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Home My WebLink About1944_VILLAGE OF EDINA(3)I KARL C. SCHMIDT CONSULTING ENGINEER 4200 GROVE AVENUE WESTERN SPRINGS. ILL. ntleam :. and Village Council. April 130 1944 At & 00aference t ith Mr. Na"Id Utley, CbSUMM of your Water 'Worms Conmittee,, and Xr. Perm R. Morev S; a -lal -'Attor a for the Village of Id -, hold Friday,, Jerry 14, 1944,. the writer was, reqmsted to zuke a cam mil stet aad "port to ypour mil on the , following q � tions. a. In the event that the present pUn of opera- tion of the Water Work$ System in the Country Club Di.atrict and easrtaln othor portion& of the nUage of EdlAa is con-, tin d, vbAt ua u)A be a fair valuation on vhieh to base rates to be billed by the Country Club District Service Oomparq for -Such service* b. t t ,. if my, should be made In the pr6seat rate s cheftle to g1e2d a fair return on the valua- tion or -, &to base above described.. 1t gill be repealled that the writer was present throuabout the trial vhlth owed before JUdge Montgowry on 'am=r7 3i, j, ig4o,, aid that he testified ed at that ti m as to construction costs-, valuatio , eto... aad presented numr- aaa eblts in support of ash tetay. Copies of those exhibits and, the b rouud stud- ies for the preparation of sama oo as vell as the records of the appe&l of that trial to the Super Court of the State of Ximesots the deciaim of the Minnesota Supreme Court: copies of and .to of the Count Club District Serviee Comp- any accounts for the - years 1937•1942., Inclusivej maudited . op$rat. ing stste=mts of the Service Company secoulmts for the years 2 and 1943 prepared by Pip. Os'car rden; .. da�r. den's proposal of Zune x.943 addressed .: Earl Vie, President, of FAIns Village Council; and several, seel2 e- oust memorandma prepared or loa=4 to me by Mr. Harold Utley, Chairs of your Vater Works C onn ttee, foxmd the basis of a- rather extended study upon vhi.ch the following a onolusions are based. Supporting tabulations and dptails of accounts, explanatiow and ealculations fom the 7 of this report. r CONCLUSIONS 1. The original construction coat of property account'bassd on reproduction entire Water Works System in the 69, x+34.00 B. The present value, of the Service 'Pillage of W.Ina, used and usable Cos ny$ s- portion of the Water 'forks as of January 1, :.944 is 161, 345.03 2. The reproduction cost of this prop- shown immediately above is 722000.00 erty used on 1940 cost prises would aid of oonstruction" war* made by water be 153,500.00 3. The present value of the entire prop- # 140900.00 erty based on cost lees depreciation as of January 1, 1944 is 130 :969.35 44 The present value of.'the entire prop - erty based on reproduction cost less depreciation as of January 1, 1944 is 119, 84i. 0q 5. The present value of the portion of the property account attributable to the Country Club District Service Co. for purposes of calculating. and pro - rating depreciation reserves is $ 88,596.27 6. The present value of the Service Company's portion of the Water Works property account based.on post less depreciation is 74079.20 7. The present value of the Service Company's portion of the Water Works property account'bassd on reproduction cost, less depreciation is 69, x+34.00 B. The present value, of the Service Cos ny$ s- portion of the Water 'forks property account based on-considera- tion of the two methods of approach shown immediately above is 722000.00 9. Of the above amtount, "contributions in aid of oonstruction" war* made by water consumers to secure service to the ex- tent of # 140900.00 10. This sum is deductible from the present value of Service Companyt s portion of the Water Worms property account for purposes of determining the value upon which the company in entitled to earn a return, based on physical values, leaving a balance of approximately 57,100.00 11. The net total - investment by the Service r Co. in the properties after allovanee for depreciation charges withdrawn and for "contributions in aid of construction" $. 48, 7 /0.59 an of January .1, 1944 vas 12. The net investment by the Country Club District Service Co. amounting to 448,710059 has- been Financed by Stock sold for Cash �, 000.00 Preferred stock 15000.00 Less purchases, by Co. Tress. +6000.00 98000.00 First Mortgage bond Issue originally 201004..- Sal. 1 -1 -44 13,00th.00 Advances by Realtors - Rai. 1 -1 -44 $ 9,372.33 Excessive Depreciation urges .9 :$6$.16 Ucessive Profits over Fair Return , ll, 844.51 Total 560085.00 13. Daring the same period Mr. Gaarden as the promoter of the Company has with- drawn in salaries charged to eater works operation 150120.00 salaries charged to serer 0?_�eration 1x500.04 Mr. Oaarden's personal Ing. servioea have been capitalized in arriving at the net investment in a scum slightly in excess of 3,000.00 A net profit was realized on sever operation by virtue of depreciation charges against the sever system amounting to approximately � 2,500.00 r r rrrr r Total 22$20.00 14, When these facts are weighed against a maze im m investment at any one time of $57,203.31, it is obvious that the Country Club District service Co. per see has never had any substantial actual ,� investment in the property. 154 -The total. Of e=easive earnings and ►= depreciation charges Qver and above a - fai:► return during the period from 1936•- 3943x-inclusive, vas $ 21,812.67 16. in no event should the Service Co. be permitted to compound this abuse by earnixag future returns cam money taken from its austpaaers through the msdiuk Of excessive ra.tea largely uatified by depreciation charges against their customera property, 17. The maxi=m prosent value of the . property based on financial -history of the Company on- wbich a areturn should be Permitted Is Net total investment 48,740.59 Lose ncessive earn- ings and.deprealati ©n 210812.67 188 The earnings record of the company varrants a reduction, ixz rates of ap ptoximat©ly 12j% or t€a cents per 100 au. ft. gross and 13 cents per. 100 cu. ft, net after a cash discount. of 10 %. 19. These rates should be made retro.- active to Jan uary 10 19401 and.the Company snou'ld be required to rebate the 'overcharges,_ s iaae that date to. all users 20* This requirement..should result in a re- fund to --conaumers of approximately 21. The Company should also be required to rebate to the 'Village the amount of the fair-depreciation ohsrges agdinst the 'Village Rquity in .the. Water Works property account for the years 1940-, 1943* incluaivep amounting to 2% of #46038-0 for four years 22, Total rebates .would thvaa affiount to approximately 23• The net total of the Company invest- ment, exclusive of excessive earnings and depreoiation, and after rebates Would be 4-96..927.92 $ 80750.00 $ 3,683-07 $ 120433.07 $ 39060.99 24 Based on careful consideration of (11 present value of the Country Club District Service Company's portion as determined (a) By original coat lose fair 74$379.20 dopreclation (b) . By reproduatioA boat less, d+epreclation .69,430.00 (c). By consideration of the. two Methods immediatoly above 72,000.000, (2) Deductible "Contributions in aid construction" 1��9Qq « ®a Of ( ) Balance of Service Company POrtion in Present Values of Physical Assets 5'T,1CO• C0 (4) Coat by Financial History after making rebates suggested .39,360.99. (5) Balance Excessive earnings and . depreciation reserves not to to rebated (1936 - 1943): 9,379060 (6) An allowance for VOrkipg capitals tools,, equipment, and inventory 4,000.00 accounts in the sum of I conclude that the fair present value of the Ceuntr7 Club District Service Compauy'?s interests: for the purpose of -computing - sun allowable, 50,400.00 net return should not exceed 25• A neu bats Sobedule should be established to yield For Depreciation Reserves approxImete3y 3,250.00 Por pair 'Return on laves'tment at $ 3, 000.00 For Operating Upenses 10300.00 Toted 16, 550.00 26. Based on the average return over the past four, years, a rate of 15 cents per 100 'u. ft. less 10% cash discount _<. vill yield approximately 17, 200.Oi3 27.. As an alternative rate structure, your board might Irish to consider a two part rate oonst.ating of a service charg® plus a water charge. In that events approximately the same result would to attained by a rate schedule prov; dirk- for (1) A service charge of 5o cents per meter per Month which, would cover costs of reading; meters, accounting, billing, -etc. and take the place of any minimum charge (2) A water char a of 91,a cents per 100 cu. ft. less 10cash discount. 20. The two part rate mould have the advantage of more equitably diatri,butinr overhead costs and at the same time would nermit a gore .genarous use. of water for sprinkling and 04milar.purposes. It would probably result in a eulst&ntial In- crease in gross water sales and lead to the possibility of further reductions in Fixture. rates. 29. From the funds provided by the above suggested rates for Depreciation Reservers, the service Company ebould - pay annually a sum equal to 2% of tho Village's portion or interest in the Property Account, to the Village Treasurer, to be Meld in trust as a depreciation reserve for replaosment Of the Village's portion of the VALter ",ork" 3yatem, rased on present con- . structioa,r tills annual payment would amount � 1t455.00 to Res y ubmit.1ted o t Consulting Engineer REPORT VILIAGE OF EDINA . EDINA,* MI1 SOT;A VALUATION AND RAPE STUDY 0£ the WATER WORKS SYSTEM IN T 3 'VILLAGE OF EDIXA, XINN. With particular reference to Fr4PIMTY -CF THE COUNTRY OLM DISTRICT SERVICE CO* K. Cs 8G 2dt,, Consulting Engineer western .springs, Illinois History The historical background of the construction and operation of the Waterworks and Sewerage systems in the. Vil- lage of Edina,'particularly those portions of the systems located in the Country Club District, is of more than ordi- nary importance in arriving-at an accurate understanding of the problems involved in the allocation of interests, and hence in the determination of fair values for purposes of rate making. This history is completely and officially told in a decision_, of the Supretpe -Court sf; the State of Minnesota filed January 2nd, 1943. To avoid repetition and the possibility that through repetition a misinterpretation or misunderstanding would re- sat., the oomplete Decision of the Court is included in an Appendix to this report. This decision should be carefully studied by those not thoroughly familiar with the entire back- ground of the Country`Club District Service Co. and the water- works system in the Village of Edina before going further with the reading of this report. Rate Making Principles It has become a well established rule in the United States that a public,utility, In return for the special 2 privileges granted it by the Community or State, must permit it8 rates and servicee to be regulated. This is to prevent abuse of these more or less monopolistic privileges. The.right,_of a Cou4cil, Legislative Body or Commis- sion -as the case may box-to regulate rates has been restricted, however, by the Supreme Court which has laid down a very gener- al rule to guide ouch regulatory bodies. This rule springs from the .interpretation given by the United States Supreme Court to the "due process" clauses in the Amendments.. of the. Constitution of the United States and may be briefly stated as followsa Public Utilities, subject to regulation, should be entitled to earn a fair return on a fair value of the property they devote to the.service of.the_ public. The'csonverse of this principle is equally accepted, to wits that because of the protection provided in more or less insuring the right to charge rates which will earn a fair return on a fair value, the utility is not entitled to main- tain rates that will yield net revenues in excess of a fair return. The famous case of Smyth vs.- Ames, decided by-the . Supreme Court of the United-States, laid down a legal princi- ple which serves as a guide in determining the reasonableness of rates. In this decision Mr. Justice Harlan said: "What the Company is entitled to ask is a,,fair return upon the value of that which it employs in the public convenience.. On the other hand, what the public is entitled to demand is that no more be extracted,from it than the services rendered by it are reasonably North. " ( smyth v. Ames,'169 U.S. 466 - -546) It should be pointed out, however, that despite many., opinions to the contrary, there is no exact formula for arriv- Ing at the determination-of the "Rate Base" or "Fair Value. ", This is clearly pointed out by Chief Justice Hughes -in reading the opinion of the Court in the Los ,Angeles gas case. "This Court has repeatedly held that the basis of cal- Culation is the fair value of the property; that is, that what the complainant is.entitled to demand, in order that it may have "Just compensation' is a fair return upon the reasonable 'value of .the property at the time =it is being used for the publicf' - - We have said that the judicial ascertainment of the value for the purpose of deciding whether rates are confiscatory "is not a matter of formu- las ", but there must be- r"sonable judgment, having its basis in a proper consideration of all relevant' facts. t1 l (Los Angeles Gas & R. Co..vs: Comm. 289 U.S. 287 -334 decided May 8, 1933) Principal among the "relevant facts" which the courts have said must be considered are: 1... Initial Coat of the Property 2. Reproduction cost of the property 3. Financial History of the Company. "The actual cost of the property the investment the owners have made - is a relevant fact." (Smyth v. Ames 169 U.S. 466 -547) "$ut while Cost must be considered it is not an exclusive or final. test. The public have not under- written the investme nt . The property on -any admissable standard of present value, may be�worth more or less -4- than it actually cost. The time and circumstances of the outlay, and the effect of alfered conMtions errand co` ns3` ed raEion.. Even when cost-is r4ovieed so as to re- flect what may be deemed to have been invested-prudently and in good faith, the investment may embrace property no longer used and useful for the public. "This court has further declared that, in order to .,determine present value, the cost of reproducing the property is a relevant fact, which should have appropri- ate consideration. But again the court has not.deeided that the Cost of Reproduction furnishes an exclusive test. - -- We have emphasized the danger in resting con- - clueions on estimates of conjectural character. We said in Minn. Rate Case Simpson v. Shepard 230 U.S. 452 -576 ed. 1563 - --) The cost of reproduction method is of service when the cost of reproducing the property may be ascertained with a proper degree of certainity. But it does not justi- fy the acceptance_of results based on conjecture." In more recent cases, however, the Courts have approved giving greater Freight to original rather than reproduction costs because of the greater reliability of original cost rather than reproduction cost estimates. Bronx Gas & Elec. Co. v. Maltbie, 271 N.Y. To this effect see 364. Your ova Minnesota'Supreme Court has quite recently spoken directly to these points in the case of State v. Tri State Tel. - & Tel. Co. Minnesota Reporter 204 - page 516.- decided Feb. 24, 1939• This decision is quoted rather extensively below as sum- ming up the most generally accepted principles in excellent clear language that leaves little doubt of its meaning. "In deciding the question of fair return, a number of g - intermediate determinations must be made. Since fair return is computed with reference to fair value, the latter quantity must first be found. It is elementary that this may be less than, equal to, or'more than pre- sent cost of plant less depreciation plus working capi- tal... -- -- "Fair Value for rate making purposes must therefore be determined in another way,' and the indicia observed are historical cost, on cost of original plant, plus additions, less retirements and accrued depreciation; re- production cost as of the time of inquiry, less accrued depreciation; the financial history of the company, and all other relevant facts. It cannot be determined with precision for it is adt derived from the application of a formula, but must be reached through the excercise of a reasonable judgement, guided but not ruled, by the foregoing processes according to the weight, which de- pends upon the circumstances, attributable to each, Actual Cost "Historical cost, the worth of the property at the time it was devoted to the public service, may be greater or lees than the value for rate making purposes, depend- ing upon the circumstances attending the outlay and sub- sequent events. Of course the cost of a utility well planned and efficient in the pub service is good evi- dence of -its value at the time of its construction, and continues to supply a measure of the value of the physi- cal elements of the property so long as there is no change in the level of applicable prices. But even though an alteration in the general price level has oc- curred, actual experience, especially in a recent period, is a valuable check upon extravagant estimates." -- Reproduction Cost "The Company is entitled to a return upon any increment to the value of the plant since installation. The present value of the plant may be indieated'in some degree by this method* when the costs of its, components may be found with reasonable certainity. In applying -this formula, how- ever, it must constantly be remembered that the appearance of substance, given by the delusive exactitude of the re- sults., is wholly imaginative. It is but an attempt to es- timate the cost of constructing a plant exactly like the present used and useful plant. The theory indulges in a number of unfounded.assumptions. It is inconceivable that the present plant would suddenly cease to be, or that if -6- it were not inexistence other environmental circumstance affecting its form and value would be operative,,or that the same plant -would be built, if reconstruction immediate and complete mere possible.- Even in this speculative ven- ture, however, some Contact with reality must-be preserved, and estimates, even those of experts, must relate to things and conditions having counterparts in reality. -- " -�- The ube of-a general commodity index'to translate original cost'und subsequent additions into present value by its application to a conglomerate. of assets has been disapproved. But where the index is built for a particu- lar class of property and is applied to that property it has been Found acceptable,", Another thoroughly established principle of rate regu- latiOU is that a utility should not be permitted to benefit from the continuance of eacpaa3ve.or unreasonable rates through the medium. of Court proceedings and the incidental delays, nor should it be permitted to include the cost of legal battles in its operating expense statements, with the result that the cost of such trials is paid by its consumers. "Reasonable amounts for rate case expenses are allow- able Where the utility prevails or the rates fixed by -the com- mission are retroactive." west Ohio Gas Co. V. Public Utilities COMM. 294 U.S. 63 55 S. Ct. 316,796. ed. 761 "Such expenses need not be allowed if the.rates charged are found to be greater than are fair,and reasonable." Scranton Spring Brook W. Serv. Co. v. Public Service Comm. 119 Pa. Super. 117, 181 A. 77; Reno P L & w Co. v. Public Service Comm. (D.C.) 298P, 790, 800 PUR . 1923 E, X685, 499. Any appraisal of "Fair Value" for Rate Making purposes 7 must be.guided.by the above stated principles and involves. first of all a determination of the several factors that the Courts have said are "Relevant Facts" which must be considered. PROPERTY TO BE VALUED- Before any determination -6f the Fair Value of the pro- perty of a utility can be made the ownership of the property to be valued -must first be ascertained and the property defined. The ownership of those portions of the water -works built subsequent to 1935 by the Country Club District Service Co.-is'acknowiedged to:rest in the Service Company, however the ownership of those portions built prior to 1936 has been in dispute and a brief review of certain facts-is essential. to explain my handling of certain entries representing the initial investment by the Service.Company 'in this disputed title. When Mr. Gaarden undertook:during the latter part of 1935 to purchase the water -works and sewer systems in-the so- called "Country Club District" in the Village of Edina, he first negotiated with Thorpe Bros., the development realtors, for control of the corporation known as the Country Club District Service Company, in whose name the franchises had been issued.-but which had not up to that time actually en- gaged in business. After gaining control of the corporation in 1935, Mr. Gaarden caused the corporation to issue 153 shares of preferred stock having a nominal par.value of 4100.00 per share to Thorpe Bros. in payment of the water -works and sewer systems, trans- fer of which was .authorized to be made to the Country Club Dis- trict Service Company by resolution of the Board of Directors of Thorpe Bros. Co: Later a deed was issued by Thorpe Bros. Co. to the Service Co. conveying title to the lot, on which the elevated tank and tower providing a reserve water supply and pressure reservoir was located. Although the Thorpe Bros. directors authorized trans- fer, no bill of sale or other evidence was ever executed so that the only actual transfer of title consisted of the deed above mentioned. The Supreme Court of the State of Minnesota has since held in effect, that the water and sewer system were not Thorpe's to sell, inasmuch as Thorpe Bros. had represented to all lot purchasers that "these utilities were installed and paid for and included in the price of the lots" and that they had there- fore been previously sold.tp the lot purchasers. (See Appendix) Attempts have been made to isolate certain portions of the water and sewer systems such as the elevated tank and tower, parts of the 50th Street main, and certain hydrants, etc., and - 9 - to maintain that these features were purchased by the Service Co. This claim is wholly untenable inasmuch as the water - works system would be unworkable without these features, and, to have made the representations to lot purchasers which were made and then provide only an unusable portion of a water- works System would have been no less a travesty on justice than to have provided no,waterworks at all. This reasoning can also be logically extended to the real estate on which the.tank and tower are located, for the reason that.the tank and tower are essential elements in the water works system on which to stand. more than 12 years had in effect been sequently.to the pi trict. and. could not exist without real property The tank and tower were erected in 1923, before the lot was transferred. The lot dedicated to the water -works system and con - archasers of lots in the Country Club Dis- flat then did the.Service Co. buy? Perhaps the correct answer is that they- bought nothing, and that, inasmuch as pay- ment was made in stock without any actual value at the time it was issued, it is further possible there was no consideration on either side of the transaction. That, in effect, is the position of Counsel for the Village. 10 :. Perhaps what Mr. Gaarden actually bought on behalf of the Service Co, were certain intangibles that might be called, for want of better terms, "Franchises" "GO' ing Value" or' "Good Will" or perhaps merely the right to operate the water -works and sewer systems. But the franchise for the water - works system says "In the determination of such fair and reasonable value, there shall not be included therein, nor in the purchase or any condemna- tion price'.of such system, any allowance for franchise, good will or going.concern value, but such fair and reasonable value shall be the normal reproduction cost, excluding the items he reinbefore mentioned." In view of these facts, a strictly technical position would undoubtedly warrant the rejection of the $15,300.00 item and of any and all recognition of interest by the Service Co. in property built .prior to 2936. However, I feel a'more'leni- ent position is In order in.the interests of complete fairness. and equity. Because no claim to ownership of any property built prior to 1936 can be.substantiated or accepted, and because no intangible item such as "Going Value" can be recognized in determining a "Fair .Value" under provisions of the 'firanchise, T have elected to give recognition to the original purchase by arbitrarily assigning to the Service Company the benefits which would normally have been derived had they actually pu r^ .. 11 - chased an equity in the property to the extent of the stock issue or $15,500.00. This position is, I believe, equitable, though not technically or legally accurate. If acceptable to your board, the Service Co. will be entitled to a fair return on the value of the-stock issued for the original purchase and to credit for depreciation reserves against.a proportionate share in the property account of that portion of the water works built prior to 1956. For reasons hereinafter explained I have also elected to assign the entire amount of the original. purchase price to the waterworks account rather than prorate part of it to the sewer system. accounts. Ownership of Sewer systems After, a careful review of all known facts, evidence, and the opinion of the Minnesota .Supreme Court, it is my con - elusion that the Country Club District Service Co. has no claim whatsoever to any title or equity in the sewer systems, either sanitary or storm, in the Country Club District, and accordingly I have made no attempt to evaluate the sewer properties. The Service Co., during the period of seven years cap- italized expenditures to the extent of $246.08 for additions - 12 - to the sever systems of the district, which consisted, in part at least, of the personal Engineering Services of Mr. Gaarden. The Service Co.'should be reimbursed for this expenditure in consideration of a quit -claim deed on all sewer systems in the Country Club District. The surer system property accounts, and depreciation reserves presently reflected in fixed asset accounts of the company should be written off by a suitablo charge against the unearned capital surplus. Any apparent injustice in this position and procedure can be corrected by giving recognition to the full extent of actual investments by the Service Co* in consideration of the water works property account and the assignment of benefits thereof. It will make no practical difference whether the Country Club'District Service Co. is assigned the benefits from a reln tiVely large portion in the water works property account or. from a proportionately smaller portion in the combined property accounts. The first of these alternatives, however, is more nearly in accordance vith the.actual facts and with the inten- ti.ons of all parties at the time of alleged transfer by Thorpe Bros. to the Service-Co. Depreciation Rates Much time can be wasted by quibbling over detail de- preciation rates, whereas, in fact, there can be no scientifi- call y accurate rate determined in advance for ariy givebt .location. See Defendent's Exhibits• 57 & 57 -a - Appendix The rates used by Mr. Grsber and the rates subsequently used by Mr. Qaarden, although slightly higher than Graber's rates are both reasonable and consistent with accepted practice; however, the lower rates used by araber should not have been accopted to determine value and then raised for accounting; purposes to determine depreciation costs. Complete fairness demands consistency in the applica- tion of- depreciation rates once adopted. While various items comprising the complete water works system properly take different.rates of depreciation, a composite rate for the entire system can be adopted for purposes of this survey without materially affecting the end ,result. The average annual composite depreciation rate shown . by defendentls exhibit.66 up to March 1939 was 1.9 %. Depreciation charges actually written off and shown by the Audits. of the Service Co. books, as compared with the composite Water works property accounts are shown on Table 11 and average 2.012 %. For purposes of this appraisal and report I have assumed a composit depreciation rate on,the entire property of 2% per year. a 14 a TABLE I WATER WORKS PROPERTY ACCOUNT From Service Company's Book Depreciation Charges CompQsite Depreciation Rates- Prop. Account Average • Begin- n Average Char pre Rake r„ .1937 98,65 1093930.- 104,292 2,100.12 2.02% 38. 109,930 120,323 115,126 2x317.66 2.00 %. 39 -. 12.0023 140:P 124 13602231- ` 2, 626, QS 2.02y 40 1400124. 148,1j2 144,128 2,900:86 2.01% 41 148,132 149,549 148,840. 2,998.62 2.01 Average 2.012% Odd cents are dropped Rates calculated by.sliae rule - 15 - Because the Service Company has prev, jously adopted the straight-line depreciation theory, under which the original cost or value of a property is written off in equal, annual in- stallments over the assumed useful life of tiie. property, it is desirable to continue the property account as a separate item for purposes of calculating depreciation charges, independent of any'present. fair value" which may be determined for purposes of calculating a fair return. ...When a "fair value" is determined by your council the books of_aocounts of the.company should be adJusted to re- move from same any and all property -not owned by them and the. .balances remaining in the property account and depreciation.re- serves should be reconciled with'the determined "fair - present value" to avoid future complications in the interpretation of the books or audits of 'the- Congpduy accounts-. Graber Appraisalt: In order to establish property values when the books of account of the Service Co, were opened, Mr. Albert Grabor, Consulting Engineer of Minneapolis was retained by. the Servf.ce Co. to appraise the property to which the Service Company claimed title. This appraisal was presented during the later trial in 1940 and admitted in evidence as Plaintiff's Exhibits " W and 'IN". The exhibits purported to show the reproduction cost of the property, but in the opinion of the writer were based on - 16 - unit prices very much in excess of either the prices which actually prevailed-during the construction period or at the time of the appraisal. When the writer was asked by counsel to check these appraisal figures, he accepted, as accurate, the physical ins ventory.shown by the Oraber appraisal, but substituted unit prides taken from the -ac.tual'construation contracts secured from the office of Thorpe Bros, Co. The'iiiventory quantities were then extended at the actual construction prices to determine the true Historical Cost . ©f the construction work completed by Thorpe Bros, Co. prior to 1936. The resulting figures, together with the Graber figures, were presentee in court as Defendents Exhibit Ho. 60. Mr. Graber expressed the opinion that construction costs as of ,,Tan. let, 1937 were somewhat higher than.at the time of construction, whereas it was the opinion of the writer. that they would be very much the same or a trifle lower. To substantiate this position, Plaintiff's Exhibits 62,, 63, 64, 65, 66 and 67 were prepared. Exhibit 63 shows the relative yearly value of main items entering into the physical value of water works plants u r 17 . through the tabulation of the Lambert Water Works cost indeces for the years 1913 to 1937 inclusive. Exhibit ,62 applies the ratios of these cost index factors to actual construction costs and establishes the fact that reproduction costs based on 1936 'prices would actually have been approximately 11% Tess than the actual eosta,_instead of approximately 26% more, as shown by the Graber appral5a-l- In his testimony Mr. Graber stated that he had based his unit prices on the use of Class B cast iron pipe, although he admitted that a centrifugally cast pipe known as DeLavand pipe was used throughout the construction. This error alone accounted for some $3,200.00 of the excess valuation shown by the Graber appraisal. Calculations to substantiate this poet were detailed on,exhibit 67• Copies of the above mentioned defendents exhibits are reproduced for convenient reference in the appendix of this report. Depreciation rates used by Mr. Graber were accepted by the writer as.being reasonably consistent with accepted practice, for the determination of depreciated values as of January 1st, 1937, and shown by the above mentioned Exhibitt�. Pair Return The fair return which a utility should earn should be such as to cover all operating expenses, plus suitable appropriations to depreciation reserves, plus a reasonable net return ®r interest allowance on the investment or fair value of the property omployed. It becomes obvious that .a fair return is a flexible and variable amount, changing from time to time and depending upon many factors. For example in. Wilcox v. Consolidated (has. Co. 212 Q,S..190 the Supreme Court of the United States declared; "There is no particular rate of- compensation which - must in all cases and in all parts of the country be re- Barded as sufficient for capital invested in business en- terprises. Such compensation must depend greatly IkDon circumstances and locality, among other things, the amount of risk in the business is a' most important factor., as well as the locality Vhere the 'business is conducted and the. rate expected and usually realized there upon investments of a somewhat similar nature -with regard to the risk attending them, There may be.other matters which In some cases might al$o_be Properly taken into account Inn.determining the rate which an investor might properly expect or hope to receive and which he would be entitled to without legislative inter- ference. The less risk, the less right to any unusual re- turns- upon-the investments. One who invests his money in a business of a somewhat hazardous character Is very properly held to have the right to a larger return without legisla- tive interference., than can be obtained from -an investment in Government bonds or other perfectly safe security." The Supreme Court of Iowa in Cedar Rapids Gas Light Company v. City of Cedar Rapids, 144 Iowa 426, at 45o has hells "When Government bonds bearing two percent annual interest are selling at a premium, and those issued by state or municipalities at little if any more than double such rate are in demand, and when the current rate of interest on ' ilt ed et securities on real es a e or u c eery ce corporations rarely exceeds ve percen will not do er the -courts to say that the Income, above all expenses, including taxes, on promerty devoted to the Public service, must necessarily much exceed the last - mentioned rate to - 19 - avoid the charge of being'confiscatory. What such plants usually earn, unless they be based on reasonable charges, cannot be accepted as a criterion, for usually the rates fixed are all the tariff will bear. Possibly the plant . should earn.a return equal to the interest paid in the comm mith on investments equally permanent in character, but What this was is not disclosed by the record." (italics oura.) Ordinarily, in determining rates, one determines what is a fair and reasonable return in the light of ,the above decisions, and is particularly watchful to inquire whether such a return is confiscatory or not. (b) Factors Afiec ipg Rate of Return All the factors mentioned in the above decisions as affecting the rate of return, must be considered individually in determining the Fair Return* In current yields on securities, it Is interesting to note that the average yield of utility bonds dropped from 7.3% in 19a to 3.01% in 1940, while- the yield on utility preferred stocks has dropped from 7.54% in 1921 to,4.49% in 1940. This V48 pointed out by the Supreme Court of I113- nois In the recent decision of Peoples Chas Light & Coke-Company, v, Slattery; 373 Ill.. 31, 68, 69, where the Court declaredt "It appears that in 1936 tho yield of the highest .grade public - utility bonds was between three-percent and three and one -half percent.. and that between 1934 and 1936, first class public utilities were enabled to borrow upon their bonds money at from three and one- fourth percent to four and one - fourth percent, and that the average yield on the best bonds of railroads and industries, during 1936 I and 1937, ranged from three and one- fourth percent to four and one -half percent. It was also shown that State bonds and high grade City bonds were sold to yield anVhere from . one and one - fourth percent to two and one -half percent. It also appears in the record that the company borrowed sever €.I million dollars for refunding purposes at four per - cent. The fair rate of return is to be tested primarily b prescnt day conditions. (Un{ ted Railyayw�Co. V. Nest 2 0 U.S...234, 74 L. ed. 390.) It seems reasonably a ear that In vier . of prdoexat economic conditions,* of which we take judicial notice (Los Angeles Gas-& Elect. Corp. v. Railroad Comm., supra is te company would have great c y s rung five percent upon the money it has invested.in its ut1lity enterprise, in securities which would be as sound and as certain to return a like percentage," That taus present downward trend of interest rates still prevails is demonstrated by the fact that the present market rate on four to six monthsl grime commercial paper Its around 1/2 to 5/8 of 1% compered with rates ,of 4 . to 6-1/4 %% which prevailed in the 192018. Call loans have a renewal rate of 1% compared with rates of 3 -1/3 to 9% in the latter half of the 1920's. Average yields on long term United States Treasury bond's are about 2 -1/4% compared to 3-1/3 to 5% In the 19201s.. High -grade municipal bonds have an average yield o €. 2 -1/2% compared.to 4 to 5% during the 19201s. Public utility bond averages show very marked reductions from levels that prevailed.10 to 15 Fears ago. Iii recent yesra, water company financing has been largely dome by.private companies at interest. rates from 3 -1/2 to 4 -1/2 %. Risk - Obviously, the element of risk is very low in. the cave of a publie.vater works,system 9,n.a community of the 21 caliber of the Country Club District and adjoining - sections of the Village of taiga. Conclusions on Rate of Return The relatively small size of the property undoubtedly warrants a greater rate -of return than the present prevailing interest rates and other factors would seem to warrant. Under all circumstances it appears that a return of 5 -1/2% to 6% of the present fair value of the ,property would be-a fair and reasotable 9ie.1d'on- the water works property in the Village of Edina. In fact it is improbable that, all factors considered, a.rate of return higher than 6%.could be justified. For purposes oP determining the adequacy of exist- ing rates for past.9ears, I.have assumed a 6% return on the actual average.anaual investment, and for determining new, rate schedules a 6% return on the present fair value of the .. property. As fair and proper. Assignment of Benefits For purposes of determing the fair value of the water works properties built prior to 1936 and proportioning the benefits therefrom .I have accepted the actual cost figures less depreciation: as shown on Exhibit 60 and explained above_. as most equitable representing the fair value of the - total water works property as of January lst, 1937, at`vhich time 22 it was placed on the -Company books. Table Number 11 .haft been prepared from Exhibit 60. This shove a total.cost prior to 1936 of $62,768.09 and a depreciated value as of January let, 1937 of $500897.21. The nominal purchase. priee paid in stOCk to Thorpe Bros. Co. was $15„300,00, Dividlzg 15000.00 by $510000.00, ve arrive at a fig we of 30%. For the purpos® of assigning the benefits From a portion-of the property account for computing fair d.®preaia- tion credits due.the Service Co., I have added the $3000,00 for real estate to the ` coratructiom cost and have credited their property account with 30% of $65.768.094 or $19,730.50- Tho remainder,' :or $46,037,59-will-be referred to as tile. Village $ s portion of the initial property account, The .net investment ' account by the Service to. is credited with -$15,300 -as of ?'ovember 1935 and January let, 1936• Tho above figures take no account of . grater work improvements made in 1928 by the Village, Which were financed. - by special.assessmentand-to which the Service Company has. r~ made no claim to ownership. TABS R0. II RECAPITMATION OF CORSTRUCTIOR YORK BUILT PRIOR TO.2936 FROM DE AERTS MMIAXT #60 Cost Less Depreciation depreciation Actual depreciation Depreciation Service Co. ..Village Ooh:: to tan.1,1937 Taken. Portion* . Portion 1924 Cons t. 310977-87 24,823-54- *192 " 2gt156.1 24,492-18 1926 " 705.03 .611.36 1928 It662.00 1,485.82 *AdJustmant "' 615 .£9 Total 024 . 710140 09 11,8n. 92 8.310.34 Investment bIF C .COX ' S.. Co 15 300 Portion. of Benerito ; . 3. 300 s 3 assigned to Service Co, 511 Portion of Benefits _ 7 assigned to Village . *Ad juatment , for 8" main built 1n 1924 by Sanitor .Conatruetion Co. -w Sae r'ahibi.t 60 w 24 - DcveLa2menthe Pr- gperty Since January lst, 1936 all extensions and improve- ments to the water works oyatem in the Village of Edizia have been made by the ServiOle Co. with the oxception, of eQrtal;n extensions made in 1941 and financed by special assessments against the property benefited. improvements made each year by the Service co. Have been added to the property account at cost as shown by company audits, together with an allowance for engineering services at a rate of 6% of the construction costs. in some imatAnepn Ong- .neering services had been previously capitalised at approx- imately 4% of cost and in suchcases an adjustment for the d.if- .ference between-4% and 6<p is made. Retirements of property taken from service are d ®- ducted from the property account at undepreciated balances and Prorated against the portions assigned to the service Co, and the V411age. To determine the net' investment by the Service Co. from year to year, contributions made by customers "in aid of construction" and the'. daprediation charges actually written .oft by the company Vere deducted. From the above the average anriva,l Values of the pro- perty account and'net total Investment were determined and the IJ fair .depreciation ehargeable to the as well as the fair return on their calculatod. The-development of 'these shown In Table No. III, Which also investments in portions assigned to Service Company's portion$ actual net investment, Vere accounts year by year is ahovs the development of the Village. �1 TABLE III ANALYSIS OF PRDPMM ACCOMT & CAPITAL ITT DEPRMIATIOIN CHARGES & FAIR REFURN 1. 2. 3. 4. 5. 6. 7. 8. Average Average Depreciation Fair Re- Property Valuation Investment Allowance turn @ 6% Account ' Property Depreciation Net Addition Total Net for 2V 6% on Cumulative. Account Charges to Property Investment Year 2% on Col A Col_ 6 Prior By cost to Thorpes $62,768.09 to 1936 000.00 5'7 .09 Lose portion ass=igned to' Village 46,037.59 19,730.50 1935 Original investment W..300.00 1936 Additions 16,488.96 $ 1,416.o7(1) 15,072.89 $22,836.44 1,37o.18 $27,974.98 30,372.89 559.49 36,219.46 Additions 11,275.89 Engineering allow. 676..55 2,100.12 9,420.32 35,083.05 2,1o4.98 Retirements 432.00(2) 41,979.68 39,793.21 839.59 47,739.90 1938 Additions 10,483.64 Rag'r.allow.(3) 176.25 2,317.66 8,252.23 42x792.87 2,567.57 Retirements -00 Contributions 53,o24.84 20252.91 45,792.53 1,060.49 58,30x.79 1939 Additions 19,800.76 - Eng'r. allow (3) 426.47 2,626.08 17,601.15 5o,003.o6 3,000.18 Contributions `.�.' 68,423.40 9,180.09 54,213.59 1,368.47 78,537.02 1940 Additions 8,007.83 EngIr. Allow. 480.47 2,900.86 5,587.4+ 56,882.31 3,412.94 Contributions - 250.00 .82,781.17 59051.03 1,655.62 87,025.32 71J 1941 Additions . Tag'r. Allowance Contributions 1942 Additions Eig'r. Allowance Contributions 1943 Additions nag'-r. Allowance Contributions 88, 574.51 88,596#27 $20,523.65 +i+ 01# 1] Adjustment for depreciation on land included -30% of $60 per year for 7 years. NET DEMMIATIOH CHARGES A=WABLE Depreciation prior to 1937 on portion assigned to Service Co. 48,740.59 Present value By Cost Less Depreciation of portion assigned to Service Co. (1) From Defendent's Exhibits $74 Depreciation taken by Appraisal (2) A portion of 50th, St . main having undepreciated balance of $1,040.00 and the motor box and connection with Minneapolis mains With undepreciated balance of $400.00 were discontinued. - V% of total charged to Company's.equity in pro- perty account - 70% to 'Village equity. (3) Engineering allowance of 6$ on additions less amounts previously capitalized 1,771.49 $10,781.49 $22,121.08 126.00 $1-01655. 9 $1 ,217.07 74-079-20 TABLE III - Continued ANALYSIS OF PROPERTY ACCOUNT & CAPITAL M1VFSTMW DPPRMIATION CHARGES & FAIR RFC W 1, 2. 3 5• Average 6. Average 7. Depreciation Allowance 8. Fair Re- turn @ 6$ Property Account Valuation Property Depreciation Not Addition Total Net, Investment for 2% - 6% o Cumulative Aocouat Charges to Property Inver -_ stmenon yJ on Cola Coles 1,417.66 85.06 p�� $ 2,998.62 1,`4'95.90 .$57,306.31 $3,438.38 2,993.53 -� $87,776.68 $55,061,60 $ 1,755.53 88,528.04 23.32 1.40 3,oBl.55 3,056'83 53,470.68 3,208.24 125.0 88,540.40. 51,879.77 .1,770.81 88;552.76 41.05 2.46 3,082.69 3,039.18 50010.18 3,01$.61 88, 574.51 88,596#27 $20,523.65 +i+ 01# 1] Adjustment for depreciation on land included -30% of $60 per year for 7 years. NET DEMMIATIOH CHARGES A=WABLE Depreciation prior to 1937 on portion assigned to Service Co. 48,740.59 Present value By Cost Less Depreciation of portion assigned to Service Co. (1) From Defendent's Exhibits $74 Depreciation taken by Appraisal (2) A portion of 50th, St . main having undepreciated balance of $1,040.00 and the motor box and connection with Minneapolis mains With undepreciated balance of $400.00 were discontinued. - V% of total charged to Company's.equity in pro- perty account - 70% to 'Village equity. (3) Engineering allowance of 6$ on additions less amounts previously capitalized 1,771.49 $10,781.49 $22,121.08 126.00 $1-01655. 9 $1 ,217.07 74-079-20 - TABLE III - Continued ADJUSTMENTS - VILLAGE PORTION IN PROPERTY ACCOUNT AS OF JANUARY 1st, 1944 (4) Construction by Special Assessment financing. f Fair Dep. Allow. at 2/du X6,304.27 252.16 1,585.84 By 310.34 V16 0 5.. 294.00 58.6 Property A e Original Cost of', $469037.59 Dep. Subsequent to 1937 Construction prior to 1936 - Assigned to Village Less B�tirements 1,003.00 l X45,029.59 (4) Plus - Const. 1928 ..788.45 Dep. Village Equity, (4) Plus - Const. 1041 26.,930.72 Prior to 1937 8• 16,153.61 Adj. for Dep. on Land Present Value by Cost 4M,W0.15 Less Depreciation of Portion assigned to Village PRESENT VALUE TOTAL PROPERTY As of January 1st, 1944.0130,969.35 By Cost less Depreciation (4) Construction by Special Assessment financing. f Fair Dep. Allow. at 2/du X6,304.27 252.16 1,585.84 By 310.34 V16 0 5.. 294.00 58.6 The devel0PMeAt of the historical cost as above described i& summary zed ih' Colo 1 of Table Not TV, and is shown to amount to $161, 345. a'-. The fair present value of the entire eater vorks system as determined From historioal cost Is shoyn on Table X1r to.amount to A)©,969.35 Of this last amount, the present value of the Servioe Gompanyr s ' portion :could be T4079.20 Basis of Raproduetion lCost Rat. ate' , Reproduction as of today is, of course, vholly Impossible because of the war program and the Freezing of all materials for such construction outside of atrictly defense areas. siaae. the United States entered the war there has been no material amount of grater vorke con,struetlon 'on vhich, to base costs or construct accurate cost in$ices for the years 1942 and A94, Although the 'Lambert. Index of Water Vor]ks construe - t oar costa for the year 1941 is available it vas Unquestionably influenoed, at least during the latter, months of the year, by the fact that ve uare at that . time rapidly. ap�roachiz:g a state - 28 - of mars and that metals of all kinds were becoming sca;+ce. ,Although it is a matter of recognized principle that a Utility Company .1,e entitled to bonef1t fairly from appreciated values as shown by repruauction costa, and that- for this reaeon reconstruction cost must be considered in determining the fain present .value of a property, I do not believe that any regulatory body or court would permit a utility to profit unduly because of var time inflation of that cost. in order to discount the inflationary war influence in a Manner that I believe equitable, I have cb,osen the year 1940 as most nearly representing conditions for the calcula- tion of- fair reproduction costs.. Be ause actual costs of each year I s constructlon . work are )mown it to not IT@mssary that a.- oompletely now in- ventory and appraisal based on imaginative unit prices be re- sorted to in order. to determine the reproduction cost of the property. Ile can arrive at much more accurate and equitable reproduction cost estintes by applying suitable factors repr -e- senting-the ratio"betveen cost index figures for the year of actual construction and the year of reproduction. =For this pUrpoge the index figures of the umiver- Sally recognized "Lambert Cost Index for Water Works Plants" 1 - 29 M heva.been applied. Table IV shows the cost index figt&afor eacki you r and the ratio between the 1.ndox figure for each of -,ho several years and the yy ear 1940. Actual costs were Multiplied by this ra.t10 to deter- mine reproduction, costs of each year's construction work as of 1940. A substantial saving .from the resulting .total figure ,would undoubtedly be affeeted by. reconstructing the entire pro perty at one time due 'to - savings in- engii eering works moving of equipment, and other contractors' overhead expense. An allowance_of approximately.5 %.is made to recognize this factor of savings. It is unquestionably.on the conservative side. This savings is weig'ated In the determination of "present value by- reeonstruction.cost ". in the same ratio as the totals bear to each other without consideration of this factor. 'To determine present value on ao reproduction cost basis the cost so determined was Depreciated at.,the rate (if 2% per year of service, 1923. 24 26 28 1936 8 39 40 41 42 43 1928 1941 Construction Less Ratiremnta by years TABLE IV REMDUCTIOH COST OF WAM WOMB cost 3i :977.87 28,4'23 -Y9 705.03 1,662.00 3,000.00 .16,488.96 *10,512.44 10,569.89 24,227.23 8,488.30 1,502.72 24.72 . Const. by Village 788.45 costt. by village 26A930-72 Less Adj. 161,045-03 Less probable savings dale to reconstruction of the entire property Lambert Repro- Value Cost Rep.Coat duation Dep. to as of Index ffitia cost Jan. l, 1.944 dan.101944 198.6 98.2 31,400.00 13,200.00 18,200.00 200.8- 97.0 .271.600.00 11,040.00. 16560.00 188.8 103.2 728.00 264.00 464.00 171.7 113.5 1,890.00 605.00 1,285-00 A,50.00 100 , 3000.00 None 3,000.00 178.0 109.6 18,100.00, 2,900.00 15,200.00 795.5 99.9 10,500.06 1,480.00 9,020.00 193.8 101.0 100650.00 1,275.00 9075.00 189.8 102.9 20AW -00 2,040.00 189360.00 195.2 100.0 604M00- 680.00 7,808.00 98.0 1,470.00 Moo 1,382.00 .199.1 25,00 1.00 24.00 -- 4 .00 1.00 42.00 134,9294-00 33,57 -o0 100,720.00 171,7 900,00 288.00 612.00 199.1 26,400.00 10584.00_ 24_,816.00 61,59 .00 35,,446-00 126.-148-00 C.C.D.S.Co. village Portion -Portion 10-,97 3.00 25,536.00 900.00 .2,100.00 . 15,200.00 9,020.00 9,375:00 Y8j360.00 7ACOO 1,382.00 24.00 42.00 612.00 at one tim® Approx. 5¢ 89080.00 6,307.00 3,654.00 2,653.vo 153,514.00 119, 1.00 69,0430.00 50,411.00 153,500.00 Calculations of ratios and reproduction costs are by elide -Tale for the realm that the resulting figure is well within the limits of e=w oy of the Index. figures used or of any estimate based upon tho imaginative factors that must enter into a reproduction cost estimate. e Less adjustments and retirements not otherwise charged. Reproduction Coat The reproduction cost of the entire property deter- mined as described above would be 153,500.00 and the present value of thy► property based alone on reproduction cost lose depreciation Would be $119,841.00. Of this last amount, - The present value of the Service Company's portion Would be 69o430.00 Contributions in .Aid of Construction It is of course simple equity, accepted by Courts and Com lesions. alike, that a' utility Company Is not entitled to a return on money Which has beezi provided by customers without consideration in the form'of stocks, bonds or other similar obligations, but merely as .an "aid in construction" of addi- tions or extension* to the property, which otherwise would not yield an adequate return on the investment required by the 'Utility, Accordingly, it is necessary to deduct any such con- tributions from the present physical values as determined by Historical Cost or Reproduction Cost to arrive at the present Pali value for rate making purposes. .In aceeptiz43 .this type of aid,, hoxever, and creat1mg the extension, the Utility assumes the responsibility to nacin- tain and replace, if ueoessary, the property built with such "1' funds. For this reason "Contributions in aid of construction" * 32 ., are not properly deductible from the property account for the purpose of cozputino fa±r.and proper.d.epreclation reserves., Tho Country Club District Service Company has re- ceived a total of . e114, 901. J0? - hrougb ra :ach "Contributions in aid of Construction." . Financial History In addition to the " 'Ristorical, Cost". and the Repro- duction Cost" of a utility property,. the Courts have'sai,d that consideration r=t be riven to th6 "Financial History" oaf the company i:2 arrivinc at a "Fair rresent Value" For rate making purposes. The history of t►be Country Club District Service Company has shown that .the .in- itial, finaneinp. was' accomplished thru the issuance of ,'138300.00 par value of preferred. stocks. The Company next olaU ed title to the entire water works and sewer eyatems in the Country Club District and, thru the medium of the 0raber appraisal, opened its fixed asset on property accounts. As of January let, 1037, at a total of approxi tely s'182*000.00 of which :; '98j,654.20 was charged to the Wator Works Division and 483;356.39 to the Sewer Division, Not only was property belonging, to the vill.a�s or the 14t g*nera therein thus placed on the Company books j but the value of the property was inflated by approximately 26% over the original. costa. - 33 . This inflated value ban been the basis over sines -for exe.essivo charges to.deprociation reserves and has resulted, in a years' tiMe, In: excessivp depreciation charges amounting to a, total', of. 49,868.16, as compared -v:Lth a fair allovanoe for do- preciation computed against a pro -rated portion of a .property account based on actual costs, as hereinbefore explained, A mortgage in the amount of 420,000.00 van placed on the property in 1937 in favor of the dt. Paul Fire & Marine Insurance Ca., of Ch 413,000.00 reU.ins unpaid as of Decem- be 31st,, 1943... - . '"Contributions in aid of construction" have been made as previously stated, by customers desirous of securing ear- vloe, to the extent of 4140901.00. Several extensions to serve nevIy platted property have been financed by means of advances by customers or realtore, which are repayable from revenue in an. agreed ratio of 50% of the service billings against the property served by extensions so financed. Vnder certain conditions a• portion of these ad- vances nag', after ten years, become, "oontributions in aid of- eon$ true tion." The balance of such unpaid advances as of. December let, 1943, vas $9,3720339 Table V presents a Comparison of actual earnings of the property and fair returns.- ..; ; Column l lists the operating profit from the Wator Works Division as show by, aompahy statements before income taxes. 34 .h Column 2 hats interest charges, and mortgage ea- penae. Column 3 shove legal. Openses Incident to the 1940 trial"vach were inoluded in statement as operating- 0asts,� but which aro,not properly a12ovable in computing a fair re- turn. Cojumn 4' shows the actual depreciation taken or charged off each year as shovn.by audits and statements. Oolumn 5 is the total of columns 1, 2, & 4, and represents the gross prorit`before, interest, depreciation. and income taxes Oolumn 6 mists the allovable- fair depreciation allow- ance based on 2% .0 the" average .tsalsnce of the propertq se count. (see Table 111 )4 Ooluron.?,shovs allowable fair return based on. 6% of the average investment for each year - (see Table in) Column 8 is the total allovablo fair return before .interest, depreciation or.inoome taxes - column 6 plus column 7. Column 9, the final column shows the total 810068 of returns received by the company over proper and Fair returns column 5 minus eblum 8. It is thus seen that in the period of eight years a total gross profit of 454, 489, 24 has been taken from the pro. party of xhSch $21,812.67 has been exaesslve. V. CCWARIM_0?_ ACTUAL X49NIMS -0 PROMM AIM 7AIR fdam AdJ=tment for DepvOiatim m Lend 126.00 $101655.49 (1) Fran Dofenbat I a Zxb1LSt #74• 126.00 1,26.00 *32,786•57 *21,812.67 PIMIT ZCMM AIM M. M r+yT/IIX�CZff+4� O ��Y��.�Tp 7AM SM. FA�aytri�S�,�A1 �iapQ.L.Q mm TAM MAL Z . (WARtiil�( �y�7�� ' d� �tA��!' 17iM.�J�I iY�ii�1/Rlfq{�I6 .r 3936 3A36.*90 (1) i,�1 oT k,�•97 $ 5`59.49 1,370.18 1,928.67 2,923.30 1937 3,463.00 1,591.87 2AIM.12 7,354.99 839.59 2,104,96 2,944.57 h1210. 2 1938 4522.62 1,o97.18 2,317.66 Is 933A7.46 1,060.49 2,567.,547 36W.to66 I, 3o�9.�40 1939 004.61 1,E?20.1k 2, .08 6,650.83 r..1 �.4 . 2,000.18 �.65 �.3VL "..'. 8 dab Total $11,W.13 $3,709.19 $ 8,459.93 $23,- 596.25:. 3,828.Ok $ 9,042.93 W08TO.95 $34� •30 19h0 2,92.71 1,129.55 2,800,86 f�9�j$.12 1,655.62 3, 12.94 5,068.56 10889.56 1941 1942 6,13 .29 1,072.94 1,0 7.80 952.23 1,5 4.00 2,�98.b2 3,081.55 14 210.71 6,606.72 1,755 -53 1,770.81 3l 3a•36 30208.24 5,193.91 5,016.80 4,979.05 4627.67 19 "3 `-• .•35, 082. ...... ._.7u -4+ _18772-0 3.oiB.6i , 4AM.10 2 Total, 068 .Q ;j2a& 23, `,. IMA063.2 tPM.:Q2 6 { B.3 O O • .62 10 861. ,U $22, A.24 47,641.04 44,214.35 ",523•65 4,489.24 $100781.49 S121.08. 332,902.57 *n,686.67 AdJ=tment for DepvOiatim m Lend 126.00 $101655.49 (1) Fran Dofenbat I a Zxb1LSt #74• 126.00 1,26.00 *32,786•57 *21,812.67 35 Table V1 lists the salaries paid by.the company to Mr. C,aarde3n !a each of the several years and the diatribe #ion . of eame between the-Water Works and Sever Divisions. The salary paid in the early years was quite moderate .and the present salary is not. large by ordinary staAdardal It could not be eritiolzed it the growth of the company war-. . ranted the inerease.' However.. it will be seen from Table VI-that the coat, has been Increased quite .radically when considered in its re- lation to the number of meters served. It.VoUl4L also seem that the increasve in 1941 and 1942 were hardly warranted in vier of the discontinuance of the Sewer System operation by they Service Oompany,, and of tho part- .,time nature , of -tbe management's s employment. When it is `realized that the maximum average investment the'Service Company has had in the waterworks property during any erne year (vas $57006.31 and that the present investment is $48t740,59; see Table III both afte3r . giving .full credit for the initial issue of $15,300.00 of preferred stock) it te.appar-- eat that the 06ustry Club Distriot Service 00. per se has never had any siubstantial, investment in the property. 'of the present net total lmvestment amounting to $48,740.59 Meters S&IAZ7 lu per service motor 4a 3.4 546 3.0 2.78 6w .2.3D 832 2052 990 3,33 SALARM PAID BY GQURY CM :bM= 0T SCE COIeANY T4 OSCAR Charged `8e� Total to to ?ear NEX Beer ► Water Work 1936 � $ � 772D. x937 3� = ' �� 300- 304. r� 1575+ 1939 1940 DO. . 1941 • AAA 3m. m. 3 , .. Total W,324.00 *1,540.40 $14,824.04 Meters S&IAZ7 lu per service motor 4a 3.4 546 3.0 2.78 6w .2.3D 832 2052 990 3,33 y � y Excessive rues have produced 21,812.67 The mortgage balance is 13,000.00 Advances from Realtors produced 907203 Capitalization of Engineering Services produced 3,000.00 Profit from operation of Sever System produced 21500.00 49,685.00 In vier of the fact that the expansion of the mater Works properties has been largely financed thru contributions, and advances by the customers of the Utility Co., and thru the reinvestment.of excessive depreciation reserves created against property actually belonging to its customers, it would seem entirely proper to gave more than usual weight to the financial history of this company in determining what constitutes the fair present value of the property as a base for future earnings and rates, In my opinion it would not,be unreasonable to deduct from the present investment, the amount of excessive earnings and depreciation over and above what might normally be called fair.allowances to determine- a present value based on financial history, or; in other words, the actual cost of the property to the Company. This calculation would show a cost as of December 31st 1943 of 26,927.92 T ARALYM CF MM zARxniGs — SIM nIi'! . It Overatim Deprocltic a tope Lis Tam I�e�s�edion 1936 *37 '712.39 938 . 1',6'737• #i2 „ 1939 6 1.67 Sub o.'+�f.a3,9•- 5,.012,50 41:x.69. 1940 679,M 1,672.45 39 11633.09 4672.05 1942 1,6 74.05. 1,672 -05 943 1 £► 2,0 1*6 2. - o 6W-21 6 6BB.2o ,1 GmA Total , ,' 76.88 $ 11,700-70 ►2,9P.3. Lees bud Debts v9ritt n off in 1943 _.._ �} •' . - 37 operation-of-sewer S stemis The storm and sanitary sewer systems within thO Country Club District area were operated by the Service,'Comp&nY from 1936 to'1441, and a service oharge> to oover costs of operation was collected quarterly from all residents. This service charge was discontinued as of January Ys t, 1941., 1'3 a"ee:, ant with the viijape in order to avold conflict wit):: bills rendered by the villa ,e; in connoeti.on with the Ve3tropolitan Sewer Distr1ot charges. The operatinC accounts of the Service Company, as shorn by the several audits and statements, reflect a, cumul4tive loge amounting to ap .)roximatsly .8,776,88 over they period 1937 -43 inclusive. This 1088, however, is after depreclati0h a), rf,, in the amount of Mill,700 *70a so there was in fact a nest .profit of "2*496.05 due to then operation of the sewer syStem. From the standpoint of th© coraAne :d operating statements and for purposes of ostablishl'.n,� income tax liability,, e� profit in the full a« aunt of the charges to depreciation reserves or ,'11*700.70 has been submerged. in addition to the above the sewer system operating accounts have been charged with a portion of ur. Caardenfs salary to the eatsnt of 015000000 which of itself is fairly generous compensa- tion for the five years' supervision of opOratians and r;,Aintenazice of the relativeyg small syst6r. involved. .. 38 .. Rate MrAdjustments `& Rebates - As has been heretofore pointed out,, 'in the discussion of principles* of Rate b1akjzg,, "it is entirely proper and in order, where rues have been found excessive and an ad jubtment of such rates has boon- delayed thru court action, to establish new rues eff$ctive as - of srome earlier date - in order to prevent the utility From profiting uafairly,as a result of delays in court. In the prosent.case, the title to'the property was dis- puted' during the year 1938 by a letter frog l4r..Earl Sharpe9 then President of the Village, addressed to the Service 0ampany. However, tie issues was not formally pressed until shortly before the trial, previously referred tot opened in January 1940, Table V:Etj shove the actual water sales for each year from 193E to 19.43 inclusive, together.with the ezoessive.earn:inge for each of said years and'.the percentage that such excessive earnings. bear to the years' sales, It 'will .be goon that the excess has varied from a little less` than 9% Was much..as 34.4% with an average of 18.3% for the entire period. Based on the last four gears the average excess earnings have been 1:5.1% of the.gross billings. It is'obvious therefore that a substantial reduction in Pates cyan,and should be made. It is not Practical to adjust a rate schedule to a point that vill produce exactly the Desired yield is dollarsr.and cents for the reason that all F� TABLE 'VIII ANALYSES OF EXCESS $ARRINGS & WATER 1DEPARTINT BALES ' Water Excessive sales FA=14ga Excess 1536: $11,2 ©6.16 $ 2,923.30 26.2 193' .12,24.88 4,210.42 X4.4 lg 11,15 .04 1 .,309.4v 11.7 1339 3.3,276.10 2� 8 7w1$ 18. Sub-Totals 7: $85 .18 $10..825-30 22.2 1940 $15,32 A.34 $ 1,.889.56 12e 3 1.941. 20, 022.89 5,016. €30 2 0 1942 18,238.71 ,627.6 8.9 1943 18,169.34 12,8 Sub - Totals $71,755.28 10,861.37 15.1 Grand Totals $lig,60.46 * 126.00 21, 812.67 18.3% Adjustment for Dep. ;Real Estate contingaiia ,es cannot be foresoon and for the further reason that rate reductions almost invariably result i.n increased consumption* While theze factors tend to offset one another it is reasonable .that some r::argin of safety should rer-ain in the rate structure. A r ®dust can of approximately 12j% would provide this margin and at the semo time seer,± to be entirely justified by the record. Such a reduction waa tentatively tries: and found to permit a rate of sl iC_htly less than 15� per 1003 cu, ft. gross. The 18¢ figure Would rGault in a decrease o.` 12j% and a continuance of the present 10% cash discount would result in a net rate of 13,iV per 100 cu. ft. If such rates are adopted and rode retroactivv.to Jan- uaryr lot, 1940, and .the oompany is required to rebate over - charges since that date to its oons;zmorb, a refund of 121% Of the total billings for the four .year period amounting to X71075 ;,28 would result. This won-ld amount to approxinately =W81750.00. Adjustmen,.Deprooiration Reserves The above refund would be cubatantially less than the total of .the exa.ess earnings during the period since the issue of ownership eras. joined in the Courts. Ina=ueh as the company has durinC this tire received.the benefits of the depreciation on reserves charged against the Village +s position of the Water -4o- Forks System, it would also be 'entirely proper to-ask that the Service Company sake at leant partial restitution of these funds to the Village to be held.in its ovn Depreciation Re- serve account. It is suggested that an equitable basis for such .a refund or adjustment would be the depreciation accrued during the past four gears on the Village portion of the original water 'works plant built prior to 1936. This,would amount to 4 2% of $46,038.00 or 3,683.07 Investment after Refunds Assuming that a rate schedule as above described and retroactive January lst, 1940, is adopted and that refunds for overcharges and to adjust charges for depreciation of the Village's portion of the property are made by the Service Company, their set total'investme.nt in the property would be increased by the total amount of such refunds'or approximately $129433.07. o The net total of the company's investment, exclusive of excessive earnings and depreciation charges, and after mak- ing suggested refunds would thus become $39,360.99 Determination,of Fair Present Value The rate reductions tentatively suggested above -can of course not be adopted by the Village Council unless the proposed v - 41 - �f new rates will field a fair return on the fair present value of the property, we must therefore reach .a conclusion as to what is a fair present value in order to check to reasonable- ness of the proposed rates. They have been tentatively su$- ge0ted in an unnatural order because of the effects of any aye troactive conditions on the net investment.by the Company which is an Important factor -in the determination of fair present value. We have nov arrived at three different figures, each of which represents the present value'of the property from a different point of view. (a), By'Historical Cost 7+,379.20 (b) By feproduotion Cost 69,430.00 (c) The net investment of the Company as shown by study of its financial history, after rebates 39,364.99 From (a) and (b) it may be concluded that a fair physical value of the Company's..property is 720000.00 However, this - amount includes property built by "contributions in aid of con struction" made by consumers on which no return is permissable to the extent of 144 900.00 Balance - Value Physical 'Property 57,100.00 Included in the above balance there still remains approx- imatel9 $9,379.60, representing excessive earnings aid depre- ciation charges accrued against Village property Which would not be'refundedi there still remains full recognition of the preferred stock issued ror a doubtful consideration; and 'there romaaina $9,372.33 advanced by customers and realtors, at least part of which 'is apt to revert . to the category of "oontribu- tions." Another and final factor which must be considered in a final determination of a fair present value is the need of a reasonable amount, of working c Apital: There should be included in thle item an llowance for the company's investment in small tools and equipment, office furniture, and inventory accounts such es motors and supplies. Inasmuch as billings.for water service.are rendered monthly and the total operating cost of the property will seldom exceed $1,,000.00 per Month, the • heed for working capital for operations is not large. A btuiy of .the tevergl audi.ta with respect to operating costs and -inventory accounts indicates that an allow- ance for thic purpose need not exceed $4,000.00. After carefully 'considering all the data outlined in thi.e report and particularly that su mmarized under this heading "Determination of Fair Present' .Values," It is my opinion that the fair present value of the property for the purpose of computing of allowable net return should not exceed $50,000.00. i LA= IX 166 .68 94-30 im.63 ri a Mt xf # } } 2%.2$ $ 1W*00 3W.15 go 3A5.96 . 22. 5 STAI %.29 .9.51 2"It.00 .0,* 2498.00 My� 0 0 0 8 .77 36DAS 306,8 42-63 _03.3 2a 32 .,7 173-40 266.28 .31 =45•W- 2�g '26 . 1 2, ratuato for s t:r }f }i a ♦.} , f f f r 41.11 :# i f ..+ 3 3 r' r! ✓' ! ,_ i s t. iuthtw mss: 1 WOO 5W.00 5.00 $5,189.60 $5,568.64 $6,513.89 $8,320.80 $9,920.04 -$11,632.19 $11,051.40 $10,295.00 im M] 9"Inate for ". C.O. +70. $1329-25 3*. 541.2,5 a0 .00 34-77 1' ."� AQ.k 51- 1":64 33.0 a,. � f0 0.00. Moo M400 50.00 Q 23.00 ;0.00 23.31 44.w, 45.00 45T.10 223-751 -). MOD IP4).W 1674.0 - W.10 (2) 9 0.3L :1.00. 4.1.3 2.30 ] 2.21 a, , . WOO 5W.00 5.00 $5,189.60 $5,568.64 $6,513.89 $8,320.80 $9,920.04 -$11,632.19 $11,051.40 $10,295.00 im M] .. 43 - o aerat_in , hosts Table IX prosents a summary of oper:atinr, costs of the Water Works Division from 1937 to 1943 inclusive, The fi.rures given aro exclusive of elarros -f.or interest, depareciation, legal expense and financing csost. The last oolumn pronents an estimate of probs.bl operatin- 7 costs for 1944 and future years, based upon operat!on of the present Property to serves the-ex- isting customers. Operatin costs will of c€vilao vary as the prnperty and number of eustomera is licrav,�*id in the future, but, '.: '.e ratio of opera�tln; Costa to total «e �e?uea s= ould r, }�tne in favor of the Utility so t .at in Go'.YMl�aArr n, oj)f ratan;:, costs as a 'oasis for rate studies It is entirely fair and proper to base calcu- lations upon an average year's operattons under presently exir,ting conditions. The reasonableness of the operati:aN.- coat estimate shdwn in the last column was establiehed by careful study of Last years' costa, in relation to .extraordinary expenses, salarlaso tax Stems, etc ,, and the c'han,res in such items -which can be reasonably brp, ; :-ht about by tie manar-®rrent. It is unnecessary to go into detai I with respect to each item. I believe the estimate riven us on the conservative Ide and that cost dur- inF an average year should not exceed the a= of "A00300.00, VCdr. �jaardente own estimates of ogera.ting costs as pre- seated in his proposal of Juno, 19430 addressed to the City 5/12A3 ire Operating Revenue Faact rIc Pcaver Peep .Main.. & Supplies Main. of Lin" Water used Office Smiles & �. Sutra Mbar Miscellmeous Taxes Total Operating Cost 11al. Avallabls Bone Pitseao3=ag With 900 c nmMa rs gPment) het year $18,5M 422..000 $28,000 With I= conomm Fhttarl `Ar or $24MO WOW #37,,400 . Operat Msti�ttes f'r= PrOPaeal nade to VIII t M cov ncil Juwp 1943 by Mr. too �� .4-31AM $37,000 $47,000 X240 2700 31M #3000 $1400 3 $3 �39� X4500 250 275 350 350 375 450 0 450 550 1050 1100 1 200 1 4w 1 45G 1 4�0 1 750 1830 1900 300 350 475 4M 450 575 500 580 800 500 550 550 650 700 700 800 900 900 3 5w _ 1 600 .1800 1 500 1 600 1 800 L oco 2 2M 2 300 500 5w 540 600 600 600 Xw 800 800 0 0 0 0 0 0 0 0 0 6 500 7 075 7 875 7,900 8 575 9 375 9 IM 10 680 11 750 000 925 $20 125 $16 8M $M 750 $28. M 250 .$96 320 . $35 25O - 44 - Council have been carefully considered in arriving at the estimates shown in Table IX,, and they are reproduced herewith For convenience as Table X. Yield from New R &tes Having determined the coat of the physical Plant compris- ing the complete mater Works to have been .$161045.004 and that, the straight line theory of depreciation having hereto- fore been adopted, should be continued; any new rate schedule should yield sufficient money to establish suitable deprecia- tion reserves.against said cost. A composite depreciation charge of 2% per year will be'' ample for this purpose and will amount to approximately $3250.00 A six.(6) percent net annual return on a present flair value of $50,000.00 will amount to A proper allowance for operating expense need not exceed Any new rats schedule should therefore yield from present property and customers during an average $3000.00 $10,300.00 year approximately $16,550.00 Based on the average return per meter over the past four years, the rate previously suggested, namely 15¢ per 100 cu.,ft. less 10% discount for cash, will yield approximately $17,200.00 -45- See Table XI Mr. Gaa.rden's own estimate for an average. year based on 900 customers at present rates was $22,000. if reduced 12 as suggested, the yield as per his estimate would be approximately See Table :% $19,300.00 Alternative Rates It has been su gested that the Council might Nish to consider an alternative "step -rate" in order to affect a. re- duction in charges f6r abnormal use of water during seasons when heavy lawn s I believe the equitably accompli rate which makes an overhead expensea is required.. pose of such a "step -rate" can be more by means of a so called "two - part" tial service charge to cover fixed as meter' reading, billing, accounting, collections, supervision, in part, and similar items which dePend on the number of customers served rather than the amount of water consumed. Such a service charge would of course take the place of the present minimum charge which is only justified by the same type of expense as Yould be covered by the service charge. The second part of the rate schedule would then be a charge for water consumed which would of course vary with the amount used as shown by the usual meters. Aso =IM a grata or 15� Sms less M* as ompere& vith present ratinM, 17.10 lase 10%p a not reduatUn of 12 . v*U& result. AnmMa revenue booed on the V resout nvzlx r of meters would be: 904 t1moo 21.62 lose i* = $].7,200.00 Tbo avereae a=ml conmoption per motor, asmudM all bills dlsoouated, would be: 21.62 $ 14.0 ou,- ft. per motor per year 15.39 $21.62 less = .1,9.00 AesmIng m two part rate o mietlM of a service tthazW of 60O per nth per rooter, plua a vater charge of Par 100 alit. ft., "as 10%, the average a=al yialA per mater would bes Service Charge _ $7.20 14,CW cu. A. 0 91201,00 cui ft., lose 1 - $11.80 Total $19.00 904 times $19.00. = $17,176.00 .ids rule oal.oulatioas for an averages and extonAions, TABS %I. A=IMS AND E£TnUM OF OPERpii nG M'aE M `dater N mbor of Rovozue per E10108 Motors motor 1940 $15p324-34 666 +► 22.35 1941 23,022.89 832 24.20 1942 18,238.71 �95 20.40 1943 1$ 169. - 20.20 Totals $74755.28 3317 Avenge 21.62 Aso =IM a grata or 15� Sms less M* as ompere& vith present ratinM, 17.10 lase 10%p a not reduatUn of 12 . v*U& result. AnmMa revenue booed on the V resout nvzlx r of meters would be: 904 t1moo 21.62 lose i* = $].7,200.00 Tbo avereae a=ml conmoption per motor, asmudM all bills dlsoouated, would be: 21.62 $ 14.0 ou,- ft. per motor per year 15.39 $21.62 less = .1,9.00 AesmIng m two part rate o mietlM of a service tthazW of 60O per nth per rooter, plua a vater charge of Par 100 alit. ft., "as 10%, the average a=al yialA per mater would bes Service Charge _ $7.20 14,CW cu. A. 0 91201,00 cui ft., lose 1 - $11.80 Total $19.00 904 times $19.00. = $17,176.00 .ids rule oal.oulatioas for an averages and extonAions, - 46 - Such a two part rate can be balanced against the so- called normal or average consumption muoh.more accurately than, a step rate and has the advantage of making the charge for all water used substantially lower so that people feel more free to use the services generously. A Two Part Rate providing for (1) A service charge of 60¢ per meter per month - plus (2) A water charge of 9jo per 100 cu. ft. less 10% cash discount would yield a gross return substantially identical to-the rate Of 150 per 100 cu. ft. gross less 10% and would quite certainly result in increased-consumption and revenue which would make further reductions possible in the near future, Table XT summarizes calculations to demonstrate the above statement.. Proration of Dnreaiation Reserves Of the total original cost of used and useful Water Works property amounting to $161.045.03, the sum of $88,596,27 has been allocated as the service Company's portion of the total property account; and the sum of X72,748.76 as the Village's portion of the property account which forms the basis .for the calculation of annual charges for depreciation. `�' The rate o'chedules-as described above are adequate to -47- yield revenues sufficient to create a suitable depreciation reserve against the entire property, and the Service Company should be required to pay annually or in such installments as your Council may determine, a sum of money equal to the depreciation reserves'provided by rate structures against the Village's portion of the property. Based on present construction, this annual payment to the Village would amount to 2% of $72,748,76 or approximately $1.,455. 00 per year., Hydrant Rentals There has been a greet deal of discussion, both in and out of Court, on the subject of hydrant rentals. MY position today is the same as it was during the trial, to wit, that the Utility Company is, properly; only interested in securing a rate structure which will yield a Pair return on the present fair value of the property'whiah it devotes to the service of the public. The determination of details of that rate structure are by franchise the function of the Village Council, Hydrant Rentals are usually justified by a need or desire to transfer a part of the cost of operating a water works system to a general tax-, y _48, in communities Vhere certain sections have a large a:mourat of i.ndustrtal property vhi.ch require large mains and Fire pro"o tectioxx facilities out of proportion to the amount of water co=umed by such. iadustri.ess hydrant rentals provide an equit- able means of ad ju stinfi tlaO burden of maintaining and operat- ing those facili.ttes, in a homeogex sous, otri ctly residential comity such. as the Country Club RlStPiOt a d. adjolnin,g sectlow of the Village of Edlua# tAhere i.^-, no such Condition. Because the water vorka di.stributi.on egs tom aarv.es only 4 portion Of the; entire Village of Edina the adoption of rate ache duleas antl- aipating hydrant rentals would In fact result in a serious inequity to those tax payers 'vhloh would not have the benefit of service from the vater works or of fire .proteatiesn Pram same. Hydrant rentals often tend to become somewhat of a poll- tical football, in that they are frequently lnoluded in rate sobeftles for tho purpose of camouflaging water rates, in order that the "Administration" my Opoint ui:th pride" to lower rates than are obarged in neaf.e aor ng Villages Thi.sp of course, is accomplished at the e2pense of tax rates With no actual gs; n, In the case of the Village of Udlna, 1 would recommend a_jainst the adoption of vate3r rates providing for hydrant rentals. APPENDIX t Complete.Decislon of the Supreme Court of the State of Minnesota Case Filed Saturday, January 2, 1943 33052 - No. 205 Pirsig, J,� Country Club District service Company Respondent vs. Village of Edina Appellant St. Paul Fire & Marine Insurance Co. Intervener - Respondent Syllabus 10 The owner of a platted area who has installed Imarove- meats such as water and sewer systems at his own expense and who, to induce purchase of lots in the area, represents to buy - ers that no assessments therefor will be imposed because the purchase price of the lots includes payment of the improvements, cannot thereafter claim full ownership of the improvements. To the extent of the payments made, the improvements become the property of thb community, and its rights may be asserted by the local unit of government. 2. 'In an.action.by a utility company to recover the value of fire hydrant and storm sewer service rendered to a community, it cannot, in determining such value, Include the portion of the water and storm; sewer systems owned by the oommunity. 3. On facts stated ln.opinion, HEI that the legal entity of plaintiff as a separate corporation trill be ignored, and the rights of the parties determined on the basis of the actual nature of the transactions Involved. 4. Findings of fact stated in general terms and influenced by an erroneous conception of the law applicable will not be given the usual weight accorded finds. - 2 - 5. Evidence HELD not.to show an express agreement by village to pay for fire hydrant and storm sewer service. 6. Services rendered i.n one's own interest impose no liability upon another in implied contract merely because bene- fits were thereby . bestowed upon the latter. 7. Evidence H= to sustain finding that village was estopped to question the validity of Intervener's mortgage. 84 Under facts.in case, the possibility that the village might acquire title to the utility systems for which franchises were granted HELD a sufficient conbideration for their issuance is comnliance with Minn. St. 1941, See. 300.03 (Mason St. 1927, Sec. 7+32). HELD also that the village cannot now raise the :invalidity of the franchise relating to the water system for want of public 'bidding as required by TD. Sec. 412.21 (sec. 1199). Judgment affirmed as to intervener and reversed as to plaintiff. OPINION PIRSIG, Justice, Action.to.recover for services rendered by plaintiff for defendant, through .the use of fire. hydrant$ and storm sewers. In 1922 Thorpe Bros., a corporation engaged in real estate business purchased a 300J -acre tract of land known as Browndale Farm in the village of Edina located outside of,, but adjacent to, the southwest end of the city of Minneapolis. It proceeded to convert the tract into a suburban residential district. The area was platted into the Brown Section on the west, and the Fairway Section, on the east, end the whole was called the Coun- try Club.District. In order -to dispose of the lots as planned, it Was necessary to provide for the installation of modern, im- provements such ae Water and.sewerage systems, light, gas, etc.. We are concerned here only with the water and storm sewer sys- tems. The storm sewer in the Fairway Section was installed by defendant village and is not involved in the present litigation. To provide these facilities, Thorpe Bros, organized.the present plaintiff in 1923. To it, defendant, the village of Edina, Issued water and sewer franchises authorizing the Installation and operation of water and sewer systems. From the beginning, however, plaintiff remained inactive,.and the installation of the systems, their later maintenance, and the tendering of water and sewer services was under the direction and supervision of Thorpe Bros. Only three shares of stock of plaintiff were issued, and these Were to three members of the firm of attorneys - 3 who had charge of the organization ,of plaintiff. -No consider- ation was paid to the corporation for them. They were later transferred to members of the Thorpe Bros. organization. Con- tracts for the installation of the water and sewer systems were, with one exceptions in the name of Thorpe Bros., and, in the one instance in which the contract ran in the name of plaintiff 1t was guaranteed-by Thorpe Bros. The - contractors who installed the systems.vere paid by Thorpe Bros. out of their awn funds, and this. was charged to an expense account kept by them in connection with the development of the lots. «ater furnished to the residents was obtained from the city of Minneapolis under a contract made in the name of Thorpe Bros. After the improvements.were . about.completed, Thorpe Bros. began an aggressive advertising campaign for the sale of the lots. In this campaign attention was directed particularly to the improvements which had been installed, and it was empha- sized that they "were fully paid for," Typical statements held before prospective buyers and the public were that "the purchase of a homesite-in the Country Club District carries with it, all the modern improvements - paved streets * * water and sewage. There are no improvement assessments to follow," "nor will he (the buyer) have improvements assessed . against his property at a later date "f "water and severs are provided, you will never be bothered with any assessments for any of these improvements. They are paid fora The original cost of the Home -Site includes all your obligations." Examples of such advertisements, .introduced in evidence, cover the period from June 192+ to August 1927. Similar statements appeared in pamphlets which were distributed. Under instructions front Thorpe Bros., similar statements were made by salesmen in their negotiations with prospective buyers. -Some of the buyers ap- peared at the trial. They testified that they relied upon such representations as those set out above. The evidence is clear that in fixing the price of the lots the cost of .these improvements were proportionately included. During this period numerous residences were erected, and these were connected to the water and sewer systems. Charges for water and sewer service were made to the residents. State- ments therefor were made out in the name of plaintiff, but they were prepared and sent out by Thorpe Bros. Moneys received in payment of them were deposited by Thorpe Bros. in their own ac- count in their own,name. During this period plaintiff had no account of its own.. Similarly, the two systems were maintained and operated by Thorpe Bros. by the use of their own funds and employes. During this period no claim was made by anyone against de- fendant for any services rendered in connection with the fire hydrants, the storm sewer, or any other service connected with these systems. As the lots were sold and homes-erected upon them, the burden of supplying the water and sewer services increased, and, as this burden increased, the primary interest of Thorpe Bros, in the project was reduced as the lots were sold. Until 1932 the residents were charged no more for their water than was paid by Thorpe Bros. to the city of Minneapolis. To offset losses.sustained, the price was increased in 1932 and again in January 1935. The residents were informed that the increase was to cover the cost of "repairs to hydrants, + * flushing sewers" and other items. The residents also became dissatisfied. They wanted better service at lower rates. An organization of them had a so- called water committee to deal with the problem, By 1933 Thorpe Bros. were ready to dispose of their interest in the systems. In February 1933 they offered to donate the storm sewer to the village if it would accept and operate it, In 1934 and 1935 they offered to sell their interest to the resi -' dents'.organization. In an offer made in 1933, they listed their original investment in the water system at $70,000. Of thisy $500000 was listed as "installation of pipe line in the district, "'which has been "pro rated and added to the price of the lots, about 70% of which have been sold. Thorpe Bros, therefore have received that part of their original investment back. "_ They stated further that the water tank and a Fiftieth street main had•not, been included in the lots. Their total unrepaid investment in the water system was listed at $35,000. They offered to sell the system for $15,000 cash or for $20, 000 on a deferred payment basis. The storm and sanitary sewer sys- tems they offered to turn over without charge. While these various negotiations.were going on, one Oscar 0aarden, who was first a member of the water committee and later its chairman and as such took an active part in the negotiations, decided in the fall of 1935 to buy the systems for himself. An agreement, reached between him and Thorpe Bros., was incor- porated in an instrument which provided for the purchase of the systems by a manipulation of the stock of the plaintiff. When executed and performed, it left Thorpe Bros. holding 153 shares of preferred stock of the par value of $100 and 98 shares of common stock. Gaarden had purchased 20 shares of preferred stork from plaintiff for $2,000 cash, and.Thorpe Bros. had purchased an additional 10 shares for $1,000 cash. Then for the first time, plaintiff had funds of its own, consisting of $3,000 cash. Gaarden had control of plaintiff by his ownership of 102 shares of common stock. Other than stated, no consideration passed to plaintiff or between the parties. Later plaintiff retired 63 shares of preferred stock by paying Thorpe Bros. $60000 and Gaarden purchased the remain- ing 100 shares held by them.. At the same time Thorpe Bros. - 5 - transferred the 98 shares of common stock held by them to Gaarden without further consideration. From and after 1938, by these transactions, Gaarden was the sole party interested in plaintiff . On acquiring his interest In the plaintiff, and through it in the water and sewer systems here involved, Gaarden's concern was in getting s return on the investment he had acquired. He had no lots to sell in.connection with which it might be to his advantage to continue the services without profit or'at a loss. He demanded of the village that it pay for the services -which had been rendered in connection with the storm sewer system and the fire hydrants. His claim was not merely for the ser- vices rendered subsequent to the time he acquired his interest, but for the entire period from the time the systems were put into operation. Negotiations with the village failing, the present suit followed. After an extended trial, the lower court found for plain - tiff and allowed recovery for the six -ye6r period prior to the commencement of the action. The court found that the vil- lage had granted a water franchise to plaintiff which plaintiff accepted; that in accordance therewith plaintiff furnished fire protection service to the village and residents thereof; that, among other things, hydrants and connections were installed, operated, and maintained during the period for which recovery was allowed, and that the same had been used and relied upon by the village and its residents at all times for fire protec- tion purposes; that plaintiff's efforts throughout the period to reach an agreement with the village on the fair and reason- able hydrant rental had failed and that no payment had been made. The reasonable rental value of the hydrants also was stated. Similar findings were made with respect to the storm sewer system. In its conclusions of lair the court held that plaintiff was and at all times had been the owner of the pipes, hydrants, mains, and other items of the systems and that neither the village nor any lot owner or resident nor any other person has any right, title, or interest therein,, and that plaintiff is entitled to the reasonable hydrant rental and storm sewerage service charge therein stated. The question is whether these findings and conclusions can be sustained. We hold that they cannot be. They are permeated in part by a failure to give sufficient recognition to the un- disputed facts in the case and in part by a failure to apply the correct principles of law which govern. When findings of fact are couched in general terms that anticipate the result and disclose that they are colored by an erroneous conception of the law applicable, this court will not give them the weight to which they are ordinarly entitled In re Trust under Will of Holden, 207 .Minn. 211, 227, 291 N. W. lo4. That is particu- lar17 true when, as here, more specific findings were requested and refused. SIE As the findings stcnd, they fail to give the required legal effect to the re� ?esentations made by Thorpe Bros. when the lots in the Country Club District were sold. The people of this district were told when they purchased the lots that the pr1ce they were paying included a, proportionate charge for repayment of the expense of putting in the various improvements. There were no assessments to be feared. In reliance thereon they Laid, and Thorpe Bros. received, an amount which, by their own statement in 1933, had repaid them 70 percent of the cost of the pipe lines. It would be a patent fraud upon the com- munity if these people should now be compelled, as members of the village, to contribute to the payment of hydrant and storm sewer services on a basis which assumes that these systems are still entirely ov'ned by plaintiff and that plaintiff is entitled to a return on their full value, There is no legal principle or authority that leads to that result. True, the cases on the subject are few and not satis- factory. Most of them involve the affect on the systems involved of a subsequent annexation by the adjoining city of the suburban area. The question raised in them is whether the annexation constituted an appropriation of the water and sewer systems. In Cit of Danville v. Forest Hills Development Corp. 165 Va. 425, 192 S. E. 548, recover' for such an appropriation was denied on the ground that the cost thereof had been included in the purchase price of the lots sold. The court said, "When the water mains, pipes, etc., were constructed by the plaintiff' as an inducement to the purchase of its lots, the plaintiff thereby dedicated said maids and pipes to the use of the lot. owners and has no.right to claim adverse ownership in or.remove same without such lot owners' consent." In Suburban R. E. Co. v. Incorporated Village of Silverton, 31-Ohio App. 452: Z67 N.E. 47-4, and Ford Realty & Const. Co. v. City of Cleveland, 30 Ohio App. 1, 164 N, r. 62, recovery was similarly denied, but on the ground that, "having sold the lots on the representation of fur - nishing water, and a means having been provided therefor,'the realty company would not be heard to claim ownership in the water mains, . with right to remove the same." The significance of these cases lies not so much in the analytical validity of the reasons given as in the fact that the basic sense of justice so appealed to these courts that thoy had no hesitation in deciding as they did. No cases to the contrary have been found. In Abbott Realty Co. v. -City of Charlotte, 198 N. C. 564, 152 S. E. 686, and Stephens.Co. v. City of Charlotte, 201 N. C. 253, 159 3. E. 414 cited by plain- tiff, the facts do not show that representations of the Sind here made were held out to purchasers of the lots sold or that the purchasers had repaid any part of the cost of the improve- ments .involved.. In the Abbott Realty Co. case.it distinctly appears that the claimant expected payment not From the buyer but from the adjoining city. 7- If a court is convinced cif the justice of a cause, it can - not refuse to recognize and give a feet to It-merely because an applicable precedent or legal principle cannot be Found. In the absence. of authority, it must of its ' own develop and assert those legal principles'whioh in its judgment will best starve the ends of justice In the Gage before it and in other like cases. Cases of the kind before us -must stand on a foot- ing of their ovn.. When the residents of the Country Club Dis- triot bought their lots and paid the purchase price agreed upon, they paid for something more than the real estate in the lots. When the statements.made to them by Thorpe Bros. are taken into account, it is evident that they were paying also a sum which represented their contribution as owners of the lots to the re- imbursement of Thorpe Bros. for the cost incurred in installing the improvements. They were not attempting to buy any specific share in the systems or any part of the mains and piping front- ing their lots. For this reason., the deeds in the lots did not attempt to convey or transfer any interest in any property of the systems. But the plain understanding between Thorpe Bros. and the buyers was that they, the buyers, were contributing theitr share to the payment of the improvements, which were public in purpose and which were to serve the community as a whole. Sit they paid for the law should and does give them. To the extent of the repayment made to Thorpe Bros. In the course of the sale of the lots, the community acquired a. public right In the property of the systems, and to that extent Thorpe Bros. could no longer claim that they awned the systems. The Public right so acquired may be asserted by the local unit of government representing the community, in this case the village. Implicit in that transaction is the right of plaintiff to use the systems without charge in the exercise of its aichise$j but in claiming compensation, for the service rendered the com- munity thereunder it cannot claim the right to .a return on the basis that it is the full and exclusive owner of-tile systems. What-the lot owners have paid for cannot be included. This the findings and conclusions of the.lower court appear to have al- loved, and hence they cannot be sustained. Little significance can be placed on the fact that plaintiff vas organized as a corporation separate from that of Thorpe Bros. From its original organization until 1935,plainti.ff as a corporation was no more than a hollow legal shell. There were only three shares of $took outstanding, issued without consideration. Plaintiff had no funds, no active officers or employes, no property. Throughout that period, whatever was done was done by the members of Thorpe Bros. Plaintiff was only a convenient legal means by which Thorpe Bros. conducted part of its business in connection with the Country Club pro - _ ject. It is well settled that under those conditions the Inter- position of the corporate entity will not be permitted to conceal the truth of the transactions. What Thorpe Bros. and their employee did in connection w1 th this project is attributable to plaintiff so far as its, legal rights are concerned. Speeht V. Missouri P. R, Co. 154 Minn. 314, 191 N. w 905; In re Trust Under Will of Clarke, 204 Minn. 574, 264 N. w: 876; Penn A. M. Co. v. Clarkson See. Co. .205 Minn. 517, 287 N. We 15; 1 Fletcher.. Cyc. Corp. (Penn. ed.) p. 154, Sec. 43. "If a corporation ie owned and controlled by another and is manipulated by the owner for its own purposes and in its own intorests to the prejudice of innocent third parties, or the public welfare, st may be necessary to limit such abuse of the corporate capacity or shy old. " Ballantine, Manual Corp. L. & Pr. P. 37 Sec. 6, Hance plaintiff is as much bound by tae legal consequeneeo of the facts relating to the sale of the lots as was Thorpe Bros. The fact that Gaarden subsequently became the owner and holder of the stock In plaintiff corporation does -not Mater the result. It vas' still the same corporation. Moreover, the evidence is clear that QaaPden at the time he acquired his interest in the corporation was aware that there was a dispute as to the status of the title to the Water and sewer systems and so was put on notice of any possible claims that might be established. The decision of the lower court cannot be sustained for a further reason. No contract, express or implied, was estab- lished on which the Village can be held liable. There was no express. contract under the franchises acquired from the vil- lage by plaintiff for they merely "granted the right And priv- Ilege to install, maintain and operate" the water and sewer systems and the "right" to erect and maintain "fire hydrants approved by said Village Council,." By this language the vil- lage did not assume a liability. It only granted a right and a privilege. Much reliance is put upon the provision that Heald hydrants may also be used by the Village of Edina for fire protection purposes upon such terms as may be mutually agreed upon between said Village" and plaintiff. But this merely looks to an agreement in the future and conditions the right to use the hydrants upon the reaching o #.such an agree - ment, No agreement was ever reached and except for possible isolated Incidents, the hydrants were not used by the village. Neither was there any liability on the basis of quasi con- tract or contract implied in fact. The franchise was granted at the request of Thorpe Bros, Thereafter Thorpe Bros. installed the systems and provided water and sewer service, including the maintenance of the fire hydrants, in their own interest and for the purpose of rendering their lots more salable. Except - 9 - as operating expenses were reflected in the water and sewer charges made to the residents, no claim was made against the village for these services for a period of 10 to 12 years, and not until Gaarden acquired his Interest in plaintiff. When services are rendered for another in one's own interest and without expectation of reward, compensation cannot later be claimed on the ground of implied contract. Under those conditions, it is not an-unjust enrichment for the recipient of the benefits to retain them without compensation. See Johnson v. Unorganized School pis. 159 Minn. 226, 198 N. W. 463. Plaintiff, having originally rendered the services in its'own interest, cannot later, when its.own purposes have been - served, insist that the village accept and pay for the services which plaintiff thereafter continued to render. See Johnson v. Unorganized School Dist. supra. The findings and conclusions of law give no recognition to these princi- ples and for this reason also cannot be sustained. Much discussion was devoted here and in the court below to the question whether the original cost or the reproductioh cost of the systems should be used in determining the amount of plaintiff's recovery. Both parties proceeded on the basis that a fair return on the portion of the investment represented by the hydrants and storm sever should be ascertained by using one or the other of these tests as starting points and allow- Ing recovery accordingly.. No one seems to have considered Whether these bases, ordinarily used in proceedings to fix utility rates'(see State v. Tri -State Tel. & Tel. Co. 204 Minn. 516, 535, 284 N. W. 294) have any application where the basis of recovery is implied or quasi contract. Since plaintiff has not under the principles stated, shown a right of recovery, the question is not considered further. For the reasons stated, the judgment against the village cannot be sustained. After Gaarden had acquired his interest in plaintiff he began improving and extending the water system. For th3.s pur- pose he obtained a loan of $20p000 from Intervener secured by a mortgage upon the water system. The funds obtained were used by plaintiff mostly for the improvement and extension of the water system outside of Brown and Fairway Sections. In- tervention was allowed for the purpose of establishing the validity of the mortgage as against the claim of the village to ownership of the system.. Before intervener would make the loan it insisted that the water franchise held.by plaintiff be amended by the village so that any title which the village might acquire to the pro- perty under the Provisions of the franchise would be subject to the mortgage. It insisted further that a resolution be - 10 - adopted by the village approving the mortgage. Both of these requests were complied with. In reliance thereon the loan was made and the mortgage executed.. The property described therein specifically included water mains and fire hydrants. There is a dispute over whether the full description of the property covered by the mortgage was before the village coun- cil when the mortgage was approved. The evidence thereon is sufficiently conflicting and doubtful to entitle the trial court to find as it did against the village. The court found also, and on sufficient evidence, that the village was barred by caches and was estopped from questioning the legality of the mortgage, either on behalf of itself or on behalf of the lot owners. The issue was one of fact. The court could pro- perly rind that intervener acted in reliance on the action taken by the village, and that the village so intended. The princi- ples of estoppel apply. Thom v. Thom, 208 Minn. 467, 294 N. W. 613 Barchent v. Selleck, 89 Minn. 513, 95 N. W• 455. The claim that the amendment to the franchise authorizing the mortgage, as well as the original franchise, was invalid for failure to pay a compensation, to the village therefor as required by Minn. St. 1941s Sec. 300.03 (Mason St. 1927, Sec. 443 2) (see Duluth Terminal Ry. Co. V. City of Duluth, 113 Minn. 59s 130 N. W. 180 and Larson v. Minn. N. W. Elea. Ry. Co. 131 Minn. 183, 154 N. W. 948), is without foundation for the rea- son alone that under the provisions of the franchise the vil- lage would acquire title to the entire system, including the improvements-made from funds obtained by the loan, in case plaintiff failed or neglected to operate the same. This pos- sibility the village was entitled to consider a sufficient compensation for the franchise under the circumstances of this case. Nor sag the village at this late date claim the invalidity of the original franchise-because it was granted without public bidding as required by Id. Sec. $12.21 Sec. 1199). Chisholm Water Supply CO. v. City of Chisholm, 205 Minn. 2450 285 N. W. 895; City of Staples v. Minnesota P. & L. Co. 196 Minn. 303, 265 N. W. 58. It follows that the decision of the trial court so far as the intervener is concerned cannot be disturbed.- This leaves open for consideration, however, should the question arise, whether the village, in the event of a foreclosure of the mort- gage, may insist that those portions of the water syetem,,in the improvement of which the funds obtained by the loan were used, should first be subjected to the payment of the mortgage before resort is had to the portion of the system located in Brown and Fairway Sections. Whether the equitable doctrine of marshaling assets and securities, or related principles, apply is not decided. Numerous other questions have been raised by the parties. They are.not discussed, either because they have become-im- material in view of the disposition made herein, or because the answer to them is made obvious by the application of what has been said so that explanation is unnecessary. Nor should we unduly lengthen this opinion by discussing each of.the .multitudinous assignments of error covering, in condensed form, 30 pages of appellant's brief, or all of the legal points argued in 600 pages of briefs of the parties. Discus- sion bas been confined to those issues which are deemed con- trolling. Judgment affirmed as to intervener and reversed as to plaintiff. MR. OSCAR Consulting Minneapolis, 15 South F !fr. :. 5. Thorpe 519 yarquttte ikvenue g:`inueapolis, t innesota Hear „r. Thorpe-, GAARDEN Engineer Yinnesota sfth St. January COPY Defendant r s Ex. 57 N. C. Ward,, Reporter 7, 1935 2 am onclo ing herewith an appraisal of the portion of the water system, set up in my report last June. The new apnralsal will be as of June 0 1J35. You will note that the new depreciatod value is ;1:;,355, thi: fit ure not including the extra lot proposed for a f,llage hall, Since talking with you a week or two ago, I have been thinking over the possibilities of purchasing or leasing the d1btribution system frow, the Country Club District Service Cor- poration, The leasing proposition would seem preferable to me. To you this plan 'would, have the advair tare of retention of own- ership. n the event of a lease, some agreement wov.1a have to be made as to the ownership of the wells and pumpinr equipment at the terninativn of tae . ?ease. These would be located on property owned by you. I sugf-est . that you t pink over the term and rate for a lease proposition In the evert that you decide to adopt this plan. You will probably uow within the next two weeks as to whether or 1Zot you will continue negotiations with the village council. I do not wise to rush .ratters but I am thinkin . of the tLi,e limit of ray 1,15th set by the Kinneapolis ':'dater Department on the increased storage capacity. At least three months should be allowed for ilastallinc,- walls and equipment. This means that the proposition should 'tie settled by February 15th so that equip - Lwnt can be ordered at that time. When you are ready to discuss the Matter, ,please get in touch with me. Very truly yours, ( Sit ^ned) Qacs.r Gaarden OG :ER Encl. Item 75,000 Gallon Tank 51 Hydrants 50th. Street Main, 1400 Ft. Land for Taank &g3neering - (Prorated) TOTAL AMAISAL Or, PORTION OF EDIiA WATT SYET n C8 PJWROWCTI(ML COW . A=uel 3 APMIAM VALUE 3earec. re U 11 35 A€� of 1 Ae of 11 35 Contractor y . 4 1$37. ate 1923 Price ig34 Prices 1935 Pricea 'M Lovell 7,900 $ 7,00C 7,000 3� $ 5,0% 4,690 $ 4,480 Lovell 1,825 3,825 3,825 '` 2,907 2..984 24907 Lovell 3x500 30500 3000 lei 2,8' 0 2,922 20$70 %horpe 3,000 2,000 2,000 - 20000 2,000 2,000 ( Bass ) 1,550 1,550 1,550 2. 1,098 l,i4o 1,098 (Pillsbury) ( Graeber � $19, rTJ $1 A 5 $17..875 $13h3l $13,,736 `F'13055 n C8 COPY IWA"=ULATION OF WA29B WORD APPRAISAL Defendent's Exhibit BASER ON GVAM INVMf= " AT 60 ACTUAL CM4PACT COSTS Aid? CWARISON WM RECAMM ATION OF , CRAM ApPRAMAL Zzeess over Actual Costs Approz. 2% fteess over Actual. Cost Less Depreciation Appr=. 2€� *All. 1924 Construction extended at unit prices of 2harntom Bros. contract and comoted for vork built by Sanitor Construction Co. at lower price. (a) App sal flgu es accepted for items so marked for the reason that actual cost prices could not be isolated fpm n lump arum contracts involving other work. (b) Service pipe appraised In the om of $422.40 amitted for the reason that vwk was built by the village of Bdina under speciea assessment proaedav - other irk by contract between Thorpe Br o. and the Phelps Dn*o Ccapaay. (c) Meters included in appraisal at 4260.17 omitted as clearly 'being a merchandise item not properly included is the property account - otherwise apAmleal flejxasrrare accepted upon Gmber' a statement that costa were ecrViled frcm contracts and vouchers. Rate of Depreciation Appllod: Maine & Svdranta 1-1%39 Tank & Toner 1936 CCngtMct3ou - Same as Ember apprelaa 1. Gruber Wraisai Contract Courts Reproduction Reproduction Actual Chart Actual. Cost Coat Cost Lest Less DemolAft= D8MoIatio,on 3.923 9onstructIon 42,656.53 33,652.97 31,977.87 24,323.54 *1924 1926 33,437.79 28,101.29 29,156.16 24.'0502.3B ! 705.30 (111.26 8 705.03 8) 6x1.36 " a b 1 .82 1936 16'749.13 s//��//'��((�� 176513.87 16'4488.00 16,4M.96 c� 1�/j/'�.70 fly. Acquired. Land Acquire$ r 1936 ' //�� 000— 0 �, J0000.0 / a 3,000.00 a) 3X400.00 99,114.37 84172.2 82$990.02 70,766.50 Going Concem Valuo 5,766.36 5,766.W Na nil *Lena adJustment ;Vor 0" main built in 1x24 by sanitor Coast. Co. at 2.02 per ft.... .....__ . �a 615. 104* 3M.23 , 89, 939.13 3 82, x 5 .99 0.,150. Si Zzeess over Actual Costs Approz. 2% fteess over Actual. Cost Less Depreciation Appr=. 2€� *All. 1924 Construction extended at unit prices of 2harntom Bros. contract and comoted for vork built by Sanitor Construction Co. at lower price. (a) App sal flgu es accepted for items so marked for the reason that actual cost prices could not be isolated fpm n lump arum contracts involving other work. (b) Service pipe appraised In the om of $422.40 amitted for the reason that vwk was built by the village of Bdina under speciea assessment proaedav - other irk by contract between Thorpe Br o. and the Phelps Dn*o Ccapaay. (c) Meters included in appraisal at 4260.17 omitted as clearly 'being a merchandise item not properly included is the property account - otherwise apAmleal flejxasrrare accepted upon Gmber' a statement that costa were ecrViled frcm contracts and vouchers. Rate of Depreciation Appllod: Maine & Svdranta 1-1%39 Tank & Toner 1936 CCngtMct3ou - Same as Ember apprelaa 1. COPY Defendont's Exhibit • 6l . TOTAL, ACTUAL COST OF WATT VOM S3 OrERATO BY TO COMM OLD D187HICT illt COWAPY III VI UGE OF ED1:NA 13Y extewtoan of Qmbo Inventory U's ing Unit irises of Contracts $ 990.0:2. . 1937 Aditicaw from Etmt & Erast Audit $ropertq A=mt Ad"tiona.. Water Div9.oidn , 11, 275.69 1938 Additimo fame Bzvnt a BX=t Audit aa above tor year 1938 10, 33.6 Tots $104,749.55 Adjustment for 8" n t, 'built by smitor Cmat7' etim Ccowany 732.97 Total Cost of Water Works Ao of Jai,. let., 1939 $104 p 016.58 (Same as of March 31st., 1939 'by Gmarden teetimaW tbut w aaddl tiom were made between Jan. lot and larch 3. 1939) *Zopreolatod 'Value of above property as of Jan. lot, 1939, 7maed on cost $£38, X83.12 * Calow"tion accepts 4 reotatlo #`per 3.gW end 3.938 from Est. t AuUts. (Ethibits H emd 1) COPY Defondent t$ ' } Oe - COST AS OF JANMRY CCMP= SUM ACTM COSTS AND ADATSW BY, �' NAT�R6+1a CO CA�'PIOB C013T . M -1 r. r �.n f�rri Repaco Motion AQt"a Coat Coat As 49' r 1J/ 1923 Coustrmotion 178 1 �.92� Gc�txuct4on 00, 1926 Cma traction 178 19e8 Construction. 1 .o 1,71.1 1936 Coratraotivm, Calculatiom by elide rind not aoauraty bey ma this,: Aipt. $31s977.6? 7A5.3© x.,662.00 *$28,004.00 +� 250000.00 660.00 1,744.00 1644M.96 03230.96 or Day x$73,300 -00 . 1. 1913-1937 - 19.3 µ 100 • Lambed Sq�t3.p. K! a Total ZWA Bldgc�. D10tr. Moo. Total Laa B.ay. 1squip. Distr. - Miso. Blass. LWA Equip. Dietr. MOO. tw. Mdgs. Distro NUO. Total � M n� Corr Defendant ' s Exhibit 03 1913 1914 1915 1916 M - 209 2.9 24,9 2.9 2.9 11.2 10.8 11,1 13.3 1.6.5 12.1 12.0 A.o 17.3 22.6 72.7 67 *1 71#3 94.1 143.2 1.1 1.1 1..2 ....� '1.4 �..�._ 1.8 .....,..,� .ems 100.0 ...._..� 93.9. 100.5 129,0. 187,0 . 2.9 2.9 2.9 2,9 2.9 16.5 20.6 25.6 20..9 19.0 23.4 24.3 26.0 23.4 21.8 161.1 165.8 197.8 -155.8 130.1. 2.0 3 2_8 � 210 20.9.9 _ 2.15.9 255.1 205.2 175.3 X923 M4 1925 1926 3-927 2,9 2.9 2.9 2.9 2.9 20.8 -20.7 2o.6 20.7 20.2 22.9 23.0 22.9, 22.7 22.5 149.8 152.2 143.2 140.5 127.5 2.2 2.0 2.1 . 2.0 1.9 195.. W0.8 -1T1 - 7 100. 175.0 . 0 2.9 2.9 2.9 2.9 2.9 20.1 20.4 19,7 18.2 16.6. 23.0. 23.2 22.3 20.9 19.5 123.8 131.8 1,30.0 123.3 ]12.6 7 •? 1 ►2 1 1. l 153.0 2.9 249 2.9 2.9. 2.9 16.9 10,7- 1806 18.9 20.9 21.0. 22.9 22.5 22.7 25.0 116.8 129.7 1330.7 131.8 144.8 1.6 1 7 1.7 1.7 1.9. 159 2 175.9 176.4 178.0 195.5 COPY Defend.ent's Exhibit 64 6 EATIQE ROYMY VALUE For 1937 Vi.th 1913 ;. 100 LANMKRT Water Electric street Natal Artificial Works Light -AY6 Gas Jan. 184.7 178.6. 161.3 178.E 186.4 Feb. 185.1 181.€3 163.8 178.2 186.5 ch 193.0 186.5 168.4 187.6 196.4 AprU 197.1 188.1 270.3 190.1 198.2 197.7 192.2 17192 :0.1 199, 3 Jtme 197.9 192.2 171. h 190.2 199,63 July 198.0 192.2 -171.9 190,2 399.4 August 193,4 192.6 17243 190..7 199.7 c+apt. 198.4 192,4 172.3 190.8 199.7 Oct, 198.3. 191.3 1714l2 190.7 19945 Nov. 198,5 190.2 170.8 191'1 2€0.1 +a. 198.2 189,4 170.4 191.1. 200.0 Aver 195.5.. 1813.4 . 168.8 188.3 197.1 h #, i." ' #L � e � : t"'irt;d` � #i.i. -•'y` - : !! i � s'. 1i.i� ;, N'q,;, A Amriaan Aplu al 0*. . [owe PSOOVd A4erx lru 1w., Cea. A. TOMW Wit. CO. Defendent's Exhibit 65 2€334 198. 156. 1830 a4. 215.36 `2 6.42 236.41 926.7 W W.8 1 191.7 2 242,8 2024P 1 190. 1 195 -00 . 1 199.4 217. 2 22341 3 3.37, j 2 21000 190. 1 194. 3 3m. 0 186.5 196. 1 1940 1 169.0 1 192.0 38v � Ave s e eaa of 1936 ludefts over 1923 - 10 #6% n n " 1937 �� " 1923 i COPY I Dofendentfa Exhibit 6G 8oproducstim Coat as of January Zat, 1937 a base& upon coats adjuste$ by- Imtbort Indez 1937 AdditIQW 1938 AdcUtima - L000 Ratlre�nts 650, -80 mudn on 50th met 1f440.S3d . Meter snd Bete Ober at tae - 50th 400.00 . Average dWoola#.i= mowed l.Z ReprQdnotion Coat $73,300.00 x.,275.89 10,!!L344 $95,059.53 $57,x.0 10,0.60 1©0450.00 478,647.60 COPY Defendent is rxhibt 67 2,146,7 at 06. 22840 . 10,322.8 at 009 ,9.05 2,089.8 at. .14 292.51 929.9 +fit ,06 557.94 9,722,4 at .49 874.94 3,060.3 At -13 397.E 3304 (4") at ,05 6.5�+ 59.5 (61 at -07- 4.16 3 6vO (61: at .07 24636 136.0 (8 ",) at ,10 13.60 995.0 (619) Gruber has: testmed% he UOS& a0tual costs home they refloat 1+259-.0 (8 "" j Deli %Vaud plpo if used.