Court Opinion

ID: 9638228
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:38:14.26778+00
Date Added: 2024-06-11T18:10:05.009375
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(concurring).
I entirely agree with the result reached by my brethren and should add nothing were it not for the fact that they express the view that the words “original cost” are to be limited to cost to the first investor in the power project. I seriously doubt whether such a view was ever in the mind of Congress when it employed the words “original cost” and I think, if applied in other cases, it would be so damaging to many investors in water power projects that it should not be adopted without clearer warrant than I can find and certainly not without argument, owing to the serious results involved in such a construction of the statute, which it has never re>ceived.
Moreover, the view suggested is, I believe, plainly inconsistent with the “classification of investment in road” by the Interstate Commerce Commission which the Commission embodied in Regulation 103.41 pursuant to Section 3(13) of the Power Act, 16 U.S.C.A. § 796(13). Indeed this is virtually admitted in the opinion of the majority, who avoid the difficulty only by concluding that 103.41 should not be read as incorporated in the Power Act by Section 3(13).
The cost to the present owners is impliedly recognized as a proper factor in Opinion No. 77 of the Commission when it gives its reasons for rejecting the 1918 write-ups in the case at bar. It says: “While we recognize the significance to be attached to the values finally agreed upon in a transaction between unaffiliated parties who have bargained extensively at arms length, we cannot agree with Licensee’s contention under the facts here presented.” In other words, the Commission would apparently have allowed the present proprietor the cost to it less deductions for such items as good-will if there had been satisfactory evidence that it made a prudent investment at arms length and that its investment did not consist of securities distributed among various participants that had been issued without satisfactory proof of value. As there was no satisfactory proof that the securities represented cost to the present proprietor it was properly driven back to the cost to its predecessors.
Though “original cost” is not an altogether clear or happy phrase, I am not persuaded that it only refers to the first investor and does not include a present proprietor of a project who has paid a price, that did not include any nuisance value or capitalized speculative future revenues based on good-will, but only a cap*797italization based on a fair r.eturn from an investment made at arms length. Only by this interpretation of Section 14 of the Power Act providing that the net investment of a licensee “shall not include or be affected by * * * good will, going value, or prospective revenues * * *” can it have any meaning.
It is difficult to see why Sections 14 and 20 should have required deduction of going concern, good-will and prospective revenue values if such values played no part in the determination of the net investment described in Section 3(13) as “the actual legitimate original cost thereof as defined and interpreted in the ‘classification of * * * road * * *, issue of 1914, Interstate Commerce Commission.’ ” Only by the most awkward draftsmanship could Congress have sought by Section 14 to reinforce the definition of Section 3(13) by excluding items not included in net investment under the terms of Section 3(13).
The expression “prospective revenues” is one familiar to rate litigation, and in view of the fact that, for rate making purposes prospective revenues should not and logically cannot be used to fix a fair return, has not been thought to involve the corollary that the rate base to a purchaser must either be zero or the cost to the original builder. By defining “net investment” in terms of the I. C. C. investment classification, Congress has apparently established original cost to the licensee as the valuation base, and Section 14, quite consistently modifies this investment base by the deduction of elements of value which are not regarded as appropriate to rate fixing. Good-will, going concern and prospective earnings values are the difference between what an investor will pay for a particular enterprise and the cost of providing the equal of its tangible assets. The latter factor is not harder to determine than reproduction cost, the ascertainment of which is familiar to rate cases, and, indeed, required by Congress in railway valuations. 49 U.S.C.A. § 19a.
It is not suggested that the foregoing interpretation would allow a succeeding purchaser a return based on the production value of his plant. The allowable basis for his return is only the net investment he has made so far as it does not exceed reproduction cost.
It is true that certain verbal inconsistencies between Sections 3(13) and 14 may exist, as is noted in the opinion of the majority, but the interpretation I suggest apparently reconciles any there may be and is fortified both by the general practice in rate making under analogous federal statutes and by what seems to have been the view of the Commission expressed in the words already quoted from its Opinion 77.