Court Opinion

ID: 9418572
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:32:25.725677+00
Date Added: 2024-06-11T17:22:06.157660
License: Public Domain

Mr. Justice Brandeis,
dissenting.
In the case at bar, as in Galveston Electric Co. v. Galveston, 258 U. S. 388, and Georgia Railway & Power Co. v. Railroad Commission, 262 U. S. 625, both the rate-making body and the lower court purported to adopt the rule of Smyth v. Ames, 169 U. S. 466, by which the value of the. property, as of the time'of the rate hehring; is taken as the rate base. Hence, the soundness of that rule — the question on which this Court divided in Missouri ex rel. Southwestern Bell Telephone v. Public Service Commission, 262 U. S. 276, and in Pacific Gas & Electric. Co. v. San Francisco, 265 U. S. 403 — is not involved here. Nor is the general question involved on which the Court divided in Ohio Valley Water Co. v. Ben Avon Borough, 253 U. S. 287, 297.
The Commission and the lower court likewise, agreed that reproduction cost was evidence as to value. . The primary questions on which they differed are these. Is a finding of reproduction cost tantamount' to a finding of value? Is the reproduction cost which should be ascertained by the tribunal, the “spot” reproduction cost— that is, cost at prices prevailing at the time of the hearing? *422The District Court, as I read its opinion, answered both of' these questions in the affirmative.1 The' learned judge assumed, that spot reproduction cost is the legal equivalent of value. He found that $19,000,000 was,- on the' evidence, "the lowest, conceivable spot reproduction cost. He assumed that, since the. utility was willing to accept this minimum as reproduction cost, no amount less than that could be found by him to be the value, or rate base. He believed that recent decisions of this Court required him so to hold. In this belief he was clearly in error. ■
That reproduction cost is not conclusive evidence of value has been repeatedly stated by a unanimous Court. The rule of Smyth v. Ames, 169 U. S. 466, 547, requires not only that each class of-other evidence of value be considered, but,-also that "each-class'of evidence “be giveh such weiarht tas- :máy be just and right in each case;” *423Similarly, it was stated in the Georgia Railway & Power case, 262 U. S. 625, 630:
“ The refusal of the Commission and of the lower court to hold that, for rate-making purposes, the physical properties of a utility must be valued at the replacement cost less depreciation was clearly correct. As was said in Minnesota Rate Cases, 230 U. S. 352, 434: ‘ The ascertainment of that value is not controlled by artificial rules. It is not a matter of formulas, but there must be a reasonable judgment having its basis in "a proper consideration of all relevant facts.’ ”
There is, so far as I recall, no statement by this Court that value is tantamount to reproduction cost.
Nor do I find in the decisions of this Court any support for the view that a peculiar sanction attaches to “ spot ” reproduction cost, as distinguished from the amotmt that it would actually cost to reproduce the plant if that task were undertaken at the date of the hearing. “ Spot ” reproduction would be impossible of accomplishment with*424out the aid of Aladdin’s lamp. The actual cost of a plant may conceivably indicate its actual value at the time of completion or at some time thereafter. Estimates of cost may conceivably approximate what the cost of reproduction would be at a given time. But where a plant would require years for completion, the estimate would be necessarily delusive if it were based on “ spot ” prices of labor, materials and money. The estimate, to be in any way worthy of trust, must be based on a consideration of the varying costs of labor, materials, and money for a period at least as long as would be required to construct the plant' and put it into operation. Moreover, the estimate must be made in the light of a longer experience and with due allowances for the hazards which attend all prophesies in respect to prices. The search for value can hardly be aided by a hypothetical estimate of the cost of replacing the plant at a particular moment, when actual- reproduction would require a period that must be measured by years.
When a court declares that the rate basé shall be the value, instead of the historical cost or the amount prudently invested in the enterprise, it selects the standard for measuring the property on which compensation is to be paid. It lays down a rule of law; and in the performance of that function there is always a legitimate field for theory. But when, having selected value as the standard for the rate base, the court undertakes to find what that value is at the date of the rate hearing, it purports .to-make a finding of fact. The process of determining facts will inevitably be misleading unless each step bears a close relation'to the realities of life.
The evidence introduced before the trial court, which seems to be in substaiice the same as that introduced before the Commission, is now before this Court. We have power to examine the evidence and to enter such decree as may be appropriate. Compare Denver v. Denver Union Water Co., 246 U. S. 178. But the better practice *425requires that the case be remanded to the District Court, so that the evidence may be re-examined there in the light of the applicable rules. Oklahoma Natural Gas Co. v. Russell, 261 U. S. 290, 293; Pacific Tel. & Tel. Co. v Kuykendall, 265 U. S. 196. Compare Chicago, M. & St. P. Ry. Co. v. Tompkins, 176 U. S. 167, 179; Lutcher & Moore Lumber Co. v. Knight, 217 U. S. 257, 267; Brown v. Fletcher, 237 U. S. 583; Gerdes v. Lustgarten, 266 U. S. 321, 327. To this end the decree should, in my opinion, be reversed.
.To avoid the possibility of misunderstanding, I add merely that, in my opinion, the facts of record, considered in connection with those of which we have judicial notice, do not justify holding that rates which yield a return of less than 7 per cent, would be so unreasonably low as to be confiscatory.
Mb.- Justice Stone joins in this dissent.

 “Granting that these cases [Missouri ex rel. Southwestern Bell Tel. Co. v. Public Service Commission, 262 U. S. 276; Bluefield Water Works v. Public Service Commission, 262 U. S. 679; Georgia Ry. & Power Co. v. Railroad Commission, 262 U. S. 625] were decided at a time when the Court had, as a matter of history in this particular field of jurisprudence, full cognizance of the probative, character and the propriety of considering evidence such as is popularly called evidence of historical cost, evidence of reproduction cost upon a certain price level, evidence of value which is called prudent investment value, and, fourth, evidence of what is strictly and technically reproduction spot depreciated at the time of the inquiry; these cases press upon us sharply the query of why these cases, in their .results, disclose the emphasis given to the last named of these four character[s] of evidence; and I am entirely content to accept the characterization made by the Judges in the Sixth Circuit in the so-called Monroe Gas case; that the necessary implication from their results is that dominating consideration should be given to evidence of reproduction value and, if that means anything, it means that, evidence of reproduction, value spot at the time of the inquiry must be considered as evidence of a primarily different character from either of the other three kinds of evidence. . . . Now, the Court is required, as seems to me, to'apply the principles that are to be discussed anu to be accepted, as I indicated in my preliminary remarks, as to what, the Supreme Court meant *423by what it said in these three cases. Is it .possible ... or can the Court now rationally say that the Commission here and, in order to test it out, include the Court here, can, by any sort of examination of the evidence, reach a conclusion that upon unimpeached evidence, showing a minimum of spot reproduction values at $19,000,000, it will still find reasonable value at $15,260,000? . . . Now, that brings us to the evidence in this case and, as I said, can the Commission or can this Court now, say that there can be a rational reconcilement betw'een unimpcached evidence of $19,000,000, as a minimum cost reproduction value spot, and any other price level, particularly one showing a disparity of five million dollars — four or five? ... I am not confronted with the problem of fixing a valuation within the range of dispute upon spot reproduction. I say I am not confronted with that problijm, because the complainant comes into this Court and offers to accept $19,000,000, as a fair basis of valuation, even though, as it says, and I think has reason, to say and could support it, it could, upon the record, sustain a higher valuation.” The decree itself recited “ that the fair value of complainants’ said property was and is not less than $19,000,000.”