testified that he did not discover the local supply until after the contract was executed. He is therefore estopped from claiming that he has been harmed in any way by not being allowed to use a source of which he had no knowledge when he bid and when his company obtained and executed the contract. In supporting the State's position as to this phase of the claim we feel that we are not depriving the State of the benefit of competition but rather the reverse. We feel confident that in holding the provision valid and the Highway Commissioner fully warranted in making it, we are supporting a provision that will and does bring about competition at the proper time, namely, while contractors are bidding for work, and which does not raise the legal fiction of reducing competition to give a contractor more profit after the "day of competition is past.'

In must be definitely understood that the remarks above made as to reducing or eliminating " improper dealings" are not at all to be applied to this contractor or to this claim- but merely the reasons in the abstract that warrant the insertion of the provision.

Counsel for claimant urges that such a provision is an advertisement that the State employees, charged with searching for sources of supply, are not honest and cannot be trusted, and that such a policy will make them dishonest even if they were not so before.

The answering argument is plain. The standard State contracts, while apparently arbitrary and one-sided, are, in fact, the grouping of the terse, explicit, residual rules, restrictions, definitions, etc., remaining after many years of experience with contractors and State employees. They are "the survival of the fittest." Surely the State may learn by experience, and a rule or holding, founded on experience, that is meant to and tends to eliminate improper dealings, is not an advertisement of dishonesty but rather an attempt to apply in a concrete given state of circumstances the Christian prayer of all men, "Lead us not into temptation."

This claim should be dismissed and it has been so ordered.

PARIS and ACKERSON, JJ., concur.

PUBLIC SERVICE COMMISSION

FIRST DISTRICT

In the Matter of the Application of THE NEW York and North SHORE TRACTION COMPANY for an Order Increasing the Rate of Fare to be Charged by it Between any Two Points on Its Lines in the City of New York, Under Section 49 of the Public Service Commissions Law

Case No. 2217

(Public Service Commission, First District, January 10, 1918) History of petitioning company and outline of previous proceedings in regard to such company.

The revenue of a public service corporation should be sufficient to operate and maintain the property and also to give a reasonable return to the owners thereof.

Effect of contract between the city of New York and the petitioning company that not more than five cents should be charged for a continuous ride from any one point to any other point on its lines within the city limits.

Power of the Commission to put in effect a seven-cent rate on the petitioner's lines within the city of New York.

Consideration of the procedure under which the requisite rights for the use of public streets may be secured for a projected street railroad constitutional limitation of legislative power.

Power of the Legislature subsequently to modify an agreement expressed in a city franchise for a projected street railroad.

Power of the Commission to increase a rate above a maximum indicated by statute.

The petitioning corporation was incorporated under the Railroad Law on August 6, 1902, as the Mineola, Roslyn and Port Washington Traction Company. Its termini were to be outside the city of New York. The following year the corporate name was changed to the New York and North Shore Traction Company. This company brought into operation on the Port Washington-Mineola, line 2.69 miles, on the Mineola-Hicksville line 6.77 miles and on the Roslyn-Flushing-Whitestone line about 13 miles of surface railroads. The road now extends from the city line at Little Neck in Queens borough to the western terminal at Farrington and State streets, Flushing, a distance of 6.66 miles. Branches extend from Flushing to Whitestone and Whitestone Landing on the sound. 70

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Within the city its lines are double-tracked; in Nassau county they are single track with sidings. The company is not identified with any other transportation interests within the city of New York.

A public service corporation must have a revenue sufficient not only to operate and maintain the property but also to give a reasonable return to those whose invested money remains in the enterprise. The Commission should have due regard among other things to a reasonable average return upon the value of the property actually used. Adequate return must find its basis in the first instance in an adequate gross revenue. Various factors, however, may operate to prevent a fair return in spite of adequate gross earnings: a territory may be too sparsely settled; the entire enterprise may have been unwise; the particular mode of service may be inefficient for the territory; the fare may be too low.

The franchise which the petitioning company secured from the city of New York included a provision that upon the termination of the contract, which was for twenty-five years, or if the same be renewed then at the termination of the renewal term, the tracks and equipment of the company should become the property of the city without cost. The value of the property which will revert to the city has been found to be $383,191. The terms of the contract and other public charges such as taxes have led the company to ask for leave to charge an increased rate as a substantial part of any sum taken from passengers finds its way back into the public treasury under the franchise terms and at least no later than 1959 all the property of the company in public streets becomes outright the property of the city without any payment therefor by the city. Despite this fact, however, the city insists that the fare

shall not be increased above the franchise limitation of five cents.

The question of the power of the Commission to put in effect a sevencent rate on the petitioner's lines within the city of New York presents a question of far-reaching importance. This question has not been decided by any controlling authority within this State. In the present instance co-operation by the petitioner, the city of New York and the Commission may lead to an early adjudication on this issue, on which important public rights depend. Basic questions as to the demarcation between state and municipal powers are involved. Since 1875 section 18, article III of the New York State Constitution has contained a fifteenth subdivision which in part provides that "no law shall authorize the construction or operation of a street railroad except upon the condition that the consent also of the local authorities

having control of that portion of a street or highway upon which it is proposed to construct or operate such railroad be first obtained,

* *."

The five-cent limitation was included in the constitutional consent of the local authorities and the question becomes one of determination of the scope and effect of the action of the city under the constitutional requirement.

When the promoters of a street railroad project seek to obtain a valid basis for the construction and operation of their lines they must

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procure from the State their incorporation and franchise rights, and where they seek to lay their tracks and operate their cars along the streets of a city or other municipality they must obtain due consent of the local authorities, and in addition must obtain from the Public Service Commission determination of the public convenience and necessity for the proposed new line and approval of the exercise of the franchise therefor. The chartering of a street railway corporation by the State confers upon it no right to proceed along public streets. The Constitution, article III, section 18, requires the action and consent of the local authorities. The streets of a city do not belong to the city but are held in trust for the use of all the people of the State.

For certain purposes the Legislature is granted certain powers in reference to such streets, but these powers cannot be urged as against constitutional limitation, and where the Constitution provides that no street railway shall be constructed along a public street without the consent of the local authorities, the power of the Legislature is to that extent qualified and limited. The city is empowered to exercise the legislative power of determining the conditions under which it will grant its consent, if at all. The agreement between the petitioning company and the city of New York in regard to a five-cent fare was within the power of the city under the constitutional provision.

Held, that upon the whole record in this case the Commission is not at present vested with power to authorize a seven-cent fare, which would be warranted by the company's financial circumstances and its right to earn a fair return upon the fair value of its property used in the public service. The suggestion is made, however, that the case be held open sufficiently long for the petitioning company to seek the consent of the city to such increase, but that if such action be not taken by the company an order be promptly entered herein denying upon the grounds stated the application of the petitioner.

WHITNEY, Commissioner.- The New York and North Shore Traction Company, a street surface railroad corporation operating within the borough of Queens and the adjoining county of Nassau, asks the Commission to adjudge its present fare of five cents within the city of New York to be unreasonably low and unremunerative, and to fix seven cents as the maximum to be charged for a single continuous trip between points within the city limits. By one of the terms of the contract which it entered into with the city of New York as a condition of obtaining the municipality's consent to the construction and operation of the railroad along public streets, the company had agreed to charge no more than five cents for such a trip; but the company now contends that

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because the five-cent fare now fails to yield a fair return upon the value of its property, the Commission is vested with the power and duty of fixing a higher rate or of prescribing for the portions of its lines within the city of New York a "zone" system perhaps similar to that authorized by the Public Service Commission for the Second District for the lines in Nassau County.

The conclusions hereinafter reached as to the powers of the Commission in the premises give added reason for a careful statement of the full facts regarding the petitioner's status, finances and operations. The matters hereinafter set out may be taken as the findings of fact made by the Commission.

HISTORY OF THE COMPANY

The corporation petitioner was incorporated under the Railroad Law on August 6, 1902, as "The Mineola, Roslyn and Port Washington Traction Company," which indicated its contemplated termini― all outside the city of New York. Certain franchises then obtained finally lapsed by non-user. On August 26, 1907, following new plans, the corporate name was changed to "The New York and North Shore Traction Company" and the work was launched which resulted in the beginning of operation on the Port Washington-Mineola line, a distance of 2.69 miles, on or about February 1, 1908; the Mineola-Hicksville line, a distance of 6.77 miles, on or about March 1, 1909; and the Roslyn-Flushing-Whitestone line, a distance of about 13 miles, on or about November 1, 1910. The lines of the company within the city of New York extend from the city line at Little Neck, in Queens borough, through Douglaston, Bayside, Auburndale and Flushing, to a western terminal at Farrington and State streets, Flushing, a distance of 6.66 miles. At Chestnut street and Central avenue, Flushing, a branch extends 2.25 miles to Whitestone and Whitestone Landing, on the shores of Long Island sound. The petitioner's lines within the city of New York are double-tracked; in Nassau county, they are single track with sidings. The petitioner and the ownership of its stock and securities are not identified with any other transportation interests within the city of New York.