affirming this order in principle the Supreme Court said: "It is also clear that, in restraining the injurious discriminations against interstate traffic arising from the relation of intrastate to interstate rates, Congress is not bound to reduce the latter below what it may deem to be a proper standard, fair to the carrier and to the public. Otherwise, it could prevent the injury to interstate commerce only by the sacrifice of its judgment as to interstate rates. Congress is entitled to maintain its own standard as to these rates, and to forbid any discriminatory action by interstate carriers which will obstruct the freedom of movement of interstate traffic over their lines in accordance with the terms it establishes. Having this power, Congress could provide for its execution through the aid of a subordinate body; and we conclude that the order of the Commission now in question cannot be held invalid upon the ground that it exceeded the authority which Congress could lawfully confer." § 967. Discrimination produced by State action. The orders of a State commission do not justify interstate discriminations. 19 But the Commission cannot remove such discrimination by reducing State rates.0 However for a carrier to apply higher rates to interstate than to State traffic under like conditions is a violation of the law.21 An order of a State railroad commission enforcing discriminations against interstate commerce is not acceptable under the Act. Where jobbing centers are situated near State lines, an advance of the interstate charge and the retention of the present charge on State shipments inevitably results in a discrimination against the former.23 There are many reasons why State and inter 19 R. R. Commission of La. v. St. L. S. W. Ry., 23 I. C. C. 31. 20 Andy's Ridge Coal Co. v. S. Ry., 18 I. C. C. 405. 21 Keogh v. M., St. P. & S. Ste. M. Ry., 26 I. C. C. 73. 22 Cement Rates from Pennsylvania to New Jersey, 26 I. C. C. 687. 23 In re Rates for Single Packages, 22 I. C. C. 328. state rates should be established in harmony with one another; and when the Commission is asked to examine the reasonableness of an interstate rate, similar rates established by State authority in that territory must have great influence, especially where they have been long acquiesced in by the carriers. 24 Still these State rates have no binding force upon the Commission; they are standards of comparison of greater or less value, according as they appear to be just and reasonable. Low State rates cannot be neutralized by increases in interstate rates; 25 for a carrier cannot lawfully discriminate against interstate in favor of intrastate traffic. 26 Topic C. Valuation of Carrier's Property § 968. The tests of the Supreme Court. Any discussion as to what principles are to be considered as weighing with the courts in the determination of capital always recurs to this significant paragraph in Smyth v. Ames. 27 "We hold that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and were to be given such weight as may be just and right in each case. may not be other matters to 24 Corn Belt Meat Producers' Ass'n v. C., B. & Q. Ry., 14 I. C. C. 376. 25 Commercial Club of Omaha v. Anderson & Saline River Ry., 18 I. C. C. 532. We do not say that there be regarded in estimating 26 In re Advances on Hay, 25 I. C. C. 680. 27 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 419. the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience." 28 § 969. The inquiries of the Congress. It has been seen that many theories as to the basis to be taken in valuing the property of public utilities have been advanced at different times; and that indeed each of them has its advocates at the present day. The actual securities at present outstanding are by a few still regarded as sacred, while at the other extreme are those who would protect nothing but the estimated cost of theoretically reproducing the physical properties less the demonstrated depreciation of the actual properties. The serious issue is between two remaining theories, one taking the actual cost from first to last of the properties in question as the base, the other seeking to determine the present value of these properties as going concerns. 29 A close reading of the recent Act of Congress ordering the valuation of the railways will show that all of these theories at least must have been in the minds of the lawmakers. The Commission is expressly directed to determine individually and report separately the amount of securities outstanding and the circumstances surrounding their issue, the cost of reproduction, and what deduction should be made for actual depreciation, the original cost to date of each piece of property owned by the carrier, and all the elements of value discoverable in the properties under examination. Congress is making no decisions as yet; it is asking that all the facts may be brought out.30 § 970. The investigations of the Commission. Since its organization the Commission had occasion several times to inquire into the justification for more 28 The inconsistency of these tests has often been pointed out by the Commission, see Re Advances in Freight Rates, 9 I. C. C. 391, passim. 29 See the Advances in Rates Cases of 1910, 20 I. C. C. 243. 30 See the Five Per Cent Cases of 1914, Aug. 2 and Dec. 18, 1914. or less general advances in freight rates, which have been scheduled from time to time by the trunk lines. It has always been urged by counsel at such times that the railroads should have the right to advance rates until it was shown that they were earning more than a fair return upon their outstanding capitalization. The Commissioners have, therefore, felt called upon to indicate in elaborate opinions their views upon this troublesome question of the proper basis of capital charges. They have thus discussed and criticised all of the existing theories; and quotations from their opinions on various points will therefore be made in the following paragraphs.31 Before 1910 the railroads could put in force schedules advancing their rates, leaving it to subsequent proceedings before the Commission to show that the rates were unreasonable. But to prevent this in 1910 legislation was passed giving the Commission power to suspend advances in rates pending an investigation to their reasonableness.32 From time to time very frequently of late years the Commission has conducted special investigations of the financial conditions of certain systems. These have been held either by express direction of Congress or one of the houses thereof, or as part of some proceeding before it or as an independent investigation on its own initiative. 33 In these investigations it has had occasion to inquire into the issue of securities, the bases of capitalization, the allocation of charges, and the provision of depreciation. A great amount of material for study has thus been accumulated.34 § 971. Necessity for official valuations. Previous to the recent legislation directing the Commission to undertake a valuation of the railroads of the 31 See particularly Re Advance in Freight Rates, 9 I. C. C. Rep. 391, passim. 32 See also Re Advances in Rates, 20 I. C. C. Rep. 243, passim. 33 See particularly the New York, N. H. & H. Finances, and the St. 34 See also the Chicago, M. T. P. S. Accounts, and the New York C. & H. R. R. R. Consolidation. country the Commission has often remarked that it has no authority to put a value upon railroad property or to prescribe elements to be considered in determining that value.35 And it has had occasion to remark that if any importance whatever is to be attached to the cost of reproduction in the establishment of railway rates, the valuation must be undertaken by the Government itself.36 It is plain that until there be fixed, either by legislative enactment or judicial interpretation, some definite basis for the valuation of railroad property and some limit up to which that property shall be allowed to earn upon that valuation, there can be no exact determination of these questions. In the absence of such a standard the tribunal, whether court or commission, which is called upon to consider this matter, can only rely upon the exercise of its best judgment.38 How the Commission is likely to be inclined in dealing with the valuation of the properties of the carriers may only be judged from what it has said already in former investigations, so far as these have a general character; and therefore, some quotations from the most important of them will be made at this point. § 972. Valuation based upon investment. It is often urged that the money actually invested in a railway ought to furnish a basis upon which returns should be made, and this is at first thought a plausible suggestion and might in many cases be a reasonably just one. In many cases it would not, as the Commission has pointed out. "It was said in argument before the Commission recently that the capitalization of the Mobile & Ohio Railway represented the actual money which had been invested in that property, and no more. This road was largely obliterated by the civil war, and was operated at 35 In re Advances in Rates, East ern Case, 20 I. C. C. 243. 36 City of Spokane v. N. P. Ry., 15 I. C. C. 376. 37 Re Advances in Freight Rates, 9 I. C. C. Rep. 382. 38 Morgan Grain Co. v. A. C. L. R., 19 I. C. C. 460. |