can this item be included for any, lic highway than the services rendered

amount.

San Diego Water Co. v. San Diego, supra; Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418.

Capitalization is not evidence of present value.

Knoxville v. Knoxville Water Co. 212 U. S. 1, 53 L. ed. 371, 29 Sup. Ct. Rep. 148; Smyth v. Ames and San Diego Water Co. v. San Diego, supra.

The public should only be required to pay a fair and reasonable return upon the present reasonable value of the company's property used at the time for the convenience of the public, and cannot be required to provide, in addition thereto, for the payment of interest upon bonded | or other debts; and the rate should be the same whether the works are acquired or constructed by the company from its own resources, or with money borrowed from others.

Redlands, L. & C. Domestic Water Co. v. Redlands, 121 Cal. 365, 53 Pac. 844.

No allowance can be made for commission on sale of bonds, nor can bond interest nor cost of paying it be charged to operation. No distinction can be made between corporations which have completed their works with their own money and those which have borrowed money for that purpose from others. In either case, the money actually and reasonably invested is the basic criterion of the revenue to be allowed.

San Diego Water Co. v. San Diego, 118 Cal. 556, 38 L.R.A. 460, 62 Am. St. Rep. 261, 50 Pac. 633.

The rate fixed by this ordinance not having been put to a practical test, but having been suspended by this injunction, the ordinance will be upheld unless the case is one leaving no just or fair doubt that the rate, if enforced, would be confiscatory.

Willcox v. Consolidated Gas Co. 212

U. S. 19, 53 L. ed. 382, 48 L.R.A. (N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; Knoxville v. Knoxville Water Co. 212 U. S. 1, 53 L. ed. 371, 29 Sup. Ct. Rep. 148; Ex parte Young, 209 U. S. 123, 52 L. ed. 714, 13 L.R.A. (N.S.) 932, 28 Sup. Ct. Rep. 441, 14 Ann. Cas. 764; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 47 L. ed. 892, 23 Sup. Ct. Rep. 571.

by the company are reasonably worth.

Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418; San Diego Land & Town Co. v. National City, 174 U. S. 739, 43 L. ed. 1154, 19 Sup. Ct. Rep. 804.

The master was not bound to follow the expert testimony; he had the right, and it was his duty, to fix values in the light of all the evidence before him, tested by his own experience, at such figure as his best judgment dictated.

Head v. Hargrave, 105 U. S. 45, 26 L. ed. 1028; Whitney v. New Orleans, 4 C. CA. 521, 13 U. S. App. 229, 54 Fed. 6.; The Conqueror, 166 U. S. 132, 41 L. ed. 947, 17 Sup. Ct. Rep. 510; Chicago, K. & W. R. Co. v. Drake, 46 Kan. 569, 26 Pac. 1039; Grand Rapids, L. & D. R. Co. v. Chesebro, 74 Mich. 466, 42 N. W. 66; Laflin v. Chicago, W. & N. R. Co. 33 Fed. 422; Johnson v. Chicago, B. & N. R. Co. 37 Minn. 521, 35 N. W. 439; Lincoln Land Co. v. Phelps County, 59 Neb. 249, 80 N. W. 818; Forsyth v. Doolittle, 120 U. S. 73, 30 L. ed. 586, 7 Sup. Ct. Rep. 408; Davis v. School Dist. 84 Neb. 859, 122 N. W. 38; Hull v. St. Louis, 138 Mo. 618, 42 L.R.A. 753, 40 S. W. 89; Jones v. Fitzpatrick, 47 S. C. 40, 24 S. E. 1030.

The cost of reproduction, original cost, and market value are not the sole tests, but are matters to be considered in arriving at the fair present value.

Minnesota Rate Cases (Simpson v. Shepard) 230 U. S. 352, 57 L. ed. 1511, 48 L.R.A. (N.S.) 1151, 33 Sup. Ct. Rep. 729, Ann. Cas. 1916A, 18.

The master was not required to state the mental processes by which he arrived at his results, nor to give reasons for any of his findings of fact.

Lundell v. Cheney, 50 Minn. 470, 52 N. W. 919.

Neither the question as to whether whether it is or is not perpetual is inplaintiff's franchise is valid nor as to

volved here.

111, 60 L.R.A. 426, 93 N. W. 201, 2 Ann. Bronson v. Albion Teleph. Co. 67 Neb. Cas. 639.

Franchises of this character should be treated as property only to the extent necessary to protect the holder in the exercise of the rights granted therein, and upon the faith of which the comWhat the company is entitled to ask pany has expended its funds; but where is a fair return upon the value of that the franchise is a mere voluntary grant which it employs for the public conven- by the public, for which no money has ience. On the other hand, what the pub- been paid, and where the company has lic is entitled to demand is that no more nothing invested therein, no value should T be exacted from it for the use of a pub-be placed thereon as an element in de

termining the compensatory character of rates. The company has no actual investment in the franchise, and why should it be permitted to demand a return from the public upon a mere right to occupy the public streets which the public has gratuitously granted?

Wyman, Pub. Serv. Corp. § 1104; Minnesota Rate Cases (Simpson v. Shep ard) 230 U. S. 352, 48 L.R.A. (N.S.) 1151, 57 L. ed. 1511, 33 Sup. Ct. Rep. 729, Ann. Cas. 1916A, 18.

Organization expense cannot be capi

talized.

Whitten, Valuation of Pub. Serv. Corp. § 262; Cedar Rapids Gaslight Co. v. Cedar Rapids, 144 Iowa, 426, 48 L.R.A. (N.S.) 1025, 138 Am. St. Rep. 299, 120 N. W. 966.

Mr. Justice Pitney delivered the opinion of the court:

This is an appeal from the final decree of the district court dismissing the bill of complaint in a suit brought by the Lincoln Gas & Electric Light Company, a Nebraska corporation, against the city of Lincoln and [259] its officials, praying for an injunction to restrain enforcement of an ordinance of the city, adopted November 19, 1906, which had the effect of reducing complainant's charges for gas from $1.20 to $1 per 1,000 cubic feet, and an ordinance adopted December 10, 1906, assessing an annual occupation tax upon gas companies in the city.

the value of complainant's plant, the cost of operation, and the gross and net income; that the case had not been referred to a master, nor had specific findings of fact been made by the court below, but only general conclusions, which were found not to be sufficient in view of errors assigned which opened up substantially the entire case. For this reason the decree was reversed and the cause remanded to the district court, with directions to refer it to a master, with leave to both parties to take additional evidence. A temporary injunction [260] which had been granted in the court below and continued in force until final decree and afterwards pending the appeal, under a bond conditioned to account for overcharges if the rate ordinance should be sustained, was by the decree of reversal continued in force until final decree in the court below, upon condition that a new bond with sureties were given to account for overcharges to consumers since the original restraining order, in the event the ordinance should be sustained. 223 U. S. 349, 56 L. ed. 466, 32 Sup. Ct. Rep. 271. Upon the going down of the mandate, the district court referred the case (July, 1912) to a master, to take the proofs and report his findings of fact and of law. After a full hearing he made an elaborate report (September, 1914) to which complainant filed about 125 exceptions, with a motion to recommit the case to the master for additional findings, which motion was denied. The master found the rate ordinance was not confiscatory, and (differing from the former decision of the circuit court) held that the occupation tax ordinance was valid, and included the tax as an operating expense. Upon the hearing of the exceptions the report of the master was confirmed by the district court, and the bill dismissed as to the rate ordinance, by decree entered September 23, 1915; the judge filing a memorandum to the effect that he did not agree. with the master as to the validity of the occupation tax ordinance, but deemed it. unnecessary to pass upon this in the de-cree, since the result reached by the master would be only strengthened by adjudg

The action was instituted in December, 1906, without previous test of the $1 rate, in the then circuit court of the United States for the district of Nebraska. Besides grounds not pressed, the rate ordinance was attacked upon the ground that its enforcement would deprive complainant of its property without due process of law, in contravention of the 14th Amendment. The tax ordinance was attacked upon grounds of state law, and also upon the ground that it was violative of the "due process" and "equal protection" clauses of the 14th Amendment. Upon final hearing the court, by decree entered April 6, 1909, dismissed the bill as to the rate ordinance, without prejudice to the commencementing the tax invalid, while if the judge of a new action; but decreed that the ordinance levying an occupation tax violated the Constitution of Nebraska and was for this reason illegal, and granted a permanent injunction against its enforcement. 182 Fed. 926.

Upon appeal by complainant to this court it was found that there was a great mass of conflicting evidence relating to

should agree with the master upon that question he still would confirm the report. In other words, assuming the oc cupation tax ordinance to be valid, the addition of this tax to the annual outgoes of complainant would still leave the $1 rate compensatory.

Complainant brings the case to this court by appeal, with about 120 assign

Pending the hearing upon the master's report, and on or about May 1, 1915, complainant, notwithstanding the injunction pendente lite, put into effect a net rate of $1 per thousand feet for gas, and has maintained it since.

ments of error, one of which is that, of subjecting prescribed rates to the test [261] the district court erred in not of practical experience before attacking decreeing that the occupation tax ordi- them in the courts. Knoxville v. Knoxnance was in violation of the 14th ville Water Co. 212 U. S. 1, 16, 18, 53 Amendment in that it amounted to a L. ed. 371, 381, 382, 29 Sup. Ct. Rep. denial of the equal protection of the 148; Willcox v. Consolidated Gas Co. laws. 212 U. S. 19, 54, 53 L. ed. 382, 400, 48 L.R.A. (N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034. When those decisions were announced this case was pending in the circuit court, and shortly thereafter it was decided adversely to complainant upon the question of the validity of the rate, the Knoxville and Willcox Cases being cited. 182 Fed. 926. 929. Then, if not before, complainant might have made a practical test of the sufficiency of the rate, instead of waiting six years longer before doing so. The litigation has been extremely tedious and burdensome to both sides, and it ought now to be brought to a conclusion upon the record as it stands.

Upon the strength of this test, and before the argument of this, the second, appeal, complainant presented to us a petition for leave to file a bill of review in the court below upon the ground that, according to the master's findings, complainant, in the year 1907, earned so small a return that the rate ordinance, would have been confiscatory upon the valuation as found by him, but for this additional finding: "All human experience has shown that increased consumption follows quickly a reduction in the price of commodities, and the evidence in this case satisfactorily shows that gas is no exception to the rule."

And thirdly, the argument based upon the master's finding as to the return that complainant would have earned in the year 1907 under the prescribed rates is vitiated by the fact that he included as an operating expense $4,466, the amount of the estimated occupation tax, which was not paid, and (as we shall see) has been conclusively adjudged in this suit to be unenforceable. Eliminating this would increase the net return for the year approximately 1 per cent upon the

The petition averred that the experience of complainant in an actual test of the reduced rate during a considerable period since May 1, 1915, showed that the view of the master was erroneous, and in fact under actual operating conditions there was no increase of consump-investment. tion.

The application for leave to file a bill of review will be denied, for the following reasons:

First, because the $1 rate was put into effect pursuant to a written stipulation made between the parties in the cause to the effect that the action of the company in so doing should not be construed as an acceptance of or compliance with the ordinance in controversy, and should not be "shown in evidence or presented to the court in the above-entitled cause, or used in any way by either party to influence the action of the court in the disposition of the case." Hence defendant was not called upon [262] to observe the effect of the reduced rate, or prepare to meet inferences drawn therefrom.

Secondly, because complainant might have made a practical test of the ordinance rate before bringing this suit for an injunction, and certainly ought to have resorted to the test long before it did so. As early as the month of January, 1909, this court, in two notable rate cases, indicated its view of the importance, in any but a very clear case,

Coming to the merits, we will deal first with the occupation tax ordinance. This is important not only because considerable sums of unpaid taxes have accumulated pending the litigation, but because of the effect of the tax, if sustained, upon the question of the adequacy of the rate.

[263] The ordinance imposes an occupation tax upon all gas companies manufacturing and furnishing gas to the inhabitants of the city of Lincoln, equivalent to 21 per cent of their gross receipts derived from that business. It was attacked in the bill as being "partial, discriminatory, unreasonable, and oppressive in this: It imposes upon your orator an onerous tax burden to which the business and occupations of other persons within said city are not subjected;" and the bill alleged, among other things, that the Lincoln Traction Company held a franchise for furnishing electricity to the public in said city, under which it was supplying light, heat. and power in competition with complainant's gas business, and that the city had not subjected this business of the traction company to any occupation

tax; wherefore the ordinance "operates, and the amount of these if collected would to deprive your orator of the equal pro- reduce complainant's returns and render tection of the laws, imposes a discrimina- the rate ordinance if sustained still more tory burden upon your orator, burdensome, appellant asked this court and deprives your orator of its franchise to pass upon the validity of the tax orrights and privileges and of its properties dinance upon the Federal grounds assertwithout due process of law," thus being ed in the bill. violative of the due process and equal protection provisions of the 14th Amendment. The circuit court deemed that this raised the question of the invalidity of the ordinance under the uniformity provision of the state Constitution, and held it was invalid as being in contravention thereof. 182 Fed. 926, 927, 929. The city requested a modification of the opinion and decree in this respect, on the ground that the invalidity of the ordinance under the state laws and Constitution was not charged in the bill. This application was denied.

ified by embodying in it a reiteration of other businesses in the vicinity; 7 per that part of the decree of April 6, 1909, cent being the "legal rate" of interest which held the occupation tax ordinance in Nebraska. Complainant had not such void and restrained its enforcement. a monopoly nor were its profits "virtu[266] Parenthetically, it may be stat- ally guaranteed" in such a sense as to ed that on March 16, 1908, the city coun- permit the public authorities to restrict cil passed an ordinance imposing a like it to a return of 6 per cent upon its inoccupation tax upon corporations selling vested capital. It is not entirely clear, electricity for light or power purposes, however, that the rate ordinance did so but at the rate of only 2 per cent of restrict it. Again, we question the protheir gross receipts; that on December priety of the master's treatment of 13, 1909, both occupation taxes were "going value," which he seems to have repealed, and gas and electric companies estimated at less than otherwise he alike were subjected thereafter to an would have placed it, upon the theory occupation tax equal to 3 per cent of that the company's business had been their gross receipts; and that in July, developed at the expense of the public, 1916, the supreme court of Nebraska in the expenditure of past earnings adjudged the occupation tax ordinance exceeding a fair return upon the capiof December 10, 1906, to be invalid, tal invested, and this without any following the decision of the circuit court in this case; and on the same day held that the enforcement against complainant of an occupation tax under the ordinance of December, 1909, must be stayed pending the final determination of the present case. Lincoln v. Lincoln Gas & E. L. Co. (two cases) 100 Neb. 182, 188, 158 N. W. 962, 964.

The attack upon the rate ordinance brings under consideration questions of the valuation of the plant, the proper method of estimating and applying depreciation charges, questions of working capital, going-concern value, the propriety of various items of operating expense, the rate of return that reasonably ought to be allowed upon capital invested in a plant and business of this character in Nebraska, and the other questions usual in such cases. The special master conducted a patient and elaborate investigation. An enormous mass of evidence was produced before him, and analyzed in his report. In abridged form, it occupies nearly 2,000 pages of printed transcript in this court, besides numerous tabular exhibits. It would be impossible, within reasonable limits, to recite the substance of the evidence or review the master's findings. We do not feel called upon to do this. Knoxville v. Knoxville Water Co. 212 U. S. 1, 17, 53 L. ed. 371, 381, 29 Sup. Ct. Rep. 148. The findings are subjected to numerous and minute criticisms, and some of these seem to possess [267] force. We cannot approve the finding that no rate yielding as much as 6 per cent upon the invested capital could be regarded as confisca tory, in view of the undisputed evidence, accepted by the master, that 8 per cent was the lowest rate sought and generally obtained as a return upon capital invested in banking, merchandising, and

He

finding, or any clear evidence to which
our attention has been called, that past
earnings were excessive. On the other
hand, the master erred in favor of com-
plainant by allowing as operating ex-
penses occupation taxes for the years
1907 to 1909, inclusive, these taxes not
having been paid and the taxing or-
dinance applicable to that period having
been held invalid by the decree of the
circuit court entered April 6, 1909, and
so held since his report by the state su-
preme court. And it is possible he erred
in allowing occupation taxes for the year
1910 and subsequent years, since these
were not in fact paid. As we have seen,
the occupation tax erroneously allowed
for the crucial year 1907 amounted to
more than 1 per cent upon the invested
capital at the master's valuation.
also appears to have been unduly liberal
to the company in the allowance for work-
ing capital, and in some other items of
valuation, as well as in respect of some
[268] expenditures allowed as operating
expense. Without going into details, we
content ourselves with announcing our
general conclusion that, having regard to
the entire period under investigation, we
are unable to say that the master erred
in holding that the ordinance was not
shown to have been confiscatory in its
effect. It is probable that in the years
1907 and 1912 the net return was close
to the line, if not below it; but that in
the other years examined it was at least
7 per cent; and there are too many doubt-
ful items for us to adjudge the ordinance
void, in the absence of an actual and
timely test.

The decree dismissed the bill, however, so far as it related to the rate ordinance, without reservation or qualification. Perhaps it would go without saying, but in our opinion the decree ought to be modi