Galveston Electric Co. v. City of Galveston

Citations

• 258 U.S. 388
• 42 S. Ct. 351
• 66 L. Ed. 678
• 1922 U.S. LEXIS 2287
• 3 A.F.T.R. (P-H) 3138

Syllabus

<p>1. The fact that a public utility, such as a street railway, may reach financial success only in time, or not at all, is a reason for allowing a liberal return on the money invested in the enterprise; but it does not make past’losses an element to be considered in deciding what the base value is and whether.a rate fixed is confiscatory. P. 395.</p> <p>2. A so-called “going concern value and development cost” based on calculations, for various periods, of past deficiencies of net income, allowing 4 per cent, for annual depreciation and 8 per cent, compound interest on the value of the property used as a fair return, should not be included in the base value of appellant’s street railway in determining whether an existing rate is confiscatory. P. 395.</p> <p>3. Neither should an allowance for hypothetical brokerage fees based on a percentage customarily obtained by bankers for financing such enterprises. P. 397.</p> <p>4. In determining the sufficiency of such rates, the amount normally required for maintenance, not necessarily the amount expended, annually, should be allowed; and many items included in overhead cost of original construction may be excluded in calculating depreciation annuity. P. 398.</p> <p>5. Appellant’s request that prospective cost of maintenance deferred during the war at the wish of the Government be allowed from earnings of future years, in testing the rate, was an attempt to capitalize past losses and rightly refused. P. 399.</p> <p>6. In calculating whether a rate fixed will yield an adequate return, income taxes which would be payable if a fair return were earned are appropriate deductions from gross revenue. P. 399.</p> <p>7. But, where the federal corporate income tax, .(Act of February 24, 1919, c. 18, §§ 230-238, 40 Stat. 1057, 1075-1080,) is thus deducted,’the exemption of the stockholder from the “normal” tax on dividends received from the corporation must be taken into consideration in determining what rate of return to the corporat