Queens Borough Gas Elec. v. Prendergast

Full title: QUEENS BOROUGH GAS ELECTRIC CO. v. PRENDERGAST et al

Court: United States District Court, E.D. New York

Date published: May 2, 1928

31 F.2d 339 (E.D.N.Y. 1928)

Opinion

No. 1276.

May 2, 1928.

Whitman, Ottinger, Ransom, Coulson Goetz, of New York City (Jacob H. Goetz, of New York City, of counsel), for plaintiff.

Charles G. Blakeslee, of Binghamton, N.Y. (Charles E. Murphy, of New York City, of counsel), for defendant Public Service Commission of State of New York.

John Holley Clark, Jr., of New York City (Francis R. Stoddard, Special Deputy Atty. Gen., of counsel), for defendant Attorney General of New York.

Before SWAN, Circuit Judge, and CAMPBELL and INCH, District Judges, holding court pursuant to section 266 of the Judicial Code (28 USCA § 380).

In Equity. Suit by the Queens Borough Gas Electric Company against William A. Prendergast and others, constituting the Public Service Commission of the State of New York, and Albert Ottinger, the Attorney General, to enjoin enforcement of an act of the New York Legislature (Laws N.Y. 1923, c. 899) fixing a maximum rate of $1 per 1,000 cubic feet and a minimum standard of quality of 650 British thermal units per cubic foot for the sale of gas in cities having a population of 1,000,000 or over. On exceptions to the report of the special master recommending a decree for the plaintiff, the report is approved and confirmed, with the modification hereinafter mentioned.

The opinion and report of the special master, Alvah W. Burlingame, Jr., is on file and may be deemed incorporated in this statement of facts, as follows:

By an order entered in this cause on the 11th day of October, 1923, the undersigned was appointed special master. The order directed the special master "to take the testimony and evidence upon the issues herein, make all needed computations, and fully hear the facts and to report to this court his findings of fact and conclusions of law, together with the evidence for the advisement of the court." Formal findings of fact and conclusions of law and a transcript of the evidence taken are being filed simultaneously with this report. The action was commenced on June 5, 1923; the answer of the defendant Public Service Commission was served on the 23d day of June, 1923, and that of the defendant Attorney General on the 13th day of July, 1923.

The plaintiff is engaged in the manufacture and sale of gas and electricity. The territory served by it is located partly in Queens county, in the city of New York, and partly in Nassau county. By chapter 899 of the Laws of 1923 of New York, a rate of $1 per 1,000 cubic feet and a gas standard of not less than 650 British thermal units were prescribed for gas corporations furnishing illuminating gas in a city containing a population of 1,000,000 or over. That part of its business, therefore, which is carried on within the city of New York, comes within the provisions of the statute, while that part of the business conducted without this said city is not directly affected thereby. The complaint prays for judgment enjoining the enforcement of this statute as to the plaintiff upon the alleged ground that it is unconstitutional and confiscatory as to it.

Contemporaneously with the commencement of this action, every other company supplying gas in the city of New York commenced similar actions for the same relief as to them. Of such actions, brought in this the Eastern district of New York, this action was assigned to be tried last. Under this calendar arrangement all of the other actions were tried before this trial could be commenced. Hearings herein were commenced on September 7, 1926, and closed on August 18, 1927. The final briefs were filed with the special master on January 19, 1928.

The statute involved in this cause, chapter 899 of the Laws of 1923, effective June 2, of that year, added a new section, 67-a, to the Public Service Commission Law (Consol. Laws, c. 48), which read as follows:

"A gas corporation engaged in the business of manufacturing, furnishing or selling illuminating gas in a city containing a population of one million or over shall not charge or receive for gas furnished or sold in such city a sum per one thousand cubic feet in excess of one dollar, nor furnish in such city gas of a standard less than six hundred and fifty British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure. The Public Service Commission, notwithstanding any other provision of this chapter, shall not allow a rate or charge in the case of such cities in excess of such sum."

Less than a year prior to the enactment of this statute an order was made by defendant, Public Service Commission, and accepted by plaintiff on August 22, 1922, effective October 1, 1922, fixing a gas standard, applicable to plaintiff, of not less than 537 average British thermal units and a graduated schedule of gas rates for plaintiff per meter, as follows:

For first 100,000 cubic feet .. $1.30 per m. For next 200,000 cubic feet .. 1.25 per m. For next 300,000 cubic feet .. 1.20 per m. For next 400,000 cubic feet .. 1.15 per m. For all over 1,000,000 cubic feet .. 1.10 per m.

The far greater number of consumers served by the plaintiff consume less than 100,000 cubic feet per meter per month, and are therefore in the $1.30 rate group fixed by the Public Service Commission. The act of the Legislature abolished the graduated scale, and brought the rates for all groups at least within the city of New York down to $1 (10 cents less than the lowest rate fixed by the Public Service Commission). It, at the same time, also increased very materially the British thermal unit standard required of plaintiff.

The plaintiff asserts in this action that the statute under review is unconstitutional as to plaintiff upon three grounds:

(1) That it impairs the obligations of a contract. The plaintiff argues that the rate fixed in 1922 by the Public Service Commission and accepted by the plaintiff was so fixed and accepted for a definite period, under specific legislative authorization (Public Service Commission Law, § 72) that the rate so agreed upon should continue in force for at least the prescribed period, viz. one year, and that thereby such rate so agreed upon had the force and effect of a contract binding upon the state, and which the state was estopped from regulating and reducing during such period, and under which the company's rights to a continuance of such rate for the agreed period are protected by section 10, article 1, of the federal Constitution.

(2) That the rate and gas standard fixed by the Legislature is confiscatory of plaintiffs property under section 1 of the Fourteenth Amendment.

(3) That the statute denies the plaintiff equal protection of the laws under the Fourteenth Amendment.

It is now settled that the prescription of the rate and standard by the Public Service Commission and the acceptance thereof by the gas company do not constitute a contract within the meaning of section 10, article 1, of the Constitution, even where the period for which the rate shall continue in force has been prescribed and accepted under specific legislative authority and the continuance of the rate for such period has been stipulated as one of the terms and conditions of the company's agreement to accept the rate at all. New York Queens Borough Gas Co. v. Prendergast (D.C.) 1 F.2d 351, appeal dismissed 268 U.S. 708, 45 S. Ct. 641, 69 L. Ed. 1169; Bronx Gas Electric Co. v. Prendergast (D.C.) 1 F.2d 377, appeal dismissed 273 U.S. 772, 47 S. Ct. 102, 71 L. Ed. 884; Consolidated Gas Co. v. Prendergast (D.C.) 6 F.2d 243, modified and affirmed 272 U.S. 576, 47 S. Ct. 198, 71 L. Ed. 420; Kings County Lighting Co. v. Prendergast (D.C.) 7 F.2d 192, modified and affirmed 272 U.S. 579, 47 S. Ct. 199, 71 L. Ed. 421; Brooklyn Union Gas Co. v. Prendergast (D.C.) 7 F.2d 628, modified and affirmed 272 U.S. 579, 47 S. Ct. 199, 71 L. Ed. 421; New York Richmond Gas Co. v. Prendergast (D.C.) 10 F.2d 167; Brooklyn Borough Gas Co. v. Prendergast (D.C.) 16 F.2d 615.

Hereafter in this opinion this series of cases will be referred to and indicated by the phrase "Gas Cases, supra." Adjudication of the cause, therefore, turns upon the issue whether the statute is confiscatory as to the plaintiff and whether it deprives the plaintiff of its property without due process of law. In each of the Gas Cases, supra, the statute has been held to be confiscatory as to the plaintiffs therein.

On July 2, 1923, plaintiff applied to a special statutory court, consisting of Mayer, Circuit Judge, and Campbell and Garvin, District Judges, and that court granted an injunction pendente lite, enjoining the rate and standard prescribed by the statute upon condition that, pending the action, the plaintiff continue the gas standard and rate fixed by the Public Service Commission by its order of August 22, 1922.

Upon the hearings before the special master, the plaintiff presented full inventories of its properties used and useful in its gas business. The defendants produced no evidence to contradict the items of property inventoried, and there is no cognizable issue herein as to the accuracy of the inventories. The defendants, however, did contend, as to several items, that they were not used and useful in the part of the plaintiff's gas business conducted within New York City, and, further, contested the valuations placed upon such properties by the plaintiff's witnesses.

The plaintiff presents two summaries of its testimony as to value, one upon page 109 of its brief and the other upon page 110. Both are as of June 1, 1923. The former (upon one appraisal of land) totals $8,301,665, and the latter (upon another appraisal of land) $8,363,589. The lower valuation, deducting therefrom the item of $32,626.47, asserted by plaintiff to be the cost as of that date to restore plaintiff's properties to a condition as if new, is thus itemized:

Valuation Claimed by the Plaintiff.

Land ............................. $ 778,474.00 Buildings ........................ 360,307.00 Plant ............................ 1,036,559.00 Mains ............................ 2,387,426.00 Services ......................... 247,881.00 Meters ........................... 309,856.00 Equipment ........................ 89,039.00 Tools ............................ 10,485.00 Street lighting .................. 678.00 Omissions ........................ 51,828.00 Organization ..................... 345,000.00 Financing ........................ 365,000.00 Engineering ...................... 498,696.00 Interest ......................... 267,605.00 Taxes ............................ 9,184.00 Administration ................... 108,370.00 Working capital .................. 558,996.00 _____________ Total exclusive of going value and franchise ........................ $7,425,384.00 Going value ...................... 876,281.00 _____________ Total ............................ $8,301,665.00 Less expenditures to restore ..... 32,626.47 _____________ $8,269,038.53

It is regrettable to note that the Legislature made no special appropriation for the employment of engineers, accountants, and real estate experts to facilitate the labors of the conduct of the defense of this and the other suits — a fact that Col. Stoddard, the special deputy Attorney General, points out in his brief. The state was, however, ably represented by its deputy Attorney General and the counsel of the Public Service Commission, Mr. Murphy, who made a close scrutiny of the proof offered by the plaintiff and its corps of experts, and conducted a most careful cross-examination to test the accuracy of the testimony offered. It is true that the Public Service Commission has an engineering staff, but they are necessarily engrossed with the commission's regulatory functions. But the accountants for the commission, as well as the engineer and accountants of the city of New York and of the Attorney General, who were made available to the defendants, presented considerable evidence as to many contested items.

Organization and Territory of Plaintiff.

The Rockaway Gaslight Company was incorporated February 19, 1880, under an act of the Legislature passed February 16, 1848 (Laws 1848, c. 37), entitled "An act to authorize the formation of gaslight companies." On May 17, 1882, the Town of Hempstead Gas Electric Light Company was incorporated under the 1848 act referred to, and thereafter acquired all the property of the Rockaway Gaslight Company. The plaintiff was incorporated on July 1, 1902, under the Transportation Corporation Law of the state of New York (Laws 1890, c. 566), and on or about the same date it purchased all the property, franchises, and rights of the Town of Hempstead Gas Electric Light Company, and on September 19, 1902, merged the last-named company and the Queens Borough Electric Light Company.

The plaintiff serves consumers in the following locations, in the Fifth ward of the borough of Queens, city of New York: Neponsit, Belle Harbor, Rockaway Park, Rockaway Beach, Hollands, Hammels, Arverne, Edgemere, Far Rockaway, and Meadowmere. It also serves the following nearby localities in Nassau county: Meadowmere, Inwood, Woodmere, Hewlett, Oceanside, Elmont and Atlantic Beach — and the following incorporated villages in Nassau county: Lawrence, Cedarhurst, Woodsburg, Hewlett Harbor, Valley Stream, Lynbrook, East Rockaway, and Malverne. It is the only gas company that supplies the Fifth ward of Queens. Other gas companies, as well as the plaintiff, supply gas in the town of Hempstead, in Nassau county.

As of May 31, 1923, plaintiff served consumers through 22,501 meters; about 68 per cent. were located in Queens county, and 32 per cent. in Nassau county.

The Issue of Apportionment.

This cause presents two problems of apportionment: The first, as to that between plaintiff's gas business and its electric business; and the second, of its gas business between so much of it as serves the consumers located in the county of Nassau and outside of New York City, and so much of it as serves the consumers located in the county of Queens within New York City. No serious issue is presented as to the apportionment between the electric business and the gas business.

The amount of revenues and the amount of fixed capital tended to approximate each other in the two departments. It has been the plaintiff's practice to charge to each department the expenditures for operating purposes and for capital which are identifiable with that particular department, and to apportion between the two departments, on the basis of 50 per cent. to the gas department and 50 per cent. to the electric department, such charges both for operation and for capital as are incurred for both departments in common, The testimony of the plaintiff as to the extent of use of properties, the benefit accruing to each department, the relative investment in fixed capital in the two services, and the relative gross revenues therefrom support this basis apportionment for each department equally.

The second issue of apportionment, however, presents a question of much graver doubt and the master and counsel for the parties have given it much study and consideration. The plaintiff serves consumers in both the counties of Queens and Nassau. The county of Queens is within the city of New York, a city having 1,000,000 population, the county of Nassau is not within that city nor in a city having 1,000,000 population. The territory served is a contiguous geographical area divided only by a county line. The statute under review affects only cities having a population of 1,000,000 or more. The consumers of the plaintiff, therefore, who are located in the county of Nassau, are wholly unaffected by the statute, while those living or doing business in the county of Queens are affected by the statute. The rate of $1.30 and standard of 537 B. t.u. prescribed by the Public Service Commission in 1922 for the plaintiff still stands for Nassau county consumers, while the rate for Queens county consumers was reduced to $1 and the standard increased to 650 B. t.u. by the Legislature. By far the greater number of consumers served by the plaintiff in both counties consume less than 100,000 cubic feet per month. The Public Service Commission rate of 1922 authorized the plaintiff to charge such consumers, irrespective of the county of their residence, a $1.30 rate; the statute says that those located in Queens shall only pay a $1 rate. Yet, so far as this plaintiff is concerned, the consumers in both counties are served from one central plant, located in Queens; they are served by the identical distribution system; the same raw materials are consumed for the gas to be used in both counties; the same employees of the plaintiff serve all the consumers, irrespective of whether they live in Queens or in Nassau; and the consumers of both counties receive the benefit of a single gas system, with a unified control and a single system of production and distribution.

The statute under consideration cuts the plaintiff's system in two. It would, perhaps, be more accurate to say that it does not cut the system in two, it merely divides plaintiff's consumers into two groups, one group of which is to pay a $1 rate and the other to pay a $1.30 rate. No reason for the discrimination appears upon the face of the statute. Nor has the plaintiff or either of the defendants produced any proof of the grounds upon which the discrimination received the legislative sanction. Of the legislative power to properly prescribe different rates for different counties there is, I take, no doubt. Of the wisdom of prescribing two widely divergent rates for two contiguous counties, both very much alike in density of population, both very much alike in the character of service, and both served by the identical gas plant, there might be considerable debate. While the whole of Queens county is within the city of New York, that portion of it served by the plaintiff is an outlying section. It is the Rockaway peninsula, stretched along the Atlantic seaboard. It is more rural or seaside than metropolitan. That part of Queens county bears far more resemblance to Nassau county than it does to other parts of New York City; to the counties of New York, Kings, and the Bronx, all of which have great density of population, with scores of gas meters located within very short distances. In the New York City district served by the plaintiff the population is sparse; meters are, for the most part, spread out. The same condition prevails in Nassau county.

The issue of apportionment as between the two counties arose early in the hearings. The first items of which the plaintiff undertook to establish value were its land, of which, at the time of the commencement of the action it had some 12 parcels. A number of parcels were located without the city and in Nassau. Upon one of the properties in Nassau there is a gas holder which supplies gas to consumers in both counties. The defendants promptly objected to the admission of any evidence as to property physically located without the city of New York. Decision upon that objection was reserved until the proof showed whether or not any such properties were used in serving gas within the city. The door was thus opened to the plaintiff and both of the defendants to produce all their proofs as to all of the properties of the plaintiff, used and useful in its gas business, irrespective of whether such properties were physically located within or without the city, and to show the necessity, if there was a necessity, to definitely allocate the property to one county or the other.

The plaintiff has adduced proof as to all its property, whether located in one county or the other, used and useful in its gas business. It has not allocated the properties to the two counties. It furnished considerable evidence to show the variations in demand and use of properties in the two districts. But it claims that, as the system of operations is unitary, there is no need for apportionment. Because it has not offered proof of allocation, or excluded properties located in Nassau from its proofs, the defendants assert that there has been a failure of proof upon the part of the plaintiff. There might be considerable force to this contention, if adjudication of the present case depended solely upon the valuation of the portions of the plaintiff's property attributable to the respective geographical areas. It does not. The proof shows that, at the time that the statute under review took effect, its operating costs, exclusive of the value of its properties, amounted to approximately 99 cents per 1,000 cubic feet. This cost to produce and sell the gas applies to the consumers in both counties alike. It applies as against the $1 rate fixed by the statute. It applies to a lesser B. t.u. standard than that prescribed by the statute. For these facts alone, the statute must be held confiscatory as to the plaintiff.

This opinion and the findings submitted herewith might well stop at operating costs, and give no consideration whatever to the valuation of the plaintiff's property used in its gas business. The master, however, conceives it to be his duty to report upon all the issues involved which have been extensively litigated by all parties, and that the parties are entitled to full findings upon all the issues litigated by them. He does not, nevertheless, feel that this court is called upon in this action to make an allocation which the defendant Public Service Commission did not deem necessary to make in 1922. The Legislature by the statute in suit did not prohibit the plaintiff from serving Nassau county consumers from its plant located in Queens county. It merely, by the use of the phrase "in a city containing a population of one million or over," prescribed different rates and different standards for consumers located upon different sides of the county line. That single phrase is not very helpful to this court in making an allocation as between the two counties. It is not even vaguely or intelligently indicative of the legislative intent as to valuation. This is a question of confiscation, however, and not of statutory construction.

When a company is authorized to charge different rates, two different rate bases are necessarily involved. When the rates are differentiated by nothing more substantial than an artificial county line, the diversity is difficult to justify. In a case like the present, a disposition to shift values would be quite natural; one party charging every item it possibly could to the lower rate base, and the other party seeking to charge every item it possibly could to the higher rate base. It is a field for the exercise of eager and zealous, albeit honest advocacy. It might involve many niceties of cost accounting. In the view of this case, expressed above, the court is deprived of the interest in such a contest.

It is not the duty of the court in this case to work out, even if it could upon the record as it stands, a formula for the rates to be charged. That would be doing what the cases say that the courts should not do. In any event this court is not called upon to do that which neither the Public Service Commission, nor the Legislature of the state of New York, nor the parties to this action have done. Mr. Justice McReynolds has written for the Supreme Court, in Pacific Gas Electric Co. v. San Francisco, 265 U.S. 403, 44 S. Ct. 537, 68 L. Ed. 1075: "Our concern is with confiscation. Rate making is no function of the courts; their duty is to inquire concerning results, and uphold the guaranties which inhibit the taking of private property for public use without just compensation under any guise."

For the reasons stated, the master feels that he has fully discharged his duties under the order of reference to him by valuing plaintiff's unitary gas business as a unit, without making an allocation of values as between the two counties. Wherever the record permits of it, he is reporting upon the properties located in the different counties; but he has been reluctant to hold, because it is not necessary to do so, that because the plaintiff has not definitely allocated every last item of its property, the last bolt or the last screw, to one county or the other, that there has been a failure of proof upon its part. To press the plaintiff to such a highly technical degree of proof would serve no good purpose whatever, and Mr. Little, the defendants' engineer, testified in substance that it would serve no practical purpose. In this the master is fortified by the case made by the defendants, which offers no good reason why the court should take upon itself the difficult and unsatisfactory labor of evolving two different rate bases.

The master is not unmindful that a case such as the present, affecting large numbers of residents of a portion of the state, is not to be decided upon mere technical grounds. To hold that the plaintiff, refusing to make an allocation, has thereby failed in its proof, might fall far short of a final termination of the action. If such a disposition were made, an application by the plaintiff to re-open the record to offer proof accordingly might not well be denied, as in the furtherance of substantial justice. The master has been reluctant to add to the expense of the parties or to prolong hearings and litigation for the purpose of arriving at results which although important are not strictly necessary to the adjudication of the present cause.

Operating Expenses.

The plaintiff's proof as to its operating expenses is practically undisputed. Its actual expenditures are shown by its books, duly admitted into evidence (record, folios 2507, 2615). The voluminous entries were summarized in five exhibits (Plaintiff's Exhibits 126, 129, 132, 135 and 138; record folios 2958, 2974). These summaries assembled the figures as of five respective periods: For the calendar years of 1922, 1923, 1924, and 1925, and for the nominal year ending May 31, 1923. The latter date is but a day or two before the effective date of the statute in suit and the commencement of this action. Neither of the defendants questioned the accuracy of the figures, and neither of them offered any proof contract thereto. The net cost per 1000 cubic feet of gas sold (less miscellaneous operating revenue) for the respective periods referred to, was as follows: December 31, 1922, $1.0587; May 31, 1923, $.9952; December 31, 1923, $1.0239; December 31, 1924, $.9397; December 31, 1925, $1.0214.

Plaintiff's proof as to five different periods followed along the same general lines. That for the 12 ending May 31, 1923, is herein analyzed somewhat in full. It is indicative of all the proof upon the question of operating costs. During that period the plaintiff manufactured 975,664.2 thousand cubic feet of gas and sold 839,298.7 thousand cubic feet. The distribution as between the two counties of gas sold is as follows: Queens, 539,443.1 thousand cubic feet; Nassau, 299,855.6 thousand cubic feet. Its total costs for that period were summarized thus:

Per Thousand Cubic Feet Sold.

Cost of production ....................... $514,052.22 $ .6125 Cost of distribution and other general expenses ........................ 380,845.54 .4538 ___________ _______ Total cost of production and distribution, exclusive of federal income tax .............................. $894,897.76 $1.0663 Less miscellaneous operating revenue ................................. 69,509.01 .0828 ___________ _______ Net cost of production, less federal income tax .............................. $825,388.75 $ .9835 Federal income tax ....................... 9,850.00 .0117 ___________ _______ Net cost of production, exclusive of return on property ................... $835,238.75 $ .9952

The standard of gas supplied during this period was 546 British thermal units. Clearly if a 650 B. t.u. quality, the standard prescribed by the statute, were supplied, the cost would have been increased considerably over $1, the statutory rate. The sole objection of the defendant Attorney General to the operating costs as proved by the plaintiff is the failure definitely to allocate every item thereof as against the two counties. In the view of this case, expressed above under the heading "Issue of Apportionment," this is not important.

The defendant Public Service Commission, in addition to raising the allocation question, objects that several items, differing as to subject-matter and amount as to each period covered, are unusual and extraordinary. This defendant does not question the expenditures or their necessity, but asserts that they should be disallowed in the rate base. The objections are without force for several reasons: First, the expenditures and their necessity are supported by the proof; secondly, the court may not substitute its business judgment for that of plaintiff's board of directors; and, thirdly, even if the objections were allowed in full, and deductions were made accordingly, the rate base would be affected by but a few cents.

The assertion is made by the defendants that the $.9952 operating cost for the period ending May 31, 1923, as well as the costs for the other periods proved, in the absence of an allocation, does not prove the cost for either Queens county or Nassau county. It proves the unit cost for both counties. In the one it may be lower, and in the other it may be higher, by a slight margin. But in the view expressed above, that this court is not called upon to calculate two rates bases for the plaintiff, this possible divergence is without importance. It is especially without any force, in view of the fact that neither of the defendants has attempted to establish that no matter how figured the statutory rate and standard, in the face of the operating costs admitted, is not confiscatory.

Manifestly upon the proof as to operating costs above as to this plaintiff, the statute is confiscatory.

Land.

The plaintiff's real estate consists of some 12 parcels. After the commencement of the action it acquired some 7 additional parcels, which are not involved in the appraisal, but they are included in the additions after June 1, 1923, at the actual cost. Two witnesses were called by the plaintiff and none by the defendants, as to their value. The plaintiffs witnesses were Frederick W. Avery and Andrew J. McTigue. Both duly qualified as experts competent to appraise the properties. Avery has been a real estate broker and appraiser in the Rockaways and in Nassau county for over 19 years. McTigue has been in business in the same locality for about 40 years. He has served the state of New York and the city of New York as an appraiser. During the last few years he has placed upwards of $5,000,000 in loans upon real property located throughout the territory served by the plaintiff.

Parcel No. 1. This is the property upon which the Rockaway Park gas plant is located. This is the only gas-manufacturing plant of the plaintiff. This plot, irregular in shape, consisted at the time of the commencement of the action of 228,377 square feet of upland and 147,364 square feet of land under water. It is situated at the foot of Beach 109th street and fronts on Jamaica Bay on one side, and on the Long Island Railroad on the other side. Shortly after this action was commenced, the land under water was filled in and bulkheaded. This work was done by the W.H. Gahagan Company at a cost, as Louis J. Newburg, the general superintendent of that company, testified, of $48,395. Avery appraised the entire plot, including the bulkheaded land, at $488,463. The property was worth, in his opinion, $1.30 per square foot. Multiplying that sum by 375,741 square feet yields his total appraisal. In fixing the value, he deducted the cost of the bulkheading from his total appraisal, leaving the value as of that time of $440,068.

McTigue placed a valuation upon this plot of $468,247.45.

The city of New York at the time of the commencement of the action and prior thereto planned to run a public highway, Beach Channel Drive, through this property. The highway now takes a strip 80 feet wide therefrom. When this action was commenced, the highway was not physically cut through, and the city of New York by the resolution of June 30, 1924, acquired an easement for highway purposes, and on July 1, 1925, title to the easement in the strip was vested in the city. No deduction from the valuation herein will be made for the land thus taken, nor need a deduction be made now, as the award allowed in the condemnation proceeding, when collected, will properly be credited to the plaintiff's fixed capital. The present action should be unaffected by a conversion of its realty into personalty after the commencement of this action.

The land is conveniently located, and useful and used in the plaintiff's gas business; it is accessible, has a valuable water frontage, is peculiarly adapted for commercial use, and it was reasonably worth, at the commencement of this action, the sum of $440,068. It is wholly devoted to the manufacture of gas; none of it is used in plaintiff's electric business, during the period covered by the findings.

Parcel No. 2. This is an irregular plot, containing about 30.95 acres, located at Inwood, in the town of Hempstead, Nassau county, upon which plaintiff claims, according to Avery's valuation $160,700, and according to McTigue $171,307.74.

The basis of Avery's appraisal of $160,700 is a division of the plot into three parts. The most valuable, fronting on Sheridan Boulevard, contains 34 lots, which, he testified, were reasonably worth $1,000 a lot, or $34,000 in all. The north side of the plot is divisible into 80 lots, valued at $500 each, or $40,000 in all. The rearage he figured as an acreage of 25.5 acres, having a value of $3,400 an acre, or in all $86,700.

Of the two appraisals presented by plaintiff, I incline to that of Avery, and, as the property is entirely used for gas purposes, I find, upon the proofs, it to be reasonably worth $160,700.

Parcel No. 3. Crescent Street yard property, an irregularly shaped parcel, fronting on Seneca street, Crescent street, and the Long Island Railroad, at Far Rockaway, Queens county, with an area of about 42,099 square feet, upon which is located a general storeroom, meter shops, garage, frame buildings, and a railroad spur. Avery, for the plaintiff, testified that this plot was worth at least $1 a square foot, or a total of $42,086. McTigue, also for the plaintiff, had a slightly higher idea of its value, $45,105.

This property is accessible, its railroad facilities are generally adaptable for industrial purposes, and, in particular, for the use made of it by the plaintiff, and it is worth the sum of $42,086.

This property is used both for plaintiff's gas business and its electric business, and the proof shows that but one-half of it, to wit, $21,043, was used and useful in the gas business.

Parcel No. 4. Lynbrook holder station, situated near the Merrick Road, in Lynbrook, near the western boundary of Rockville Centre, Nassau county. It is triangular in shape and has an area of 76,930 square feet. There are erected upon it a gas holder, storeroom, garage, and a dwelling. Part of the plot is used for storage purposes.

Avery testified that in his opinion this property was worth 30 cents a square foot, or a total of $23,079. McTigue, using a formula of front feet valuation as to the front part of the plot and of square feet as to the rear, arrived at almost the same figure, $22,566.

Defendants raised some question as to Avery's qualification to appraise this property, but did not attack his evidence by any proof, and I feel constrained to accept the testimony of this witness. Upon the proof, this parcel was worth $23,079, one-half of it being used in the electric business and the other half, $11,539.50, is reasonably allowable for gas purposes.

Parcel No. 5. Storage yard, fronting on Merrick Road and Ocean avenue, Rockville Centre, Nassau county. It is an irregular plot of 94,803 square feet, used for the purposes of storage.

The Merrick Road frontage is 326× 104 feet; the remainder of the plot contains 60,899 square feet. The evidence shows that the Merrick Road frontage is far more valuable than the rearage. Avery valued the Merrick Road frontage, containing 33,904 square feet, at 50 cents a square foot, a total of $16,952, and rearage at 30 cents a square foot, or $18,269, a total of $35,221. McTigue's estimate was $38,145.

No witnesses save Avery and McTigue testified before me as to the value of this property, and that proof shows a valuation of $35,221, 50 per cent. of which is used and useful in plaintiff's gas business; hence $17,610.50 is allowed therefor.

Parcel No. 6. General office fronting on Far Rockaway boulevard (Central avenue), Far Rockaway. It has a 12-foot right of way at the westerly side of the plot, extending from Central avenue to the property line of the Long Island Railroad. It is irregular in shape, has an area of 13,964 square feet, and has erected upon it a general office building, salesrooms, and garages.

McTigue valued this plot at $93,840, and Avery, for 13,964 square feet, or at $7 a square foot, $97,748, which latter sum it was, in my opinion, reasonably worth. One-half of that amount, $48,874, is allowable for the gas business of the plaintiff.

Parcel No. 7. Lynbrook office property, fronting on Atlantic avenue and Broadway, Lynbrook, Nassau county. Site of general office, salesroom, and two storerooms. The plot is irregular in shape and contains about 11,040 square feet. Plaintiff's witness, Avery, testified that the Atlantic avenue frontage was far more valuable than the Broadway frontage. He apportioned to the Atlantic avenue frontage 7,625 square feet (50.5× 151), and to the Broadway frontage 3,360 square feet. He testified to a value for the Atlantic avenue frontage of $6.91 a square foot, or $52,703, and for the Broadway frontage $3.68 a square foot, or $12,364, a total of $65,067. McTigue, also called by the plaintiff, placed a value of $69,057 on this plot.

In the absence of any proof upon behalf of the defendants, the evidence that this parcel is reasonably worth $65,067, and that one-half of it, $32,533 should be allocated to its gas business, is uncontroverted.

Parcel No. 8. Edgemere, Queens county, gas governor house; balance of plot reserved for general storage purposes. An irregular plot, containing about 34,807 square feet, and bounded by Far Rockaway boulevard, Long Island Railroad and Beach Fifty-Third street.

Avery, for the plaintiff, valued this land at 60 cents per square foot, or $20,884. McTigue's valuation was $26,100. The property was worth $20,884. One-half of it, $10,442, was used in the gas business.

Parcel No. 9. Far Rockaway, Queens county, an irregular plot, containing 18,750 square feet, fronting on Clinton street and Mott Basin. Plaintiff has erected upon this plot a two-story brick garage. The plot has been filled in, bulkheaded, and dredged for canal purposes.

Avery, for the plaintiff, testified that this plot, undeveloped was worth about 50 cents a square foot, or $9,375. The bulkhead, 160.25 feet in length, is worth $30 per linear foot, or $4,807; filled to the average depth of 1 yard, or 2,083 cubic yards, at $1, equals $2,083, and the canal dredge work for one-half the canal, 2,374 cubic yards, at 15 cents, $356. Adding these four elements of value together, he arrived at a total appraisal of $16,621. McTigue's valuation, also for the plaintiff, was $15,300.50.

A valuation of $16,621 should be allowed, one-half thereof, $8,310.50, for gas purposes.

Parcel No. 10. Hewlett storage property, Nassau county. An irregularly shaped plot of about 32,900 square feet, upon which is erected a carpenter shop. The balance of the ground is used for storage purposes. The plot fronts on Franklin avenue and Long Island Railroad in Hewlett, town of Hempstead.

To arrive at a proper valuation of the plot, Avery subdivided into three parcels. Upon the first, the corner parcel, 40× 100, 4,000 square feet, he placed a valuation of 75 cents a square foot, or $3,000; the interior frontage, 60× 100, 6,000 square feet, he said was worth 60 cents a square foot, or $3,600; the rear of the plot, 229× 100, 22,900 square feet, was, according to this witness, worth 20 cents a square foot, or $4,586. Adding the three together, he arrived at a total valuation of $11,186. McTigue's valuation was $22,240.

Avery's appraisal is the lower of the two presented by the plaintiff. None is presented by defendants, and, upon the proof, this property should be allowed a valuation of $11,186, one-half of it, $5,593, for gas purposes.

Parcel No. 11. Hewlett storage yard, located at Hewlett, town of Hempstead, in Nassau county, situated on west side of Franklin avenue, 100 feet north of Long Island Railroad. It contains 28,080 square feet. There is erected upon it a dwelling, occupied by an employee of the plaintiff, and barn. This plot is directly north of parcel No. 10.

Avery divided the plottage into two parts, front and rear. He valued the front plot, 90× 100, 9,000 square feet, at 60 cents, $5,400, and the rear, 90× 212, 19,080 square feet, at 20 cents a square foot, $3,816; a total of $9,216. McTigue's valuation was $11,520.

The appraisal of $9,216, one-half of it, $4,608, for gas purposes, should be allowed.

Parcel No. 12. Hewlett storage yard, an irregular plot at West Broadway and Long Island Railroad, Hewlett, town of Hempstead, Nassau county, having an area of 132,899 square feet, upon which no buildings are erected, and which is unimproved. It is used as a storage yard.

Avery divided the plot into two parts, front and rear. The former, 216× 100, 21,600 square feet, he valued at 30 cents a square foot, $6,480. The balance of the plot, 111,290 square feet, at 25 cents, $27,824; a total of $34,304. McTigue's figure was $38,637.50.

In the absence of any proof whatever to the contrary, there is allowable for this parcel $34,304, one-half of it, $17,152, properly attributable to plaintiff's gas business.

Defendants in their briefs criticize the proofs offered by the plaintiff as to the value of its lands. But the way to meet the proof, where the credibility of the witness is not otherwise impeached, is by proof to the contrary. They further assert that, because plaintiff has failed to allocate every item of realty as between the two counties, there has been a failure in its proof. As stated above, it is not incumbent upon this court, for the purposes of this action, to make an allocation which the parties by their proofs have not made; nor is it necessary to hold that, because plaintiff has not made the allocation, there has been a failure of proof upon its behalf.

The value of plaintiff's land, as of the commencement of the action, and as used and useful in its gas business, as found above, may be thus summarized:

================================================================= | | Value for Gas | | Business as of Parcel | Location and Uses. | Time of Commencement Number. | | of | | Action. ---------|--------------------------------|---------------------- 1 | Rockaway Park gas works | $440,068.00 2 | Bay front — Inwood | 160,700.00 3 | Far Rockaway's Crescent | | St. Yard 21,043.00 | 4 | Lynbrook holder station | 11,539.50 5 | Rockville Centre storage | | yard | 17,610.50 6 | Far Rockaway, general office | 48,874.00 7 | Lynbrook office 32,533.50 | 8 | Edgemere and Arverne governor | | house | 10,442.00 9 | Clinton street, Far Rockaway, | | garage | 8,310.50 10 | Hewlett — storage (shop) | 5,593.00 11 | Hewlett — storage (dwelling) | 4,608.00 12 | Hewlett — storage | 17,152.00 | | ___________ | Total | $778,474.00 -----------------------------------------------------------------

Additions since the commencement of the action are discussed below.

Gas Plant, Buildings and Appurtenances, Distribution System, and Depreciation.

The physical properties of the plaintiff, used and useful in its gas business, other than land, which has been discussed, may be conveniently treated in this order: The value of materials and labor entering in the construction of the buildings and appurtenances; then the value of the materials and labor entering into the distribution system, i.e., mains and services; and, thirdly, the fixation of the undistributed structural costs. These valuations should be fixed and determined, and discussed somewhat at length, first, as of the time of the commencement of the action, and, later herein, such valuations brought down to date. The issue of depreciation should be similarly considered.

Buildings and Appurtenances.

As to the value of the material and labor embodied in its plant and buildings, as of June 1, 1923, the plaintiff called Henry R. Burt, who, after duly qualifying as an expert, presented his valuations thereof in a detailed inventory and appraisal (Plaintiff's Exhibit 76).

This valuation, which did not include undistributed structural costs, may be thus summarized:

Rockaway Park works ..................... $172,036.89 Crescent street yard, Far Rockaway 71,877.01 Office buildings, Far Rockaway .......... 80,741.16 Governor house, Edgemere ................ 299.35 Clinton street garage, Far Rockaway ..... 151,182.57 Lynbrook offices ........................ 21,875.41 Lynbrook holder station ................. 25,791.45 Hewlett group ........................... 17,158.40 ___________ Total ................................. $540,962.24

Of which there was apportioned to the gas business $360,307.70.

No issue is presented, and there is no conflict in the proof, as to the accuracy of the inventory presented upon behalf of the plaintiff. While the defendants criticize the appraisal made by Burt, they presented no proof to controvert his valuations, and Mr. Little, the defendants' engineer, did not question any of Mr. Burt's unit prices.

Burt presented full and detailed labor and material costs as against every item of plaintiff's buildings. He did it as upon a subcontractual basis; that is, upon the costs which a subcontractor would have to pay for labor and material to construct the buildings. To this he added 10 per cent. for subcontractor's profit. The method is fair and proper, and I am satisfied that, upon the proof, the plaintiff is entitled to a valuation for the material and labor elements of its buildings and their appurtenances of $360,307.70.

Plant.

The properties constituting the plaintiff's manufacturing plant were proved in great detail. No question is raised by defendants as to the existence of such property owned by the plaintiff. They dispute the use and usefulness of some items of property, notably of one gas holder. Plaintiff has three holders, but, according to the contention of the defendants, it needs only two. It could, they say, do without one of them. But the proof does not substantiate the claim. The plaintiff must at certain seasons of the year — a good part of its territory is summer and vacation ground — be prepared to meet extraordinary gas demands. This necessitates ample reserve storage capacity. The plaintiff has it, and I do not believe that its good judgment in being prepared for great emergencies should subject it to penalization, through deducting from the valuation it is entitled to have made herein any of the gas holders which it admittedly has and uses.

Defendants interposed no proof to offset or cut down the valuation of the physical elements of property proved by the plaintiff. The plant and its physical valuation as of June 1, 1923, may be summarized:

Rockaway Beach Works:

Blower and exhauster house $ 31,221 04 Boiler house .................. 100,399 00 Compresser house No. 2 ........ 23,966 78 Compressor room ............... 35,924 10 Generator house ............... 128,620 29 Governor house ................ 2,043 27 Meter house ................... 4,135 07 Pump house No. 1 .............. 2,096 16 Pump house No. 2 .............. 8,772 48 Pump house on dock ............ 900 19 Turbine room .................. 16,628 78 Yard .......................... 511,140 85 Small piping .................. 65,125 90 Large piping .................. 64,895 47 ___________ $ 995,869 38 Lynbrook Holder Station:

Holder station ................ $ 37,822 56 Small piping .................. 1,437 72 Large piping .................. 1,428 89 __________ 40,689 17 _____________ $1,036,558 55

Mains and Services.

Plaintiff claims a valuation of $2,387,426 for its mains and of $247,881 for its services. It presented two inventories, one of its mains and services in Queens county, and the other of mains and services in Nassau. These showed 549,454.33 feet of mains and 10,190 services in Queens, and 644,349.91 feet of mains and 6,615 services in Nassau. The defendants do not attack the accuracies of those inventories.

Colin C. Simpson, general superintendent of the mains and service department of the Consolidated Gas Company of New York, duly qualified as an expert for the plaintiff. The method used by him in the preparation of his inventory and appraisal was practical and thorough. He drew his quantity data from the books and records of the plaintiff. He checked this data by causing excavations to be made at some 20 points throughout plaintiff's territory and comparing the actual conditions of the mains in the ground as shown by the records. He found the records complete and accurate. He arrived at an average for length of services of 25 feet, based upon an average width of streets, from property line to property line, of 50 feet. He took one-half of the width as the length of the average service. The streets taken into consideration by him for these calculations were sufficient to reflect the average service length throughout the district.

Simpson's appraisal was based upon a subcontractual basis and included the cost of labor and material plus the cost of paving over mains, cost of governors and governor pits, and allowances for employees and public liability insurance, and for city inspection. Paving and city inspections were not items of cost that entered into, and were not considered by Simpson in, his service appraisals. Inasmuch as Simpson's figures are those as of a subcontractor, he did not include as part of them overheads or the undistributed structural costs.

Simpson's appraisal is based upon unit production, and not upon the number of laborers or period of time required. I conceive this method of measuring by the task itself, which is an invariable, rather than by number of men or periods of time, which are variables, to be the more accurate means of arriving at a valuation.

The unit prices of materials used by Simpson were those prevailing at the time of the commencement of the action. The unit price of labor, of which at least 90 per cent. was unskilled labor, was that which a subcontractor would have had to pay. They were slightly at variance with the prices plaintiff actually paid to laborers, as shown by its pay rolls which were marked in evidence. Sometimes the money wages were lower, and occasionally higher, than the flat figure of $4 a day (50 cents an hour) adopted by Simpson. The actual money paid to the laborers, however, does not limit plaintiff's labor expense, as in addition thereto the plaintiff had to supply camping facilities to its men, and underwent, as all companies must, an expense for labor turn-over.

The defendants' case lacks any proof which would warrant disregarding plaintiff's proof as to the value of its distribution system, and the plaintiff is, upon the record, entitled to a valuation of the physical elements thereof, as of the time of the commencement of this action, of $2,387,426 for its mains and of $247,881 for its services. The question of depreciation is discussed below.

Other Items of Physical Property.

Other items of plaintiff's property, used and useful in its gas business, of which there is nothing in the record upon behalf of defendant to overcome plaintiff's full proofs thereof, are: Meters, $309,856; equipment, $89,039; tools, $10,485; and street lighting, $678. The proofs entitle the plaintiff to valuations in the amount stated.

Overheads.

The valuations of the physical properties thus far considered are all based upon a subcontractual basis. This does not, of course, include all the elements of value. The overheads must be considered. Ohio Utilities Co. v. Public Utilities Commission of Ohio, 267 U.S. 359, 45 S. Ct. 259, 69 L. Ed. 656.

The issue as to overheads is graphically presented by a parallel column comparison between the testimony and exhibits of Alten S. Miller, upon behalf of plaintiff, and of Mr. A.S.B. Little, upon behalf of the defendants. Both of these witnesses are fully qualified to testify as to the intricate subject-matter involved in undistributed structural costs, both of them made a very thorough study of the problems, and both of them presented their testimony with frankness and sincerity. Their conclusions may be summarized thus:

Miller Little (for (for Plaintiff) Defendant)

Omissions and contingencies $ 51,827 93 $ 33,900 00 Organization and development .... 345,000 00 142,068 00 Financing ....................... 365,000 00 270,000 00 Engineering, general contractor's expense, and profit ......................... 498,695 52 496,365 00 Interest, during construction 267,605 00 208,007 00 Administrative, legal, and miscellaneous expense .......... 108,370 37 107,864 00 _____________ _____________ $1,636,498 82 $1,258,204 00 Little ...................... 1,258,204 00 _____________ Difference .................. $ 378,294 82

Into the calculations both of Miller and of Little entered the factor of working capital, hereafter discussed. It may be noted here that Miller, for the purpose of calculating the overhead, placed working capital at $558,995.75; Little at $447,090; a difference of $111,905.75, which, if added to the above difference of $378,294.82, makes a difference between Miller and Little of $490,200.57. Little took into consideration the item of insurance in the amount of $15,000; Miller did not. Thus $15,000, deducted from $490,200.57, reduced the total difference between Miller and Little to $475,200.57.

It will be noted that there is but slight differences between the plaintiff and the defendant as to three of the items, and as to those items the plaintiff is entitled to an allowance in the amounts claimed by it. Those items are: Omissions and contingencies, $51,827.93; engineering, general contractor's expense and profit, $498,695.52; and administrative, legal and miscellaneous expense, $108,370.37. I am not unmindful that as to the first of these items there is an approximate difference of approximately $18,000, but I feel that the record sustains Miller, plaintiff's witness.

As to organization and development the discrepancy is substantial. Miller submits $345,000; Little $142,068 — a difference of $202,932. Miller arrives at his result by making an allowance of 5 per cent. of all reproduction costs and expenses, including working capital, but excluding cost of financing and going value, amounting to the sum of $6,963,616.97, equaling $348,180.85, which the plaintiff approximates at $345,000. Little works it out in this way: Two per cent. on structural cost plus omissions and contingencies, less land value, $89,522; 1 per cent. on land structures plus omissions and contingency expense, $52,546; total, $142,068. I have studied Mr. Little's estimate (Defendant's Exhibit RR) and his testimony with considerable interest and care but I feel upon all the proof, and upon the peculiar position of this company, situated and operating as it does in an outlying district, more rural than metropolitan, that the plaintiff has made out a good and sufficient case for the valuation it asks, and has proved for this item in the sum of $345,000.

There is substantial difference, also, as to the cost of financing: Miller, $365,000; Little $270,000 — a difference of $95,000. Save in its conclusion of a valuation of $270,000, it seems to me that Mr. Little's exhibit (Defendant's Exhibit RR) makes out a strong corroborative case for the valuation claimed by the plaintiff. Mr. Little established the high costs necessary and unavoidable in the financing of a public utility; the necessity of having the securities of such corporations underwritten; the necessity of having, as he says, the underwriting passing through the successive handling of (1) a purchase syndicate; (2) a syndicate manager; and (3) a selling syndicate. He discusses the compensation of investment bankers. He takes up the subject of sales of securities, direct to the public and to consumers, rather than through investment bankers.

Mr. Little maintains that the direct selling of securities is not desirable, for the reasons that it is (1) not economical; (2) slow receipts of proceeds of sale; (3) unsatisfactory class of security holder; (4) lack of banking support; and (5) prejudice of investing public. It is quite true that Mr. Little quotes a book to these effects, but neither the book nor its author testified before the master, who must, of necessity, accept the testimony to the foregoing purport as that of Mr. Little, who presents and vouches for it. I find Mr. Little's discussion of that movement which has come to be known as "customer ownership" very interesting, but the advantages or disadvantages of customer ownership are not involved in this cause nor been litigated herein. The plaintiff has established its right to a valuation as for this item of $365,000.

There is a difference between Miller and Little as to interest during construction; Miller, $267,605; Little, $208,007; difference, $59,598. In my opinion, the plaintiff has, upon the proof, established its right to the higher amount, $267,605.

Working Capital.

The factor of working capital in this case affords but little difficulty. The plaintiff's witness, Miller, bases his estimate of $558,996 upon the company's book accounts. Mr. Little for the defendants arrives at $447,090. Defendant's Exhibit QQ, page 27. Mr. Little also says in his exhibit: "No hard and fast rule can be laid down on the subject of the amount of working capital by a gas company. The requirements of no two such companies can be alike, expressed in cents per M cubic feet of gas sold or any other unit, because the condition under which they operate must necessarily control each case. In fact the requirements of a single company will vary from month to month, not only for internal reasons such as the varying seasonal load, or the need for paying out large sums periodically for taxes, etc., but for the further reason that possibility of strikes or abnormal traffic conditions calls for the occasional stocking of more than average amounts of coal and oil, etc., for under no circumstances can a gas company take the risk of an interruption of a continuance of its service." Defendants' Exhibit QQ, pages 1, 2. Under Mr. Little's reasoning, which appears to be sound and fair, I do not believe that plaintiff's estimate of what it requires for working capital should be cut below the amount asked by it, $558,996.

Going Value.

The plaintiff asserts a claimed valuation for going value of $876,281. The defendants adduced no proof other than reading into the record testimony of witnesses who testified in the case of Brooklyn Borough Gas Co. v. Prendergast (D.C.) 16 F.2d 615, a case wherein the present special master acted in a similar capacity. The principles governing the valuation of going value were discussed at length by the master in that case, and the master's report in that case was duly affirmed by the statutory court. No further discussion of the law is required here. I have carefully weighed the proofs adduced and considered the able arguments made by counsel for the plaintiff and for the defendants, and I am of the opinion that the plaintiff is entitled, upon the proof, to an allowance for going value of $750,000.

Depreciation.

The question of depreciation is perhaps one of the most troublesome problems in rate litigation. In this case the plaintiff has adduced proof that it would cost $24,777.47 to restore its apparatus to a condition as if new, and $7,849 for the portion of the buildings assigned to the gas division, a total of $32,626.47. It offers no such proof as to its distribution system. The defendants by Mr. Little assert that the accrued depreciation upon the plaintiff's properties located in Queens county amounts to $159,267. No estimate was submitted by defendants as to depreciation on Nassau county properties. Mr. Little conducted a painstaking inspection of plaintiff's property and his opinion is based upon such inspection. He does not controvert that the plaintiff's present plant and equipment is and has been for a number of years serving gas regularly and continually to its consumers. He has pointed to no break down in service due to depreciation. Perhaps, if the recommendations that the plaintiff may find in Mr. Little's testimony were adopted by the plaintiff and parts of its equipment scrapped for substitutes, it might have a better plant, but it is not the function of the court in a rate case to substitute its judgment for the managerial judgment of the plaintiff's board of directors, and I do not believe that Mr. Little's sweeping opinion of accrued depreciation should be adopted by me. The cost to restore to a condition as if new, $32,626.47 must, of course, be deducted.

Total Valuation of Property.

The plaintiff has clearly sustained its claimed valuation of $8,269,038.53 as set forth above, on page 7 under the heading of "Valuation Claimed," except as to going value, from which I have deducted, as appears under the heading "Going Value, above," the sum of $126,281. The value of plaintiff's property, used and useful in its gas business as of the time of the commencement of this action, was therefore the sum of $8,142,757.53.

The net additions to the property since the commencement of this action and the total value as of the following dates are thus indicated:

June 1, 1923 ................. $8,142,757.53 Net additions to December 31, 1923 ........................ 205,125.28 _____________ Total value as of December 31, 1923 ........................ $8,347,882.81 Net additions to December 31, 1924 ........................ 962,775.36 _____________ Total value as of December 31, 1924 ........................ $9,310,658.17 Net additions to December 31, 1925 ........................ 449,222.05 _____________ Total value as of December 31, 1925 ........................ $9,759,880.22

The proofs do not extend, nor is it necessary that they should do so, beyond the last-mentioned date, December 31, 1925.

Rate of Return.

The uncontradicted testimony showed, and the cases warrant in holding, that the plaintiff is entitled to earn an 8 per cent. return upon the value of its property (Gas Cases, supra).

Conclusion.

The conclusion is inescapable upon the proof adduced that the rate considered above is confiscatory; if the standard was to be enforced, it would add measurably to the margin by which the rate is confiscatory. The statute, if enforced as to rate above and in that part of the territory embraced in New York City above, would not permit of any return whatever to the plaintiff over its mere operating expenses. The evidence is so convincing that no experiment was required by plaintiff with either rate or standard, or both together.

The master has not felt that it was necessary to lengthen this opinion by the citation of cases very familiar to the court. This is the last of the cases affected by the statute under review to be tried. The principles of law that must govern have been definitely settled by the special statutory court and the Supreme Court. The case of Brooklyn Borough Gas Co. v. Prendergast (D.C.) 16 F.2d 615, reported by the present special master has been approved by the special statutory court, and that court has held that the report in that case was in accord with the subsequent rulings in Indianapolis Water Company Case, 272 U.S. 400, 47 S. Ct. 144, 71 L. Ed. 316. The master has felt that the issue here was mainly one of fact. Inasmuch as it has been tried within the rules laid down by the other Gas Cases, supra, and the Indianapolis Water Co. Case, supra, there would be scant justification for long citations or quotations from the cases or a disquisition upon the law.

The motion of the plaintiff for judgment on the pleadings, on the ground that the answers of the defendants do not raise an issue, and of the defendants to dismiss the complaint, upon the ground that it does not state a cause of action, are denied.

Findings of Fact.

I, the undersigned, the special master appointed by Hon. Marcus B. Campbell, District Judge, by an order entered October 11, 1923, directing such master "to take the testimony and evidence upon the issues herein, make all needed computation, and hear the facts, and to report to the court his findings of fact and conclusions of law, together with the evidence, for the advisement of the court," do hereby respectfully report that, having been attended by counsel as below stated, I proceeded to take the proofs submitted and filed, together with a stipulation signed by the various solicitors waiving the signatures of the various witnesses to their several depositions, and further waiving the filing of the original exhibits marked in evidence.

In response to the requests of the plaintiff:

1. The plaintiff Queens Borough Gas Electric Company is a gas and electric corporation, and was duly incorporated under the laws of the state of New York by a certificate of incorporation dated May 27, 1902, and filed May 29, 1902, in the office of the secretary of state of New York, and June 2, 1902, in the office of the clerk of the county of Queens, under and pursuant to the provisions of article 6 of chapter 40 of the General Laws of the state of New York, entitled the Transportation Corporations Law (chapter 566 of the Laws of 1890, as amended), for the purpose of manufacturing and supplying gas and electricity for lighting the streets, and public and private buildings of cities, villages, and towns in the state of New York; and the plaintiff has, since its incorporation, been engaged in the business of producing and selling gas and electricity.

2. On or about February 19, 1880, the Rockaway Gaslight Company was incorporated under and pursuant to the provisions of an act of the Legislature of the state of New York, entitled "An act to authorize the formation of gaslight companies," passed February 16, 1848, and the acts amendatory thereof, for the purpose of manufacturing and supplying gas for public and private purposes, particularly at Rockaway Beach and points then in the town of Hempstead, in the county of Queens, state of New York.

3. On or about May 17, 1882, the Town of Hempstead Gas Electric Light Company was incorporated under the laws of the state of New York, under and pursuant to the provisions of the said Act of the Legislature of the state of New York of February 16, 1848, for the purpose of manufacturing and supplying gas for public and private purposes, particularly at Rockaway Beach in the town of Hempstead, then in the county of Queens, and at other points and places in said town.

4. On or about July 1, 1902, and theretofore, the Town of Hempstead Gas Electric Light Company, among other things, owned and used certain lands, buildings, and other property, real and personal, for, and was actually engaged in, the manufacture, sale, and distribution of gas in the town of Hempstead and the county of Queens. In addition to the property above described, the Town of Hempstead Gas Electric Light Company owned and was in the actual enjoyment of franchises and rights to lay and maintain mains, pipes, and conductors in and under the streets, highways, alleys, lanes, and other public places in the said town of Hempstead and the county of Queens, for the purpose of supplying gas through said mains for public and private purposes in the said town and county.

5. Prior to the incorporation of the Town of Hempstead Gas Electric Light Company, the Rockaway Gaslight Company owned and used certain lands, buildings, and other property, real and personal, for its corporate purposes, and more particularly located at Rockaway Beach, then in the town of Hempstead, Queens county, state of New York, and owned, and was in the actual enjoyment of, franchises and rights to lay and maintain mains, pipes, and conductors through and under the streets, lanes, roads, alleys, thoroughfares, public squares, parks, and places, in the town of Hempstead, and to erect lamps on said highways and places except in the village of Hempstead and in the tract known as Garden City, or the "Stewart Purchase." On or about August 19, 1882, the Town of Hempstead Gas Electric Light Company acquired by deed and other mesne conveyances the property formerly belonging to the Rockaway Gaslight Company.

6. Soon after the organization of the plaintiff, to wit, on or about July 1, 1902, the plaintiff acquired by an indenture dated July 1, 1902, and made by the Town of Hempstead Gas Electric Light Company, all of the property, real and personal, rights, privileges, and franchises of the Town of Hempstead Gas Electric Light Company, including certain described parcels of land in Rockaway Beach, borough of Queens, and in the former village of Far Rockaway, then in the town of Hempstead, county of Queens, and by virtue thereof the plaintiff became possessed, and the owner in fee, of all the real and personal property theretofore owned by the Town of Hempstead Gas Electric Light Company, the owner of the franchises and rights then owned, possessed or enjoyed by the Town of Hempstead Gas Electric Light Company, and the owner, among other things, of the gas business established and developed by the Town of Hempstead Gas Electric Light Company and its predecessors.

7. On July 12, 1902, the Town of Hempstead Gas Electric Light Company was merged with the Queens Borough Gas Electric Company and a certificate of merger was filed in the office of the Secretary of State September 19, 1902. By virtue of the merger and of the statute pursuant to which it took place the plaintiff became possessed and the owner in fee simple of all the real and personal property, franchises, and rights owned, and the business established and developed by the Town of Hempstead Gas Electric Light Company not theretofore conveyed by the latter company to the plaintiff.

8. The plaintiff, ever since the date of said transfer to it, has owned, possessed, used, and enjoyed all of the said franchises and rights of the said the Town of Hempstead Gas Electric Light Company, and still does possess, use, and enjoy the said franchises and rights, and each of them, together with additional rights and franchises from time to time acquired by it, and the plaintiff, by virtue of the said franchises and rights, has, ever since the said transfer, maintained, and still does maintain, its mains, pipes, and services in the streets, highways, alleys, and public places of the state of New York, particularly in the Fifth ward of the borough of Queens, and in the town of Hempstead, Nassau county, and has made improvements in and additions to the said property, and has supplied and still does supply gas through the said mains and services for public and private purposes in the said ward and in the said town.

9. The defendants, William A. Prendergast, William R. Pooley, Charles Van Voorhis, Oliver C. Semple, and George R. Van Namee, constitute the Public Service Commission of the state of New York, acting as such commission, having been duly appointed under and by virtue of the provisions of chapter 480 of the Laws of 1910 of the state of New York, known as chapter 48 of the Consolidated Laws of the state of New York, as amended and supplemented by several acts, including chapter 134 of the Laws of 1921, prescribing their powers and providing for the regulation of certain public corporations, including the plaintiff. The defendants are citizens of, and reside in, the state of New York, and at least one of the defendants at the time of the commencement of this action resided in the borough of Brooklyn, state of New York, in the Eastern district of New York.

10. George R. Van Namee, as public service commissioner of the state of New York, was substituted as such defendant in the place and stead of James A. Parsons, named as an original defendant in this action.

11. Defendant Albert Ottinger, as Attorney General of the state of New York, is a citizen of the state of New York, and resides in the city and state of New York, and was substituted as defendant in this action in the place and stead of Carl Sherman as Attorney General of the state of New York, named as an original defendant in this action.

12. The plaintiff has but one gas manufacturing plant which is located in Rockaway Park, and supplies the whole of the territory served by the plaintiff, and conducts its gas business as a unitary system extending over the Fifth ward of the borough of Queens, which is within the territorial limits of the city of New York, and a portion of the town of Hempstead in Nassau county immediately adjacent to the Queens borough area, the two geographical divisions forming a continuous area. The area served by the plaintiff has been treated by the defendant Public Service Commission as a unit in its orders dated August 30, 1922, entered in cases 79, 79-D, and 108, whereby the said defendant commission prescribed the $1.30 rate and 537 average B. t.u. standard alike for the two geographical divisions, and has determined by the said orders that the conditions of service in the two districts require an equality of rate under the conditions then existing.

13. The plaintiff prior to and since June 1, 1923, has been the owner and in possession of a parcel of land located at Rockaway park at the foot of Beach 109th street on Jamaica Bay, in the borough of Queens. Upon this property the sole gas manufacturing plant of the plaintiff is located. At this plant gas is manufactured by the carburetted water gas process. The plaintiff's said gas manufacturing plant, as of June 1, 1923, consisted primarily of the following described gas manufacturing machines, with connections and accessories, having a rated manufacturing capacity per twenty-four hours, as follows:

Lowe type, water gas set, 10 feet ................ 2,000,000 cubic feet Lowe type, water gas set, 10 feet 6 inches ....... 2,250,000 cubic feet Lowe type, water gas set, 8 feet 6 inches ........ 2,000,000 cubic feet Lowe type, water gas set, 11 feet ................ 3,500,000 cubic feet

— making a total rated capacity of 9,750,000 cubic feet of gas per day, and a normal working capacity of 6,250,000 cubic feet of gas per day, with the largest machine not in active operation.

14. In connection with the manufacturing plant, the plaintiff owned, as of June 1, 1923, and still owns, other gas apparatus, structures, machinery, equipment, and other property necessary and useful for the manufacture and distribution of gas in the plaintiff's territory.

15. Subsequently to June 1, 1923, in order to meet the reasonable requirements of its gas consumers, the plaintiff has made various additions, extensions and improvements in and to its manufacturing plant, apparatus and accessories, holders and holder stations, shops and offices and lands and buildings used in connection therewith, as well as in other properties of the plaintiff; but the detailed proofs before me of such additions, extensions and improvement cover only the period from June 1, 1923, to December 31, 1925, although there was evidence submitted to me, of a general character, relating to other such changes not covered by such detailed proofs.

16. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of two gas storage holders, one of which is located at the gas plant at Rockaway Park, and has a capacity of 2,000,000 cubic feet, and the other located at Ocean avenue, near the Merrick Road, in Lynbrook, with a capacity of 150,000 cubic feet, making a total capacity for the holders of 2,150,000 cubic feet. The plaintiff also has a relief holder at the plant having a capacity of 500,000 cubic feet.

Subsequent to June 1, 1923, the plaintiff erected an additional 6,000,000 cubic foot gas storage holder at Sheridan boulevard and Nassau avenue, in Inwood, making the total gas storage capacity 8,150,000 cubic feet.

17. Prior to and since June 1, 1923, the plaintiff has owned a plot of land on Central avenue, Far Rockaway, upon which it maintained a general office building; and subsequently to June 1, 1923, the plaintiff has erected a new additional office building at the site on Central avenue, and has acquired the land for, and erected and now maintains, a local office and show room on Beach 116th street in Rockaway Park, and also opened and maintained a local office and show room on Merrick road and Hempstead avenue.

18. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Rockaway Park gas works) situate at Rockaway Beach, Fifth ward, borough of Queens, city of New York, fronting on Jamaica Bay and the New York Rockaway Beach Railroad, which property has been and is used by the plaintiff for a gas plant, holders, shops, and apparatus and accessories. This property was and is wholly devoted to the uses of the gas department of the plaintiff, except that, in 1927, the plaintiff built an electric substation upon a section of the land of the gas plant about 50 feet square, which will be allocated from the gas department to the electric department in 1927.

Subsequently to June 1, 1923, the city of New York acquired an easement through the plaintiff's land at Rockaway Park, for the purpose of opening Beach Channel drive, reserving, however, to the plaintiff the right to construct and maintain various planes for overhead bridges and tunnels between the southerly part and the northerly part of this land, and preserving the water front rights and privileges appurtenant to the parcel of land.

19. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel (bay front property, Inwood) of land situate in Inwood, town of Hempstead, Nassau county, state of New York, fronting on Sheridan boulevard, Nassau boulevard, Water Front boulevard, and Jamaica Bay. This parcel was unimproved on June 1, 1923. This property was and is used by the plaintiff's gas department. Upon a part of this property there is located the plaintiff's 6,000,000 cubic foot gas holder constructed since this action has been begun.

20. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Crescent street yard) situate at Far Rockaway, borough of Queens, city of New York, and fronting on Seneca street, Crescent street, and the Long Island Railroad. On this plot as of June 1, 1923, there were located a general storeroom, meter shops, garage, frame buildings, and a railroad spur. This property was and is used equally by the gas and electric departments of the plaintiff in both counties.

21. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Lynbrook holder station) situate at Lynbrook, Long Island, fronting on the Long Island Railroad Company and also on Ocean avenue, on or near the western boundary of the village of Rockville Center, in the town of Hempstead, Nassau county, state of New York. On this plot as of June 1, 1923, there were situated a gas holder, storeroom, garage, and dwelling; the balance of the property being used for storage purposes. This property was and is used equally by the gas and electric departments of the plaintiff.

22. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (store yard — Rockville Center) situate at Rockville Center, Long Island, town of Hempstead, Nassau county, state of New York, fronting on Merrick road and Ocean avenue. This parcel as of June 1, 1923, was used for storage purposes. This property was and is equally used by the gas and electric departments of the plaintiff.

23. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land situate at Far Rockaway, Borough of Queens, New York City (general office property, Far Rockaway), fronting on Far Rockaway boulevard (Central avenue) and property of Long Island Railroad, together with a 12-foot right of way at westerly side of parcel extending from Central avenue to property line of Long Island Railroad. On this parcel as of June 1, 1923, there were located general office buildings, salesrooms, and garages. This property was and is used equally by the gas and electric department of the plaintiff in both counties.

24. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Lynbrook office property) situate in Lynbrook, Long Island, town of Hempstead, Nassau county, state of New York, fronting on Atlantic avenue and Broadway, including an 8-foot right of way adjoining property of Smith Robbins. On this parcel as of June 1, 1923, there were a general office, salesroom, and two small stores. This property was and is used equally by the gas and electric departments of the plaintiff.

25. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land situate at Edgemere, county of Queens, city of New York (Edgemere and Arverne property), fronting on Far Rockaway boulevard, Long Island Railroad and Beach Fifty-Third street. On this property as of June 1, 1923, there was located a gas governor house; the balance of the property is used for general storage purposes. This property was and is used equally by the gas and electric departments of the plaintiff.

26. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Clinton street garage property) situate at Far Rockaway, county of Queens, city of New York, fronting on Clinton street and Mott Basin. On this parcel as of June 1, 1923, there was located a two-story brick garage. This property was and is equally used by the gas and electric departments of the plaintiff in both counties.

27. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Hewlett storage yard [shop] property), situate in Franklin avenue and Long Island Railroad, Hewlett, town of Hempstead, Nassau county, state of New York. On this property as of June 1, 1923, there was located a carpenter shop; the balance of the property being used for storage purposes. This property was and is equally used by the gas and electric departments of the plaintiff.

28. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Hewlett storage yard [dwelling] property), situate on the west side of Franklin avenue, 100 feet north of the Long Island Railroad, Hewlett, town of Hempstead, Nassau county, state of New York. On this parcel as of June 1, 1923, there was located a dwelling and barn occupied by an employee of the plaintiff. This property was and is used equally by the gas and electric departments of the plaintiff.

29. Prior to and since June 1, 1923, the plaintiff has been the owner and in the possession of a parcel of land (Hewlett storage yard [storage] property) on West Broadway and Long Island Railroad, Hewlett, town of Hempstead, Nassau county, state of New York. On June 1, 1923, this parcel was unimproved and was used for a storage yard. This property was and is used equally by the gas and electric departments of the plaintiff.

30. On or about February 19, 1924, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situate at Rockaway Beach in the Fifth ward, borough of Queens, located on the northerly side of Wainwright avenue 634.10 feet westerly from the corner formed by the intersection of the northerly side of Wainwright avenue with the westerly side of Beach 106th street, identified on the Land Map of the County of Queens as blocks No. 14900, 14901, 14860, section 60.

31. On or about January 14, 1925, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situated at Far Rockaway, borough of Queens, city of New York, and located on the northwesterly side of Far Rockaway boulevard (formerly Central avenue) 473.50 feet northerly from the corner formed by the intersection of the northwesterly side of Far Rockaway boulevard and the northeasterly side of Mott avenue, which property lies in section 63, block 15540 on the Land Map of the County of Queens.

32. On or about the 26th day of July, 1923, the plaintiff acquired and has since been the owner and in the possession of a parcel of land situated at Far Rockaway, in the borough of Queens, city of New York, located on the northerly side of Central avenue, 353 feet west of the corner formed by the intersection of the northerly side of Central avenue with the westerly side of Birdsall avenue, which property lies in section 63, block 15540 on the Land Map of the County of Queens.

33. On or about the 16th day of June, 1925, the plaintiff acquired, and has since been the owner and in possession of, a parcel of land situated in the village of Lynbrook, town of Hempstead, Nassau county, New York, fronting 56 feet on the easterly side of Broadway.

34. On or about the 12th day of September, 1924, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situated partly in the former village of Far Rockaway, now the borough and county of Queens, city and state of New York, and partly in Inwood, Nassau county, state of New York, and located on the northerly line of Butler avenue, part of said property lying partly in section 63, blocks 15553, 15554, 15555, and 15556 on the Land Map of the County of Queens.

35. On or about the 19th day of December, 1923, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situated at Rockaway Park, in the borough of Queens, city of New York, located on the westerly side of Beach 116th street, and lying in section 60, block 14885, on the Land Map of the County of Queens.

35a. On or about the 19th day of December, 1923, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situated at Rockaway Park, city of New York, situated on the easterly side of Sixth avenue (now called Beach 117th street) which property lies in section 60, block 14885 of the Land Map of the County of Queens.

36. On or about the 8th day of August, 1925, the plaintiff acquired, and has since been the owner and in the possession of a parcel of land situated at Far Rockaway, city of New York, which property lies in section 63, block 15557 of the Land Map of the County of Queens.

37. The plaintiff also owned and used, as of June 1, 1923, and still owns and uses, in the streets, highways, public places, and private places in the Fifth ward of the borough and county of Queens, and in the town of Hempstead, Nassau county, mains and services of various sizes for the supply of gas to its consumers, as follows:

Mains.

Quantity of Mains — Feet Size Queens Co. Nassau Co. Total

20" C.I.L.P. 451.00 ........ 451.00 16" C.I.L.P. 34,565.00 5,319.00 39,884.00 12" C.I.L.P. 4,846.00 18,753.08 23,599.08 10" C.I.L.P. 3,930.00 741.00 4,671.00 8" C.I.L.P. 18,354.00 71,324.00 89,678.00 6" C.I.L.P. 126,646.33 224,513.00 351,159.33 4" C.I.L.P. 229,903.00 208,194.58 438,097.58 3" C.I.L.P. 1,510.00 ........ 1,510.00 6" W.I.L.P. ........ 470.25 470.25 4" W.I.L.P. 17,586.50 35,067.17 52,653.67 2½" W.I.L.P. 650.00 ......... 650.00 2" W.I.L.P. 33,896.00 11,512.00 45,408.00 1½" W.I.L.P. 2,930.00 ......... 2,930.00 1¼" W.I.L.P. 755.00 ......... 755.00 8" C.I.H.P. 30,113.00 31,589.83 61,702.83 6" C.I.H.P. 13,657.00 ......... 13,657.00 8" W.I.H.P. 27,696.50 367.00 28,063.50 6" W.I.H.P. 1,965.00 ......... 1,965.00 6" W.I.H.P. Dresser Coup. ........ 31,906.00 31,906.00 6" W.I.H.P. welded ........ 3,018.00 3,018.00 4" W.I.H.P. ........ 1,575.00 1,575.00 __________ __________ ____________ Total 549,454.33 644,349.91 1,193,804.24

Services.

Number. Size Queens Co. Nassau Co. Total

4" 12 8 20 3" 3 2 5 2" 2,716 553 3,269 1¼" 7,344 6,052 13,396 ¾" 115 .... 115 ______ _____ ______ Total 10,190 6,615 16,805

Subsequently to June 1, 1923, the plaintiff made various additions to and extensions of its mains and services.

38. As of June 1, 1923, the plaintiff had outstanding capital of $6,450,000, consisting of $2,000,000 par value common capital stock; $2,450,000 par value of 8 per cent. cumulative preferred stock; $250,000 par value of 5 per cent. 30-year gold mortgage bonds; $150,000 par value of 5 per cent. first mortgage gold bonds, both of underlying companies; and $1,600,000 par value of its own first mortgage gold 5 per cent. bonds.

As of December 31, 1922, the plaintiff had outstanding the same issues to the same amounts.

As of December 31, 1923, and December 31, 1924, there were outstanding the same issues to the same amounts as before, and also $2,000,000 par value of first refunding mortgage 6 per cent. bonds.

As of December 31, 1925, in addition to the capital outstanding as of December 31, 1924, there was outstanding $450,000 par value of first refunding mortgage 5 per cent. bonds.

39. Under chapter 736 of the Laws of 1905, the plaintiff was required to charge 75 cents per 1,000 feet for gas furnished to the city of New York.

40. On or about the 20th day of May, 1921, the said commission, upon its own motion, duly instituted a proceeding before it for the purpose of investigating the rates charged by the various gas corporations in the city of New York, including the plaintiff, and their operating expenses, revenues, service, properties, and investment, and made an order for a hearing to be held before it in its case No. 79 for that purpose; thereafter such proceedings were had that on or about the 30th day of August, 1922, the said commission rendered and filed an opinion, setting forth its findings and conclusions and the reasons for the making and entry of orders prescribing a calorific standard for gas to be furnished and the rates for such gas to be charged by certain gas corporations, including the plaintiff; and thereupon, and contemporaneously with the making and entry of an order prescribing a calorific standard for gas as hereinafter more fully described, the said commission made and entered an order in its cases Nos. 79 and 79-D (relating to gas rates in the city of New York and suburban territory), and in cases Nos. 110, 166, 6475, and 6515 (relating to gas rates in Nassau county), wherein and whereby the said commission ordered that on and after the 1st day of October, 1922, and until the 30th day of September, 1923, and thereafter until the said Commission should otherwise order, the just and reasonable rates to be charged by the plaintiff to all of its consumers (other than the city of New York as a consumer), and the classifications of the service furnished to such consumers, should be as follows:

First 100,000 cubic feet of gas per meter per month, $1.30 per 1,000 cubic feet.

Next 200,000 cubic feet of gas per meter per month, $1.25 per 1,000 cubic feet.

Next 300,000 cubic feet of gas per meter per month, $1.20 per 1,000 cubic feet.

Next 400,000 cubic feet of gas per meter per month, $1.15 per 1,000 cubic feet.

All over 1,000,000 cubic feet of gas per meter per month, $1.10 per 1,000 cubic feet.

In and by the said order of August 30, 1922, it was further ordered by the said commission that the said order should take effect October 1, 1922, and should continue in force until September 30, 1923, and thereafter until the commission should otherwise order.

41. Thereafter the said commission, pursuant to the provisions of the said order and the authority vested in the commission by subdivision 1 of section 23 of the Public Service Commission Law as amended, caused a certified copy of the said order of August 30, 1922, to be duly served upon the plaintiff, and on or about the 8th day of September, 1922, the plaintiff duly notified the said commission in writing that the terms and conditions of the said order were accepted by the plaintiff and would be obeyed. The notification of acceptance, sent by the plaintiff to the said commission as above stated, read and provided as follows:

"The Queens Borough Gas Electric Company hereby acknowledges receipt of a copy of an order certified by the secretary of the commission to have been adopted by the commission on August 30, 1922, in the above-entitled proceedings, prescribing the rates to be charged for gas by the Queens Borough Gas Electric Company to all of its consumers other than the municipality of the city of New York, and the classifications of the gas service furnished to such consumers.

"The Queens Borough Gas Electric Company hereby notifies the commission that the terms and conditions of the said order of August 30, 1922, are accepted by the company and will be obeyed.

"In accepting, and agreeing to obey, the said order of August 30, 1922, conditioned for the period therein prescribed, the Queens Borough Gas Electric Company does not admit that the rates prescribed by the said order are adequate or that they are such as to afford to this company just compensation for the gas service furnished by it or a fair return upon the investment in its gas property. Particularly the current increases in the costs of operation, due to the high prices necessarily paid for coal or coke, have aggravated the inadequacy of the rates now in force and leave the rates fixed by the said order substantially less than adequate under present conditions. However, in deference to the views of the commission, reached after extended hearings, and in an expectation that some reductions in operating expenses can be effected during the period stipulated by the commission for the continuance of the rates now prescribed the Queens Borough Gas Electric Company has determined to accept without qualification the said order of August 30, 1922, and the terms and conditions therein set forth."

42. On or about the 20th day of May, 1921, contemporaneously and in conjunction with its said proceedings as to rates in case No. 79, the said commission duly instituted a proceeding before it, upon its own motion, in its case No. 108, relative to the standards of purity, lighting power, and heating power of gas and the standards of measurement thereof, in the city of New York and suburban territory; and such proceedings were had in the said last-mentioned proceeding that on or about the 30th day of August, 1922, contemporaneously with its said rate order in cases Nos. 79 and 79-D the said commission made and entered an order in its case No. 108, identified by reference with and correlated to its contemporaneous order in cases Nos. 79 and 79-D, wherein and whereby it found that the standard of 22-candle power theretofore prescribed by statute was unreasonable, uneconomical, and improper, that the continuance of such standard would not be in the public interest, and that a standard of quality and measurement based upon the heating power of gas, as thereinafter more particularly specified, should be fixed by the commission, and wherein and whereby the said commission directed that on and after October 1, 1922, each gas corporation supplying manufactured gas in the boroughs of Manhattan, Brooklyn, the Bronx, Queens, and Richmond, comprising the city of New York, and in the franchise territory of the Queens Borough Gas Electric Company in the county of Nassau, should in lieu of the existing standard or standards, furnish to its consumers a quality of gas which would comply with certain requirements therein prescribed, including a requirement that, under specified conditions, the gas furnished should have a total heating value on a monthly average of not less than 537 British thermal units per cubic foot, and a daily average of not less than 525 British thermal units per cubic foot on any three consecutive calendar days in any month, all as more fully set forth in the said order, and wherein and whereby it was further directed that the said order should take effect on the date specified therein, and should continue in effect until changed, modified, or abrogated by the said commission, and that, within 10 days of the service of a copy thereof, each gas corporation therein described, including the plaintiff, should notify the said commission whether the said order was accepted and would be obeyed.

43. Thereafter the said commission caused a certified copy of the said order in its case No. 108, of August 30, 1922, to be duly served upon the plaintiff, and on or about the 8th day of September, 1922, the plaintiff duly notified the said commission in writing that the terms and conditions of the said order in case No. 108 were accepted and would be obeyed by the plaintiff. The plaintiff's acceptance of the said order of the commission in cases Nos. 79 and 79-D was based and conditioned on the contemporaneous entry of the order in case No. 108 and the continuance of the calorific standard thereby fixed.

44. The rate charged by the plaintiff to its general consumers in the city of New York, from January 1, 1922, to September 30, 1922, was $1.15 per 1,000 cubic feet of gas furnished, and $1.45 per 1,000 cubic feet in Nassau county, and since October 1, 1922, the rates charged by the plaintiff to its general consumers, in all parts of the territory served by the plaintiff, have been the uniform rates prescribed by the said order of the commission of August 30, 1922.

Since on or about October 1, 1922, the gas operations of the plaintiff have been carried on under the calorific standard of measurement of quality of not less than 537 British thermal units per cubic foot of gas on a monthly average, as prescribed by the said order of the commission of August 30, 1922, and the average quality for each of the years 1922 to 1926, under such standard has ranged between 541 and 553 British thermal units.

45. Thereafter, and in pursuance of the said orders of the commission in cases Nos. 79 and 79-D and 108, the plaintiff duly filed with the said commission, and duly posted and published as required by law and order of the said commission, its tariff schedules, setting forth the rates, charges, and classifications to be in force for the service to be furnished by the plaintiff, in accordance with the said orders of the said commission in its cases Nos. 79 and 79-D and case No. 108 of August 30, 1922, and the plaintiff's filed acceptance of such orders, hereinbefore quoted; and the plaintiff has complied in all respects with the terms, provisions, and conditions of the said order in cases Nos. 79 and 79-D and of the said order in case No. 108.

46. By chapter 899 of the Laws of 1923, of the state of New York, entitled "An act to amend the public service commission law, in relation to the charge for illuminating gas in cities containing a population of one million or over," the said chapter 480 of the Laws of 1910 was amended, by inserting therein a new section, to follow section 67, to be section 67-a, to read as follows:

"67-a. Charge for gas in cities of one million or more. A gas corporation engaged in the business of manufacturing, furnishing or selling illuminating gas in a city containing a population of one million or over shall not charge or receive for gas furnished or sold in such city a sum per one thousand cubic feet in excess of one dollar, nor furnish in such city gas of a standard less than six hundred and fifty British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure. The Public Service Commission, notwithstanding any other provision of this chapter, shall not allow a rate or charge in the case of such cities in excess of such sum."

By the said chapter 899 of the Laws of 1923, it is provided that the said act shall take effect immediately, and the said act took effect, by the signing thereof by the Governor of the state of New York, on June 2, 1923.

47. The city of New York, within which the plaintiff is engaged in the business of manufacturing, furnishing, and selling illuminating gas, is a city containing a population of 1,000,000 or over, and is the only city of such size and population within the state of New York.

48. On or about June 4, 1923, the said commission made an order in its case No. 1360, and caused the same to be served upon the plaintiff, directing that each and every gas corporation engaged in the business of manufacturing, furnishing, or selling illuminating gas in the city of New York, including the plaintiff, forthwith comply with the provisions of chapter 899 of the Laws of 1923.

49. In the present suit, the periods covered by the detailed proofs before me as to the operating revenues and expenses of the plaintiff's gas business included the calendar year 1922, the 12-months period ended May 31, 1923, the calendar year 1923, the calendar year 1924, and the calendar year 1925. The proofs presented by the plaintiff also covered the investment in the plaintiff's gas property as of the years 1922, 1923, 1924, and 1925, and the reproduction cost and present value of such property. There were also proofs presented to me of the trend of costs of operation and construction since December 31, 1925, and of other features of the plaintiff's gas operations and properties since the last-mentioned date.

50. The plaintiff necessarily and reasonably used, on the average, in the manufacture of gas of the quality actually supplied by it during the respective periods: During the 12 months ended May 31, 1923, on the average 3,516 gallons of oil per 1,000 cubic feet of gas made; during the year 1922, on the average 3.819 gallons of gas oil per 1,000 cubic feet of gas made; during the year 1923, on the average 3.178 gallons of gas oil per 1,000 cubic feet of gas made; during the year 1924, on the average 3.042 gallons of gas oil per 1,000 cubic feet of gas made; and during the year 1925, on the average 3.2734 gallons of gas oil per 1,000 cubic feet of gas made.

51. For the manufacture of gas of a delivered content of not less than 650 British thermal units per cubic foot as prescribed by chapter 899 of the Laws of 1923, the plaintiff would be required to use large additional amounts of gas oil. Under the high pressure distribution system of the plaintiff the oil would be compressed out, and large quantities would be condensed due to barometric changes.

52. The reasonable and necessary average cost of oil used by the plaintiff during the 12 months ended May 31, 1923, was 5.75 cents per gallon; during the year 1922, was 5.91 cents per gallon; during the year 1923, 5.43 cents per gallon; during the year 1924, 4.74 cents per gallon; and during the year 1925, 5.13 cents per gallon.

53. The plaintiff necessarily and reasonably used in its generators, in the manufacture of gas during the 12 months ended May 31, 1923, 32.002 pounds of anthracite broken coal and coke per 1,000 cubic feet of gas made; during the year 1922, 31.307 pounds of anthracite broken coal and coke per 1,000 cubic feet of gas made; during the year 1923, 31.147 pounds of anthracite broken coal and coke per 1,000 cubic feet of gas made; during the year 1924, 30.484 pounds of anthracite broken coal and coke per 1,000 cubic feet of gas made; and during the year 1925, 30.1781 pounds of anthracite broken coal and coke per 1,000 cubic feet of gas made.

54. The average cost to the plaintiff of anthracite generator coal used by it, during the 12 months ended May 31, 1923, was $11.1949 per gross ton delivered at the plaintiff's plant; during the year 1922, was $11.095 per gross ton delivered at the plaintiff's plant; during the year 1923, $11.2969 per gross ton delivered at the plaintiff's plant; during the year 1924, $11.2949 per gross ton delivered at the plaintiff's plant; and during the year 1925, $11.1042 per gross ton delivered at the plaintiff's plant. The average cost to the plaintiff of coke used by it, delivered at the plaintiff's plant, was, during the year 1922, $10.23 per net ton, during the year ended May 31, 1923, $10.1534 per net ton, during the year 1923, $10.6167 per net ton, during the year 1924, $9.9817 per gross ton; and during the year 1925, $9.417 per gross ton.

55. The plaintiff also necessarily and reasonably used under the boilers, in the manufacture of gas, per 1,000 cubic feet of gas made, the following amounts of solid and liquid fuel during the following periods:

Solid Fuel. Liquid Fuel.

Year 1922 .................. 15.578 lbs. .205 gals. 12 months to May 31, 1923 ... 10.601 lbs. .720 gals. Year 1923 .................. 7.519 lbs. 1.049 gals. Year 1924 .................. 11.836 lbs. .338 gals. Year 1925 .................. 10.7903 lbs. .2547 gals.

56. In the manufacture of water gas there is also required the use of iron mass. The cost of this item in the plaintiff's plant amounted per 1,000 cubic feet of gas made during the 12 months ended May 31, 1923, to 0.38 cents; during the year 1922, to 0.33 cents; during the year 1923, to 0.48 cents; during the year 1924, to 0.47 cents; and during the year 1925, to 0.44 cents.

57. In the manufacture of water gas under the conditions obtaining in a plant such as that of the plaintiff, there is realized as a residual credit, under average operations, water gas tar equal in amount to from 6.4 to 9.5 per cent. of the gas oil used. During the 12 months ended May 31, 1923, there was realized 237,617 gallons of water gas tar, for which production expense was credited at the rate of 2 cents per gallon. During the year 1922, there was realized 298,490 gallons of water gas tar, for which production expense was credited at the rate of 2 cents per gallon. During the year 1923, there was realized 209,965 gallons of water gas tar, for which production expense was credited at the rate of 2 cents per gallon. During the year 1924, there was realized 312,422 gallons of water gas tar, for which production expense was credited at the rate of 2 cents per gallon. During the year 1925, there was realized 267,279 gallons of water gas tar, for which production expense was credited at the rate of 2 cents per gallon.

58. There is also realized from the manufacture and distribution of gas in the plaintiff's works and system, a residual credit for drip oil reasonably amounting to approximately 2.47 per cent. of the gas oil used. Such drip oil during the years 1922, 1923, 1924, and 1925, as sold by the plaintiff, was credited to the cost of production at the rates, respectively, of 8.8 cents, 9.94 cents, 9.77 cents, and 8 cents per gallon sold, and at 9.22 cents per gallon sold during the 12 months ended May 31, 1923.

59. There is also necessary in the manufacture of water gas, in a plant such as that of the plaintiff, the employment of gas-making labor and repair labor, the use of repair material, and the incurring of miscellaneous works expense and gas storage. During the 12 months ended May 31, 1923, under the prices and rates of pay then in force, the cost, per 1,000 cubic feet of gas made, of gas-making labor in the plaintiff's plant was 6.62 cents, of repair labor and material 2.93 cents, and of miscellaneous works expense and gas storage 1.02 cents; during the year 1922, under the prices and rates of pay then in force, the cost, per 1,000 cubic feet of gas made, of gas-making labor in the plaintiff's plant was 6.68 cents, of repair labor and material 3.50 cents, and of miscellaneous works expense and gas storage 0.75 cents; during the year 1923, under the prices and rates of pay then in force, the cost, per 1,000 cubic feet of gas made, of gas-making labor was 6.74 cents, of repair labor and material 3.61 cents, and of miscellaneous works expense and gas storage 1.73 cents; during the year 1924, under the prices and rates of pay then in force the cost, per 1,000 cubic feet of gas made, of gas-making labor in the plaintiff's plant was 7.26 cents, of repair labor and material was 2.68 cents, and of miscellaneous works expense and gas storage was 2.23 cents; during the year 1925, under the prices and rates of pay then in force, the cost, per 1,000 cubic feet of gas made, of gas-making labor in the plaintiff's plant was 7.38 cents, of repair labor and material was 2.78 cents, and of miscellaneous works expense and gas storage was 2.59 cents.

60. The reasonable and actual cost of water gas manufactured in the plaintiff's plant for the use of its consumers, under the prices of material and labor in force, was, during the 12 months ended May 31, 1923, 52.69 cents per 1,000 cubic feet of gas made; during the year 1922, 54.47 cents per 1,000 cubic feet of gas made; during the year 1923, 50.79 cents per 1,000 cubic feet of gas made; during the year 1924, 45.13 cents per 1,000 cubic feet of gas made; and during the year 1925, 46.01 cents per 1,000 cubic feet of gas made.

61. In the manufacture and sale of gas a percentage of gas made is necessarily and unavoidably lost, due to condensation, differences in temperature at the consumers' meters, slow meters, stolen gas, leakage, and the like. The relative amount of gas lost varies according to the sales of gas in relation to the mileage and size of mains, the character of the soil in which the mains are laid, and various other factors. I find that the unaccounted-for gas, as to the plaintiff, represented, in the 12-months period ended May 31, 1923, 13.68 per cent. of the gas delivered to the mains; in the year 1922, 14.42 per cent.; in the year 1923, 12.42 per cent.; in the year 1924, 12.99 per cent.; and in the year 1925, 13.86 per cent.; and that, in calculating the plaintiff's present requirements and costs, these figures should be used as a basis of computation.

62. During the 12-months period ended May 31, 1923, the plaintiff sold to its consumers in both counties 839,298,700 cubic feet of gas; during the year 1922, the plaintiff sold to such consumers 760,611,900 cubic feet of gas; during the year 1923, 894,180,400 cubic feet of gas; during the year 1924, 937,099,100 cubic feet of gas; and during the year 1925, 981,721,900 cubic feet of gas.

63. The consumption of gas and its sale in the Queens county district varies from time to time, depending, in large part, upon the patronage of the Rockaways as a resort during the summer, while the demand and consumption of gas in the town of Hempstead is more or less consistent. Gas is used in the plaintiff's territory almost entirely for domestic purposes, as there are no industries there. The plaintiff also furnishes gas for municipal or public purposes, but the use of gas for street lighting is now confined to the Nassau county district.

The maximum demand in the Queens county territory served by the plaintiff is found during the summer months on occasions when the patronage of the Rockaways as a summer resort is heaviest. The plaintiff must, therefore, be prepared not alone to make sufficient gas to meet a total annual demand, but must be prepared to meet such maximum day's demand as may exceed the maximum day in any previous year. The large influx of visitors to the Rockaways on holidays during the summer period has a tendency to accentuate the maximum day's demand in relation to the annual output, and thus require a relatively large plant capacity in relation to the average daily requirements.

64. The actual and reasonable cost of manufacture of gas supplied by the plaintiff to its consumers, of the quality actually furnished, was during the 12-months period ended May 31, 1923, 61.25 cents per 1,000 cubic feet of gas sold; during the year 1922, 63.85 cents per 1,000 cubic feet of gas sold; during the year 1923, 58.20 cents per 1,000 cubic feet of gas sold; during the year 1924, 52.14 cents per 1,000 cubic feet of gas sold; and during the year 1925, 53.67 cents per 1,000 cubic feet of gas sold.

65. There should be included in the total cost of making and distributing gas by the plaintiff, the cost of renewals and replacements of property owned by the plaintiff, or, as it is now denominated in the uniform system of accounts prescribed by the Public Service Commission, "Retirement Expense," in the sum of 3.5 cents per 1,000 cubic feet of gas sold, which sum I find to be reasonable and necessary for such retirement expense, based upon the plaintiff's experience.

66. I find that the reasonable and necessary amount of taxes actually paid or accrued by the plaintiff on the property owned and used by it for the production and distribution of gas upon its gas operations, exclusive of federal income tax, was, during the 12 months ended May 31, 1923, 5.44 cents per 1,000 cubic feet of gas sold; during the year 1922, 5.67 cents per 1,000 cubic feet of gas sold; during the year 1923, 5.95 cents per 1,000 cubic feet of gas sold; during the year 1924, 5.99 cents per 1,000 cubic feet of gas sold; during the year 1925, 7.4 cents per 1,000 cubic feet of gas sold. In addition, the plaintiff actually paid or accrued for federal income taxes, during the 12 months ended May 31, 1923, 1.17 cents per 1,000 cubic feet of gas sold; during the year 1922, 1.3 cents per 1,000 cubic feet of gas sold; during the year 1923, 0.95 cents per 1,000 cubic feet of gas sold; and during the year 1924, 0.74 cents per 1,000 cubic feet of gas sold. No accrual or payment of federal income taxes was charged on the books of the Queens Borough Gas Electric Company as applicable to its gas business in 1925.

The total of all taxes actually and reasonably paid or accrued by the plaintiff was, during the 12 months ended May 31, 1923, 6.61 cents per 1,000 cubic feet of gas sold; during the year 1922, 6.97 cents per 1,000 cubic feet of gas sold; during the year 1923, 6.9 cents per 1,000 cubic feet of gas sold; during the year 1924, 6.73 cents per 1,000 cubic feet of gas sold; and during the year 1925, 7.4 cents per 1,000 cubic feet of gas sold.

The foregoing figures for federal income taxes actually paid or accrued by the plaintiff upon its gas operations were based upon the rates actually charged by it to its general consumers to May 31, 1923, and at the rate of $1 per 1,000 cubic feet for all gas (other than that furnished the city of New York) sold to consumers in Queens county, since June 1, 1923.

67. In addition to the items hereinbefore referred to, there must be included, in determining the cost of gas delivered to the consumer, various items entering into the cost of distribution, including transmission and distribution expense, commercial expense, general and miscellaneous expense, and uncollectible gas bills, and I further find that the actual and reasonable cost to the plaintiff of these several items, in cents per 1,000 cubic feet of gas sold, was, during the 12 months ended May 31, 1923, 36.44; during the year 1922, 39.74; during the year 1923, 40.92; during the year 1924, 36.66; during the year 1925, 42.18.

68. The total and actual reasonable cost of gas delivered to its consumers by the plaintiff, in cents per 1,000 cubic feet of gas sold, before giving effect to miscellaneous operating revenue, during the period covered by the proofs submitted before me, was and is, aside from any return upon any of the property owned and used by the plaintiff in the service of its consumers, as follows:

------------------------------------------------------------------------------------------------------ Operating Costs 1922-1925. Per M Cubic Feet of Gas Sold 12 Months Year Ended May Year Year Year 1922 31st, 1923 1923 1924 1925 Cost of production (gas of quality actually supplied) $ .6385 $ .6125 $ .5820 $ .5214 $ .5367 Cost of distribution and other general expenses ...... .3972 .3642 .4090 .3659 .4213 Retirement expense ................................... .0350 .0350 .0350 .0350 .0350 Taxes, exclusive of federal income tax but including interest on unpaid taxes ............................ .0567 .0544 .0595 .0599 .0740 Federal income tax actually paid or accrued .......... .0130 .0117 .0095 .0074 .0000 Uncollectible bills .................................. .0002 .0002 .0002 .0007 .0005 _______ _______ _______ _______ _______ Total operating cost, including federal income tax actually paid or accrued, and exclusive of any return on property ......................................... $1.1406 $1.0780 $1.0952 $ .9903 $1.0675 ------------------------------------------------------------------------------------------------------ 69. The plaintiff derived an income from its profits on the sale of appliances, from the rental of premises temporarily leased to others, and from interest on bank balances of which the plaintiff gives its consumers the benefit by crediting the sum so derived by it against the cost of manufacturing and distributing gas. Such income is classified by the plaintiff as "Miscellaneous Operating Revenue." Such miscellaneous operating revenue reasonably amounted, during the 12 months ended May 31, 1923, to 8.28 cents; during the year 1922, to 8.19 cents; during 1923, to 7.13 cents; during 1924, to 5.06 cents; and during 1925, to 4.61 cents — per 1,000 cubic feet of gas sold.

70. The net actual, necessary, and reasonable cost to the plaintiff of the gas supplied by it, the quality of gas actually furnished, after deducting miscellaneous operating revenue, was as follows:

Net Operating Costs after Deducting Miscellaneous Revenues, 1922-1925

Per M.c.f. of Gas Sold.

Calendar year 1922 .................. $1.0587 Year ended May 31, 1923 ............. .9952 Calendar year 1923 .................. 1.0239 Calendar year 1924 .................. .9397 Calendar year 1925 .................. 1.0214

— exclusive of any return whatever upon the property or investment of the plaintiff necessarily devoted to the service of its consumers.

71. The sale of gas by the plaintiff to its general consumers, during the years 1922, 1923, 1924, and 1925, would have entailed, in the year 1922, an operating deficiency of 5.87 cents per 1,000 cubic feet of gas sold; in the 12-months period ended May 31, 1923, it would have produced operating earnings of 0.48 cents per 1,000 cubic feet of gas sold; in the year 1923 there would have been an operating deficiency of 2.39 cents per 1,000 cubic feet of gas sold; in the year 1924 it would have produced operating earnings of 6.03 cents per 1,000 cubic feet of gas sold; and in the year 1925 there would have been an operating deficiency of 2.14 cents per 1,000 cubic feet of gas sold.

Such revenues or deficits for the years mentioned would have produced, upon the fair value of the plaintiff's gas property, including working capital and going value, as hereinafter found. a return of .0494 per cent. for the 12 months ended May 31, 1923, and of .6069 per cent. for the year 1924; and deficits of .2551 per cent. for the year 1923, and .2153 per cent. for the year 1925.

Upon the minimum investment in the plaintiff's gas property, including working capital and going value, as hereinafter found, such net revenues or deficits would have produced a return of .0728 per cent. for the 12 months ended May 31, 1923, and of .816 per cent. for the year 1924; and deficits of .862 per cent. for the year 1922; of .342 per cent. for the year 1923, and of .283 per cent. for the year 1925.

72. I find that the fair and reasonable market value of the land (unimproved) owned by the plaintiff and used and useful in its gas business, was as of June 1, 1923, at least the sum of $778,474; as of December 31, 1923, at least the sum of $808,735.54; as of December 31, 1924, at least the sum of $937,705.92; and as of December 31, 1925, at least the sum of $1,017,891.87, made up as follows:

Summary of Value of Land (Unimproved). Per Appraisal Per Amount — of Frederick Cent. — Gas Parcel W. Avery — Gas Division No. Property. June 1, 1923 Division June 1, 1923 Dec. 31, 1923 Dec. 31, 1924 Dec. 31, 1925 1 Rockaway Park gas works $440,068 100% $440,068.00 2 Bay front — Inwood .............. 160,700 100% 160,700.00 3 Crescent street yard — Far Rockaway ...................... 42,086 50% 21,043.00 4 Holder station — Lynbrook ....... 23,079 50% 11,539.50 5 Store Yard — Rockville Centre ... 35,221 50% 17,610.50 6 General office — Far Rockaway ... 97,748 50% 48,874.00 7 Office — Lynbrook ............... 65,067 50% 32,533.50 8 Edgemere and Arverne ............ 20,884 50% 10,442.00 9 Clinton street, Far Rockaway .... 16,621 50% 8,310.50 10 Hewlett shop parcel ............. 11,186 50% 5,593.00 11 Hewlett dwelling parcel ......... 9,216 50% 4,608.00 12 Hewlett storage parcel .......... 34,304 50% 17,152.00 Net additions ................... $ 30,261.54 $128,970.38 $ 80,185.95 ________ ___________ ___________ ___________ _____________ $956,180 $778,474.00 $808,735.54 $937,705.92 $1,017,891.87 73. I find that the reasonable and necessary cost to reproduce the manufacturing plant, distributing system and other tangible property owned by the plaintiff and used and useful in its gas business as of June 1, 1923, based upon the unit prices of labor and material as of that time, exclusive of working capital and going value, was and is, without any deduction for so-called "depreciation," at least the sum of $6,833,761.53, made up as follows:

Reproduction Cost of the Plaintiff's Property as of June 1, 1923.

Land ............................. $ 778,474 00 Buildings ........................ $ 360,307 00 Less cost to restore to condition new ............................ 7,849 00 352,458 00 _____________ Gas manufacturing plant and holders (other than land and buildings) ............ $1,036,559 00 Less cost to restore to condition new ............................ 24,777 47 1,011,781 53 _____________ Mains ........................................... 2,387,426 00 Services ........................................ 247,881 00 Meters .......................................... 309,856 00 General equipment, including office, store, stable and laboratory equipment ......... 89,039 00 Tools and implements ............................ 10,485 00 Municipal street lighting ....................... 678 00 Omissions and contingencies ..................... 51,828 00 Organization and development prior to construction ................................... 345,000 00 Cost of financing ............................... 365,000 00 Engineering and superintendence and general contractor's expense and profit ........ 498,696 00 Interest during construction .................... 267,605 00 Taxes during construction ....................... 9,184 00 Administrative, legal and miscellaneous general expense during construction ............ 108,370 00 _____________ Total reproduction cost, exclusive of working capital and going value, at least .......................................... $6,833,761 53

74. I find that the reasonable and necessary working capital of the plaintiff in its gas business as of June 1, 1923, and since then was, and is, at least the sum of $558,996.

75. I find that the reasonable and necessary going value possessed by the plaintiff in its gas business as of June 1, 1923, and as of the present time, was and is at least the sum of $750,000.

76. I find that the cost to reproduce the manufacturing plant, distributing system and other tangible property owned by the plaintiff and used in its gas business as of June 1, 1923, inclusive of working capital and going value, was, as of June 1, 1923, at least the sum of $8,142,757.53, made up as follows:

Reproduction cost of tangible property as of June 1, 1923 ..................... $6,833,761 53 Working capital reasonably required as of June 1, 1923 ........................ 558,996 00 Going value possessed by the plaintiff in its gas business ....................... 750,000 00 _____________ $8,142,757 53

77. From all the facts appearing before me I find that the present value of the plaintiff's property used and useful in its gas business as of June 1, 1923, was $8,142,757.53.

78. I find further, that the plaintiff's property used and useful in its gas business, and the present value of such property, has been increased and added to, since June 1, 1923, by the net cost of the various additions, improvements, and extensions thereto which have been made since June 1, 1923, as hereinafter more particularly shown.

I find that the plaintiff was and is entitled to earn, as of June 1, 1923, through rates chargeable by it for gas, a fair return upon the amount of $8,142,757.53, so found by me as the value of the plaintiff's property used and useful in its gas business as of June 1, 1923, plus the amount of net additions thereto since that time as hereinafter found.

79. I find that the actual and reasonable cost of additions, extensions, and improvements in and to the plaintiff's manufacturing plant and distributing system and other tangible property, which should be added to the present value of the plaintiff's property as of June 1, 1923, amounted to $367,882.77 during the period from June 1, 1923, to December 31, 1923; to $1,057,391.86 during the period from January 1, 1924, to December 31, 1924; and to $493,957.43 during the period from January 1, 1925, to December 31, 1925.

The withdrawals from the property of the plaintiff of the property used in its gas business, at unit prices prevailing as of June 1, 1923, amounted to $162,757.49 for the period from June 1, 1923, to December 31, 1923; to $94,616.50 during the period from January 1, 1924, to December 31, 1924; and to $44,735.38 during the period from January 1, 1925, to December 31, 1925. The net increase applicable to the present value of the plaintiff's used and useful property was $205,125.28 during the period from June 1, 1923, to December 31, 1923; $962,775.36 during the period from January 1, 1924, to December 31, 1924; and $449,222.05 during the period from January 1, 1925, to December 31, 1925.

80. From all the facts appearing before me, I therefore find that the present value of the property owned by the plaintiff and used and useful in its gas business was, as of December 31, 1923, the sum of $8,347,882.81; as of December 31, 1924, the sum of $9,310,658.17, and as of December 31, 1925, the sum of $9,759,880.22.

81. The cost to the plaintiff of all the gas fixed capital acquired by it, as charged to the classified accounts upon its books of account, kept pursuant to the accounting system prescribed by the Public Service Commission, as of December 31, 1922, was $3,871,778.89; as of June 1, 1923, was $4,225,655.61; as of December 31, 1923, was $4,939,636.69; as of December 31, 1924, was $5,612,960.74; and as of December 31, 1925, was $6,115,768.46. These sums, respectively, are exclusive of any allowance for working capital, going value, and undistributed structural costs not specifically charged to fixed capital accounts in the plaintiff's books.

The cost to the plaintiff of all the fixed capital acquired by it, as charged to the classified accounts upon its books of account, together with working capital, which I have found in the amount of $558,996, and going value which I have found in the amount of $750,000 was, as of May 31, 1923, $5,534,651.61; as of December 31, 1923, $6,248,632.69; as of December 31, 1924, $6,921,956.74; and as of December 31, 1925, $7,424,764.46.

82. I find that since June 1, 1923, there has been no material change in the level of prices of material and labor entering into the operation and construction of gas properties.

The evidence showed that the cost of reproduction of the plaintiff's gas property varied less than 2 per cent. downward between June 1, 1923, and December, 1926, or early 1927, while, on the other hand, the market value of its land was increasing.

83. The proofs in this case do not show the actual original cost of all of the plaintiff's property as of the various dates when the respective items were constructed or acquired by the plaintiff or its predecessors.

84. The plant, machinery, and equipment used in the gas business of the plaintiff company have been and are maintained in excellent operating condition; proper repairs, renewals and replacements have been made as and when needed, and the same are now in as high a state of efficiency as if new.

85. The reasonable and proper rate of return upon the present value of the plant, distributing system, and other properties owned by the plaintiff, and used and useful in its gas business, I find to be not less than 8 per cent. per annum. At no time since the enactment of chapter 899 of the Laws of 1923, has the plaintiff earned such return at the rate prescribed therein of $1.00 per 1,000 cubic feet of gas sold, either upon the amount of the present value of its property or upon the amount of the book cost of such property.

86. The provisions of chapter 899 of the Laws of 1923, prohibiting the plaintiff from furnishing in the city of New York, gas of a standard less than 650 British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure, in conjunction with the provisions thereof prohibiting the plaintiff from charging a rate for gas per 1,000 cubic feet in excess of $1, requires the plaintiff to furnish gas of the standard prescribed, at a rate therefor which does not afford reasonable compensation for the service rendered and a reasonable return upon the fair value of the property used and useful in rendering such service.

87. The provisions of chapter 899 of the Laws of 1923 were specified and required by its terms to be and become effective immediately upon the signing of the measure by the Governor of the state of New York, and required the plaintiff forthwith to comply with the provisions thereof in respect to the thermal content of the gas delivered to consumers in Queens county. Since the plaintiff has but one plant for the manufacture of gas, and operates a unitary system, it would have been, and still is physically impossible for it to supply gas of a 650 minimum British thermal unit content to its consumers in Queens county and gas of a lesser British thermal unit content in Nassau county. Whatever quality of gas has to be manufactured by the plaintiff to meet a specific standard within the city of New York has to be furnished to the plaintiff's consumers in Nassau county, because the plaintiff could not, and cannot, manufacture at its existing plant two different qualities of gas for distribution.

The effect of the said statute is, therefore, to compel the plaintiff to furnish gas of a 650 minimum British thermal unit content to its customers both within and without Queens county. In order that gas of the thermal content prescribed by the said provision of chapter 899 of the Laws of 1923 might be furnished to the plaintiff's consumers under conditions assuring the safety of such supply, it would be necessary before the plaintiff undertook to furnish gas conforming to such a standard, to have all the various gas appliances used by the plaintiff's consumers changed and readjusted so as to adapt them to the use of gas conforming to such standard. Such appliances in use by the plaintiff's consumers number approximately 22,501 as of June 1, 1923, and 29,125 as of December 31, 1925. It would have been physically impossible to change and readjust the gas appliances used by the plaintiff's consumers in order to adapt them to the safe use of gas of such standard forthwith, and such work would necessarily have occupied a period of several months, and, if the plaintiff had attempted to comply with the requirements of the said provision and to furnish gas of such standard before such changes were made, the supplying of such gas would probably have resulted in injury to life and property. Such changes in the adjustment of gas appliances to adapt them to the use of gas of the standard prescribed by the said chapter 899 would impose upon the plaintiff the expenditure of a substantial sum of money, and the use of gas of the standard prescribed by the said chapter 899 would, in many cases, require the purchase by consumers, and the substitution, of new appliances, which would cost such consumers substantial sums of money. The plaintiff was and is entitled to a reasonable opportunity to make or to have its consumers make such adjustment of or changes in the gas appliances as were necessary to adapt them to the consumption of gas of the standard prescribed by chapter 899 of the Laws of 1923, and in so far as the provisions of the said chapter 899 of the Laws of 1923 did not afford the plaintiff such an opportunity, the said statute was and is violative of the constitutional rights of the plaintiff to enjoy and use its property and manage and conduct its business. The plaintiff was entitled to a safe and adequate judicial review of the legality of chapter 899 of the Laws of 1923, both in respect to the provisions relating to the rates fixed therein and in respect of the standard of gas prescribed thereby, and the plaintiff was and is entitled to have the operation and enforcement of the provision of chapter 899 of the Laws of 1923, in so far as it prohibits the plaintiff from furnishing gas of a standard other than that prescribed therein, judicially enjoined pending such a judicial review and until a reasonable opportunity had been afforded to it to comply with the requirements of said statute. Chapter 899 of the Laws of 1923, requiring the plaintiff forthwith upon the taking effect of the statute to furnish gas of a minimum of 650 British thermal units, was and is an unlawful and unconstitutional exercise of legislative power, in the further respect that an immediate compliance was impossible and that compliance without a reasonable opportunity and a reasonable amount of time for readjusting or causing to be readjusted the gas appliances of its consumers would involve the most serious menace to life and property.

88. Ever since June 2, 1923, it has been, still is, and will continue to be, commercially impossible for the plaintiff to comply with the requirement of chapter 899 that gas of not less than 650 British thermal units be furnished to the plaintiff's consumers in the county of Queens, from and after the date of the taking effect of the said statute. Ever since June 2, 1923, it has been, still is, and will continue to be, an absolute physical impossibility for the plaintiff, under the practical conditions obtaining in different portions of its distribution territory, to comply with this requirement, and physically impossible for the plaintiff to manufacture and distribute to its consumers gas which will not, on occasions, fall below 650 British thermal units per cubic foot under such actual conditions. To make it possible for the plaintiff to furnish to all of its consumers on its distributing system gas conforming to the standard prescribed by the said provision, it would be necessary for the plaintiff to manufacture gas of a much higher British thermal content than the minimum prescribed by the said provision; and the maximum British thermal content at which gas would have to go out from the plaintiff's plant in order that gas of not less than 650 British thermal units may be delivered at the point on the plaintiff's distributing system where the greatest variation occurs from the thermal content of such gas as sent out from the plant, must determine the thermal content at which all the gas furnished to the plaintiff's consumers must be produced and sent out, to the end that at no point on the plaintiff's distributing system where gas may be measured under normal conditions of temperature and atmospheric pressure may the gas furnished fall below the statutory standard. The production and sending out of all the gas sold by the plaintiff at a thermal content adequate to maintain the maximum requirement at comparatively few points on its distributing system, would be commercially impracticable, wasteful of material and labor, preventive of adequate and efficient service to the great majority of the plaintiff's consumers, expensive beyond a point where any charge made to the plaintiff's consumers for gas service would be reasonable to them, and productive of no benefit to the plaintiff's consumers or to the plaintiff.

89. Ever since June 2, 1923, it has been, still is, and will continue to be, impossible for the plaintiff to produce, for distribution to its consumers, gas of the maximum thermal content required to comply with chapter 899 of the Laws of 1923, without producing wide variations in the heating content of the gas supplied, and without a resulting unsatisfactory service. Gas of high heating content, such as that prescribed by the said statute, contains larger percentages of condensible hydro-carbons than gas of a lower heating value, such as that prescribed by the commission's order of August 30, 1922, in case No. 108. Even if gas of such high heating content were produced with a fair degree of uniformity at the plant, it would be unavoidably affected by changing temperature conditions in the holders and street mains, resulting in a variable and unsatisfactory service to the consumers of the plaintiff. The heat content prescribed by the said statute is exceptionally high; and gas supplied with such heat content, which had been subjected to such temperature changes beyond the control of the plaintiff, when applied to cooking utensils, incandescent lighting mantels, the interior of ranges and room heaters, and all other heated surfaces, such as boiler tubes and water heater coils, would not be completely consumed, thereby causing such heated surfaces to become coated with an increasing deposit of carbon, and a large percentage of the efficiency of such gas would be lost, and serious hazards to life and property created.

90. The provisions of chapter 899 of the Laws of 1923 undertake or purport to require a standard of not less than 650 British thermal units per cubic foot to be maintained on every part of the distributing system of the plaintiff in and throughout its territory in the county of Queens, where the gas is measured under normal conditions of temperature and atmospheric pressure, but the said provisions nowhere define what are normal conditions of temperature and atmospheric pressure and the variety of conditions of temperatures and atmospheric pressure which obtain at different times of the year and at different places on the distributing system of the plaintiff make it impossible to define or fix what are "normal conditions of temperature and atmospheric pressure," within the meaning of the said provision.

91. The plaintiff has not experimented with the rate and standard of quality of gas fixed by the Legislature in chapter 899, Laws of 1923, but the facts would not have justified or required such experimentation.

92. The plaintiff company has made no application to the Public Service Commission since chapter 899 of the Laws of 1923 was approved to change or reduce the standard of quality prescribed by said statute; but the said commission issued an order June 4, 1923, requiring the plaintiff forthwith to comply with chapter 899 of the Laws of 1923.

93. The provisions of chapter 899 of the Laws of 1923, that a gas corporation engaged in the business of manufacturing, furnishing, or selling illuminating gas in a city containing a population of 1,000,000 or over shall not charge or receive for gas furnished or sold in such city a sum per 1,000 cubic feet in excess of $1, nor furnish in such city gas of less than 650 British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure, are not separable. The rate fixed by chapter 899 of the Laws of 1923 is $1 per 1,000 cubic feet for gas of the specified quality, and the requirement of a minimum thermal content is an integral part of the attempted limitation on the plaintiff's rates, and the whole provision is confiscatory, unconstitutional, and void, for reasons hereinbefore set out.

94. The plaintiff has no adequate remedy except by an action in equity.

95. Various matters comprised within the issues referred to me by the order of October 11, 1923, I have discussed in separate opinion which is herewith submitted and made a part of this report. It is my intention that the facts and the conclusions regarding the law, set forth or referred to for reasons of convenience in that separate document, shall be deemed a part hereof, with the same force and effect as though they had been physically incorporated in this report.

In response to the requests of the defendant Attorney General:

96. The plaintiff company was incorporated in the state of New York in May, 1902.

97. The plaintiff company is the resultant of the following predecessor companies: Rockaway Gaslight Company, incorporated February 19, 1880; the Town of Hempstead Gas Electric Light Company, incorporated May 17, 1882; the Rockaway Electric Light Company, incorporated May 8, 1890; the Queens Borough Electric Light Power Company, incorporated February 28, 1898; Citizens' (Electric) Lighting Company, incorporated May 22, 1892.

98. The rates of gas charged by the plaintiff company from its formation to the present time are as follows:

June 1, 1902, to May 1, 1904 ........ $1.80 max. $1.60 min. May 1, 1904, to Nov. 1, 1906 ........ 1.60 " 1.40 " Nov. 1, 1906, to Jan. 1, 1909 ....... 1.40 " 1.35 " January 1, 1909 to present .......... 1.30 " 1.25 "

99. The territory served by the plaintiff is as follows: Neponsit, Bell Harbor, Rockaway Park, Rockaway Beach, Hollands, Hammels, Arverne, Edgemere, Far Rockaway, and Meadowmere, all located within the Fifth ward of the borough of Queens, in the county of Queens, city of New York, and also Meadowmere, Inwood, Woodmere, Hewlett, Oceanside, Elmont, and Atlantic Beach; also the incorporated villages as follows: Lawrence, Cedarhurst, Woodsburg, Hewlett Harbor, Valley Stream, Lynbrook, East Rockaway and Malverne, all located in Nassau county, and also intervening areas between the localities specifically mentioned.

100. Plaintiff operates only one gas plant for the manufacture of gas furnished to both Queens county and Nassau county.

101. The gas leaving the plant goes to the territory partly by a low pressure system of distribution mains serving Queens county and partly by a system of high pressure mains, the latter being used in common for both Queens county and Nassau county consumers.

102. The plaintiff has not proved the allocation of the value of the portion of the plant devoted to the service of Queens county consumers and of the value of the portion of the plant devoted to the service of Nassau county consumers.

103. The proof does not furnish a sound basis for making a division of the value of the plant between that required for the service of Queens county consumers and that required for the service of Nassau county consumers, nor is it necessary to do so.

104. The proof does not show an allocation of the extent to which the transmission mains are used and useful in serving consumers in Queens county.

105. The proof does not show an allocation of the extent to which the Rockaway Beach gas works land at Rockaway Beach, Queens county, mentioned in appraisal No. 1, is used for Queens county consumers and the extent to which it is used for Nassau county consumers.

106. The proof does not show an allocation of the relative use for Queens county consumers and for Nassau county consumers respectively of the Crescent street yard, Far Rockaway, Queens county, mentioned in appraisal No. 3.

107. The proof does not show an allocacation of the relative use for Queens county consumers and for Nassau county consumers respectively of the Edgemere store yard and Governor site property at Edgemere, Queens county, mentioned in appraisal No. 8.

108. The proof does not show an allocation of the relative use for Queens county consumers and for Nassau county consumers respectively of the Clinton street garage property at Far Rockaway, Queens county, mentioned in appraisal No. 9.

109. The proof does not show an allocation of the value of the buildings contained in the appraisal of Mr. Burt (Plaintiff's Exhibit 76) between that used or needful for consumers in Nassau county and in Queens county respectively.

110. The proof does not show an allocation of the value of the property between that used or needful for Queens county consumers and for Nassau county consumers, respectively.

111. Mains in Queens county are additionally used for the delivery of gas to Nassau county.

112. The proof does not show an allocation of the mains required to serve Queens county consumers and those required to serve Nassau county consumers.

113. The proof does not show an allocation of the general equipment, tools and implements contained in Plaintiff's Exhibit 78, which are required to serve Queens county consumers and those required to serve Nassau county consumers.

114. The proof does not show an allocation between Nassau county and Queens county consumers, respectively, of the amount of undistributed structural costs applicable to Mr. Miller's appraisal contained in Plaintiff's Exhibit 78.

115. The proof does not show an allocation of the working capital is used for Queens county consumers and how much is used for Nassau county consumers.

116. The many buildings comprising the various manufacturing plants are of a varying age, have been added to, altered, extended, and otherwise changed.

117. No appraisal was furnished by the defendants as to the value of all of the company's property.

118. The proof does not show an allocation of the property used or useful for Queens county consumers and that used or useful for Nassau county consumers.

119. There is no proof in this case of the prudent investment or historical cost of the plaintiff's property, apart from the plaintiff's book entries of fixed capital.

120. The operating expense exhibits introduced in evidence by the plaintiff cover the expenses for sales to both Queens county and Nassau county consumers.

121. The plaintiff's property as a whole was valued by its witness as a going concern with consumers attached to its services and using gas.

122. The houses of the company's customers, who were using gas, were connected with gas service on June 1, 1923.

123. The complete appraisal submitted by the plaintiff of its plant and property was for a plant functioning properly and wherein the different parts were efficiently co-ordinated.

124. The books of the company show the charges to cost of installing mains in the streets of the territory of the plaintiff during the year 1923.

125. The books of the plaintiff show the charges to cost of installing mains in the streets of the territory of the company on or about June 1, 1923.

126. It would be impracticable or if not impossible of accomplishment to deliver a minimum of 650 B.T.U. gas measured at every point of the plaintiff's territory.

In response to the requests of the defendant the Public Service Commission:

127. That the Queens Borough Gas Electric Company was duly incorporated May 29, 1902. That there was merged with this company on September 19, 1902, the Town of Hempstead Gas Electric Company and also on the same day was merged with plaintiff company, the Queens Borough Electric Light Power Company. That the plaintiff company manufactures gas and electric light and power and furnishes and distributes the same to consumers located, some in a portion of Queens county, a part of the city of New York, which is a city of 1,000,000 or more inhabitants, some in different localities in the county of Nassau, none of which contain 1,000,000 or more inhabitants.

128. That the plaintiff company uses much of its property jointly in the obtaining and supplying gas and electricity to its consumers. That the plaintiff company's officers, managers, and employees in a great part perform duties for both the gas and electric departments. That the plaintiff company uses and employs some of its property jointly for the obtaining and supplying gas to its consumers both in Nassau and Queens counties, and the officers, managers, and most of its employees perform duties for each class of consumers.

129. By chapter 899 of the Laws of 1923, of the state of New York, entitled "An act to amend the Public Service Commission Law, in relation to the charge for illuminating gas in cities containing a population of one million or over," the said chapter 480 of the Laws of 1910 was amended, by inserting therein a new section, to follow section 67, to be section 67-a, to read as follows:

"Sec. 67-a. Charge for gas in cities of one million or more. A gas corporation engaged in the business of manufacturing, furnishing or selling illuminating gas in a city containing a population of one million or over shall not charge or receive for gas furnished or sold in such city a sum per one thousand cubic feet in excess of one dollar, nor furnish in such city gas of a standard less than six hundred and fifty British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure. The public service commission, notwithstanding any other provision of this chapter, shall not allow a rate or charge in the case of such cities in excess of such sum."

By the said chapter 899 of the Laws of 1923, it is provided that the said act shall take effect immediately; and the said act took effect, by the signing thereof by the Governor of the state of New York on June 2, 1923.

130. That the classification of cities of 1,000,000 or more is a usual and frequent classification by the Legislature of the state of New York.

131. That this company has made no test of furnishing gas as prescribed by chapter 899 of the Laws of 1923.

132. That this company has made no application to the Public Service Commission of the state of New York for a reduction of the standard of 650 B. t.u. per cubic foot of gas since chapter 899 of the Laws of 1923 was enacted.

133. That the majority owners of the common stock of the Queens Borough Gas Electric Company sold to the Long Island Lighting Company their common stock as of February 14, 1923, and such sale and price was approved by the Public Service Commission as of February 14, 1923, by its order in case No. 1098 of that date. That the Long Island Lighting Company now owns all of the common stock of the Queens Borough Gas Electric Company.

134. I find that a great part of the plant, structures, land, mains, and other equipment located in Queens county, while used by the company in its gas business in Queens county, is also necessary and useful and used by the company in its gas business in Nassau county.

Conclusions of Law.

I therefore recommend as follows:

1. That it be adjudged and decreed that a maximum rate of $1 per 1,000 cubic feet of gas sold by the plaintiff, in conjunction with or apart from the said standard of 650 minimum British thermal units per cubic foot, is illegal and void, for the reason that it is in contravention of the Fourteenth Amendment of the Constitution of the United States, because enforcement thereof would result in confiscation of the property owned and used by the plaintiff in its gas business, and that the provisions of the said chapter 480 of the Laws of 1910 of the state of New York, known as the Public Service Commission Law, as amended and supplemented, and of chapter 899 of the Laws of 1923, in so far as they prohibit the plaintiff from charging or receiving for gas manufactured and sold in the city of New York, a sum per 1,000 cubic feet in excess of the rate of $1 per 1,000 cubic feet, in conjunction with or apart from the said standard, are each likewise illegal and void.

2. That it be adjudged and decreed that a standard of gas, required to be furnished by the plaintiff, of not less than 650 British thermal units per cubic foot, in conjunction with a rate not exceeding $1 per 1,000 cubic feet of gas, is likewise and for the same reason illegal, unconstitutional, and void, on the ground that enforcement thereof would result in confiscation as aforesaid; and the provisions of the said chapter 480 of the Laws of 1910, as amended and supplemented and of chapter 899 of the Laws of 1923, in so far as they prohibit the plaintiff from furnishing gas of a standard less than 650 British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure, in conjunction with the rate prescribed thereby, are likewise and for the same reason illegal and void.

3. That it be adjudged and decreed that the provisions of chapter 480 of the Laws of 1910, as amended and supplemented, and of chapter 899 of the Laws of 1923, in so far as they prohibited or prohibit the plaintiff from furnishing gas of a standard less than 650 British thermal units per cubic foot, without affording the plaintiff an opportunity and a reasonable time within which to make, or to have its consumers make, such readjustment of and changes in the gas appliances of the consumers as might be necessary in order to adapt them for the safe and efficient use of gas of such standard and to protect the consuming public against the very obvious and serious dangers to human life and property, or in so far as they denied to the plaintiff a safe and adequate judicial review of the legality thereof without incurring the penalties provided by the said statutes, are likewise and for the same reason illegal and void.

4. That it be adjudged and decreed that the said chapter 480 of the Laws of 1910, as amended and supplemented, or any other provisions of law, or any regulation prescribed thereunder, in so far as it prohibits the plaintiff from putting into effect forthwith a rate or rates for gas distributed or sold by it which will afford to it just compensation therefor, is likewise and for the same reason illegal and void.

5. That it be adjudged and decreed that the plaintiff has no adequate remedy at law for the injury which will result from the enforcement of said acts, and that such injury will be irreparable.

6. That it be adjudged and decreed that the plaintiff be granted a permanent injunction, issuing out of and under the seal of this honorable court, against the defendants and each of them, and their and each of their successors in office, their deputies and attorneys, and their and each of their successors, servants, and employees, and any and every person acting or purporting to act under or by virtue of the authority of chapter 480 of the Laws of the state of New York of 1910, as amended and supplemented, or any other or different provisions of law:

(1) From in any way enforcing, or attempting to enforce, against the plaintiff, a rate for gas furnished by the plaintiff to its general consumers of not more than $1 per 1,000 cubic feet of gas sold, under the provisions of the said acts or otherwise;

(2) From in any way enforcing or attempting to enforce against the plaintiff the provisions of the said acts, in so far as they prohibit the plaintiff from charging or receiving for gas furnished in the city of New York, a sum per 1,000 cubic feet in excess of $1, in conjunction with or apart from the said standard of gas;

(3) From enforcing or attempting to enforce against the plaintiff a standard of gas furnished by the plaintiff of not less than 650 British thermal units per cubic foot, or the provisions of the said acts in so far as they prohibit the plaintiff from furnishing a gas of a standard less than 650 British thermal units per cubic foot, measured under normal conditions of temperature and atmospheric pressure;

(4) From bringing any action or proceeding to enforce the said penalties against the plaintiff, or by mandamus or injunction or otherwise, to compel compliance by the plaintiff with the provisions of the said acts, or any of them, relative to the said maximum rates or charges;

(5) From doing any act or thing interfering with the right or authority of the plaintiff forthwith to furnish gas of any standard which it may lawfully furnish, and to charge or receive for gas furnished by it any rate which it may lawfully charge or receive, any provisions of the said acts or of any regulations prescribed thereunder relative to the rate to be charged and received or to the standard of gas to be furnished by the plaintiff, to the contrary notwithstanding.

7. That it be adjudged and decreed that, at any time while the injunction herein granted remains in force, any party hereto, or his or its successors or assigns, may apply by notice at the foot hereof, to vacate, modify, or extend the foregoing injunction because of any change of circumstances since the entry hereof, or for any additional relief to which he or it may deem himself or itself entitled by reason of any acts or events occurring after the date of this decree.

8. That it be adjudged and decreed that nothing contained herein shall be construed to limit, prejudice, or restrict the exercise of the jurisdiction and power of the Public Service Commission of the state of New York, under chapter 480 of the Laws of 1910, as amended and supplemented, known as the Public Service Commission Law, or any other provision of law, not inconsistent with the provisions of this decree.

9. That it be adjudged and decreed that the plaintiff shall recover its taxable costs and disbursements of the defendants, and that the plaintiff have such other, further, or different relief as to the court may seem meet and the nature of the case may require.

SWAN, Circuit Judge.

The bill of complaint challenges the constitutionality of chapter 899 of New York Laws of 1923, effective June 2, 1923, on the ground that it (1) impairs the obligation of a contract; (2) is confiscatory; and (3) denies to plaintiff the equal protection of the laws. The master correctly rejected the first contention, and properly confined his decision to the question of confiscation. Brooklyn Union Gas Co. v. Prendergast, 7 F.2d 628 (D.C.E.D.N. Y), affirmed 272 U.S. 579, 47 S. Ct. 199, 71 L. Ed. 421; Ottinger v. Consolidated Gas Co., 272 U.S. 576, 47 S. Ct. 198, 71 L. Ed. 420. He found that enforcement of the statute would result in confiscation, and he recommended a decree enjoining both the rate and the standard which the statute prescribes. To his report the defendants have filed numerous exceptions, and the cause is now before us upon these exceptions and the plaintiff's motion for confirmation of the report.

Although the statute in question has been held to be confiscatory in its application to other corporations distributing gas within New York City (the decisions being cited in the opinion of the special master under the appellation of the "Gas Cases"), it is contended by the defendants that the present case is distinguishable on its facts, and that the plaintiff has failed to prove the statutory rate and standard to be confiscatory as to it. As one basis for this contention it is urged that the plaintiff has made no proper segregation between its electric business and that part of its gas business which is subject to the statute. The principle that the respective costs of the two services must be considered separately is conceded. See Municipal Gas Co. v. Public Service Commission, 225 N.Y. 89, 121 N.E. 772. In attempted conformity with that principle, plaintiff has distributed upon its books of account between the gas and electric departments its operating and capital charges, charging to each department such expenditures as are identifiable with it, and apportioning equally between the two such charges as are incurred for both in common. The master has found that this basis of apportionment is shown by plaintiff's testimony to be proper. It is the same basis as that approved by the Public Service Commission in February, 1923, in connection with the purchase of plaintiff's common stock by the Long Island Lighting Company, and is the basis which has been used in plaintiff's annual reports to the commission, without objection by it. The defendants now charge that the division is arbitrary, but they have adduced no specific instances of erroneous apportionment. The master's decision on this subject is correct.

Another and more serious basis for the contention that plaintiff has failed in its proof is the argument that there is no evidence of the operating cost of business in Queens county only, or of the value of property used and useful in supplying consumers in Queens county. The plaintiff serves consumers of gas in Queens county, to which territory the statute is applicable, and also consumers in a contiguous area in Nassau county which is outside the city of New York, and so beyond the reach of the statute. All of the gas sold by the plaintiff is manufactured in a single plant, and is distributed through a unified system of mains to consumers in both counties. Shortly prior to the passage of the statute in question the Public Service Commission had authorized the plaintiff to charge its customers a uniform rate of $1.30 per 1,000 cubic feet of gas (with steps down to $1.10 for larger quantities), whether the customers were located in Nassau or in Queens. The plaintiff operates its gas plant as a unitary system, and in making proof of its operating expenses and of its capital values made no attempt to allocate costs and values between service to Nassau consumers and service to Queens consumers. It proved, however, the quantity of gas sold in each county during the several periods under consideration, and the relative demand made by each county upon the plaintiff's plant. Relying upon such authorities as Knoxville v. Knoxville Water Co., 212 U.S. 1, 12, 13, 29 S. Ct. 148, 53 L. Ed. 371, Minnesota Rate Cases, 230 U.S. 352, 435, 33 S. Ct. 729, 57 L. Ed. 1511, 48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18, and Banton v. Belt Line Railway, 268 U.S. 413, 421, 45 S. Ct. 534, 69 L. Ed. 1020, the defendants contend that, in order to prove its case, the plaintiff should be compelled to prove the reasonable costs and the value of the property used and useful in serving its consumers of gas in Queens county alone, and that the bill of complaint should be dismissed, or the proofs reopened, so that plaintiff may cure its failure to furnish such facts.

The master found (finding 70) that the net necessary and reasonable operating cost of supplying in both counties gas of the quality actually furnished, after deducting miscellaneous operating revenues, and exclusive of any return whatever upon the property or investment of the plaintiff, was as follows:

Per M. c.f. of Gas Sold.

Calendar year 1922 .............. $1.0587 Year ending May 31 1923 .............. .9952 Calendar year 1923 .............. 1.0239 Calendar year 1924 .............. .9397 Calendar year 1925 .............. 1.0214

He found that the cost would be greater if the plaintiff were to comply with the statutory standard of 650 British thermal units. He concluded from these facts alone that the statutory rate of $1 for gas sold in Queens county is shown to be confiscatory as to the plaintiff.

The defendants say that this conclusion involves an assumption that the unit of cost for manufacturing and selling gas in Queens county is the same as in Nassau, and to prove the falsity of such assumption they introduced the testimony of their expert, Mr. Little, to the effect that it would cost more to manufacture and deliver gas for the Nassau area than for the Queens area. He stated that there was no exact way to figure the additional cost, but he estimated it at 6.5 cents per 1,000 cubic feet. He testified further that the wide fluctuations between the low winter demand and the peak summer demand in Queens county would require a larger investment for plant capacity to be allocated to Queens than to Nassau, where the load throughout the year is more even, and therefore, if a theoretical apportionment of both investment and operating expenses were made, he concludes: "Approximately, I would say there would be no material difference in the cost as between the two counties, when you take into account investment as well as operating charges." Mr. Little's estimate of 6.5 cents additional operating cost for service in Nassau was disputed by Mr. Davies, plaintiff's gas superintendent.

Moreover, some additional expense, though how much does not appear, would be incurred by supplying in Queens county gas of the statutory standard of 650 British thermal units. But, even if it be assumed that a proper allocation of operating expenses between the Queens and the Nassau territory would reduce the cost of gas supplied to Queens consumers by the total amount of Mr. Little's estimate of 6.5 cents, the operating cost of approximately 99 cents found by the master would be reduced only to 92½ cents per 1,000 cubic feet. On a dollar rate, this would leave a profit of only 7½ cents per 1,000 cubic feet of gas sold to cover return on plaintiff's investment used and useful in supplying gas to Queens county consumers. In the calendar year 1923 the amount of gas sold by plaintiff to Queens consumers was 563,284,900 cubic feet. The profit on this quantity at 7½ cents per 1,000 cubic feet would be $42,246.37. This would be a return of slightly less than 4¼ per cent. upon a capital investment of $1,000,000. Under the evidence bearing upon the valuation of plaintiff's properties, no one could seriously urge that the value of so much of plaintiff's plant as is used and useful in supplying gas to Queens consumers is less than $1,000,000, or that a rate which gave a return such as the above estimate was not confiscatory.

The most extreme claim made by defendants, based upon the purchase of plaintiff's common stock by the Long Island Lighting Company with the approval of the Public Service Commission, concedes that the true market value as of June 1, 1923, of the property allocatable to Queens county business was $1,880,000; and this figure was arrived at by allocating to Queens only 50 per cent. of the total property valuation, although the Queens consumers create nearly 75 per cent. of the maximum demand upon the plant.

Physical segregation of the plaintiff's plant with respect to the business done in each county is impossible. A theoretical allocation of costs and values would, according to Mr. Little's testimony, be a guess at the best and would serve no practicable purpose. To say, as defendants do, that a corporation which has honestly kept and reported its accounts for years in the manner required by the state officers having authority to regulate the manner of keeping and reporting accounts, namely, the Public Service Commission, cannot escape confiscation because it cannot make an allocation of costs and values with respect to its business in different counties, when the defendants' expert says such allocation is impracticable, seems a very harsh doctrine, and is one which we should be reluctant to announce. The present record does not compel it. If the plaintiff may not treat its business as a unit, but must show that the portion of it subject to the statute cannot be operated at the statutory rate without confiscation, as defendants contend, we think it has adequately carried that burden.

The evidence shows that plaintiff's actual and reasonable operating cost for the entire system is 99 cents per 1,000 cubic feet — assuming for the present that the master's finding of this figure is correct — and that to comply with the statutory standard of 650 B. t.u. would increase the cost; that the maximum of cost attributable to Nassau territory in excess of the average for both counties is 6.5 cents per 1,000 cubic feet; that the total property value as of the day preceding the date when the statute took effect was, on the theory most favorable to defendants, $3,760,000, on the theory of reproduction cost less depreciation, as figured by defendants' expert, $6,790,000, and on the figures adopted by the master, $8,142,000; and that at the least one-half of the total value should be attributed to the property used and useful for Queens county business. It further appears that, if the actual operating costs for the entire system were apportioned between the two counties upon the ratio of the sales of gas in each, no substantial difference in the cost of service between the two territories would be shown. These facts are sufficient to prove that the application of the statutory rate to Queens county business would preclude any adequate return on the value of the property attributable to that business. And the margin of confiscation is so great that no defensible allocation of costs and values between the two counties could change the result. Consequently we think it would be futile, and we hold it to be unnecessary, to require the plaintiff to prove a more exact apportionment of operating costs and capital values between its Queens county and Nassau county business.

The foregoing argument has proceeded upon the assumption of the correctness of the master's finding of the unit of operating cost for both counties as 99 cents per 1,000 cubic feet of gas sold. The defendants' exceptions challenge that finding. They do not deny that the plaintiff actually incurred every item of expense as claimed, nor have they introduced evidence to question the reasonableness of any item; but they contend in argument that some of the expenditures appear upon their face to be unusual and nonrecurrent. Most of the questions thus raised have been decided adversely to the defendants' contentions in the earlier "Gas Cases," and it would serve no useful purpose to discuss them in this opinion. If all items, the inclusion of which may be doubtful, are eliminated, the rate will be effected by only a few cents, and the confiscatory effect of the statute will remain unchanged.

The master has carefully considered the value of the property used and useful in plaintiff's gas business and the rate of return to which plaintiff is entitled. Without in any sense intimating any disagreement with his conclusions as to the evidence or the law, we think it unnecessary for the court to go into these questions, because the finding of cost of operation is such as to preclude a fair return upon a valuation which the defendants do not question, namely, a valuation of $3,760,000, at least one-half of which is attributable to property used and useful in plaintiff's business in Queens county.

That the standard of 650 B. t.u. is inseparable from the statutory rate has been previously decided in this district. Brooklyn Union Gas Co. v. Prendergast (D.C.) 7 F.2d 628; Kings County Lighting Co. v. Prendergast (D.C.) 7 F.2d 192. The report is approved, except as to the findings relating to the value of plaintiff's property. In lieu thereof it is found that the value of plaintiff's property used and useful in its gas business was as of the date of June 1, 1923, and still is, at least the sum of $3,760,000, and that the value of plaintiff's property used and useful in supplying gas to consumers in Queens county was as of June 1, 1923, and still is, at least the sum of $1,880,000. It is also found that the net necessary and reasonable operating cost of supplying gas in Queens county of the quality actually furnished, after deducting miscellaneous operating revenues, and exclusive of any return upon the property of plaintiff was as follows:

Per M. c.f. of Gas Sold

Calendar year 1922, not less than ... $ .9937 Year ending May 31, 1923, not less than ... .9302 Calendar year 1923, not less than ... .9589 Calendar year 1924, not less than ... .8747 Calendar year 1925, not less than ... .9564

As thus modified, the report is affirmed, and a decree will be entered as recommended in the report.