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The Southwestern Political Science Association


C. B. AMES, Oklahoma City, Oklahoma

GEORGE B. DEALEY, Dallas, Texas

F. F. BLACHLY, Norman, Oklahoma

D. Y. THOMAS, Fayetteville, Arkansas

F. M. STEWART, Austin, Texas


PRESIDENT C. B. AMES, Oklahoma City, Oklahoma
VICE-PRESIDENT D. Y. THOMAS, Fayetteville, Arkansas
E. T. MILLER, Austin, Texas
J. P. COMER, Dallas Texas.


THE SOUTHWESTERN POLITICAL SCIENCE QUARTERLY is supplied to all members of the Southwestern Political Science Association. The subscription price of the QUARTERLY is two dollars a year. Applications for membership, orders for the QUARTERLY and remittances should be addressed to F. M. Stewart, Secretary-Treasurer of the Association, University Station, Austin, Texas.

Correspondence with reference to contributions to the QUARTERLY should be addressed to F. M. Stewart, Editor in Charge, University Station, Austin, Texas.

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The editors disclaim responsibility for views expressed by contributors to THE QUARTERLY



University of Oklahoma

It will be impossible within the limits of this paper to cover the subject assigned to me. The courts have already written volumes upon it, yet doubt and uncertainly remain.

Some principles are well settled, it is true. An appeal after one proper hearing is no necessary part of due process;1 no administrative tribunal can finally determine its own jurisdiction; the exercise of discretion vested in such a tribunal will not be controlled in advance, by a court, nor will it be questioned afterwards except in clear cases of abuse. Questions of fact decided by administrative bodies will not, as a rule, be reviewed except to determine whether there was evidence upon which to base the finding; questions of law settled by such bodies are not usually disturbed except in cases of palpable error. Where there is a determination of questions of mixed law and fact within the jurisdiction of a commission it is difficult to state a rule because of the ease with which the question may be masked; and here the greatest play has been accorded for court review depending upon the interests involved and the character of the rights affected. Great finality is accorded administrative decisions in those fields in which the government has the greatest power, as, for instance, the collection of taxes or other revenue, and in the abatement of nuisances. Here administrative proceedings are not only accorded the greatest weight, but action may precede judicial investiga

*Paper read at the Third Annual Meeting of the Southwestern Political Science Association, Norman, Oklahoma, March 25, 1922. 1Pittsburgh C. C. & St. L. Ry. v. Backus, 154 U. S. 421.

tion. In cases relating to rights under the postal service, in determinations as to the right to pensions and bounties, or in giving of land grants, and in immigration cases, finality is accorded administrative determinations, however summary the hearing, provided only it is fair.2

In the matter of utility regulation, on the other hand, the recent decision of the United States Supreme Court in the case of Ohio Valley Water Co. v. Ben Avon Borough et al.3 has produced a very unsettling effect; and it is my purpose to discuss this case and its probable causes and consequences.

The Ben Avon case arose out of a commission rate fixed for the water company. The company appealed from the rate to the Superior Court which, after a review of all the evidence, determined that the valuation of the utility property by the Commission was too low and sent the case back to that body for a revision of the rate to meet the demands of the larger valuation found by the court. The supreme Court of the state reversed the decision of the Superior Court on the ground that the action of the Commission was legislative and discretionary as to the rate; it said: "The ascertainment of the fair value of the property for rate purposes is not a matter of formulas, but is a matter which calls for a sound and reasonable judgment upon a proper consideration of all the relevant facts."4

On writ of error to the United States Supreme Court it was held that, if the power of the Pennsylvania courts on appeal from the Commission under the law of that state did not include the power to use the court's independent judgment as to both law and facts, the order was void. The issue, therefore, was whether du process requires a court review of rate fixing and applying orders in which the court must be permitted to measure its independent judgment as

2U. S. v. Ju Toy, 198 U. S. 253, 263; Kwock Jan Fat v. White, 253 U. S. 454, 464, immigration cases; Bates & Guild Co. v. Payne, 194 U. S. 106, and U. S. ex rel Milwaukee Social Democrat Pub. Co. v. Burleson, 41 Sup. Ct. Rep. 352; 255 U .S. 407, postoffice; Marquez v. Frisbie, 101 U. S. 473, public lands.

81920, 253 U. S. 287, 64 L. ed. 908.

4260 Pa. 289, 103 Atl. 744.

to the fair valuation of the property against that of the legislative body.

A great deal of confusion has arisen in this class of cases out of a failure to distinguish clearly between two widely differing governmental acts, legislative or law-creating acts, and acts of adjudication. If this distinction is maintained with any degree of clearness, questions of procedure and right of review will not be so troublesome. It is well recognized today that rate making is a legislative function. But the reasonableness of a rate after it is made is a matter for judicial consideration, so far as it is capable of judicial ascertainment.

But is the finding of the fair value of the property of a utility for rate purposes the finding of a fact that a court can deal with upon any settled principles of judicial review? What is the value upon which a utility has any inherent right under the constitution to earn a fair return? Is it the original cost of construction and acquirement-the actual investment in dollars-or is it the market value of the property at the time of fixing the rate, or has it some other definite measure? General market value as property cannot be a test because utility property has no adequate market value. A railway right of way, consisting of narrow strips of land, is worthless except to the owner of the adjacent lands; depot and terminal sites have no general market value that can be measured because all adjacent values, especially in city wholesale districts, depend upon their remaining depots. Value based on earning capacity is not value for rate purposes, because it depends upon the rate. Our courts have repeatedly denied any right to investment cost; indeed, in the earliest cases the railroads contended for actual investment, as they offered to prove it, because at that time new processes and hard times had made railroad building much cheaper than when the roads in question were built. The courts denied this claim and placed their denial partly upon the practical difficulty of ever ascertaining the actual necessary cost, and partly upon the principle that a utility must be bound by a fall in the price of its

property, just as is any other property owner. Probably the practical difficulty of measuring the bona fide necessary investment was the controlling reason and the analogy to other property owners was merely an afterthought to bolster a rule already determined upon, but the situation resulted in a court theory that has tenaciously persisted, that what should be done is such cases is to protect vested rights in property.

In a later decade when costs of construction were again rising, the railroads invoked the previous decisions of the courts and insisted that they were entitled to be valued, not on the original investment but upon the present value of their property-thus an earlier rule of convenience was crystallized into a rule of thumb supported by court precedent and wearing the guise of a rule of law.


But within the past five years, with prices and costs again upon the decline, the courts have again become doubtful as to the legal valuation. But is it not apparent that there is no such thing as a legal valuation and that our courts have been, as one writer said, "on a twenty-year search for a fact that does not exist" merely because they had presupposed a constitutional theory that must have the support of such a fact or fall? Analyze it as we may, the value of a utility's property rests wholly upon a basis of policy. When money is invested in public utility property there is a growing feeling among theorists as well as among practical statesmen that it is at that time devoted to a public use and is thenceforth withdrawn from private use or ordinary private ownership. It is no longer held for speculation as to the value of its component parts. It is no longer a thing to be bought and sold in the markets but something to be held for the use to which it has been devoted.

Take, for instance, the land of a railway company acquired for right of way or depot or yard sites. The power of condemnation was given to acquire lands for utility purposes.

5Mr. Gerard C. Henderson, 33 Harvard Law Review, 1052.

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