Source: http://www.chanrobles.com/usa/us_supremecourt/279/461/case.php
Timestamp: 2017-10-21 03:14:41
Document Index: 582054008

Matched Legal Cases: ['§ 15', '§ 15', '§ 15', '§ 15', '§ 1', '§ 15', '§ 15', '§ 15', '§ 15', 'arte 74', 'arte 74', '§ 15', '§ 15', '§ 15', '§ 15', '§ 15', '§ 19', '§ 15', '§ 15', '§ 15', '§ 19', '§ 15']

Wisconsin Railroad Commission v. Chicago, Burlington & Quincy R. Co., 257 U. S. 563, and Dayton-Goose chanroblesvirtualawlibrary
Also, we think the district court rightly rejected the claim that excess earnings were not recapturable unless and until the Commission had fixed a general level of rates intended to yield fair return upon the aggregate value of carrier property, either as a whole or in some prescribed rate or territorial group. Congress, of course, chanroblesvirtualawlibrary
The report of the Commission is long and argumentative. Much of it is devoted to general observations relative to the method and purpose of making valuations; many objections are urged to doctrine approved by us, and the superiority of another view is stoutly asserted. chanroblesvirtualawlibrary
It was deemed unnecessary by the court below to determine whether the Commission obeyed the statutory direction touching valuations, since the order permitted the O'Fallon to retain an income great enough to negative any suggestion of actual confiscation. With this we chanroblesvirtualawlibrary
Excess Income of St. Louis & O'Fallon Ry. Co., 124 I.C.C. 3, 19. Speaking for the dissenting members, Mr. Commissioner Hall said: "If the law needs change, let those who made it change it. Our duty is to chanroblesvirtualawlibrary
Section 15a makes no specific reference either to the original cost of the property, or to prudent investment, or to current reproduction cost, or to the then existing price level. Section 19a -- the valuation provisions of the Act of 1913 -- to which § 15a refers, directs the Commission to report, among other things, "in detail as to each piece of property, . . . the original cost to date, the cost of reproduction new, the cost of reproduction less depreciation," and also "other values, and elements of value." After the enactment of § 15a and before entry of the order challenged, it was held in Southwestern Bell Telephone Co. v. Public Service Commission, 262 U. S. 276, a case arising under a state law, that the rate base on which a public utility is constitutionally entitled to earn a fair return is the then actual value of the property used and useful in the business, not the original cost or the amount prudently invested in the enterprise. The government concedes that current reproduction cost is admissible as evidence to show present value under § 15a. The carrier concedes now that neither Congress nor the common law made current reproduction cost the measure of value. The question on which the Commission divided is this: did Congress require the Commission, when acting under § 15a, to give, in all cases and in respect to all property, some, if not controlling, effect to evidence establishing the estimated current cost of reproduction? Or did Congress intend to leave to the Commission the authority to determine, as in passing upon other controverted chanroblesvirtualawlibrary
The O'Fallon contends, among other things, that the order is confiscatory. The claim is that the order left to the company a return of only 4.35 percent upon the value ascertained in accordance with the rule declared in the Southwestern Bell case and McCardle v. Indianapolis Water Co., 272 U. S. 400. If this were true, it would be immaterial whether Congress purported to authorize the course pursued by the Commission. But the fact is that, in each of the recapture periods, the earnings were so large as to leave, after making the required payments to the Commission, about 8 percent on what the carrier alleged was the fair value of the property. The O'Fallon argues that, since the statute and the order required it to hold as a reserve one-half of the excess over 6 percent, it is deprived of that property. This is not true. The requirement that one-half of the earnings in excess of 6 percent shall be retained by the carrier until the reserve equals 5 percent of the value of the railroad does not deprive the carrier of any property. It merely regulates the use thereof. Compare Kansas City Southern R. Co. v. United States, 231 U. S. 423, 231 U. S. 453. The provision is one designed to secure financial stability, and is similar to those prescribing sinking funds, depreciation, and other appropriate accounts. [Footnote 1] Congress may regulate the use of railroad property so as to insure financial as well as physical stability. Both are essential to the safety and the service of the public. In @ 263 U. S. 486, where the facts were in this respect identical with those in the case at bar, the constitutional validity of the order was sustained. If the failure to give to the evidence of current reproduction costs the effect claimed for it by the O'Fallon was error, it is not because the carrier's constitutional rights have been invaded, but because the Commission failed to observe a rule prescribed by Congress for determining the amounts to be recaptured and reserved.
The claim of the O'Fallon is, in substance, that, since construction costs were higher during the recapture periods than in 1914, the order should be set aside, because the Commission failed to find that the existing structural property and equipment which had been acquired before June 30, 1914, was worth more than it had been then. [Footnote 2] The Commission undertook, as will be shown, to find present actual value, and, in so doing, both to follow the direction of Congress and to apply the rule declared in the Southwestern Bell case. It is true that this Court there declared that current reconstruction cost is an element of actual value, and that Congress directed the Commission "to give due consideration to all the elements of value recognized by the law of the land for ratemaking purposes." But, while the Act required the Commission to consider all such evidence, neither Congress nor this Court required it to give to evidence of reconstruction cost a mechanical effect or artificial weight. They left untrammeled its duty to give to all relevant evidence such probative force as, in its judgment, the evidence inherently possesses. The Commission concluded that, in respect to the evidence of reproduction costs, the differences between the Southwestern Bell case and that at bar were chanroblesvirtualawlibrary
An arbitrary disregard by the Commission of the probative effect of evidence would, of course, be ground for setting aside an order, as this would be an abuse of discretion. Orders have been set aside because entered without evidence, [Footnote 4] or because matters of fact had been considered chanroblesvirtualawlibrary
which were not in the record; [Footnote 5] or because the Commission excluded from consideration facts and circumstances which ought to have been considered; [Footnote 6] or because it took into consideration facts which could not legally influence its judgment. [Footnote 7] But no case has been found in which this Court has set aside an order on the ground that the Commission failed to give effect to evidence which seemed to the Court to be of probative force, or on the ground that the Commission had drawn from the evidence an inference or conclusion deemed by the Court to be erroneous. [Footnote 8] On chanroblesvirtualawlibrary
Second. While current reproduction cost may be said to be an element in the present value of property, in the sense that it is "evidence properly to be considered in the ascertainment of value," Standard Oil Co. v. Southern Pacific Co., 268 U. S. 146, 268 U. S. 156, it is clear that current cost of reproduction higher than the original cost does not necessarily tend to prove a present higher value. Often the fact of higher reconstruction cost is without any influence on present values. It is common knowledge that the current market value of many office buildings and residences constructed prior to the World War have failed to reflect the greatly increased building costs of recent years, although the need of new buildings of like character was being demonstrated by the large volume of construction chanroblesvirtualawlibrary
at the higher price level. Many railroads built before the World War have never been worth as much as their original cost, because high construction cost, combined with adverse operating conditions and limited traffic, have at all times prevented their earning, despite reasonable rates, a fair return on the original cost. The Puget Sound extension of the Chicago, Milwaukee and St. Paul is a notable example. [Footnote 9] Many branches, and indeed whole lines of railroad, have been scrapped since 1920. Abandonment of 2,439 miles of railroad was authorized under paragraph 18 of § 1 of the Interstate Commerce Act, between 1920 and 1925, and in the three following chanroblesvirtualawlibrary
Third. The terms of § 15a and its legislative history preclude the assumption that Congress intended by paragraph 4 to deny to the Commission in respect to evidence of reconstruction cost the discretion commonly exercised in determining what weight, if any, shall be given to an evidential fact. In 1920, no fact was more prominent in the mind of the public and of Congress than that the cost of living was far greater than that prevailing when the existing railroads were built. [Footnote 12] But neither in Transportation Act 1920 nor in any committee report is there even a suggestion that the Commission would be required chanroblesvirtualawlibrary
to give to that fact any effect in ascertaining values for ratemaking purposes under § 15a. If it had been the intention of Congress to compel the Commission to increase values for ratemaking purposes because the price level had risen, it would naturally have incorporated such a direction in the paragraph. On the other hand, the committee reports and the debates show that the opinion was quite commonly held that the actual values were less than the property investment account appearing on the books of the carriers, [Footnote 13] and the proposal made by the railroads that the investment account be accepted as the measure of value was resisted as being excessive. [Footnote 14] The property chanroblesvirtualawlibrary
Congress did intend to provide a return on the existing railroad property which should be only slightly more than that which had been enjoyed during the six preceding years. To have required that the then price level be reflected in the values to be fixed under § 15a would have resulted in a rate base of double the property investment account of the carriers, for the cost of living was then about double prewar prices. The prescribed fair return chanroblesvirtualawlibrary
Either increase in the rate of return or increase of the base on which that return is measured would have served to adjust compensation to higher price levels. The adoption by Congress of the increase in the return, as the means of compensating for the decreased purchasing power of the dollar, precludes the assumption that it intended that the valuation should reflect that lessened purchasing chanroblesvirtualawlibrary
It knew that the value for ratemaking purposes could not be more than that sum on which a fair return could be earned by legal rates, and that the earnings were chanroblesvirtualawlibrary
Fifth. Other considerations confirm the construction given by the Commission to the phrase "value for ratemaking purposes," as used in § 15a. In condemnation proceedings, the owner recovers what he has lost by the chanroblesvirtualawlibrary
Value has been defined as the ability to command the price. [Footnote 22] Railroad property is valuable as such only if, and so far as, used. If rates are too high, the traffic will not move. Hence, the value or rate base is necessarily dependent, in the first place, upon the commercial ability of the property to command the rates which will yield a return in excess of operating expenses and taxes, and such value cannot be higher than the sum on which, with the chanroblesvirtualawlibrary
Recent experience affords striking examples of commercial limitations upon rates. In Ex parte 74, Increased Rates, 1920, 58 I.C.C. 220, the Commission sought to establish rates which would yield 6 percent upon the aggregate values of the railroads in the several groups. The carriers claimed as the aggregate value $20,040,572,611, that amount being carried on their books as the cost of road and equipment. The Commission fixed the value about 5 percent lower -- at $18,900,000,000. In order to produce on that sum net earnings equal to 6 percent, it increased freight rates, in the eastern group, 40 percent over the then existing rates, in the southern group, 25 percent, in the western group 35 percent, and, in the mountain-Pacific group, 25 percent. [Footnote 23] As a result of these increases, the average gross revenue per ton mile in 1921 was in the eastern district 96.1 percent greater than for the fiscal year ended June 30, 1914, in the southern, 61.4, in the western, 59.3, and in the United States as a whole, 76.2. Reduced Rates, 1922, 68, I.C.C. 676, 702. chanroblesvirtualawlibrary
This constant lowering of the weighted average of rates since 1920 must have been due to causes other than desire on the part of the Commission. Its aim was to adjust rates so that they would yield the prescribed return. But, for the period from 1920 to 1927, inclusive, there was only one year in which the railroads of the United States as a whole, despite general prosperity and greater efficiency, earned on the value found in Ex parte 74 brought down to date, the full average return prescribed as fair under chanroblesvirtualawlibrary
section 15a. [Footnote 29] The Commission repeatedly refused to permit carriers to make reductions, because the reduction would lower the revenues sought to be provided under § 15a. [Footnote 30] On the other hand, carriers, although earning less than the fair return prescribed under § 15a, have often voluntarily reduced rates. [Footnote 31] The lowering of rates was probably due chanroblesvirtualawlibrary
Sixth. Since 1914, the railroads have been obliged, to an ever-increasing extent, to compete with water lines and with motors. This competition has been fostered by the government [Footnote 33] through the Panama Canal Act, [Footnote 34] through chanroblesvirtualawlibrary
the intracoastal waterways acts, [Footnote 35] through the inland waterways acts, [Footnote 36] through the development of coastwise chanroblesvirtualawlibrary
shipping by means of harbor improvements, [Footnote 37] and through federal aid in the construction of highways. [Footnote 38] There has also been increased competition by pipelines. Competition from other means of transportation has tended to arrest the normal increase in the volume of rail traffic, and, as to some traffic, it has actually produced a reduction in both the volume and the rates. It has resulted in a general shrinkage in the passenger business, [Footnote 39] in some regions, in a lessening of the carload freight; [Footnote 40] and, in chanroblesvirtualawlibrary
The influence of water competition on rates is strikingly illustrated by the effect of the Panama Canal on transcontinental freight rates. [Footnote 42] In order to meet this water competition, carriers have repeatedly asked leave to make sweeping reductions. [Footnote 43] Rates voluntarily established by the rail carriers are lower now, on some articles of traffic, than they were in 1914. On others, they are only a little higher. [Footnote 44] The influence of competition by chanroblesvirtualawlibrary
the inland waterways on the volume of rail traffic is illustrated in the effect which improvement of the Ohio river and its tributaries has had in the Pittsburgh district. The rail tonnage in 1927 was materially less than in 1914, while the water tonnage more than doubled. [Footnote 45] The influence of barge lines in reducing or holding down rail rates is illustrated by the rail rates in competition with those of the barge lines on the Ohio, the Mississippi, and chanroblesvirtualawlibrary
the Warrior Rivers. [Footnote 46] The widespread effect of competition by motor truck in lowering both the rates and volume of rail traffic is obvious. [Footnote 47] Not obvious, but indisputable, has been the effect of the potential competition of pipelines chanroblesvirtualawlibrary
Moreover, rates which are not so high as to prevent commercially the movement of traffic are often required to be lowered because they conflict with some statutory provision. Thus, Congress compels reduction of rates which discriminate unjustly against individuals, localities, articles of traffic, or other carriers. Perhaps the most striking instance of the limitation by law of rates which the traffic would bear commercially is furnished by cases under the long and short haul clause. By that clause, a rail carrier is often obliged (unless relieved by order of the Commission) to elect between suffering practically a total loss of existing traffic between competitive points or suffering a loss in existing revenues by reducing rates at both the competitive points and intermediate noncompetitive points. The effect of this limitation upon rates, and hence upon the actual value of railroads, has become very great. Its influence has grown steadily with the growth chanroblesvirtualawlibrary
Seventh. In requiring that the value be ascertained for ratemaking purposes, Congress imposed upon the rate base as defined in Smyth v. Ames, still another limitation which is far-reaching in its operation. By declaring in § 15a that the Commission shall, "in the exercise of its chanroblesvirtualawlibrary
and does not mean "that the plant should be valued at what would now be needed to chanroblesvirtualawlibrary
duplicate the plant precisely." [Footnote 52] Proof of value by evidence of reproduction cost presupposes that a plant like that being valued would then be constructed. To the extent that a railroad employs instruments which are inconsistent with efficiency, the plant would not be constructed, and, because of the inefficient part, the railroad is obviously not then worth the cost of reconstructing the identical plant. While a part often has some service value, although not efficient according to the existing standard, its use may involve such heavy, unnecessary operating expense as to render it valueless for ratemaking purposes under § 15a. The Commission, when requested to consider evidence of reproduction cost, must therefore examine the value of every part of the plant, and that of the whole plant, as compared with the value of a modern, efficient plant. Upon such consideration, the Commission may conclude that the railroad is so largely obsolete in construction and equipment as to render evidence of the reproduction cost of the identical plant of no probative force whatsoever. The duty so to deal with the evidence seems to flow necessarily from the rejection by the court of prudent investment as the measure of value, and the adoption, instead, of the actual value of the property at the time of the rate hearing as the governing rule of substantive law. chanroblesvirtualawlibrary
The physical deterioration of a railroad plant through wear and tear may be very small as compared with a plant new, while its functional deterioration may be very large as compared with a modern efficient plant. This lessening of service value may be due to any one of several causes. It may, in the first place, be due to causes wholly external. Freight terminals, originally well conceived and wisely located in the heart of a city, may have become valueless for ratemaking purposes under § 15a because, through growth of the city, the expense of operating therein has become so high, or the inescapable cost of eliminating grade crossings so large, that efficient management requires immediate abandonment of the terminals. [Footnote 53] And, even if the cost of continuing operation there is not so high as to require abandonment, the property may have, for ratemaking purposes, a value far below its market value. [Footnote 54] Compare 186 U. S. 268; Willcox v. Consolidated Gas Co.,@ 212 U. S. 19, 212 U. S. 52.
The lessening of the service value of a part of the railroad plant may flow from changes in the volume or character of its traffic. For economy and efficiency are obviously to be determined with reference to the business of the carrier then being done and about to be done. [Footnote 55] A station warehouse for less-than-carload freight may have become valueless for ratemaking purposes because, through motor competition, the railroad had lost substantially all its less-than-carload business at that point. Large reductions in the value of passenger stations and equipment may have resulted from decline in the passenger traffic. Branch lines may lose all their service value, so that they should be abandoned because motor transportation has become more efficient. On the other hand, the traffic may have grown so much as to render inefficient a part of a chanroblesvirtualawlibrary
line originally wisely constructed with heavy grades [Footnote 56] or curves. [Footnote 57] In that event, economy and efficiency will demand elimination of the grades and curves, and may even chanroblesvirtualawlibrary
require the building of tunnels or a cut-off. [Footnote 58] Insofar as such a condition exists, the railroad would obviously not be reconstructed with the heavy grades and curves, [Footnote 59] and, when considering the reconstruction cost of the whole chanroblesvirtualawlibrary
Perhaps the most common cause of the lessening of service value of parts of railroad plants originally well conceived and still in good physical condition is the progress in the art of rail transportation. Science and invention have wrought since June 30, 1914, such extraordinary improvements in the types of automobiles and aeroplanes that no one would contend that the present service value of such machines should be ascertained by inquiring what their original cost was or what their reproduction cost would be. The progress since June 30, 1914, in the art of transportation by railroad has been less spectacular, but the art has been far from stagnant. [Footnote 60] In railroading, as in other chanroblesvirtualawlibrary
fields of business, the great rise in the cost of labor and of supplies, and the need of better service, have stimulated not only inventions, but also their utilization. Through technological advances, instruments of transportation with largely increased efficiency and economy have been developed. The price of lower operating costs is the scrapping of those parts of the plant which progress in the art render obsolete. [Footnote 61] The present greatly increased efficiency of the railroads as compared with 1920, their greatly improved credit, and their present prosperity, are, in large measure, due to the advances made toward introducing the improved instruments of rail transportation which have become available. [Footnote 62] Obviously much remains to be done. chanroblesvirtualawlibrary
The extent of this technological progress may be illustrated by the modern locomotive. The development of the superheater, the mechanical stoker, the booster, and other devises, the increase in the size of the boiler, and other radical changes in size, weight, and design have resulted in the production of engines which are recognized by railway experts as having set such an entirely new standard of efficiency in fuel consumption, [Footnote 63] in tractive power, [Footnote 64] and in speed [Footnote 65] as to render wasteful, under many conditions, chanroblesvirtualawlibrary
Its economics are compelling. But important changes in roadway and equipment are conditions of its effective use. Heavier locomotives make greater demands on the road structure which carry them. To obviate large maintenance expenses attendant upon frequent repair and replacement, the roadway must be made more durable. [Footnote 67] To chanroblesvirtualawlibrary
this end, rails of heavier section [Footnote 68] and of increased length are adopted. [Footnote 69] Anti-creepers are freely used to prevent rail movement. [Footnote 70] Larger ties are selected, and they are treated to prevent deterioration. [Footnote 71] Ballast is made deeper and heavier, and of gravel or stone, rather than of cinders. [Footnote 72] Bridges are of stronger construction. [Footnote 73] And, to chanroblesvirtualawlibrary
facilitate the movement of traffic, watering stations [Footnote 74] and automatic signals [Footnote 75] of improved design are introduced. Moreover, the effective employment of the modern locomotive involves ordinarily the use of larger cars of steel construction, displacing the wooden car of small capacity with which so many of the railroads were equipped in 1914. [Footnote 76] Engine terminals and carshops built prior to 1914 are, in many cases, inadequate [Footnote 77] for the efficient and chanroblesvirtualawlibrary
Thus, the efficient post-war railroad plant differs widely even from the efficient one of 1914. That during the recapture period here in question the plants of most of chanroblesvirtualawlibrary
the railroads of the United States built before the war were lacking in improved instruments of transportation made available by recent progress in the art is of common knowledge. [Footnote 80] That this is true even today of many of the railroads will not be denied. [Footnote 81] To the extent that there is inefficiency in plant, there was and is functional depreciation, lessening actual value. That this functional depreciation, arising through external changes, through chanroblesvirtualawlibrary
It may be urged that the continued use of the inefficient plant, [Footnote 82] and the repairing, rather than replacement of its antiquated parts, [Footnote 83] has been due to lack of capital and chanroblesvirtualawlibrary
It may also be urged that such functional depreciation of the railroad plant since 1914 is allowed for in the depreciation customarily estimated by the Commission. But this is not true. Functional depreciation prior to June 30, 1914, was included when valuing as of that date chanroblesvirtualawlibrary
If weight is to be given to reproduction cost in making the valuation of any railroad for ratemaking purposes under § 19a and § 15a, there must be a determination of the functional depreciation of the individual plant as compared with a modern, efficient plant adequate to perform the same service. To make such a determination for any railroad involves a detailed inquiry into the character and condition of all those parts of the plant which may have reduced functional value because of the post-war changes affecting transportation above referred to, and also into the character and the volume of the carrier's business. For the efficient plant means that plant which is economical and efficient for the particular carrier in view of the peculiar requirements and possibilities of its own business. To make such a determination justly, the Commission must have the data on which a competent and vigilant management would insist when required to pass upon the advisability of making capital chanroblesvirtualawlibrary
To make such a determination of functional depreciation annually for each of the railroads of the United States would be a stupendous task, involving perhaps prohibitive expense. To make the necessary decisions promptly would seem impossible, among other reasons, because railroad valuation is but a small part of the many duties of the Commission. On the other hand, to adjust rates so as to render a fair return, and to provide through the recapture provision funds in aid of the weaker railroad, are tasks which Congress deemed urgent, and which must be promptly performed if its purpose is to be achieved. Obviously Congress intended that, in making the necessary valuations under § 15a, a method should be pursued by which the task which it imposed upon the Commission could be performed. Compare New England Divisions Case, 261 U. S. 184, 261 U. S. 197. Recognizing this, the Commission construed § 15a as it had paragraph (f) of § 19a -- that is, as permitting the Commission to make a basic valuation as of some general date (June 30, 1914, was selected), and, unless good reason to the contrary appeared, to find the value for any year thereafter by adding to or subtracting from the 1914 value the net increases or decreases in the investment in property devoted to transportation service as determined from the carrier's annual returns with due regard to the element of depreciation. [Footnote 86] chanroblesvirtualawlibrary
Of both railroads and the local utility it is true, under the rule of substantive law adopted in the Southwestern Bell case, that value is the sum on which a fair return can be earned consistently with the laws of trade and legal enactments. But the operative scope upon railroads of the limitations so imposed upon the rates, and chanroblesvirtualawlibrary
The legal limitations upon rates (so potent in the case of railroads) are, in the main, inoperative in the case of such a water company. Rail rates are sometimes held illegal because the exaction is greater than the value of the service to the shipper. There is in fact no corresponding limitation upon water rates. The charge is so small, as compared with the inconvenience which would be chanroblesvirtualawlibrary
It is true that, in the Southwestern Bell case, the court passed also upon a subsidiary question -- the weight and effect of the evidence of reconstruction cost. But the question of adjective law arose upon a record very different from that in the case at bar, and the action of the Commission here is entirely consistent with that decision. In the Southwestern Bell case, direct testimony as to the then value of the property was introduced. The efficiency of the plant was unquestioned. Witnesses had testified both to the actual cost of constructing identical property at that time and that the specific property under consideration was worth at least 25 percent more than the estimate of the state commission. The Court believed those witnesses. Concluding that this direct and uncontradicted evidence had been ignored by the state commission because chanroblesvirtualawlibrary
Ninth. A further question of construction requires consideration. It is suggested that, even if the Commission chanroblesvirtualawlibrary
that it erected "an arbitrary standard of its own based on no relevant facts;" that, if it had given consideration to all relevant facts and circumstances, including as one its cost of reproduction at current prices, "the value found must have been substantially higher;" and that its primary purpose was to determine the amount of the investment in the carriers' property. In short, the O'Fallon asserts that the Commission refused to find actual value, and, instead, found the prudent investment. chanroblesvirtualawlibrary
(Page. 41.) The statement just quoted does not mean that the Commission accepted prudent investment as a measure of value. It means merely that the Commission deemed the estimated original cost a better indication of actual value than the estimated reconstruction cost. While this Court declared in the Southwestern Bell case that prudent investment is not to be taken as the measure of value, it has never held that prudent investment may not be accepted as evidence of value, or that a finding of value is necessarily erroneous if it happens to be more nearly coincident with what may be supposed to have been the cost of the property than with its estimated reproduction cost. The single-sum values found by the Commission do not coincide either with the estimated prudent investment or with the estimated reconstruction cost. They are much nearer the estimated original cost of the property than they are to its estimated reproduction cost. But the values found do not conform to any formula. [Footnote 89] chanroblesvirtualawlibrary
The carrier insisted that physically the property had appreciated more than it had depreciated, and urged the Commission to take as the basic measure of value the "cost of reproduction new at current prices to the exclusion of everything else, or at least of everything that might tend to a lower value." 124 I.C.C. 28. This the Commission declined to do. It gave full effect to increased current market values in determining the value of the land. It gave to the additions and betterments made after June 30, 1914, a value approximating their cost less physical depreciation. [Footnote 90] But, in respect to structural chanroblesvirtualawlibrary
The difficulties by which the Commission was confronted when requested to apply the evidence of reproduction cost can hardly be exaggerated. In the first place, the evidence was of such a character that it did chanroblesvirtualawlibrary
not satisfactorily establish what would have been the current cost of reproduction during the recapture periods. [Footnote 91] During the years here in question, there was practically no construction of new lines. [Footnote 92] Thus, the current cost of reproduction for those years had to be obtained by using index figures as the basis for a guess as to what it would cost to build then the identical railroad. To give chanroblesvirtualawlibrary
Moreover, the Commission had, through its valuation department, special knowledge of the property of this carrier. It had acquired necessarily in the performance of its many duties the general knowledge, already referred to, chanroblesvirtualawlibrary
The O'Fallon urged that its large net earnings during the recapture periods and earlier fully established a higher value, independently of the evidence of reproduction cost. This contention ignores the peculiar character of the property. The railroad, which is owned by the Adolphus Busch estate and family and lies wholly in Illinois, operates about 9 miles of main line from two coal mines, also owned by the Busch estate and family, to the tracks of the Terminal Company in East St. Louis. There are 12 miles of yardage tracks, located largely at the Busch mines. While the railroad is legally a common carrier, it is actually chanroblesvirtualawlibrary
How long the four mines will continue to be operated was and still is entirely uncertain. Their product is subject to the competition of 221 other bituminous coal mines in Illinois. These, which are all located on other railroads, enjoy low rates to St. Louis. See Perry Coal Co. v. Alton & Southern R. Co., 5 Illinois Commerce Commission 461. The vicissitudes of coal mining, the diminishing use of coal since the war because of increased fuel efficiency, the competition of oil as fuel, and the growing use of hydroelectric power are matters of common knowledge, as are the diminishing operations during recent years of the Illinois coal mines as compared with the mines in nonunion territory. [Footnote 95] Moreover, the decline in the volume of traffic, the reduction in coal rates made by Reduced Rates, 1922, 68 I.C.C. 676, and the growing expenses of the carrier due to increased payroll were put in evidence by it. In view of these facts, the Commission was clearly justified in refusing to find that the railroad had a higher value than in 1914, although the net earning chanroblesvirtualawlibrary
Compare United States v. Boston, Cape Cod & New York Canal Co., 271 F.8d 7, 889, where the court said that the jury
The report of the Interstate Commerce Commission is rejected and its order set aside on the sole ground that, in a recapture proceeding under § 15a of the Interstate Commerce Act, it has failed to consider present reproduction cost or value of appellant's property, and so to "give chanroblesvirtualawlibrary
In performing its task, the Commission had before it the cost of reproduction new of appellant's structural property, estimated on the basis of 1914 unit prices, "with the knowledge that the costs of reproduction so arrived at were not greatly different from the original costs." It had evidence of the actual cost of later additions and replacements, of the physical condition of the railroad and equipment, of the character, volume, and sources of its traffic, of its working capital and revenues and expenses. It possessed, through its valuation department, special knowledge of the property of this carrier. Through its own experience, it had the benefit of an expert knowledge of all the factors affecting value of railway property growing out of changes in methods of transportation, of improvement in transportation appliances, and the consequent obsolescence of existing equipment, of improvement in methods of railroad construction, and consequent reductions in cost. Although it had estimates of present construction costs in the form of index figures based on the comparative general price levels of labor and materials for 1914 and each of the recapture years, which it considered and discussed in its report, there was no evidence before it of the actual present cost of construction of this or any other railroad, or any affirmative showing that, if appellant's road was to be built and equipped anew, competent railroad engineers would deem the present structure and equipment suitable for or adaptable chanroblesvirtualawlibrary
I cannot avoid the conclusion that, in substance, the objection, now upheld, to the order of the Commission, is not that it failed to consider or give appropriate weight to evidence of present reproduction cost of appellant's road, but that it attached less weight to present construction costs than to other factors before it affecting adversely the present value of the structural property. That this was the real nature of the objection voiced by the dissenting Commissioners seems to me apparent from their opinion. chanroblesvirtualawlibrary
This Court has said that present reproduction costs must be considered in ascertaining value for ratemaking purposes. But it has not said that such evidence, when fairly considered, may not be outweighed by other considerations affecting value, or that any evidence of present reproduction costs, when compared with all the other factors affecting value, must be given a weight to which it is not entitled in the judgment of the tribunal "informed by experience" and "appointed by law" to deal with the chanroblesvirtualawlibrary
As I cannot say a priori that increased construction costs may not be more than offset by other elements affecting adversely the present value of appellant's property, and as there was evidence before the Commission to support its findings, I can only conclude that the judgment below should be affirmed. In any case, in view of the statement of the Commission that it considered all relevant facts, including the elements of value brought to its attention by the carrier, I should not have supposed that we could rightly set aside the present order without some chanroblesvirtualawlibrary