McCardle v. Indianapolis Water Co.

Background

A privately owned water company asked the state commission to raise its rates, and the city of Indianapolis opposed the increase. The commission investigated and adopted a new schedule effective January 1, 1924. The company sued the commission members, arguing the commission’s rates were confiscatory because they did not allow a fair return on the company’s property.

Reasoning

The Court reviewed competing evidence about the company’s property value, including engineers’ estimates of reproduction cost, working capital, water rights, and an intangible “going concern” value. The commission had used a ten-year average price level; the company offered higher spot and recent-average price estimates. The district court found the property’s fair value at not less than $19,000,000 and held the ordered rates too low. The Supreme Court affirmed: it agreed the commission’s price basis was too low given recent price trends, accepted a seven percent reasonable rate of return, and concluded the evidence supported the $19,000,000 valuation and the injunction against enforcing the rate order.

Real world impact

The decision blocks enforcement of the commission’s rate order against the company. It emphasizes that regulators and courts must account for recent price trends, working capital, water rights, and going-concern value when valuing utility property. The ruling upholds a seven percent return as reasonable for this case.

Dissents or concurrances

A dissent (Justice Brandeis, joined by Justice Stone) argued that a spot reproduction cost should not be treated as equivalent to value, and would have remanded rather than affirming; that view stresses caution about using momentary price levels.