New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1907-05-22
TIE GAS RATE CASE.

In deciding that the S0-cent gas rate would be
confiscatory the referee apparently has sus-
tanned the contention of the Consolidated Gas
Company that under the constitution 1t Is en-
titled to a reasonable return upon the present
value of It's property. In Mr.. Masters opinion,
the S0-cent rate would not yield such return.
The value of the companys franchises is nat
urally included in the present value OF Its prop
erty. The state and the city cOntended that the
S0-cent rate would yield an adequate return upon
the company's original investment and that this
was all the company was legally entitled 10.
Naturally the value of the franchises was not
included in this estimate of the cOmpanys prop
erty. Leaving out of consideration minor diver
gences in appraisal, the great difference between
the value on which the state fixed its S0-cent
rate-S31 600 OOG-and the value which Mr..
Masten bases his opinion that it is unfair
$50, 357 0S0-is that the latter estimate includes
S20,000,0O0 for franchises and more than $780,
100000 of increase in property value over the
original cost. Mr.. Masten in his opinion dis
agrees with the states policy of fixing the gas
rates on the basis of original Investment. An
appeal, If his report is accepted by the court,
Will be based upon the two QueStiOns-tO wit,
whether the value of franchises given by the
people may be excluded from the estimated value
of a corporations property in fixing rates and
whether rates may fairly be regulated upon the
basis of original cost. With the policy of rate
regulation firmly established in the laws Of the
nation and of many OF the states, these two Ques-
tions are fundamental and will underlie nearly
every attempt at rate making. decision of the
United States Supreme Court upon them will be
of the utmost interest.
With regard to franchises il is urged that they
were bestowed by the people and that It is
just 10 make the public pay interest upon its
gift. The principle seems sound, that
it is recognized, and it has been embodied in the
utilities bill which will prevent the future cap
italiZatiOn OF franchises. But few years ago it
was not recognized. and on the theory that fran
chises property the state decided TO
them To treat them property for the pur-
poses of taxation but not of earning dividends
is inconsistent. When franchises were originally
given away it was not because they had no
value, but because they had enough value TO in
duce a corporation to undertake a public
vice. They were capitalized and no one OBJ
iected. 1t only when they increased ire
mendously in value that the public began to re-
pent of its generosity and 10 object 10 paying div
idends upon its own gifts. 1t has adopted the
policy of not doing so upon its future gifts but
may have TO continue to do so upon its past
gifts.
The question whether the public should pay
dividends upon ''mearned increments" rests
upon a somewhat similar basis. Why should a
company be permitted to capitalize the generos-
ity Of time and make the public pay dividends
on ii? Its real estate and its plant treble in
value. This increase is clear profit 1t cap
italics its profits and makes the public pay divl-
dends upon them. We only repeat the current
criticisms certain justice III them is recOg-
nized, for the policy Of the state in the utilities
bill is to restrict future capitalization to actual
investment.
hat ho rrca and i,,ct for
future however, may not always be applied re
trOactively with justice. If the public service
corporation We're individual who had held
the franchise throughout, the state might say
We never intended that you should capitalize
your franchise and use IL to charge higher rates
You are entitled only TO fair return upon the
money you put into the venture originally" No
one then would suffer unfairly. But a corpora
ton is practically, If not legally its sharehold-
ers They are mostly not the original investors
They bought their shares with the understanding
that the state permitted the capitaliZing of fran
chises and of unearned increments. They will
suffer from the change of policy, from the pub
lies repentance of its generosity. We throw out
these suggestions merely as indicating how COM
plicated Is the problem of rectifying past mis-
takes in dealing with corporations If a Su-
preme Court decision shall touch the merits of
these two questions it will be the most impor-
tant decision in years.
Meanwhile the gas company may perhaps be
effectively attacked on the ground that most of
its franchises have expired If this can be
shown new franchises may be granted to the
company and, under the utilities bill, excluded
from capitalization. The reduction by a quarter
of Mr.. Masten's estimates would materially af-
feet the reasonableness of the S0-cent rate
The whole incident shows how thorough is the
protection of property under our judicial system
me reduction in the gas rate was made by the
Legislature, but the courts have inquired into
us justice, checked it and perhaps nullfed It,
NO provision for a court review was necessarv
here, nor viii 1t be in am reguIatiye LEGISLATION
TO insure the exercise of judicial power.