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Even though a utility does not condemn the needed land, it is helped by the fact that it can obtain it in the end from even an unwilling owner. Should the utility, obtaining the land for a public purpose and by means it could not have used but for the public purpose, be heard to say that it bought the land for merely private gain, for speculation in the land itself? The idea is preposterous; and granted the principle, it applies to all fixed utility investment. These properties are not in the market; they are definitely withdrawn from private use and their value depends not upon the chance to sell for speculative gain but upon its continued use under such rates as it shall be allowed. Here we approach the old vicious circle—the value depends upon the rate, should it determine the rate?
Again, suppose property should rise in value over a period of many years, what would be the chance for obtaining new capital for utility investment if we are confined to original investment as a necessary basis of valuation for rate purposes? It has been argued that utility valuations should roughly follow the value of other properties in order to recompense the utility for its loss of opportunity to engage in more speculative business during the inflation period. Also that if prices in general rise, the utility should have a greater return measured in dollars because of the diminished purchasing power of the dollars that do come in; while if prices generally fall, the utility should content itself with a smaller return because of the relatively large purchasing power of the dollars it is receiving on its investment; otherwise it would be taking an undue return in value from the public for its services. But all of this shows that there is no question of ascertainable exact fact or law to be found at all. There is only a question of adopting such a policy that, on the one hand the utility investments will not be discouraged; and, on the other, the public will not have to give too much of their substance for those utility services that are constantly becoming so much more important a part of the family budget. Such policies must come from the legislative side.
It is hardly fair to say, that, heretofore, the Supreme
Court has laid down as a matter of law ,as a necessary part of any decision, the rule that either original investment or reproduction cost were necessarily the constitutional basis of valuation. It is true that in Smyth v. Ames the court does lay down a series of partly unrelated matters such as original cost of construction, the amount expended in permanent improvements, the amount and market value of its stocks and bonds, the present as compared with the original cost of construction, etc. But after all, the court was merely laying down a standard of fairness for fixing value as a discretionary legislative process—was merely saying that a value fixed by the legislature should bear some relation to some fact of present or past value or cost if it were to escape the stigma of being a merely arbitrary and tyrannical legislative abuse. Nothing more is suggested than a standard of justice and the court does not pretend to say that the condemnation analogy 'nor any fixed method of valuation applies as a matter of law in valuation cases. To say that the court had intended to lay down a workable rule of valuation in that case? would be as reasonable as to say one could deduce a man's weight from his height, the color of his eyebrows, and the maiden name of his maternal grandmother.
If it be true then that utility valuation is a matter of policy or fairness and not of exact fact or of law, what was back of the statement in the Ben Avon case that the state must provide for a submission of valuations to the independent judgment of a court whenever the utility raises the question of confiscatory rates as against a commission's determination? Did the court consider that it was merely requiring a justiciable question to be settled finally in a court or was it deliberately professing to assume active supervision of the legislative acts of commissions or consciously undertaking to amend or revise such legislation ? The idea of due process does not require nor permit that courts entertain appeals from the legislative acts of com
6169 U. S. 466 (1898). 7 Smyth v. Ames.
missions, or that any resort to the courts ever obtains against the making of law but only against its enforcement when that enforcement unduly interferes with property rights. Due process does affect legislative or policy determining action to this extent: that if it is capricious or arbitrary or without relation to public ends the courts will refuse to apply it where it conflicts with a right that would otherwise be recognized. But in judging an act for this purpose the court does not weigh its judgment against the legislative jugdment but merely determines whether reasonable men could reach such a conclusion as the legislature has done. Or as the court said in Rast v. Van Denman & Lewis Co.,8 “The rights of review to be exerted by the courts only when the legislation is unreasonable or purely arbitrary.” For as Mr. Justice Holmes said in Gray v. Taylor," "It is not lightly to be supposed that a legislature is less faithful to its obligations than a court."
On the face of the matter there appears to be a failure of the court to distinguish between legislative and judicial acts for the purpose of review. It is true we do not have any very satisfactory distinction between the functions for all purposes and for all situations. Justice Field's distinction in the Sinking Fund cases10 that judicial action determines what the law is and what the rights of the parties are with reference to transactions already had, while legislation provides a rule for the future, scarcely fits the case because it is hard to see the rule for the future in the preliminary fact of finding value. The suggestion that this is the settlement of a particular controversy and therefore judicial is equally unsatisfactory because that begs the whole question as to whether it was based upon a pre-existing right. Another suggested test is that the final act to be done would make the process legislative for it was certainly an act looking to a legislative determination. But looking
8240 U. S. at 368. 9227 U. S. 51, 56. 1099 U. S. 727, 761.
at the situation can we say that there is any rule of law governing valuation? The very nature of the utility value forbids the assumption-neither is it a question of exact fact susceptible of calculation. It remains, therefore, a matter of policy, an assigning of values on a basis of encouraging investment and serving public interest. Justice Brandeis, in his dissent, concurred in by Judges Clark and Holmes in the case under discussion, says:
The Commission's order, although entered in a proceeding commenced upon due notice, conducted according to judicial practice, and participated in throughout by the company was a legislative order-*
the purpose of a review would be
not to pass upon the relative weight of conflicting
The stand of the Supreme Court of Pennsylvania in this case that “the ascertainment of the fair value of the property, for rate making purposes, is not a matter of formulas, but is a matter which calls for the exercise of a sound and reasonable judgment upon a proper consideration of all the facts”11 seems unanswerable. It is also interesting in connection with this case to note the four cases relied on by Mr. Justice McReynolds as precedents for the majority decision. They are: Missouri Pac. Ry. Co. v. Tucker, 230 U. S. 340, 347; Wadley Southern Ry. Co. v. Georgia 235 U. S. 651, 660, 661; Missouri vs. Chicago B. &. Q. Ry. Co., 241 U. S. 533,538; Oklahoma Operating Company vs. Love, 252 U. S. 331. In the first of these cases12 the Kansas statute fixed the rate complained of by direct legislative act, but
provided no machinery to test the rate and further provided that every carrier “which shall demand, exact or receive for such transportation or delivery any sum in excess of the rates hereby made lawful shall be liable to any person injured thereby in the sum of $500.00 as liquidated damages, to be recovered by action in any court of competent jurisdiction, together with a reasonable attorney's fee to be fixed by the court."13
The complaint of the railway company was that no other proceeding to test the validity of the rate was offered except the defense of the criminal action and that at a risk of enormous fines if penalties were enforced—because the railways could not refuse shipments and it was stated 10,000 shipments must be carried by the company during a single year. The court held the statute carrying such penalties and involving such possibilities to be invalid under the Fourteenth Amendment as placing too great a burden upon the defense of a claim of right by the railway and as unreasonable. On the question of confiscation the court says: “The validity of the rates necessarily depends upon whether they are high enough to permit at least some return upon the investment (how much it is not now necessary to state) and an inquiry as to that fact is a proper subject of judicial investigation." This case, therefore, does not support the theory of the majority in the Ben Avon case, viz., that in the hearing on rates by a court their untrammeled judgment must be had upon the question of valuation as a separate fact-indeed, it does not touch that point but is based directly upon the ground that the Kansas statute is so severe as to unfairly discourage a contest of the rate, whether based on jurisdictional or other grounds.
The second case relied on is Wadley Southern Railway vs. State of Georgia.14 In this case, the order complained of was not a rate order at all, but was an order requiring railways to treat all connecting carriers alike, and required that no credit be given and that charges be paid in cash by all
18 Laws 1905, Chap. 353, p. 389. 14235 U. S. 651, 59 L. ed. 405.