The San Juan islander. [volume] (Friday Harbor, Wash.) 1898-1914, 1911-10-27
F0RSUPREME COURT
TO DECIDE
IMPORTANT QUESTION SOON TO
COME BEFORE FEDERAL
JUDICIARY.
Shall Railroad Rates be Based on
First Cost of Construction or Upon
Present Cost of Reproduction? p
Leading Issue in Minnesota Case
Now Pending.

L
Washington, Oct. 22.-To deter
mine what shall be the basis of rate
making is the most important cues
ton to be decided by the supreme
court OF the United States in the
state rate cases, according to George
/. Simpson, encouragement of Min
nesota, who is ex-officio party to
the suit brought by stockholders of
railroads operating in Minnesota to
prevent the enforcement of the act
OF the legislature of that state fixing
freight and passenger rates on roads
operating therein.
Shall the railroads base their rates
on first cost of construction, upon
present cost of reproduction of re-
spective systems? Or is there some
base between these two extremes for
rates which shall yield the roads a
fair return for their investment?
This is the problem to be solved.
Judge Sanborn, the United States
circuit judges before whom the cases
were tried, declared that the roads
were entitled to a net income of 7
per cent on present valuation and
that with the rates fixed by the states
| in force that rate of interest could
not be earned. Judge Sanborn also
decided that there was an interior
ence with interstate commerce and
that the state law was unconstitu-
tional on that ground,
| "Of course, the question whether
there has been interference with in
| terstate commerce is one of great
Importance, not only to Minnesota,
but to all the other states in the
Union, as it involves the question of
how far the states can go in railroad
operations within their borders" said
Mr.. Simpson. But the whole case
really rests upon the supreme court s
decision as to what shall form the
basis of rates.
II can illustrate my point best by
taking the Northern Pacific railroad
as an example. Say that the initial
cost of construction was $25O,OOO,-
900. BY reason of increase in pop
ulation of the country which the road
runs and the consequent increase in
the value of the property and the
enormous increase in the value of
the terminals is, for purposes of il
lustration, $50O,0OO,OOO. Fifty
years from now, if the ration of in
crease is kept up, the system will be
worth $1,OOO,0OO,OOO.
| Nov, the question is whether the
supreme court, after full considera-
ton of the case, will decided that the
Northern Pacific railroad is entitled
to per cent or any other percentage
of income on $25O,0OO,0OO or on
$500, 100000. If the court should
say that the initial cost should be
taken as the basis of rates, the rates
would be kept down to minimum.
On the other hand, should it decide
that the present valuation should be
the rate basis, the rates will be pro-
portionately higher. And if the same
doctrine should be applied SO years
hence, the burden on the consumer
who pays in the end, will be very
heavy.
II am simply pointing out the logi-
cal result of decision fixing the
present valuation of railroad property
as q basis for rate making. 1t is a
we'll settled rule in railroad opera
ton that as the country through
which the roads are built is de-
veloped the rates decrease as the
business increases, because the cost
of operation remains practically the
same. But if the court should ce-
Icide that present or future valua-
lions shall govern the making of
rates the rule will be inverted and
rates will increase as time goes on,
no matter what the volume of bust
ness.
"My own idea of proper valua-
ton as q basis for rate making is to
add to the original cost 6 per cent
for each year the roads failed to pay
dividends. This would insure to the
roads what regard as legitimate
earnings and at the same time would
Insure rates that would be more rea-
i sonable than If the cost of reproduc-
| ton should be permitted as basis
for making them.
This question is important not
! only to the state of Minnesota, but
| to every other state in the Union
There isn't . great railway system
lin the country, but what can make
| the same showing Of increased val
Iuation since it was constructed. This
tppIies to New England and the
lother eastern states. to the middle
West and to the far West.
i because 1t Is Of such vital inter
est to the states and to the people
-. - 20 - the noaf NJ trans