TT a, ae 1m *

(Renn mm

Se a AS Rennes ow tae ee ee EE a Re RET 0 el

ing engineer of 39 years’ experience in the gas business, in-

cluding researches on the best method of making a useful

high heat content gas; Mr. John F. Wing, engineer of re-

search of the Boston Consolidated Gas Company, with

American and European training in chemistry, and with 36

years’ experience in the manufacture and distribution of

gas; Mr. A. Gordon King, service engineer of the American

Gas Association, a trade association representing 90 per

cent. of the gas manufactured in America, a graduate of

the City and Guilds of London Institute in gas mapufae-

ture and allied subjects, formerly gas engineer for the New

York Publie Service Commission for the Second District,

and later gas engineer for the Commonwealth of Pennsyl-

vania, who for over 20 years has made tests and investiga-

tions as to the utilization efficiencies of eases in the respect

to various degrees of heat content: and Mr. A. S. B. Little,

formerly gas engineer of the Ilinois Utilities Commission,

a witness for the defendant, Attorney-General.

According to the witnesses, gas of as high heat content

as 690 British thermal units has never been preseribed or

[fol. 78] supplied anywhere for general industrial and do-

mestic uses. All witnesses agreed that efficient or satis-

factory service is obtainable only by the furnishing of gas

of a substantially uniform heat content. Gas is used in

appliances that generally utilize the Bunsen burner, which

Mr. Searle said was so devised as to consume the largest

possible quantity of gas in the smallest possible flame area.

It is essential that there be a suitable and proper pre-mix-

ture of gas and air which is admitted through a shutter into

a chamber through which the gas passes to the tip of the

burner. The quantity of air that should be admitted is

dependent upon the heat content of the gas. It is obvious

that as the heat content of the gas varies the mixture will

not be balanced. When the heat content of the gas is in-

creased without adjustment in the air shutter, a long yellow

flame is produced, due to the insufficiency of air in the mix-

ture, and the utensil to which the flame is applied is cov-

ered with a deposit of carbon. On the other hand, if the

heat content of the gas is reduced, there is an over supply

of air, causing reduction in the flame area and often times

a flare back in the air chamber, sometimes causing an ex.

plosion.

If it is impossible to supply 650 British thermal units gas

uniformly, there cannot be satisfactory or efficient service.

Gas of 650 British thermal! units cannot be manufactured

at the works with the same degree of uniformity of heat

content as gas of a lower heat content. An increase in

heat content is effected through the use of additional gas

oil. It appears that to make gas of 537 British thermal

units, for instance, requires approximately 2.83 gallons of

gas oil per thousand cubic feet of gas made, while to make

[fol. 79] gas of 650 British thermal units would require at

least 4.65 gallons of gas oil. Mr. Little testified that it

would require at least 2 gallons more to make the higher

heat content gas. In the use of such large quantity of gas

oil the witnesses say that it is impossible to make gas as

stable or as uniform as when the smaller quantity of oil

is used. When it is attempted to distribute and supply

high heat content gas extreme and undesirable variations

are met due to the effect of varying temperature affecting

gas in the holders and in the distribution system. The ad-

ditional gas oil used produces in the gas a larger quantity

of condensible hydrocarbons which drop out of the gas as

the temperature falls, causing the heat content to be low-

ered and then when the temperature rises these are picked

up and increase the heat content. These variations in heat

content not only produce an unsatisfactory service but

create hazards. Gas of 537 British thermal units may vary

5 per cent., or about 25 units, from the standard on delivery

to consumer, which is stated to be the limit of utilization of

appliances without readjustment. 650 British thermal unit

gas might vary 100 British thermal units either way from

the standard.

Since October, 1922, plaintiff has furnished gas in com-

pliance with the order of the Commission, of Angust 30,

1922, prescribing an average of 537, and a minimum of 525,

British thermal units per cubic foot. The appliances of

plaintiff’s consumers are adjusted or suited to utilize such

gas and consist mainly of gas ranges and water and room

heaters. While the larger part of the appliances have ad-

justable burners, they are not so simple or easy to adjust

that it can be done by consumers themselves. The adjust-

[fol. 80] ment of burners is distinctly a function of men

trained to that work. All of the witnesses are in agreement

OE OIL OE FELIS ON Fh TE TR IY GEO

that it is entirely impracticable and impossible for plaintiff

to furnish 650 British thermal unit gas unless and until the

appliances are adjusted or adapted for such gas. Twenty-

one per cent. of the appliances are not adjustable and

would have to be discarded. Any attempt to adapt the

adjustable appliances to gas of 650 British thermal units

would require at least six months’ time, for there would

need to be, first, an adjustment to approximate 600 British

thermal units and a raising of the gas manufactured to that

point, and then an adjustment for the 650, with gas of that

standard thereafter manufactured. The work would have

to be done in two stages because it is impossible to change

at once from a 537 gas to a 650 gas because of the great

difference between these standards. The need of a con-

siderable period of time in which thus to adjust appliances

and to make other changes is well known to Commissions

and others familiar with the gas business. The Legisla-

ture, however, provided that its sta ute, proposing that

the standard should be changed from the existing standard

fixed by the Commission at 537 British thermal units to

650 British thermal units, should take effect immediately.

The companies were thus apparently expected to comply

forthwith in disregard of physical facts, or suffer the pen-

alties of violation of a provision of law. The temporary

injunction herein, however, permitted the plaintiff to con-

tinue under the standard fixed by the Commission pending

the outcome of this suit.

Regardless, however, of immediate compliance, it is to

be observed that such a substantial raising of the heat con-

[fol. 81] tent would require adjustment of appliances.

Many appliances could not be adjusted and would need to

be scrapped. Furthermore, the plaintiff contends that no

duty is imposed upon it, or legal right given to it, to enter

the premises of consumers to adjust appliances, or to com-

pel the discarding of non-adjustable appliances, nor is there

any legal obligation requiring consumers to adjust their

own appliances, or to have appliances that will utilize

efficiently gas of a preseribed standard. A mere notice

from the Company to consumers to adjust or obtain appli-

ances suitable to gas to be furnished would be ineffective.

Yet if all appliances were not proper in adjustment danger

would follow from an attempt by the Company to furnish

AIS Rb nF et NRE ae Fs INI A AOE NEE OD 0 RN RET a Berg DD BOER en AD le Ss OPE A Ha wt

gas that would not be properly utilized. The Legislature

has not provided a procedure that will permit assurance

of properly adjusted appliances. Without such assurance,

compliance with the proposed standard would be dangerous

to life and property, a responsibility that the Legislature

could hardly have intended. Incidently, gas of such a

standard, as has been indicated above, would result in un-

satisfactory and ineflicient service because of wide varia-

tions in quality, even if all appliances were set for 650

British thermal units.

Such a regulation would seem to be beyond the proper

police power of the State. Analogous is the holding of the

Supreme Court in Willcox v. Consolidated Gas Co. (212

U.S. 19, 53) as to a regulation as to pressure, where it is

said:

“The evidence shows that to put a pressure such as is

demanded by the acts upon the mains and other service

pipes in their present condition would be to run a great

risk of explosion, and consequent disaster. Before com-

[fol. 82] pliance with this provision would be safe the mains

and other pipes would have to be strengthened throughout

their whole extent, and at an expenditure of many millions

of dollars, from which no return could be obtained at the

rates provided in the acts. This would take from the com-

plainant the ability to secure the return to which it is ertitled

upon its property, used for supplying gas, and the provi-

sion as to the amount of pressure is therefore void.’’

And also South Covington Railway v. Covington (235

U.S. 557) where the Court said:

“As to the regulation affecting the temperature of the

ears, and providing that they shall never be permitted to

be below 50° Fahrenheit, the undisputed testimony shows

that it is impossible in the operation of the cars to keep them

uniformly up to this temperature, owing to the opening and

closing of doors, and other interferences that make it im-

practicable. We therefore think, upon this showing, this

feature of the ordinance is unreasonable and cannot be sus-

tained’’ (pp. 548-9).

Burns Baking Co. v. Bryan (264 U.S. 504) is one of the

latest expressions of the United States Supreme Court on

. 7 “ or ‘7 sig Dg sini ree gas ADA

this subject, holding certain restrictions on the weight of ;

bread to be unreasonable and arbitrary and repugnant to p

the Fourteenth Amendment. The Court there said:

‘* As indicated by the opinion of the State Supreme Court,

ingredients selected to lessen evaporation after baking

would make an inferior and unsalable bread. It would be

unreasonable to compel the making of such a product or to

prevent the making of good bread in order to comply with

the provisions of the act fixing maximum weights.

[fol. 83] The act is not a sanitary measure’’ (pp. 515, 6).

These and other rulings of the courts hold that a police

regulation cannot Je arbitrary but must be just and reason-

able and within the requirement that it shall properly pro-

tect the lives, health, morals or welfare of a community.

The plaintiff, in harmony with efforts of the industry, has

attempted to furnish gas of a quality best suited to present

day needs of its publie and in accordance with the findings

of the Public Service Commission which, as an expert

agency of the State, has kept itself informed upon such

matters. The action of the Legislature in thus attempting

to make effective an arbitrary standard, condemned by ex-

pert witnesses on both sides, and productive of danger, with

no compensating advantages, has, in my opinion, gone be-

yond its power and its enactment should be held uncon-

stitutional and void.

Conclusion

The views herein expressed and the conclusions reached

indicate so clearly that the proposed rate is confiseatory,

as well as the proposed standard arbitrary and beyond the

police power to enact, that there would seem no room for

argument that the Company should have experimented un-

| der the new rate and presumably with the new standard. |

aim unable to find any case that would require a trial period

of the statute before questioning its validity with the facts

so clear as to actual operating expenses and results so seri-

ous from an attempt to change to the proposed standard.

[fols. 84&85] I have made formal Findings of Fact and

Conclusions of Law which are attached and submitted here-

with. A correct transcript of the testimony and copies of

the exhibits together with a stipulation of the various solic-

OURS 6hen

enaye

Cites tam tt i a,

itors waiving the signatures of the witnesses to their several

depositions, and further waiving the filing of the original

exhibits marked in evidence, are also filed herewith.

Respectfully submitted.

Almeth W. Hoff, Special Master.

Brooklyn, N. Y., April 15, 1925.

[fol. 86] In Unitep States District ( ourt

[Title omitted ]

Report or THE SpectaL Master—Filed April 20, 1925

To the Honorable Judges of the United States District

Court for the Kastern District of New York:

I, the undersigned, the Special Master appointed by the

Honorable Mareus B. Campbell, District Judge, by an or-

der entered herein October 11, 1923, directing me to take

the testimony and evidence upon the issues herein, make all

needed computations and fully hear the facts and report

findings of fact and conclusions of law, together with the

evidence for the advisement of the Court,

[fol. 87] Do hereby Respectfully Report that, having been

attended by counsel for the respective parties as below

stated, I proceeded to take the proofs submitted by the par-

ties and, after hearing the parties fully, do make the fol-

lowing Report.

Appearances:

Samuel F. Moran (Samuel F. Moran, John D. Monroe,

Travis H. Whitney and Robert H. Grimes, of Counsel), So-

licitor for Plaintiff.

Charles G. Blakeslee (Sherman C. Ward, of Counsel,) So-

licitor for Defendants William A. Prendergast, William R.

Pooley, Charles Van Voorhis, George R. Lunn, and George

R. Van Namee, constituting the Public Service Commis-

sion of the State of New York.

James A. Donnelly (Judson Hyatt, of Counsel), Solicitor

for Carl Sherman, as Attorney-General of the State of New

York.

RARE To CRETE Vg ee CTH A at rye aE . 2 af

| es EDD LAA A AAT ALLE AIR RACIAL PLS ASI italia cables tanto ioaes ie

és

~ 3

59 ;

John Holley Clark, Jr. (Anthony P. Ludden, of Counsel), i

Solicitor for Albert Ottinger, substituted for Carl Sher-

man, as Attorney General of the State of New York.

Upon the proofs as taken I find and report as follows:

KoA 7 Racers

Findings of Fact

1. Plaintiff was duly incorporated on the 26th day of

May, 1904, under the Transportation Corporations Law of

the State of New York, and since July 1, 1904, has been and

still is engaged in the business of manufacturing, furnish- i

ing and selling gas for public and private use in the ter- :

ritory comprising the thirtieth ward and a small part of ;

[fol. 88] the thirty-first ward of the Borough of Brooklyn in

the City of New York, which is a city containing a popula-

tion of one million or more.

2. The Kings County Gas and Muminating Company was

incorporated December 17, 1889, under chapter 40 of the :

laws of 1848, and the several acts amendatory thereof and t

supplementary thereto, and on or about December 26, 1889, H

received the consent of the municipal authorities of the town ;

of New Utrecht, Kings County, to lay conductors for con-

ducting gas through the streets, lanes, alleys and squares

in said town. Said Kings County Gas and Illuminating j

Company commenced supplying gas for public and private 4

use on or about September 1, 1891, and continued to supply :

the same until its merger with the plaintiff July 1, 1904. :

Pursuant to the provisions of chapter 451, laws of 1894, the :

territory comprising the town of New Utrecht on July 1, ;

1894, was added to the City of Brooklyn as the thirtieth ward 4

thereof, and since January 1, 1898, has been, and now is, the ;

thirtieth ward of the Borough of Brooklyn, City of New

York.

3. On July 1, 1904, plaintiff, being then the owner of all

the issued and outstanding capital stock thereof, duly

merged into and with itself said Kings County Gas and I-

luminating Company in accordance with the provisions of

the Stock Corporation Law of the State of New York, and

thereupon acquired and became, and since has been, pos-

sessed of all its estate, property, rights, privileges and

franchises,

4. Plaintiff has issued and outstanding in the hands of

the public $750,000 of 5 per cent. first mortgage bonds, due

October 1, 1940, and $2,389,000 of 5 per cent. and $1,822,000

[fol. 89] of 614 per cent. first refunding mortgage bonds,

due October 1, 1954. Plaintiff has issued and outstanding

50,000 shares of common capital stock of no par value and

$500,000, par value of 8 per cent. cumulative preferred

stock. Since January 1, 1824, plaintiff has obtained sub-

scriptions in the amount of $702,400 to an issue of 7 per

cent. cumulative preferred stock, two-thirds of which sub-

scriptions were from its customers and employees. At

May 8&8, 1924, such subscriptions to the amount of $429,900

had been paid in full and $95,169.50 had been received on

account of the balance of the subscriptions.

5. The credit balance in the contingeney reserve on plain-

tiff’s books at December 31, 1922, was $256,695.72, and at

December 31, 1923, it was $292,689.21; its bond amortiza-

tion reserve at December 31, 1923, had a credit balance of

$38,189.09, its uncollectible bill reserve a credit balance

of $5,000, and its retirement reserve a credit balance of

$201,910.62.

6. Plaintiff owns a piece or parcel of land bounded ou

the east by First Avenue, on the north by the south line of

54th Street, and the center line of 54th Street extended,

on the west by New York Bay, and on the south by the

center line of 55th Street extended, in the Borough of Brook-

lyn, having a total area of 462,208 square feet, 295,80

square feet being uplands and 166,353 square feet being

lands under water outside the bulkhead line, the present fair

market value of which land without improvements is $1,141,-

344. Plaintiff’s gas works or manufacturing plant is lo-

eated upon the lands above described and 231,581 square

feet of the upland and 55,073 square feet of the lands under

[fol. 90] water are used by the plaintiff in the conduct of

its business, the present fair market value of which land

without said improvements is $811,650.

7. Plaintiff owns four parcels of land at 9th Avenue and

65th Street on which are located its gas holders, shops and

yards. The parcel at the northwest corner of 9th Avenue

and 65th Street has an area of 18,000 square feet, the

7 eensiad wie nails AS ive ire pe ate hi bb pm _|

present fair market value of which parcel without improve-

ments is $23,750. The parcel at the northeast corner of

Ith Avenue and 65th Street has an area of 4,001 square feet,

the present fair market value of which parcel without im- :

provements is $6,300. The parcel at the southwest corner :

of 9th Avenue and 65th Street. has an area of 109,017

square feet, the present fair market value of which parcel

without improvements is $138,771. The parcel at the south-

east corner of 9th Avenue and 65th Street has an area of

8,825 square feet, the present fair market value of which

parcel without improvements is $13,531,

8. Plaintiff’s manufacturing works are equipped with

seven gas generators of a combined rated capacity of

17,400,000 cubic feet of gas per twenty-four hours. Its gas

storage holders have a capacity of 2,500,000 cubie feet. ;

Plaintiff, on June 1, 1923, had approximately 205 miles of :

gas mains laid in the streets, avenues and publie places of :

said thirtieth and thirty-first wards, consisting of 1,076,410

feet of cast iron mains, ranging in sizes from 3 inches to 20

inches, 6,361 feet of wrought iron mains, ranging in sizes i

from 1 inch to 3 inches, and 814 feet of wrought steel mains, é

ranging in sizes from 4 inches to 18 inches. On June 1, ;

1923, plaintiff's said gas mains were connected to the prem- t

[fol. 91] ises of its consumers by 26,168 service pipes of 4

a combined length of 1,217,866 feet, and on that date plain- j

tiff had installed on the premises of said consumers 50,717 :

gas meters.

9. The cost of reproducing the manufacturing plant, dis-

tributing system and all other structural property owned

and used by the plaintiff in its gas business as of June 1, ;

1923, at prices for labor and material then prevailing, ex-

clusive of the cost of restoring street pavement over gas

mains and gas service pipes, was, and is, at least the sum of

$8,059,417, classified as follows: >

SORE NTE NERC

Buildings — ¥ $752,134

Manufacturing apparatus and equipment and

gas holders . cae a7: 1,590,291

Gas mains in streets . _ 2,898,617

Gias service pipes 1,109,686

Gas meters on customers’ premises and in stock 816,870

Pt RSPR ate in DnB: aS ao

Engineering, superintendence and general con-

tractor’s expense and profit 5... am 317,536

Interest during construction |. . oe 421,623

Taxes during construction 25,646

Administration, legal and miscellaneous general

expenses during construction me 127,014

$8,059,417

10. The plant, machinery and equipment of the plaintiff

have been well maintained repairs, renewals and replace-

ments having been made as required. Said plant, machinery

and equipment are in as efficient operating condition for

the economical production of gas as if new. The uncontra-

dicted evidence shows that an expenditure of $1,855.50 on

the buildings and $16,557.92 on the machinery, apparatus

and equipment, as of June 1, 1928, would put the same in a

condition substantially as good as they were when new.

These amounts deducted from the reproduction cost of the

structural property give a reporduction value of $8,041,003.

[fol. 92] 11. The cost to restore the street pavement then

existing over the gas mains and gas service pipes of plain-

tiff as of June 1, 1923, at prices for labor and material then

prevailing was and is, at least the sum of $1,639,353 made

up as follows

eR he eg sc ae eg ak Boos di se $1,444,347

Engineering, superintendence and miscellaneous

expenses ae 108,326

Interest during construction Pa amae 4% a 86,660

$1,639,333

12. To June 1, 1923, plaintiff had expended the sum of

$97,696.65 in the Testor ation of street pavement necessarily

cut in the laying of gas mains and gas service pipes in the

extension from time to time of its distribution system.

13. As of June 1, 1923, plaintiff owned and used in its

gas business miscellaneous general equipment, consisting

of laboratory apparatus, office and storeroom furniture and

fixtures, stable and garage vehicles and accessories and

small tools, which had cost the sum of $102,541,

SCL RLIIS GENIE L ETE NESE UeR anc aA Bi inn

LE SPRL IS A OAM te nim, ON iN Liner Ome

14. Between June 1 and December 31, 1923, plaintiff ex-

pended for additions, extensions and improvements to its

manufacturing plant and distributing system the sum of

$565,414.25 in excess of the cost of all property withdrawn

from service during said period.

15. The territory served by plaintiff is a rapidly grow-

ing section of New York City, and to meet the increase in

demand for gas plaintiff has been obliged to enlarge its

manufacturing facilities, extend its mains, and install ad-

ditional new gas service pipes and meters each year. Plain-

tiff installed at new locations 4,029 meters in 1921, 5,665

meters in 1922, 7,086 meters in 1923, and 2,744 meters in the

first four months of 1924, having on the premises of its con-

[fol. 93] sumers at April 30, 1924, a total of 98,653 meters.

The estimated expenditures of plaintiff for main extensions,

services and meters from January 1 to December 31, 1924,

were $521,786.18.

16. Due to the increased and increasing demand upon

plaintiff's plant and facilities, it is necessary for plaintiff

to enlarge its gas storage ‘apacity, and plaintiff has entered

into a contract for the construction of a 5,000,000 eubie foot

gas holder on its lands at 9th Avenue and 6oth Street, cost-

ing approximately $450,000.

17. In 1923 plaintiff entered inte a contract for, and com-

menced, the construction on its lands at %th Avenue and

65th Street of a booster station necessary adequately to dis-

tribute under suitable pressure the constantly increasing

supply of gas to outlying districts within its territory. Ex-

penditures estimated to amount to $148,674.96 were re-

quired to be made in 1924 to complete the work under said

contract.

18. Plaintiff has never owned an office building, but has

rented office space for its officers and clerical force. Due to

the growth of its business and the consequent increase in

its office requirements, the quarters oceupied by plaintiff

for several years past have become entirely inadequate.

Plaintiff has acquired a site on which to construct an ade-

quate office bulding, the estimated cost of which is $550,000,

19. The average monthly working capital employed by

the plaintiff in the year ended December 31, 1923, was

Si ae

bie 2 aac i SS ea nF ry Paes nerve:

ROO AEDT ALE ARN A ON AE GERI Ta NO Ne cer a I,

$868,372.47, made up of the average monthly capital in the

following accounts:

[fol. 94] Account receivable $303,988 60

Material and supplies A Sy ete Bee .. 219,233 80

RMN hes cr tne eee 195,142 20

Gas supplied but not bille« . -. 125,000. 00

General store room suspense Pate cae 12,162 40

Coal handling suspense __. ere 649 68

Prepaid insurance .............. re D,837 41

Prepaid taxes, ete. ahs ; 5,358 38

Deposits—publie authorities performance of

contracts rena ; we 1,000. 00

$868,372 47

The reasonable and necessary working capital employed

by plaintiff in its gas business since January 1, 1923, has

been, and is, at least $600,000.

20. Plaintiff's gas works, plant and system is a com-

plete, connected, established and operating property, doing

business and earning money, and the element of going con-

cern value therein is a property right, independent of the

franchise, or of any mere good will as between such plant

and its consumers, and such element of going concern is of

the fair and reasonable value of $800,000.

21. The land upon which plaintiff’s gas holders, shops

and yards are loeated, as aforesaid, was aequired by the

Kings County Gas and Iluminating Company in 1890 at a

cost of $20,000, and the land upon which plaintiff’s manu-

facturing works are located was acquired by said Kings

County Gas and Tiluminating Company in 1896 at a cost of

$119,000. The total cost to the Kings County Gas and

Illuminating Company of all the property owned by it and

acquired by the plaintiff upon its merger July 1, 1904, as

shown by the books of said Kings County Gas and Illumi-

nating Company was $2,441,997.40. The investment of

plaintiff and its predecessor, with land at its then present

market value, in the property owned by the plaintiff at De-

cember 31, 1923, exelusive of working capital, was $7,847,-

212.59, made up as follows:

[fol. 95] Cost to Kings County

Gas and Illuminating Com-

pany of property existing

June 30,1904 $2,441,997 40

Less costofland ey 139,000.00

$2,302,997 40

Net additions to fixed capital July 1, 1904, to

December 31, 1923 mine _ 4,198,603 69

Present value of land 1,845,611 50

$7,847,212 59

. The fair and reasonable value of the land, manufae-

turing plant, distributing system, and all other property,

tangible and intangible, owned and used by the plaintiff in

its gas business, excepting its franchises, as of June 1, 1923,

was and is the sum of $10,635,242, and as of January 1,

1924, was and is the sum of $11,200,656, classified as follows:

Land . $994,002

Manufacturing plant, distributing system and

other structural property 8,041,003

Restoring street pavement over mains and servy-

ices cut by plaintiff in laying the same 97,696

Miscellaneous general equipment 102,541

Working capital 600,000

Going coneern value aces 800,000

$10,635,242

Cost of additions to fixed capital, June 1, to

December 31, 1923... . A Aaa! 065,414

$11,200,656

23. The fair, reasonable and proper rate of return on the

value of the property which plaintiff owns, uses and em-

ploys for the convenience of the public to which plaintiff is

entitled, and which is necessary in order that such return

may equal that generally being made at the date and for

the period of the inquiry in the City of New York on invest-

ments in other business undertakings which are attended

by corresponding risks and uncertainties, and which will be

reasonably sufficient to assure confidence in the financial

I—365

eine:

EG RAMTEC

PRP RROBENE I eS IO!

soundness of the plaintiff and adequate under efficient and

[fol. 96] economical management to maintain and support

its credit and enable it to raise the money necessary for the

proper discharge of its public duties, was and is not less

than 8 per centum per annum.

24. In the year ended December 31, 1923, plaintiff manu-

factured 1,977,410,000 cubic feet of gas, and its sales were

1,794,969,872 cubie feet. The actual total cost to plaintiff,

ineluding the expenses incident to the sale of gas appliances,

in manufacturing and distributing said gas was $1,640,-

279.49, or 91.38 cents per thousand cubic feet of gas sold,

made up as follows:

Cts. per M

Production expenses $892,501 13 49 73

Distributing expenses 143,636 40 8 00

Street lighting expenses 915 94 05

Commercial expenses 124,461 36 86 93

Promotion expenses 49,423 58 275

General expenses 156,651 13 & 72

Retirement expense 53,990 21. 3 00

Federal income tax 68,303 61 3 81

Other taxes 140,987 02 7 86

Uneollectible bills 9,409 11 53

Total operating expenses $1,640,279 49 91 38

25. The expenses incurred by plaintiff in the manufacture

and sale of gas in the year ended December 31, 1923, stated

in the preceding finding do not include any charge for de-

preciation: The only charge made over and above the

actual expense for repairs is 3 cents per thousand eubie

feet of gas sold to provide for the retirement of fixed capital

or plant withdrawn from service, which for the purpose of

this case I have reduced to 1% cents. Such expenses do

not include any charge or expenditures by the plaintiff for

interest upon its bonds, temporary loans, consumers’ de-

posits, or other indebtedness, and include no return upon

the capital or property employed in any form whatsoever.

The expenditures so made, as herein modified, were reason-

able and necessary.

[fol. 97] 26. Plaintiff’s sales of gas for the year ended

December 31, 1924, were 1,947,207,849 cubic feet, an increase

of 152,237,968 eubie feet over the sales for 1923. Such in-

crease in sales does not reduce the unit (1,000 enbie feet )

cost of manufacturing and distributing gas. Reductions in

the unit cost in 1924 are limited to those occasioned by the

slightly lower costs of gas oil, which is the largest item in

the expense of making gas, and generator fuel under exist-

ing contraets whieh covered plaintiff's requirements for the

year 1924. The average cost, including handling charges,

of the gas oil per gallon was 5.2089 cents in 1923, and

4.75475 cents in 1924. The average cost, including handling

charges, of generator fuel per long ton was $10,062 in 1923,

and $9.9673 in 1924. The gas oil and generator fuel used

in 1923 at the contract prices for 1924 would have cost

$28,298.50, or 1.58 cents per thousand eubie feet of gas sold,

less than was actually paid for the same, making the cost to

produce and distribute gas, exclusive of federal income tax

and by reducing the retirement expense to 11% cents, 84.50

cents per one thousand eubie fect of gas sold.

27. Since October 1, 1922, plaintiff has supplied gas in

compliance with an order of the Publie Service Commission

of the State of New York dated August 30, 1922, fixing a

monthly average of 537, and a minimum of 525, British ther-

mal units per cubie foot. The gas furnished by plaintiff,

as tested by the Publie Service Commission, in the twelve

months of 1923 showed the following monthly averages in

British thermal units per cubic foot : 538, 546, 553, 549, 545,

947, 550, 558, 548, 547, 543 and 542.

28. In the manufacture of gas in 1923 plaintiff used 2.83

gallons of gas oil, 33.98 pounds of generator fuel and 5.24

[fol. 98] pounds of solid boiler fuel per thousand eunbie feet

of gas made. The increase in the heat content of gas is

effected through the use of additional gas oil, resulting in a

slight reduction in the quantities of generator and boiler

fuel required and an increase in the amount of water gas

tar recovered. To furnish gas of 659 British thermal units,

tested one mile from the plant, wou!'d require not less than

4.65 gallons of gas oil, 32 pounds of generator fuel and 3.98

pounds of solid boiler fuel per thousand cubic feet of gas

made. In plaintiff's actual operations, with the use of 2.83

gallons of gas oil per thousand eubic feet of gas made, an

average of 8 per cent of the gas oil is recovered as water

gas tar, but with the use of 4.65 gallons of gas oil per thou-

Ee EI re) Et Se A Nene

eee eee

ACTON ins Cot en Nn Ea

sand cubic feet in the manufacture of the higher heat con-

tent gas, the recovery would approximate 16 per cent of the

gas oil used, or an increase of approximately .47 of a gallon

of water gas tar per thousand cubic feet of gas made. The

increase in the cost of furnishing gas of 650 British thermal

units per cubic foot instead of the gas furnished by plain-

tiff since January 1, 1923, at the present prices of material,

is not less than 5.44 cents per thousand cubic feet of gas

sold, computed as follows:

1.82 additional gallons gas oil at

4.7G47B Comte. iii ccicc sc scccss 8 65 cents.

1.98 less pounds generator fuel at

He GUD a a keen eacacadsvesecas 89 cents.

1.26 less pounds solid boiler fuel at

Aan CUB onc 0s NE Ay Aa) gre ot

A7 additional gallons water gas tar

recovered at 4.75475 cents... ... 1a “*

-—- 3.66 ‘‘

Net increase in cost per thousand made... .. 4.99 *

Net increase in cost per thousand sold........ o44 ‘

29. Had a rate of $1.00 per thousand eubie feet for gas

{| fol. 99] of the standard furnished by plaintiff been enforced

against plaintiff, there would have been available for re-

turn upon the property employed by plaintiff for the year

ended December 31, 1923 but $329,028.01, computed as fol-

lows:

Cts. per M

Sales of gas at $1.00 per thousand. $1,794,969 87 100 00

Miscellaneous operating revenue $1,958 28 4

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