wholly inadequate for keeping the road in proper repair and for earning dividends, we could not say that the act was unconstitutional merely because the company (as was alleged and as the demurrer admitted) could not earn more than 4 per cent on its capital stock. It cannot be said that a,corporation operating a public highway is entitled, as of right, and without reference to the interests of the public, to realize a given per cent upon its capital stock. When the question arises whether the legislature has exceeded its constitutional power in prescribing rates to be charged by a corporation controlling a public highway, stockholders are not the only persons whose rights or interests are to be considered. The rights of the public are not to be ignored. It is alleged here that the rates prescribed are unreasonable and unjust to the company and its stockholders. But that involves an inquiry as to what is reasonable and just for the public. If the establishing of new lines of transportation should cause a diminution in the number of those who need to use a turnpike road, and consequently, a diminution in the tolls collected, that is not in itself, a sufficient reason why the corporation, operating the road, should be allowed to maintain rates that would be unjust to those who must or do use its property. The public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends. The legislature has the authority in every case, where its power has not been restrained by contract, to proceed upon the ground that the public may not rightfully be required to submit to unreasonable exactions for the use of a public highway established and maintained under legislative authority. If a corporation cannot maintain such a highway and earn dividends for stockholders, it is a misfortune for it and them which the constitution does not require to be remedied by imposing unjust burdens upon the public." Value given to property by reason of its excessive earning power should not be considered, although the reasonable value of a franchise is an element in arriving at the total value of property. The Amendment giving to the Interstate Commerce Commission jurisdiction to make a valuation of the carrier's property 502 may, when the work thereunder is completed, furnish a valuation which can be used with reasonably satisfactory results in rate-making and rate-judging. In the meantime, the "cost of road and equipment" furnishes a "usable" basis which the Commission applies.503 In ratejudging and rate-making by an administrative body performing the legislative function of determining what shall be the rate for the future, a different question is presented from that which arises when a court has for determination the question of the confiscatory character of a rate prescribed by a quasi-legislative tribunal. The Commission may and should consider all questions affecting the movement of the particular traffic, such as competition, classification, the public interests, and all of the elements which enter into the general question of reasonableness. In considering the questions so presented, commissioners have to survey a wider field and have greater latitude than the courts, which are limited to the question, Does the rate involved constitute in substance the taking of property without due compensation? This question is discussed in Section 46, ante. The principles stated are not changed by Transportation Act, 1920, Section 15a; but that section gives additional details in stating the principles. There is listed in a note below 504 the ruling cases on valuation of common-carrier and public-utility properties which contain the principles that govern this subject. 502 Section 538, post. 503 Advances in Rates, Eastern Case, 20 I. C. C. 243, Western Case, 20 I. C. C. 307; Five Per Cent. Case, 31 I. C. C. 351, 32 I. C. C. 325; Western Rate Advance Case 1915, 35 I. C. C. 497. 504 Smyth v. Ames, 169 U. S. 466, 42 L. Ed. 819, 18 S. Ct. 418; Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. Ed. 382, 29 S. Ct. 192; Minnesota Rate Cases, 230 U. S. 352, 57 L. Ed. 1511, 33 S. Ct. 729; Lincoln Gas & Electric Light Co. v. Lincoln, 250 U. S. 256, 63 L. Ed. 968, 39 S. Ct. 454; Missouri ex rel. Southwestern Bell Tel. Co. v. Public Service Commission, 262 U. S. 276, 67 L. Ed. 981, 43 S. Ct. 544; Bluefield Water Works & Improv. Co. v. Public Service Commission, 262 U. S. 679, 67 L. Ed. 1176, 43 S. Ct. 675; Georgia Ry. & Power Co. v. Railroad Commission, 262 U. S. 625, 67 L. Ed. 1144, 43 S. Ct. 680; McCardle v. Indianapolis Water Co., 272 U. S. 400, 71 L. Ed. 316, 47 S. Ct. 144; Texas Midland R. R., 75 I. C. C. 1; Excess Income of St. Louis & O'Fallon Ry. Co., 124 I. C. C. 3; St. Louis & O'Fallon Ry. Co. v. U. S., 279 U. S. 461, § 93. What Is a Reasonable Return to the Carrier?-On the question of what is a reasonable return, the Supreme Court has said:505 "There is no particular rate of compensation which must in all cases and in all parts of the country be regarded as sufficient for capital invested in business enterprises. Such compensation may depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted and the rate expected and usually realized there upon investments of a somewhat similar nature with regard to the risk attending them. There may be other matters which in some cases might also be properly taken into account in determining the rate which an investor might properly expect or hope to receive and which he would be entitled to without legislative interference. The less risk, the less right to any unusual returns upon the investment." In this case the whole schedule of rates was involved and six per cent was held to be reasonable, the court saying: "Taking all facts into consideration, we concur with the court below on this question, and think complainant is entitled to six per cent on the fair value of its property devoted to the public use.' In the Knoxville Water Case,506 the Supreme Court announced a rule as to depreciation as follows: "Before coming to the question of profit at all the company 74 L. Ed. 457, 49 Sup. Ct. 384. In though the court did not attempt to say what weight should be accorded such evidence. In this case, the court reaffirmed the principles of valuation announced in the previous decisions above cited. See also United Railways & Elec. Co. of Balt. v. West, 280 U. S. 234, 74 L. Ed. 148, 50 Sup. Ct. 123. 505 Willcox V. Consolidated Gas Co., 212 U. S. 19, 53 L. Ed. 382, 29 Sup. Ct. 192. 506 Knoxville Water Co. v. Knoxville, 189 U. S. 434, 47 L. Ed. 887, 23 Sup. Ct. 531. is entitled to earn a sufficient sum annually to provide not only for current repairs but for making good the depreciation and replacing the parts of the property when they come to the end of their life. The company is not bound to see its property gradually waste, without making provision out of earnings for its replacement. It is entitled to see that from earnings the value of the property invested is kept unimpaired, so that at the end of any given term of years the original investment remains as it was at the beginning. It is not only the right of the company to make such a provision, but it is its duty to its bond and stockholders, and, in the case of a public service corporation at least, its plain duty to the public. If a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stocks." The rule has no application to the rates charged by express companies. Mr. Commissioner Prouty, in this connection, said:507 "In passing upon an entire schedule of railway rates (and when in this proceeding we pass upon the base rate of these defendants we really consider their entire schedule) the controlling factor is the value of the property which is devoted to the public service. The cost of originally producing or of reproducing that property is an important consideration, as is also the capitalization of the company and the value of its securities. In revising the rates of these express companies these considerations can have but little weight, since there is no real relation between the value of the property and the service performed, nor in the case of these companies, between their capital stock and just earnings." Increased cost of labor and equipment makes the cost of service higher, but this is generally offset by increased efficiency. This question is interestingly discussed and valuable tables given in the case shown below:508 507 Kindel v. Adams Express Co., 13 I. C. C. 475, 485. 508 Re Class and Commodity Rates from St. Louis to Texas Common Points, 11 I. C. C. 238. See also the discussion and cases cited in Secs. 47 and 92, ante. The Transportation Act, 1920, Section 15a, paragraphs (3) to (6), prescribes for "carriers [railroads] as a whole or as a whole in each *** rate group" a standard of 51⁄2 per centum as a minimum which shall constitute until March 1, 1922, a fair return on the "aggregate property value." The Commission may, after March 1, 1922, change this percentage, and it has done so,509 § 94. When Carrier's Duty to Furnish Service.-In Atlantic C. L. R. Co. v. North Carolina Corporation Commission510 the Supreme Court had under consideration an order of the North Carolina Commission requiring the carrier to make a particular connection with certain passenger trains. To do this, the carrier had to put on an extra train at a loss. The Supreme Court sustained the order of the North Carolina Commission, saying: "But this case does not involve the enforcement by a state of a general scheme of maximum rates, but only whether an exercise of state authority to compel a carrier to perform a particular and specified duty is so inherently unjust and unreasonable as to amount to the deprivation of property without due process of law or a denial of the equal protection of the laws. In a case involving the validity of an order enforcing a scheme of maximum rates, of course the finding that the enforcement of such scheme will not produce an adequate return for the operation of the railroad, in and of itself, demonstrates the unreasonableness of the order. Such, however, is not the case when the question is as to the validity of an order to do a particular act, the doing of which does not involve the question of the profitableness of the operation of the railroad as an entirety. The difference between the two cases is illustrated in St. Louis & S. F. R. Co. v. Gill, 156 U. S. 649, 39 L. Ed. 567, 15 Sup. Ct. Rep. 484, and Minneapolis & St. L. R. Co. v. Minnesota, 186 U. S. 257, 46 L. Ed. 1151, 22 Sup. Ct. Rep. 900. But even if the rule applicable to an entire rate scheme were to be here applied, as the findings made below as to the net earnings constrain us to con 509 Reduced Rates, 1922, 68 I. C. C. 676. 510 Atlantic Coast Line R. Co. v. North Carolina Corp. Com., 206 U. S. 1, 24, 25, 51 L. Ed. 933, 944, 27 Sup. Ct. 585, 11 Ann. Cas. 398. |