Miles v. Public Service Commission

Digges, J., delivered the opinion of the Court. By order passed on the 30th day of December, 1912, the Public Service Commission of Maryland, under the authority contained in section 30 of the Public Service Commission Act, now codified as section 385 of article 23 of the Code of Public General Laws, 1924, instituted proceedings to determine the value of the properties of the United Railways & Electric Company of Baltimore, a corporation. Eor this purpose the Public Service Commission beg’an hearings in May, 1925, which hearings, and the proceedings incident thereto, including argument of counsel for the respective parties, culminated in an opinion and order of the commission dated March 9, 1926. By this order the commission determined that the fair value for rate making purposes of the property of the railways company, as of December 31st, 1923, was $77,000,000.

Included in this valuation was the item of easements, at the sum of $7,000,000. Objection was made by the appellant to the allowance of this item, and from the order of the Public Service Commission an appeal was taken to the Circuit Court of Baltimore 'City, the basis of this appeal being the contention by the appellant that these easements in the streets and highways of Baltimore City were not property.which should be included in a valuation of the railways company’s property in forming a rate-making base, and that the inclusion of the value of the easements in the rate base was unreasonable and unlawful. Upon a hearing of the case in the Circuit Court of Baltimore City, the chancellor passed a decree confirming the order of the Public Service Commission passed on the 9th day of March, 1926, and held ³³⁹ that said order was neither unlawful nor unreasonable. The case is now here to be considered on appeal from that decree.

The authority, power, duties and functions of the Public Service Commission are set forth in article 23 of the Code of 1924, section 346 to 418 inclusive, having been originally enacted by chapter 180 of the Acts of 1910- It can be generally stated that the purpose of the Legislature in enacting the Public Service Commission statute was to provide for the creation of a commission with the power and duty of supervision and control over the corporations and individuals engaged in the operation of public utilities within the state. The commission has the power and authority to require safe and adequate service to the public and to fix such rates as, on the one hand, will be reasonable to the user of the utility and commensurate with the service rendered, and, on the other hand, will produce a fair and reasonable return upon the property or capital invested in the. public service enterprise. Section 30 of the original act, now section 385 of article 23 of the Code, provides: “The Commission shall, whenever it may deem, it desirable to do so, investigate and ascertain the fair value of property of any corporation subject to the provisions of this sub-title and used by it for the convenience of the public.” It is evident that the most important purpose in ascertaining the fair value of a public service corporation’s property is to enable the commission to determine the rate to be allowed, in order that the public may receive adequate and safe service at a reasonable price, and at the same time, that the rate be not fixed so low as to constitute a confiscation of its property under the provisions of the Fourteenth Amendment to the Federal Constitution, but will produce a reasonable and proper return upon the capital invested. The present case presents the single question of whether the Public Service Commission, in ascertaining the fair value of the property of the railways company for rate-making purposes, should include, as property of the railways company, easements in the streets and highways of Baltimore City at their fair and just value.

The appellant contends that the ³⁴⁰ value of these easements is so dependent upon the earnings of the corporation, and the earnings being dependent upon the rate fixed by the Commission, that therefore it is illegal and unreasonable to include the value of these easements in the sum upon which the corporation is entitled to a fair and reasonable return. The case of Consolidated Gas Co. v. Baltimore City, 101 Md. 541 , definitely settles that the easement which a public service corporation, such as the Consolidated Gas Company or the United Railways & Electric Company, has in the streets of Baltimore City, is property, that it is an interest or estate in land; but it does not determine that the value of this easement or interest in land, for taxation purposes-, is to be determined by its value as land, but must be determined by its use in conjunction with the franchise of the corporation, that is to say, the corporation’s right to conduct the business in which it is engaged. In other words, this Court, in effect, said: “Ascertain to what extent the use of this easement in the conduct of the corporation’s business is responsible for its earnings, and then base the valuation for taxation purposes upon the earnings thus ascertained.” In the above cited case this Court said: “The distinction is clear between the franchise, as such, and the property acquired for the use of the franchise. The naked, unused, slumbering franchise is property, but it is property concerning the assessment of which in that condition for purposes of taxation the statutes do not make pro-vision, otherwise than by including it as an element which enhances the value of the shares of the capital stock.

But when the franchise is brought into activity and is availed of to accomplish the ends it was designed to effect, the property acquired under it becomes amenable to the tax laws apart from the tax on the stock, and its value as an easement, if an easement it be, may be largely augmented by the use to which the franchise enables that property or easement to be put.” The Court then quotes with approval the language used in People v. Tax Commissioners, 174 N. Y. 441 , as follows: “They (tangible chattels in public highways) have no assessment value worthy of notice except through the actual and ³⁴¹ constant nse made of them as incidental to the special franchise. The value of either resides in the union of both and can be practically ascertained only by treating them as a unit. Unless assessed together, both can not be adequately assessed. * * * We regard the tangible property as an inseparable part of the special franchises mentioned in the statute, constituting with them a new entity which as a going concern can neither be assessed nor sold to advantage except as one thing, single and entire.” This Court then continues: “We cite this to show, if precedent be needed to support such a self-evident proposition, that the use to which a franchise permits an easement to be put is an essential element to be considered in placing a valuation on that easement for purposes of taxation.” In the case of Appeal Tax Court v. Union R. Co., 50 Md. 274 , the railroad company asked that the assessments of the road-bed in the tunnels be stricken from the property valued to it; the court below granted the relief asked, and the Appeal Tax Court appealed. The specific contention was made in the argument in this Court, as to the tracks located in the tunnel and on the streets, that the railroad company diet not own the property, that is, the road-bed, and ought not to be assessed for it as though it was seised of it; it had only the right to make use of the streets and the soil beneath the streets, and to receive the tolls authorized by its charter.

In disposing of that contention it was said: “We do not concur in the position of the appellee, that it should only be assessed with the superstructures on the bed of the road, irrespective of the road-bed itself, or any right or interest therein, because the road occupies a tunnel under a public street, or runs along the highways of the city. The appellee has an easement in the way occupied by its road, and whether that easement be under or over the public street, it is an element of value to the road, and as such should be included in the valuation of the road itself. But few of the railroad companies of the country have anything more than a mere easement in the ways occupied by their roads, and we are not aware that it has ever been held that because the company did ³⁴² not own the freehold estate in the bed of the road, that nothing but the mere superstructures thereon could be assessed to the company. The rule would seem to be clearly otherwise, and that an easement enjoyed in the bed of a public street may be assessed and taxed as real estate.” While it is true that the authorities just cited determine that the right of the appellee here in the streets of Baltimore City is an easement subject to taxation, and that the use to which a franchise permits an easement to be put is an essential element to be considered in placing a valuation on that easement for the purpose of taxation, it does not determine that these easements should be -valued in the same manner for the purpose of fixing a rate base upon which the public service corporation is entitled to a fair and reasonable return.

Ueither is it true that because this character of property is designated as an easement or interest in land, and as such is entitled to be accorded some value, it should be given the same value for fixing a rate base as that given it for taxation purposes. On the contrary, there is a controlling reason why the two valuations should not be identical. In the valuation for fate making purposes, property of the public service corporation, the value of which depends upon the earnings of the corporation, should not be included, for the reason that the 'earnings upon which the value of the property depends are largely controlled and determined by the rate which is allowed to be charged for the service rendered. Under the statute it is incumbent upon the commission to ascertain the value of the property in order that such a rate may be fixed as will result in a reasonable return upon the property of the utility corporation used for the convenience of the public.

If such value as results from earnings be allowed in the rate base, it is impossible to escape the following reasoning: The value of the property, as ascertained by the commission, would determine the rate which the commission authorized the corporation to charge for its service. The rate authorized controls the amount of earnings. The earnings in turn determine and fix the value of the property. Therefore the rate determines the value, and we have a ³⁴³ conclusion that the value determines the rate, and the rate determines the value; and if the value of the property depends upon the rate, which in turn depends upon the value of the property, the rate would depend upon itself, resulting in an apparent absurdity.

It is therefore clear that such value as is