war. The present value of the land is $5,000,000 more. The average of prices much greater than its cost; and the pres- in the ten years ending with 1923-the ent cost of construction of those parts effective date of the rate order-was of the plant is much more than their rea- shown by the testimony of the commissonable original cost. In fact, prices sion's chief engineer to produce a result and values have so changed that the nearly 14 per cent. higher than the figure amount paid for land in the early years adopted; [412] and, on the basis of of the enterprise and the cost of plant prices prevailing on the effective date elements constructed prior to the great of the order, cost of reproduction rise of prices due to [411] the war do less depreciation would be about 32 not constitute any real indication of per cent higher than that taken by their value at the present time. Stand- the commission. The high level of ard Oil Co. v. Southern P. Co. 268 prices and wages prevailing in 1922 U. S. 146, 157, 69 L. ed. 890, 895, and 1923 should be taken into ac45 Sup. Ct. Rep. 465; Georgia R. & count in finding value as of January 1, Power Co. V. Railroad Commission, 1924, and in the years immediately fol262 U. S. 625, 630, 631, 67 L. ed. lowing. Moreover, there is nothing in 1144, 1147, 1148, 43 Sup. Ct. Rep. the record to indicate that the prices 680; Bluefield Waterworks & Improv. Co. prevailing at the effective date of the v. Public Serv. Commission, 262 U. S. rate order were likely to decline within 691, 692, 67 L. ed. 1182, 1183, 43 Sup. a reasonable time-one, two, or three Ct. Rep. 675; Missouri ex rel. Southwest-years-to the level of the average in the ern Bell Teleph. Co. v. Public Serv. Com- ten years ending with 1923. And we mission, supra, 287 [67 L. ed. 984, 31 may take judicial notice of the fact that A.L.R. 807, 43 Sup. Ct. Rep. 544]. Un- there has been no substantial general doubtedly, the reasonable cost of a system decline in the prices of labor and materiof waterworks, well planned and efficient als since that time. The trend has been for the public service, is good evidence upward rather than downward. The of its value at the time of construction. price level adopted by the commission And such actual cost will continue fairly well to measure the amount to be attributed to the physical elements of the property so long as there is no change in the level of applicable prices. And, as indicated by the report of the commission, it is true that, if the tendency or trend of prices is not definitely upward or downward and it does not appear probable that there will be a substantial chief engineer included $102,997 to cover For working capital, the commission's change of prices, then the present value materials and supplies. He did not inof lands plus the present cost of con- clude anything to cover cash working structing the plant, less depreciation, if The commission adopted his any, is a fair measure of the value of capital. total and added $135,000 for cash, makthe physical elements of the property. The testimony of The validity of the rates in question de-ing $237,997 in all. pends on property value January 1, 1924, the company's witnesses supports a high

the average for ten years ending with 1921-was too low. And it is clear that a level of prices higher than the average prevailing in the ten years ending with 1923 should be taken as the measure of value of the structural elements on and following the effective date of the rate order complained of.

and for a reasonable time following. er figure, and there was no other evidence While the values of such properties do on the subject. The amount is low when not vary with frequent minor fluctua- compared with those included in other cases.2 tions in the prices of material and labor required to produce them, they are af[413] The commission in No. 6613 fected by, and generally follow the rela- discussed the company's water rights. tively permanent levels and trends of It said: "Petitioner has acquired and such prices. The fact that original cost 2 New York & Q. Gas Co. v. Newton (D. was probably 12 to 20 per cent less than C.) P.U.R.1921A, 530, 269 Fed. 277, 284; the estimate of the commission's engi- New York & Q. Gas Co. v. Prendergast neer based on the average of prices for (D. C.) 1 F. (2d) 351, 363; Brooklyn the ten years ending with 1921-two Union Gas Co. v. Nixon (D. C.) 2 F. (24) years before the rate order became effec-118; Kings County Lighting Co. v. Prentive-does not tend to support the commission's adoption of that estimate. The cost of reproduction on price levels prevailing January 2, 1923, was found to be 30 to 35 per cent, or from $4,500,000 to

dergast (D. C.) 7 F. (2d) 192, 201, 217; New York & R. Gas Co. v. Prendergast (D. C.) 10 F. (2d) 167, 209, 210; Bronx Gas & E. Co. v. Public Serv. Commission, 28 N. Y. S. Dept. Rep. 329, 364, affirmed in 208 App. Div. 780, 203 N. Y. Supp. 922.

Des

now owns the right or privilege of, efficiency and standard of maintenance, taking and using all the water in White its desirability as compared with similar river and Fall creek for the purposes properties in other cities and with other incident to its business. This right utilities of comparable size in this city. is an extraordinarily valuable part of These things make up an element of the whole value of this property. value that is actual and not speculative. The right to use the water of White It would be considered by a buyer or river has saved the water company seller of the property or by a buyer or and likewise the citizens of Indianap- seller of its securities." olis millions of dollars over what it The decisions of this court declare: would have cost to secure sufficient "That there is an element of value in an water for the needs of the city in any assembled and established plant, doing other possible way. The water business and earning money, over one company is entitled to share in the bene- not thus advanced, is self-evident. This fit of this valuable possession by reason element of value is a property right, and of the fact that by its foresight, ingenu- should be considered in determining the ity and initiative it has taken this stream value of the property, upon which the of uncertain flow of impure water and owner has a right to make a fair return has converted it into an immense asset when the same is privately owned alboth to itself and to the public. though dedicated to public use." This whole plant has been Moines Gas Co. v. Des Moines, 238 U. planned and constructed with an ingenu- S. 153, 165, 59 L. ed. 1244, 1250, P.U.R. ity and economy and foresight for the 1915D, 577, 35 Sup. Ct. Rep. 811; Denver future needs of the city that is unv. Denver Union Water Co. 246 U. S. equalled under any similar circumstances 178, 191, 192, 62 L. ed. 649, 661, 662, anywhere in the country. Indianapolis P.U.R.1918C, 640, 38 Sup. Ct. Rep. 278. is probably the most unfortunately situ- And see National Waterworks Co. v. ated of any large city so far as the nat-Kansas City, 27 L.R.A. 827, 10 C. C. À. ural available water is concerned, yet 653, 27 U. S. App. 165, 62 Fed. 853, 865; the possibilities of an insignificant stream Omaha v. Omaha Water Co. 218 U. S. flowing through a thickly populated 180, 202, 203, 54 L. ed. 991, 1000, 1001, countryside have been so thoroughly de- 48 L.R.A. (N.S.) 1084, 30 Sup. Ct. Rep. veloped that Indianapolis now has, and 615, and cases cited. if it doubles in population will have, an ample supply of potent [potable] water at a cost much below the cost in many other cities more favorably located. This development of its water rights, which has been accomplished by the water company at times with extreme difficulty, does actually largely increase the value of the property."

The value of these water rights must be included. San Joaquin & K. River Canal & Irrig. Co. v. Stanislaus County, 233 U. S. 454, 459, 58 L. ed. 1041, 1046, 34 Sup. Ct. Rep. 652.

The report further stated: "A good property has an intangible value or going concern value over and above the value of the component parts of the physical property. [414] Any reasonable man with a knowledge of this property and the local conditions would unhesitatingly affirm that it had a value far in excess of the value of the pipe, buildings, grounds and machinery. Consider its earning power with low rates, the business it has attached, its fine public relations, its credit, the nature of the city and the certainty of large future growth, the way the property is planned and is being extended with the future needs of the city in view, its operating

The commission January 2, 1923, in No. 6613 included $1,416,000, being 9.5 per cent of the amount attributed to the physical elements, to cover water rights and going value. November 28, 1923, in No. 7080, it included only $980,000 to cover working capital, water rights and going value. There is no specification of the amount assigned to each. It stated that the amount was a smaller percentage of the value of the physical property than is [415] usually allowed in such cases. There is nothing in the record to justify the reduction. Deducting $135,000 for cash working capital, the amount included for water rights and going value is less than 6 per cent of the value of the physical elements as fixed by it. Having regard to the character of the system, that amount is clearly too low. The valuation engineers called by the company appraised water rights and going value separately. Each fixed the value of water rights at $500,000, and one put going value at $2,000,000 and the other at a slightly higher figure. The commission's engineer made no appraisal of water rights or going value. The evidence is more than sufficient to sustain 9.5 per cent for going value. And the reported cases showing amounts gener

ally included by commissions and courts to cover intangible elements of value indicate that ten per cent of the value of the physical elements would be low when the impressive facts reported by the commission in this case are taken into account.3

the property as of appraisal date to its condition when first installed and put in practical operation. He deducted that amount. The testimony of competent valuation engineers who examined the property and made estimates in respect of its condition is to be preferred to mere calculations based on averages and assumed probabilities. The deduction made in the city's estimate cannot be approved. Pacific Gas & E. Co. v. San Francisco, 265 U. S. 403, 406, 68 L. ed. 1075, 1079, 44 Sup. Ct. Rep. 537; Standard Oil Co. v. Southern P. Co. 268 U. S. 159, 69 L. ed. 896, 45 Sup. Ct. Rep. 465; Landon v. Court of Industrial Relations (D. C.) P.U.R.1921A, 807, 269 Fed. 433, 445; Winona v. Wisconsin-Minnesota Light & P. Co. (D. C.) 276 Fed. 996, 1004; New York Teleph. [417] Co. v. Prendergast (D. C.) 300 Fed. 822, 826; Southern Bell Teleph. & Teleg. Co. v. Railroad Commission (D. C.) 5 F. (2d)

The commission and the city submit the same brief. Some of their contentions are opposed to the commission's findings above referred to. They support an estimate or appraisal made by Walter S. Bemis, an engineer [416] called by the city. He reported that, as of December 31, 1923, the cost of reproduction new was $12,216,508.05 and that less depreciation $9,220,214.18. The estimate is based on "ten year average prices from 1911 to 1920.” It gives no consideration to the prices prevailing in the three years preceding the effective date of the order. The price basis is substantially lower than the average for ten years ending 1923. There is deducted approx- | 77, 95. imately 25 per cent of estimated cost new to cover accrued depreciation. The deduction was not based on an inspection of the property. It was the result of a "straight line" calculation based on age and the estimated or assumed useful life of perishable elements. The commission's report indicates that the property is well planned, well maintained, and efficient. Its chief engineer inspected it, and estimated its condition by giving effect to results of the examination and to the age of the property. He deducted about 6 per cent to cover depreciation. Mr. Hagenah made an estimate of existing depreciation based on actual inspection and a consideration of the probable future life as indicated by the conditions found. He deducted less than 6 per cent. Mr. Elmes testified that he made an inspection and estimate of all the actual depreciation. He estimated $443,044 would be required to restore

3 Omaha v. Omaha Water Co. 218 U. S. 180, 202, 54 L. ed. 991, 1000, 48 L.R.A. (N.S.) 1084. 30 Sup. Ct. Rep. 615; Denver v. Denver Union Water Co. 246 U. S. 178, 184, 62 L. ed. 649, 658, P.U.R.1918C, 640, 38 Sup. Ct. Rep. 278; Bluefield Waterworks & Improv. Co. v. Public Serv. Commission, 262 Ú. S. 679, 686, 67 L. ed. 1176, 1180, 43 Sup. Ct. Rep. 675; Streator Aqueduct Co. v. Smith (D. C.) 295 Fed. 385, 390; Westinghouse Electric & Mfg. Co. v. Denver Tramway Co. (D. C.) 3 F. (2d) 285, 298; Southern Bell Teleph. & Teleg. Co. v. Railroad Commission (D. C.) 5 F. (2d) 77, 87; Consolidated Gas Co. v. Prendergast (D. C.) 6 F. (2d) 243, 259; Kings County Lighting Co. v. Prendergast (D. C.) 7 F. (2d) 192, 217; Citizens' Gas Co. v. Public Serv. Commission (D. C.) 8 F. (2d)

The company owns a canal in which water flows from the river to filter beds and to a power plant below them, where that not taken for filtration is used to pump water into the mains for distribution. The estimate of Mr. Bemis for the city eliminates the lower part of the canal and suggests the substitution of a steam plant. This reduces cost of reproduction new by $1,073,539.63 and that less depreciation by $785,013.11. The whole canal was included in the estimate of Mr. Carter which was adopted. The commission in its report in No. 7080 described the canal and the uses to which it is put including the production of power for pumping, and said: "This shows the work of a competent construction engineer." And in No. 6613, the commission said: "The canal appears

to have been perfectly adapted to become a part of the water plant of the city. It intercepts the waters of White 632; New York & R. Gas Co. v. Prendergast (D. C.) 10 F. (2d) 167, 208, 210; Pioneer Teleph. & Teleg. Co. v. Westenhav er, 29 Okla. 429, 448, 38 L.R.A. (N.S.) 1209, 118 Pac. 354; Public Service Gas Co. v. Public Utility Comrs. 84 N. J. L. 463, 479, 87 Atl. 651; Oshkosh Waterworks Co. v. Railroad Commission, 161 Wis. 122, 129, 131, L.R.A.1916F, 592, P.U.R.1915D, 336, 152 N. W. 859; (cf. Appleton Waterworks Co. v. Railroad Commission, 154 Wis. 121, 47 L.R.A. (N.S.) 770, 142 N. W. 476, Ann. Cas. 1915B, 1160); Northern P. R. Co. v. State, 84 Wash. 510, P.U.R.1915C, 232, 147 Pac. 45, Ann. Cas. 1916E, 1166; State ex rel. Hopkins v. Southwestern Bell Teleph. Co. 115 Kan. 236, 241, 261, 223 Pac. 771.