Case Name: PUBLIC SERVICE GAS COMPANY, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS; CITY OF PASSAIC, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS; CITY OF PATERSON, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS
Court: New Jersey Court of Errors and Appeals
Jurisdiction: New Jersey
Decision Date: 1914-12-09
Citations: 87 N.J.L. 581
Docket Number: 
Parties: PUBLIC SERVICE GAS COMPANY, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS. CITY OF PASSAIC, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS. CITY OF PATERSON, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS.
Judges: 
Reporter: New Jersey Law Reports
Volume: 87
Pages: 581–603

Head Matter:
PUBLIC SERVICE GAS COMPANY, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS. CITY OF PASSAIC, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS. CITY OF PATERSON, APPELLANT, v. BOARD OF PUBLIC UTILITY COMMISSIONERS ET AL., RESPONDENTS.
Argued December 1 and 2, 1913—
Decided December 9, 1914.
When a public utility corporation is in the enjoyment of privileges to use streets and public places in this state for the purposes of its business, whether such privileges be conferred by the state alone, or partly by the state and partly by the municipality, and whether they be exclusive or subject to duplication, such privileges constitute a special franchise which is property, is subject to taxation and has normally a substantial value; and in making a valuation of the property of such corporation for the purpose of establishing a basis for the regulation of rates to be paid to it by the public for its product or service, it is erroneous to assign no value, or a merely nominal value, to such franchise when a substantial value is fairly reflected in the total market value of its securities.
On appeal from the Supreme Court, whose opinion is reported in 84 N. J. L. 463.
Eor the Public Service Gas Company, appellant, Frank Bergen and Robert H. McCarter.
Eor the Board of Public Utility Commissioners, Frank H. Sommer.
Eor the cities of Paterson and Passaic, Edward F. Merrey, Albert O. Miller and George L. Record.

Opinion:
The opinion of the court was delivered by
Parker, J.
These are cross-appeals from a decision of the Supreme Court affirming on cross-writs of certiorari an order of the board of public utility commissioners fixing the rate for gas in the territory called the Passaic division at ninety cents per thousand feet. The issues involved axe so fully and clearly stated in the comprehensive opinion delivered for the Supreme Court by Mr. Justice Swayze, that any repetition of them here should be quite unnecessary; and we therefore pass directly to a consideration of the points in dispute.
The Supreme Court dismissed the two writs of certiorari wherein the city of Paterson and the city of Passaic were respectively prosecutors, on the ground that certiorari was noc the proper method for the cities to obtain the relief which they sought, viz., a rate less than that fixed by the commission, which latter rate thejr claimed was fixed at too high a figure. It was held in effect that on certiorari the Supreme Court had simply the alternative of affirming the order of the commissioners or setting it aside, wliereas the relief then sought by the cities could appropriately he given by the Supreme Court, if at all, only on an application for mandamus. The Supreme Court therefore dismissed the two writs prosecuted by the cities. With this conclusion we agree and have nothing to add to the reasoning of the Supreme Court in that regard. On the appeals of Paterson and Passaic the judgment below will be affirmed.
This leaves for consideration the appeal of the gas company. The steps taken by the utility board in fixing the rate were, broadly speaking, to ascertain what would he a fair net income rate upon the value of the property as between the stockholders and the public, and further to ascertain the fair value of the property upon which such income should he figured as a basis. The board adopted the income rate of eight per cent, as being fair under all the circumstances; and after a lengthy hearing fixed the total valuation of the property upon which to compute the income. Its determination in both respects was challenged in the Supreme Court and there affirmed; and the affirmance is challenged in both respects here.
We need take up no time in considering the right of the state to regulate the rates charged by a public utility for its services or products, or the jurisdiction conferred by our statutes upoii the board of public utilities to act as a legislative agency in that regard; for no question is raised in either of these respects by any of the parties to this suit.
The complaint is that neither the rate nor the valuation eau be supported upon the evidence before the board. The Supreme Court on certiorari considered not only this question, but under its broad powers in eases of certiorari dealt also to some extent with the weight of evidence, and itself determined upon the evidence that the findings of the utility hoard were right. This determination of the Supreme Court under the fundamental and well understood rules governing the practice of this court as a reviewing tribunal, will not be overturned in this court if there was any legal evidence to support the Supreme Court findings.
With this preface we turn to the specific matters brought to our attention by counsel. First, with respect to the eight per cent, rate, it is proper to say that the attack thereon made in the Supreme Court appears to have been rather formal than substantial—at least it was so regarded by that court— and no very special stress was laid upon it here. At the same time we have given it due consideration, and it is sufficient to say that upon an examination of the case we conclude that there was sufficient to support the finding below that eight per cent, upon the true value of the properties is a fair and lawful rate of income to be taken into consideration with the expenses and other outgo in determining what price should be charged to the consumers for gas.
The strenuous contest is made with respect to the true value of the defendant's property which-is to be used as a basis for the application of the eight per cent. rate. This value the utilities board considered in great detail and held, generally speaking, that it was composed of the two elements of physical valuation and going value, and that all the various elements of value could be classified under one or the other of these two heads. It fixed a separate valuation for each of these two elements and its results are attacked in both respects. So far as relates to the first element, that of the value of the physical properties, there was a great mass of expert testimony adduced before-the commission, which in the course of a lengthy and thorough memorandum or report, fixed the value of the land at $111,160, of the manufacturing plant at $1,161,550, and of the distribution system at $2,-465,270, a total of about four and three-quarter millions, less some depreciation due to lapse of time. This valuation was specifically affirmed by the Supreme Court. 84 N. J. L. 476. It was amply supported by evidence and therefore the finding of the Supreme Court will not be disturbed here.
Counsel argue that the result reached by the board of utility commissioners on this point was what they call a "quotient" verdict, in that the board adopted neither the higher nor the lower valuation placed upon the property by the expert witnesses, but fixed a figure between the two. But there is absolutely nothing to indicate any improper procedure by members of the board in reaching this result; they were manifestly entitled, upon the evidence before them, to conclude that the valuation stated by one set of experts was too high and that stated by the other set was too low, and to ascertain upon all the testimony what, in their best judgment, was the true valuation. As was said by the Supreme Court: "Their method was not an exact one, but perhaps the result was as good as could be expected from the variance in the testimony." Bindings of this character by juries are so common that it is difficult to believe the quotient verdict theory is seriously pressed. We conclude, then, that there was no error in the action of the Supreme Court in affirming the finding of the commissioners upon the valuation of the physical property. There seems to have been an allowance of $250,000 made by the board for what it calls "working capital" which should be added to the above, and with respect to which we do not understand that any particular disagreement exists.
This brings us to the other main element of value, called by the commission the total value of all the intangible property of the company, and which the board estimated at thirty per cent, of the valuation assigned by them to the structural plant. This, as the board expressly stated, included everything outside of the tangible property and associated plant assets, such as working capital. They expressly included preliminary outlay, such as engineering and legal expenses, canvassing, costs of incorporation, cost of securing franchises, financing, banker's commission, deficit in operating during the earlier years, and inadequate early returns upon the investment; also "the entire value of all franchises, primary or secondary, possessed or exercised by the company in the Passaic division." Two or three other specific intangible elements were included that need no notice here. Nothing was allowed for good will.
In discussing the matter of franchises, the commission remarked that its finding as to the total amount of intangible property was "tantamount to including the franchises of the company at a moderate rating, at a value comparable to the cost of obtaining these or similar franchises. It amounts, therefore," say the commissioners, "to a practical denial of the company's contentions as to the value of its franchises." The board stated that it is the public policy of the state not to allow the capitalization of franchises for an amount in excess of the actual cost involved in obtaining said franchises; evidently referring to paragraph E, of section 18, of the Utilities act. Pamph. L. 1911, p. 381. We find difficulty in ascertaining from the report the method adopted by the commissioners for valuation of the franchises. In one place they announce that such value is included in the thirty per cent, estimate of all the intangible properly; in other places they say that there is no evidence before them to show that these franchises should be valued at any more than the cost of obtaining them; in their general summary of valuations the franchises are listed as an item and no value assigned thereto, and the next item consists of patent rights, which the commission expressly declare to have no' value whatever; and yet the commission conceded that special franchises are property; that when tangible property is operated under franchise rights, the instrument of public service is worth more than the material and labor involved in its construction; that taxation is imposed in respect of special charters as "property" in this and other states; and that neither franchise nor any other property can be taken for public use without just compensation. These are extracts from the report in its exact language. In dealing with this question the Supreme Court seems to have gone a step further, for it held that "logically no allowance should be made for the value of the special franchises in a case where it is not legally exclusive and where the state still retains the right to fix rates." 84 N. J. L. 482.
We find ourselves unable to concur in this result. Without adopting in its entirety the rule laid down in our railroad tax cases, that the total valuation of the property and franchises ¿should be gauged by the market value of the outstanding corporate securities plus floating debt, and that therefore the value of the franchises would be indicated by the difference between this total and the sum of the value of the physical plant plus development cost; and conceding that in most of the eases of public utilities the privilege of utilizing the public domain is not exclusive, and is therefore subject to invasion by other similar utilities, and conceding also that charters and local franchises are often granted by the state or the municipality without a cash or property consideration, the conviction still remains that such franchises have substantial value. We often hear of old charters being bought up for use by new enterprises. The very charter of the appellant seems to be one of this class. It seems a fallacy to say that if and because a municipality confers upon a gas company or a street railway company the privilege of using the public streets without any consideration in cash or property passing from the company, the rights thereby conferred should have no value for rate-making purposes; for this disregards at least the meritorious consideration that the promoters of the company have invested their money and given their time and taken their business risks in view of the making of this very concession, and the value of the enterprises on which the owners are entitled to draw an income should not be limited to the mere cash that they have put into it, but should include something for the risk and responsibility that they have taken in organizing and developing it.
It is true, as the hoard remarked, that the Utilities act forbids the capitalization of franchises. This prohibition, however, refers to the inclusion of a franchise valuation in the par value of capital stock, but does not affect its market value. Just as the value of a bank stock may be and often is legitimately enhanced by public confidence in the directors of a bank and the methods of its business management (Newark v. Tunis, 81 N. J. L. 45; 82 Id. 461), so the market value of the securities of a public utility may be enhanced in part at least by the fact that it is operating under a municipal franchise costing little or nothing in cash outlay, subject, it may be, to duplication, but which the public has the right to suppose in a proper case will follow the general run of such franchises and be free from indiscriminate competition, although not legally exclusive. Such a situation would be a legitimate element of market value and would be taxable, as reasonably and fairly enhancing the value of the property in the public mind. It would thus be capitalized, not by the utility itself but by the public as a business matter, and against such capitalization there is no prohibition, legislative or otherwise.
It seems a work of supererogation to cite authorities for the proposition that franchises axe "property" and that the courts will protect them, not to speak of their being subject to taxation. As we have seen, the board itself conceded that they were property and the Supreme Court did likewise. Still, a glance over some of our decisions will do no harm.
In 1878, Vice Chancellor Van Fleet, in the case of Jersey City Gas Co. v. Dwight, 29 N. J. Eq. 242, dealing with a special gas company charter granted in 1849, held that while the business of making and selling gas is not a prerogative of govérnment, the right to use the public streets to lay gas pipes therein is a franchise which the state alone can confer. He held, further, "that a franchise is property, which, like every other thing susceptible of private ownership, is under the protection of the law;" and that a "grant of a franchise by the state, is, by its own intrinsic force, and without express words, exclusive against all persons but the ^tate, and that any attempt to exercise like rights and privileges, without legislative authority, is a fraud and an unwarrantable usurpation of power." Accordingly, on the complaint of a duly incorporated gas company invested by its charter (Pamph. L. 1849, p. 279) with the right to lay pipes in the streets of Jersey City, he enjoined such laying of pipes by defendants claiming incorporation under the General Gas Company act of 1876 (Comp. Stat., p. 3142), whose attempted incorporation he adjudged invalid. The complainant in that case acquired its franchise to lay and maintain pipes in Jersey City directly from the state; so, apparently, did the Public Service Gas Company, which, as we are given to understand, is the same corporation chartered as the "Oxy-Hydrogen Company of the United States." Pamph. L. 1873, p. 1442. By the Gas Company act of 187.6, uH supra, companies organized thereunder were vested with the right to lay pipes, &c., upon obtaining the written consent of! the municipal authorities and under such regulations as they may prescribe. This section (17) was amended to include boroughs in 1902. Pamph. L., pp. 229, 231. That the power to grant the franchise was delegated in part, does not affect the main proposition that it is a franchise, and is property.
The decision in Jersey City v. Dwight was overruled so far as related to the power of the Court of Chancery to inquire into the legality of the organization of a da facto corporation. National Docks Railroad Co. v. Central Railroad Co., 32 N. J. Eq. 755. The Vice Chancellor recognized this later in Elizabethtown Gas Light Co. v. Green, 46 Id. 118, where he denied an injunction in a similar case, and his decision was sustained by this court. 49 Id. 329. But the status of a gas franchise as property, and the right of a court of equity to enjoin its unlawful invasion, were reaffirmed in an opinion by Yice-Chancellor Learning in Millville Gas Light Co. v. Vineland Light and Power Co., 72 Id. 305, a preliminary injunction being denied on the sole ground that the case was not sufficiently clear. In Township of Landis v. Millville Gas Light Co., Id. 347, he awarded a preliminary injunction against unwarranted use of the highways, and on appeal this court referred with approval to his opinions in both cases. 73 Id. 739, 740. A similar ruling was made by Yice Chancellor Emery in the ease of unlawful usurpation of highways by a water company. Franklin Township v. Nutley Water Co., 53 Id. 601. The law courts have similarly dealt with this privilege as a legal franchise, depending on compliance with conditions precedent. In People's Gas Light Co. v. Jersey City, 46 N. J. L. 297, the Supreme Court, on the complaint of two gas companies, set aside on certiorari a grant of street privileges to a third gas company for irregular procedure, saying that "beside the common interest which every citizen has in preserving the streets for public travel, these two corporations have special business privileges which they are entitled to protect against any unlawful rivalry."
The status of such local franchises as property is emphasized when we consider the provisions made by the legislature for taxing them, and the deliverances of our courts in tax cases. The broad doctrine that corporate franchises generally are property, and are taxable as such, laid down in the leading case of State Board of Assessors v. Central Railroad Co., 48 N. J. L. 146, has stood unimpaired to this day, and the machinery and procedure for ascertaining the value of a railroad franchise for purposes of taxation are familiar to all who have read that case and the line of decisions based thereon. In that case the franchise was a state franchise, as, perhaps, also in the case at bar. In the cases, however, of street railways, gas and electric light companies, water companies, and the like, the franchises partake of a local as well as of a state character, but are similarly property, and taxable if the legislature choose to tax them. Thus, in Passaic Water Co v. Paterson, 56 Id. 471, it was held by the Supreme Court that the "corporate franchise" of the water company was property, and taxable, the inquiry then being whether the language of the supplement of 1866 to the General Tax act of 1846 contemplated its taxation locally, and it was held that it did not. That decision was followed by this court in North Jersey Street Railway Co. v. Jersey City, 74 Id. 761.
In 1900, the taxing authorities of Newark undertook to tax the franchise of a street railway company under the act of 1866 by calling it an easement, and their action was sustained by the Supreme Court. Newark v. State Board of Taxation, 66 N. J. L. 466. This court, however, reversed that decision, and held that the right to occupy the streets was to be classed as franchise and taxable as such, i. e., by the state board of assessors and not locally. S. C., 67 Id. 246. The brief opinion of the present Chief Justice, speaking for this court, illumines the point now under consideration, i. e., whether franchise has substantial value. He said:
"That there is an inherent value in the property of the North Jersey Street Eailway Company, over and above the cost of reproducing' its rails, stringers, poles, wires, power house, &c., needs no demonstration. That value, however, springs, not out of any ownership by the company of an interest in the soil of the highways over which its road passes, but out of its ownership of the franchise to maintain and operate its road over those highways, and to collect tolls from all persons traveling upon it. This franchise is property, and taxable as such (State Board of Assessors v. Central Railroad Co., 48 N. J. L. 146); but, under present legislation, the right io tax it has been reserved by the state to itself, through its state board of assessors, and not delegated to the severaJ municipalities through which the company's road passes."
These decisions were based on the Tax act of 1816 and the supplement of 1866.
In 1900, the legislature passed an act to tax the property and franchises of all corporations using public streets, &c., except those taxable as railroads. This statute is commonly known as the "Voorhees act." Pamph. L. 1900, p. 502; Comp. Stat., p. 5298.
It provides a general scheme for the local taxation of tangible property and a fixed franchise tax of two per cent, of the gross receipts, to be divided pro rata among the municipalities in which the corporation operates.
The constitutionality of the act was challenged and sustained by the Supreme Court. North Jersey Street Railway Co. v. Jersey City, 78 N. J. L. 181. The judgment was affirmed in this court. 74 Id. 761.
It is significant that by section 8 of the act of 1900, as originally enacted, it was not to apply to any corporation not exercising any municipal franchise. This clause led to litigation by corporations seeking to escape taxation under the act, resulting in the decision of the Supreme Court in State Board v. Plainfield Water Co., 67 N. J. L. 357, where that court defined a "municipal franchise" as one granted by the legislature upon condition that it shall not be exercised by the grantee without, first obtaining the consent of the municipality within whose limits the franchise is to be exercised. The franchise of the water company was held not to be within the definition. But, in Paterson and Passaic Gas Co. v. State Board, 69 Id. 116; affirmed, 70 Id. 825, tlie occupancy of streets by the company pursuant to municipal permission was held to be a municipal franchise and taxable as such. True, the tax on franchise provided- by the act of 1900 is held to be a franchise or license tax and not a property tax (North Jersey Street Railway Co. v. Jersey City, 73 Id. 481; 74 Id. 761); but this is of no moment in the present inquiry; for nowhere in the line of decisions is it intimated that the franchise itself is not property, while, on the contrary, this court has flatly held, e. g., in Newark v. State Board, 67 Id. 246, supra, that it is. And in the North Jersey case just cited the Supreme Court cites Metropolitan Street Railway Co. v. New York, 199 U. S. 1, where it was held that under the New York act of 1899 the franchise could be subjected to both a license tax and a properly tax.
It should be unnecessary to remark that our reports would not contain this long line of decisions in earnestly litigated franchise tax eases, were it not a fact that franchises, general or local, state or municipal, have a substantial value of which the taxing authorities are prompt to take advantage, and which value, in tax assessment controversies, the authorities estimate often in large figures. If other evidence of substam tial value were needed, it may be found in the fact that as to municipal franchises, the municipality may impose within reason, and the utility must comply with, conditions involving considerable expense. J. C. & H. R. R. Co. v. J. C. & B. R. R. Co., 21 N. J. Eq. 550. A familiar example is the retquirement that a street railway company shall pave between its tracks, or keep the street in repair. Trenton v. Trenton Street Railway Co., 72 N. J. L. 317; Freeholders of Hudson v. Jersey City, &c., Railway Co., 85 Id. 179. Indeed, the Voorhees aec of 1900 expressly recognizes the lawfulness of a cash rental as a consideration for a franchise to occupy the streets, and applies it on account of franchise tax. If it exceed the franchise tax, the excess must still be paid. Section 7. See Eatontown v. Monmouth County Electric Co., 78 Id. 493.
The respondents, then, must take and sustain this position: that although 1))' numerous decisions of the Supreme Court, Court of ( haiieerv and of this court, it has been repeatedly declared that the privilege given to public utility corporations, either diredlv by the state or partially by the state and partly by the municipality as a state agency, and whether exclusive or not, is a franchise, and as a franchise is property, to which the utility in a proper case may assert its special right- as against an usurper, and as property is subject to taxation, at the will of the legislature, upon a substantial valuation fixed by the taxing authorities; and though its bestowal may be, and in most cases is, conditioned upon a substantial, valuable consideration in money or contract obligation, yet when in the exercise of its rate-regulating power the legislature deputes an agency to determine a valuation as a basis for the rate, such agency may disregard the unquestionable value that is attached to the .franchise for the purpose of yielding an income to the state or its subdivisions, and declare that such franchise has only nominal value for the purpose of yielding income to the utility. We cannot agree to such a proposition. Wo are aware that some courts have held that a valuation for taxation is not necessarily identical with valuation for rate regulation. This may be so in a measure. Indeed, it is readily conceivable that if the franchise were exempt, as it was claimed to he under the act of 1903 (North Jersey Street Railway Co. v. Jersey City, supra), the rate valuation might exceed the tax valuation by the value of the franchise. But, normally, when all the corporate property is subject to taxation and also valued for rate regulation, it would seem reasonable to say that the owner of the property is entitled to a fair income on property for which it is taxed. The fact that the state, or the municipality, or both, have seen (it to confer a franchise in many cases as a gift (so called), or for a consideration deemed inadequate, in view of the advantages conferred, does not, as it seems to us, create any implication in the grant that the value of the franchise should he disregarded in fixing a reasonable rate. Counsel for the company argue that the case of Willcox v. Consolidated Gas Co., 212 U. S. 19, is controlling on this point. Per contra, it is argued, that that decision docs not touch the question at issue, in that it expressly limits the ruling to cases arising on similar facts. But a reading of the entire opinion will demonstrate, we think, that it is fundamentally grounded on the propositions that franchises are an essential element of the property valuation, that they have a substantial value, and that they should be regarded in fixing a rate. Indeed, the court went so far as to put its imprima,tur on a franchise value corresponding to an increase in the par value of the stock at the time of the consolidation; and this was the feature especially limited to the case under consideration. In Smyth v. Ames, 169 Id. 466, 544, 547, the same court discountenanced excessive valuation or fictitious capitalization as a basis of rates, but said that (among other things) the amount and market value of the bonds and stock were matters for consideration and were to be given such weight as might be just and right in each case. This corresponds rather closely with the method adopted by the state board of assessors in the case of Central Railroad Co. v. State Board, 49 N. J. L. 1, 7.
Recurring to the argument that these special or municipal franchises are given to the utility, or contributed by the' public, and therefore should not be estimated in fixing a rate, we repeat that the minor premise is an unwarranted assumption of fact. A municipality desires street ear or gas service. It can, if so authorized by the legislature, build and operate its own plant and equipment. Perhaps the cost of installation is too great, so that there would be no sale for the bonds, or the citizens are unwilling to shoulder the interest charge; perhaps, also, the usual extravagance in operation due to public ownership is a deterrent. It is common knowledge that in this country a public utility is usually operated by the public at a loss or an inadequate return. The economic advantage of private ownership is generally recognized. In this situation, a company is organized and asks a franchise. The risk is all that of the organizers; nothing is risked by the municipality. If it fails, they lose their money. It must operate, however, so long as it does operate, at a reasonable rate, based on a theoretically economical plant and operating expense. It cannot charge the public more than the service is worth, just because otherwise it will not meet its operating expenses and fixed charges. It must pay its taxes, whether it earns them or not. In short, all such franchises are based on a consideration, viz., the risk and obligation undertaken by their grantees; and it will not do to say that the franchise is a public contribution exclusively.
If the plant and franchise be taken over by the public, the franchise must be paid for like any other property. Monongahela Navigation Co. v. United States, 148 U. S. 312; Brunswick and Topsham Water District v. Maine Water Co., 99 Me. 371, 59 All. Rep. 537. In the latter case the legislature expressly recognized that it should be paid for, but the court did not rest on that; on the contrary it said that even in cases where by statute, franchises were not to be included in the valuation, the court conceived that it must have been implied that the property was to be valued as rightfully where it was, and rightfully to be used; adding that the right to use, and charge reasonable tolls, were the franchises, at any rate the most important ones. Our own legislature has in like manner enacted that certain cities may acquire existing water works from their owners by purchase or condemnation; and in such case the property acquired includes the franchises, the value of which is to be a part of the award. Pamph. L. 1906, p. 664; Comp. Stat., p. 850, 852, especially section 7, piad turn 960. Other such acts no doubt are on the statute book. And such franchises are in no sense exclusive ; for by the very act cited, cities affected thereby may ignore an existing plant and build their own water works, subject only, by other legislation, to the approval of the state water supply commission. This was exactly what was attempted in Collingswood v. State Commission, 84 N. J. L. 104, 85 Id. 673, and denied on the ground, not that the existing franchise was exclusive, for it was not, but because the commission in the exercise of power conferred on it, decided that such new plant was not needed.
If, as we think is the law, substantial allowance should be made for the franchise of a gas plant if taken for public use, and the value of such franchise paid in money to the owners thereof, we fail to see why, so long as the plant and franchise possessing that value for sale or condemnation are held and operated by the owners, the latter should not be entitled to a reasonable income on all elements of their property including the franchise, in the absence of any charter reseiwation or contract to the contrary. As was said b}' the Supreme Court of Maine in the Brunswick case, ubi supra, "we apprehend that some difficulty in discussion has arisen from attempting to differentiate in logic what is inseparable in fact. The property taken is a single thing, to which belong certain characteristics which affect its value."
We do not wish to be understood as laying down the doctrine that the value of the franchise is to be measured necessarily by the total market value of • outstanding capital stock and indebtedness, less physical valuation and development cost, because this would take no account of inflation of stock values; but if such market value added to indebtedness show an excess, such excess is at least evidential that where there are special "franchises, such franchises have some substantial value in excess of the mere outlays for legal advertising and other legitimate expenses in obtaining them. This element was, apparently, expressly excluded both by the commission and by the Supreme Court. This exclusion, in our opinion, was error. We think there was evidence before the commission to indicate that from this standpoint the franchises had a substantial value which the commission refused to give to them, and as the ninetv-cent rate fixed by the commission was based on the theory of providing a net income of eight per cent, on the total value of the property of the company, the finding of fact that such rate was just and reasonable was in direct violation of the fundamental theory on which the commission undertook to fix the rates, and is presumably not justified by it. On the appeal of the-gas company,.therefore, the judgment of the Supreme Court will be reversed and the order fixing the nineiv-cent rate will be set aside.
At the March Term, 1915, a reargumont of these cases was ordered, which reargument was had on March 3d and 4th, 1915; and ón June 14th, 1915, the following opinion was rendered in the gas company's appeal.
For the appellants, the Public Service Gas Company, Frank Bergen and Thomas N. McCarter (Robert H. McCarter and Richard V. Lindabury on the brief).
For the respondents, the Board of Public Utility Commissioners, Frank H. Sommer.
For the respondents, the cities of Passaic and Paterson, George L. Record (Edward F. Merrey and Albert O. Miller, Jr., on the brief).
For affirmance of gas company's appeal—The Chanorl'lou, Trenchare, Kalisch, Tekhune, JJ. 4.
For reversal—The Oiuee Justice, Parker, Bergen, Bocert, Vredknburgii, Hepreniieimer, JJ. G.
For affirmance of cities' appeals—The Chancellor, Cujee Justice, Trenohard, Parker, Bergen, Kali son, BOGERT, YkEDENBURGIJ, TeEHUNE, Ihsi'PHNIJrEIMJSR, JJ. 10.
For reversal—Kone.
Per Curiam.
The judgment under review herein should be affirmed, for the reasons expressed in the opinion delivered by Mr. Justice Swavzo, in the Supreme Court.