Reasonable rates must earn legitimate operating expenses, adequate depreciation, taxes, and over and beyond these indispensable requirements a return, not on the capitalization, not on the book value, not on the exchange value, but on the fair value of the property devoted to the public service. A fair return is one which under honest accounting and responsible management will compensate for the value of the property employed in the service and attract the amount of the investor's money needed for the development and extension of the service. The return should not be just enough to compensate stockholders in the form of dividends, but it should be enough to establish a reasonable service to be used as occasion demands, for unusual requirements or exigencies of the business and to establish the company's credit. The courts and commissions no longer stifle public utility development by the enforcement of rates which fail to meet these necessities.*

In the Consolidated Gas Company Case, 212 U. S. 19 at p. 48, the Supreme Court of the United States said:

"There is no particular rate of compensation which must in all cases and in all parts of the country be regarded as sufficient for capital invested in business enterprises. Such compensation must depend greatly

*City of Sandpoint v. Sandpoint Water and Light Company, Ltd. (Idaho), P. U. R. 1915-F, 445; City of Palo Alto v. Palo Alto Gas Company (California), 16 C. L. 966; McGregor-Noe Hardware Company et al. v. Springfield Gas and Electric Company et al. (Missouri), 33 C. L. 932; In re Application of the Lincoln Telephone and Telegraph Company to Consolidate Exchanges in Lincoln, and to Establish Temporary Rates (Nebraska), 19 C. L. 134; City of Ely v. Ely Light and Power Company (Nevada), 24 C. L. 578; The Western Union Telegraph Company v. State of Oklahoma, 31 Okla. 415, at p. 420; 121 Pac. 1069; Elbert County v. Brown (Georgia), 86 S. E. 651; Brymer v. Butler Water Company (Pennsylvania), 179 Pa. 331; 36 L. R. A. 260; 36 Atl. 249; Pennsylvania Railroad Company v. Philadelphia County (Pennsylvania), 220 Pa. 122; 68 Atl. 676; Gately and Hurley et al. v. The Delaware and Atlantic Telegraph and Telephone Company, 14 C. L. 39; Arizona Corporation Commission v. Morenci Water Company, P. U. R. 1915-C, 525; Taylor v. Northwest Light and Power Company (Idaho), P. U. R. 1916-A, 372; Marquis v. Polk County Telephone Company (Nebraska), P. U. R. 1915-C, 140.

[Mont.

>. L. 148] upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted, and the rate expected and usually realized there upon investments of a somewhat similar nature, with regard to the risk attending them."

After considering the cost of money, the statutory rate of interest, the permanency of the enterprise, the prospect for growth, and the necessity for development in this jurisdiction, we conclude that a return of 8 per cent. upon the rate base of $12,638,416, is fair, just and reasonable. We have, quite generally, applied that figure since the close of the war,* and the commissions holding jurisdiction over the defendant company in other western states have recently made a like allowance.†

City of Poplar v. Speed Electric Company, 15 Montana U. R. 334; P. U. R. 1922-B, 367; Great Falls Gas Company Case, 15 Montana U. R. 379; P. U. R. 1922-D, 385; Missoula Street Railway Company, 14 Montana U. R. 171; Baker Natural Gas Utility, 14 Montana U. R. 234; P. U. R. 1921-E, 609; Helena Light and Railway Company, 13 Montana U. R. 261; P. U. R. 1920-D, 668.

The Mountain States Telephone and Telegraph Company (Colorado), P. U. R. 1917-B, 198, at p. 298; The Mountain States Telephone and Telegraph Company (Arizona), P. U. R. 1920-B, 411, at p. 436; The. Mountain States Telephone and Telegraph Company (Idaho), P. U. R. 1921-B, 739, at p. 759.

Other allowances have been: Wisconsin Telephone Company, P. U. R. 1922-B, 91, at p. 106 (8 per cent.); City of La Crosse v. WisconsinMinnesota Light and Power Company (Wisconsin), P. U. R. 1922-B, 113, at p. 123 (8 per cent.); Plymouth Electric Light Company (New Hampshire), P. U. R. 1922-B, 467, at p. 476 (8 per cent.); Yuma Ice, Electric and Manufacturing Company (Arizona), P. U. R. 1922-B, 669 (8 per cent.); Southern Counties Gas Company (California), P. U. R. 1922-B, 669 (84 per cent.); Kansas City, Clay County and St. Joseph Railway Company (Missouri), P. U. R. 1922-B, 669 (8 per cent.); Kansas City Long Distance Telephone Company (Missouri), P. U. R. 1922-B, 669 (8 per cent.); Poy Sippi Telephone Company (Wisconsin), P. U. R. 1922-B, 670 (8.4 per cent.); Seymour-Shiocton Telephone Company (Wisconsin), P. U. R. 1922-B, 670 (8 per cent.); Buckeye Ridge Cooperative Telephone Company (Wisconsin), P. U. R. 1922–B, 670 (14 per cent. for return and depreciation); City of Green Bay et al. v. Wisconsin Public Service Company (Wisconsin), P. U. R. 1922–B, 671, at p. 674 (8 per cent.); Lansing Fuel

[Mont

and Gas Company et al. (Michigan), P. U. R. 1922-B, 605, at p. 610 (8 per cent.); Wisconsin Telephone Company, P. U. R. 1922-B, 553, at p. 566 (8 per cent.); Utica Gas and Electric Company (New York), P. U. R. 1922-A, 146, at p. 154 (8 per cent.); Crandon Telephone Company (Wisconsin), P. U. R. 1922–A, 164, at p. 167 (8 per cent.); Kohala Ditch Company, Ltd. (Hawaii), P. U. R. 1922-A, 1, at p. 42 (9 per cent.); Los Angeles Gas and Electric Corporation (California), P. U. R. 1922-A, 283, at p. 290 (9 per cent.); City of Stamford v. Stamford Gas and Electric Company (Connecticut), P. U. R. 1922-A, 303, at p. 309 (8 per cent.); City of Riverside v. Southern California Gas Company (California), P. U. R. 1922-A, 277, at p. 283 (9 per cent.); Pawnee Telephone Company (Nebraska), P. U. R. 1922-A, 375, at p. 382 (8 per cent.); Barth et al. v. Hughes and Deiters Electric Company (North Dakota), P. U. R. 1922-A, 740, at p. 752 (8 per cent.); Page Light Plant (North Dakota), P. U. R. 1922-A, 652, at p. 654 (8 per cent.); Rose Milling Company (Wisconsin), P. U. R. 1922-A, 587, at p. 591 (8 per cent.); Home Telephone and Telegraph Company v. Indiana Public Service Commission (U. S. District Court, Indiana), P. U. R. 1922-B, 478, at p. 490 (8 per cent.); Customers in Hamlets of Katonah et al. v. Katonah Lighting Company (New York), P. U. R. 1921-E, 135, at p. 140 (8 per cent.); Leslie Home Telephone Company (Michigan), P. U. R. 1921-E, 123 (8 per cent.); Kahoka Telephone and Construction Company (Missouri), P. U. R. 1921-E, 123 (8 per cent.); Eustis Telephone Exchange (Nebraska), P. U. R. 1921-E, 123 (8 per cent.); Wisconsin Telephone Company, P. U. R. 1921-E, 123 (8 per cent.); Wiseman et al. v. Rupert Electric Company (Idaho), P. U. R. 1919-A, 552, at p. 567 (8 per cent.); San Diego Consolidated Gas and Electric Company (California), P. U. R. 1919-D, 924, at p. 933 (8 per cent.); Hinton Water, Light and Supply Company (West Virginia), P. U. R. 1919-D, 467, at p. 477 (8 per cent.); Arkansas Light and Power Company, P. U. R. 1920-D, 775, at p. 786 (8 per cent.); Eastern Montana Light and Power Company (North Dakota), P. U. R. 1920-F, 928, at p. 939 (8 per cent.); Peoples Power Company (Illinois), P. U. R. 1920-E, 710, at p. 721 (8) per cent.); Laporte Gas and Electric Company (Indiana), P. U. R. 1920-F, 586, at p. 601 (8 per cent.); Muskegon Traction and Lighting Company et al. (Michigan), P. U. R. 1920-F, 970, at p. 979 (8 per cent.); Central Arizona Light and Power Company (Arizona), P. U. R. 1921-D, 163, at p. 170 (10 per cent.); Virginia Railway and Power Company (Virginia), P. U. R. 1921-C, 193, at p. 218 (8.18 per cent.); Bloomington Telephone Company (Nebraska), P. U. R. 1921-D, 525, at p. 526 (8 per cent.); City of Grand Haven et al. (Michigan), P. U. R. 1921-D, 318, at p. 328 (8 per cent.); Southern California Edison Company (California), P. U. R. 1921-D, 65, at p. 76 (8.3 per cent.); The Mountain States Telephone and Telegraph Company (Idaho), P. U. R. 1921-B, 739, at p. 759 (8 per cent.)

C. L. 148]

FINDINGS.

The company keeps its accounts according to the accounting system prescribed by this Commission, which is also the system prescribed by the Interstate Commerce Commission. The company, at the instance and order of the Commission, has prepared transcripts and statements from its books showing its revenues, expenses, etc., for the years 1916 to 1922, both inclusive. The representatives of the Commission have made such examination of the books of the company at Denver, as in their judgment was necessary to satisfy themselves of the correctness of the reports and statements furnished by the company. They have found the statements and reports of the company, as to revenues and expenses, correct and all items of receipts and expenditures have been reflected on the books of the company in accordance with the facts.

The company's statements show a deficit, under an assumed fair return, as a result of operations for every year of the period between 1916 and 1922, both inclusive, based on the book values as follows:

These deficits reflect the increase in the cost of labor and materials which, so far as the telephone industry is concerned, began in the latter part of 1916, or the early part of 1917, and which constantly increased with some ups and downs until 1920, and even now nearly all telephone costs are higher than 1920. The lowest point in the deficit valley was reached in 1918. In 1919, while the property was under government control, the toll and exchange rates were increased; and this is reflected in the diminished size of the deficits for the years 1919, 1920, 1921 and 1922, from that of 1918. These deficits measure the difference be

tween the requirements from net income for fair return, based on the book valuation (in this instance lower than any figure produced by a physical valuation), and the balance of the net income for the respective years. Book values, however, do not reflect present value; and the Commission is required, by the decisions of the United States Supreme Court, to give due weight to present values as the basis upon which to determine whether the schedule of rates and charges is reasonable or unreasonable. The way to obtain present values, as heretofore stated in this opinion, is to cause an inventory and appraisal of the property of the company used in the giving of service, and to apply to the units of plant and equipment, so found, unit costs based upon present prices of labor and material. This was the course followed here. The company's engineer found the value of the company's property used in the giving of service to be $14,617,169.24. The deficit of the company for the year 1922 based on this reproduction value would be $870,324.47. The company's engineer arrived at a structural value (reproduction, less depreciation) of the property of the company in the amount of $13,639,501.26. Upon this basis the deficit would be $733,986.39. The Commission finds the value of the property used by the company in giving service to be $12,638,416, and on this basis the deficit for the year 1922 is, in round numbers, $482,673. Inventories and appraisals were not taken for the years 1916 to 1921, both inclusive; hence, we do not have the appraised and structural values for those years; but did we have them, they would show deficits for those years relatively the same as those of 1922, but varying as to amount as the value of the property in each year varies, which, of course, would be considerably larger than the deficits based upon book values. The net earnings of the company, as shown by the evidence, for each year that the present company has done business in the State of Montana, have been below its requirements, for giving service, and for the years 1916 to 1922, both inclusive, we have the specific figures above set forth. The net earn

[Mo