Evening star., 1932-04-11
TRACES DEFINITION
OF UTILITY VALUE
Roberts Requests Court to
Fix Rules for Guide to
Commission.

lie utility, as found by the Public Utili-
ties Commission, is not its market
value nor its value for taxation. con-
demnation, capitalization. consolidation
or exchange. 1t is an array OF figures
that has but a single use-to allow
court to decide whether a set OF rates
prescribed by legislature for public
utility is or is not confiscatory.
This is the burden of the argument
In the brief filed recently by Assistant
Corporation Counsel William A. Roberts
with petition to the District Supreme
Court for rules to guide the commission
90 in making valuations in the future.
The history of the origin of this con-
cept Of value" as traced by Mr.. Rob-
erts, goes back to 1898, when in the
famous case of Smythe VS.. Ames jus
tice Harlan, writing the opinion for the
United States Supreme Court, said:
I'VE hold, however, that the basis Of
all calculations as to the reasonableneSS
of rates to be charged by a corpora
ton maintaining a highway under
legislative sanction must be the fair
value of the property being used by 1t
for the convenience OF the public.
A Legislative Matter.
Going further back, it is found that
the Supreme Court held that fixing
rates fer public utilities was entirely
legislative matter, in which the courts
would take no part, and that II the
actions of the legislature did not suit
the utilities the place to get relief was
at the polls and not in the courts, Thus
in 1876 in the case Of Mum VS.. Illinois
the court said
1--WE know that this is a power (to
fix rates. which may be abused, but
that is no argument against its exist
ence. For protection against abuses by
legislatures the people must resort to
the polls, not to the courts"
In another case decided the same
year the court said:
Where property has been clothed
with a public interest the legislature
may fix a limit to that which shall in
law be reasonable for its use. This
limit binds the court as we'll as the
people If it has been improperly fixed,
the legislature, not the courts, must be
appealed to for the change"
From this abstract principle, however,
according to the brief, the court after
ward shrunk and took the position that
where the legislature fixed rates which
would destroy" a utility the courts
would step in and declare the statute
invalid. If an act of the State, it
would be in conflict with the fourteenth
amendment. If an act of Congress COR
the Public Utilities Commission), then
it would be in conflict with the fifth
amendment.
This principle first was stated in the
case of Stone VS.. Farmers Loan &
Trust Co. in 1885. From then until
1898 the court laid down no standard
by which it could be detern ined whether
the utility was being destroyed" Many
standard, although its outlines are ex-
tremely haZy. The brief says:
'@The Supreme Court has steadfastly
refused to prescribe specific rules for
the determination of fair value, and
(has) said: The ascertainment of that
value is not controlled by artificial rules.
1t is not a matter of formulas, but
there must be reasonable judgment,
having its basis in proper considera-
ton of the relevant facts ,"
Key to the Doctrine.
That sentence Yields the key to the
doctrine of the brief. The instructions
prayed for relate to the specific facts to
be found, and to those facts and inter-
pretations of facts which may be or
must be ignored. once the commits
sion has the proper facts before it, ac-
cording to the brief, the commission
need not analyze the exact mental
process at which it arrives at the final
valuation figure, nor will the court in
reviewing the valuation review these
mental processes.
OF recent years, at least up to the
time of the collapse of the stock and
commodity markets, great stress has
been placed by the utilities on current
reproduction cost as the true measure
of their value for rate making pur-
M ffan 17o- hall
that reproduction cost is one of the
elements to be considered in arriving at
such value. Whether the utilities will
continue to insist on current costs in
the face of their enormous decline is
questionable. But for the present the
reproduction cost has a firm place in
the law. The brief says on this point:
'In cases decided since Smythe VS..
Ames the Supreme Court stated that
Investment is entitled to consideration.
Nevertheless, in 1928, when the increase
in the prices of labor and material had
1ntruded upon its consciousness. the
court rejected the investment theory as
tbs basis of valuation Southwestern
Bell Telephone Co. vs. Public Service
ConmiSsion). which called forth the
vigorous dissent Of Justice Brandeis
The decision has been followed in re-
cent cases.
Marked Decline in Prices.
''There has been marked decline in
labor and material prices and in prop
erty values in the last few years which
has very greatly contributed to the
present business depression, recently de-
scribed by Chief Justice Hughes as the
outstanding contemporary fact, domi-
mating thought and action throughout
the country If the Supreme Court
remains steadfast to the rule thus an
nounced, utility owners may deplore
the lack of foresight which caused them
to insist as matter of constitutional
right upon the present value theory of
rate making in preference to the pru-