New Britain herald., 1928-12-15

duction costs. Then-should rates be based on the former or the lat ter?
 After five years of effort the Commission handed down two con- trolling cases-the Texas Midland. and the Winston Salem Southbound. The Commission used average costs for s. 10 and even 20 years ending in 1914. It admitted that costs of reproduction had risen substantially and that corrective" figures would be necessary to arrive at a fair pres- ent value.
 Meanwhile repeated court deci- sions were to the effect that it is the fair present value. not the original cost of railroad property. of which owners may base their rate struc- ture so as not to be deprived of property without due process of law. In 1920 the Transportation Act was passed. with its recapture clause. This provided that one-half of any income in excess of 6 per cent on the fair value of property should be recaptured from the rail- road earning it and paid into the U. s. treasury. Which further com plicated an already complicated situation.
 The St. Louis & O'Fallon case arises out Of this recapture provi- sion. Obviously, value for recapture cannot be determined one way, and value for rate-making purposes an- other way. It is claimed that the method used in this case to deter mine recapturable earnings must, if sustained. lay the basis of arriving at value for all purposes.
 The notion of the elder La Toilette that over-copitalization existed in the railroad industry apparently has not been sustained. The ]. c. C. in- 1 vestigation leads to the reverse con- ccption; that even on a pre-war price basis the railroads showed property valued at $2S,o0o, 900. 900. against a total capitalization of about $91 1000. .00o, 900, of which only about $1S.ooo. 100000 were in the hands of the public. Following this discovery came the great rise in prices due to the war.
 The I. c. c. itself has changed in personnel since the La Toilette law was passed. and is now inclined to adopt ' "prudcnt investment theory for rate making. In the St. Louis & O'F'allon case it frankly stated: The value of the property for ratc-making purposes ap- breaches more nearly tho req
 sonable and necessary invest
 ment in the property than the cost of reproducing it at a particular time.
 ! Still. the I. C. c.'s concept of ! prudent investment" is far less than the present cost of reproduc- ton. and is3 also substantially less thaff the, original cost or tho record cd investment. This was we'll illus trated in the case of the Central Railroad of New Jersey. The tenta- tive valuation of this railroad for rato-making purposes was given in 1918 by the Commission as $121.- 646,611, whereas the books of the railroad showed an investment of $132,5o4,39S. exclusive of working capital and materials and supplies.
 The Supreme Court has given some decisions that suggest pre- cedents. In the Consolidated Gas case in 1909 it held. "Thcrc must be a fair return upon the reasonable value of property at the time it is being used for the public ~ de- termined as of the time when tho 1 inquiry is made regarding the rates" In the Minnesota rate case in 1912 the court held that actual investment was not the limit of consideration, "a just return for the use of the property involves the recognition of it's fair value if it be more than it's cost" Other valuation cases decided somewhat similarly were the Southwestern Bell Tclc- ! phone case and the Indianapolis | Water company case.