Court Opinion

ID: 4722095
Source: CourtListenerOpinion
Date Created: 2021-08-12 02:37:16.790064+00
Date Added: 2024-06-11T08:07:40.858632
License: Public Domain

Fullerton, J.
(dissenting) — I am unable to agree with the conclusion reached by the majority in this cause. It is my opinion that the department of public works proceeded upon bases fundamentally wrong in fixing the rates the rail carriers involved may charge for transporting the commodity here under consideration. Some of the reasons for so concluding I will notice as briefly as I may.
' The department, after reciting that the exhibits and calculations of the carriers showed a loss from the carriage of logs in the state of Washington at their present existing rates for the year 1920 (the year preceding the date of the hearing before the department), found that there had been an actual profit from the carriage of logs during the year named of $818,448. It reached this result by the following method — I quote from their findings:
“In arriving at the net revenue from log traffic earned by the four principal-carriers within the state during 1920, of $818,448, the following method was used:
‘1 Grfoss revenue from log transportation ......................$2,859,172
“Incidental freight revenue assigned to log transportation.. 56,232
“Total revenue............... $2,915,404
“Operating expense assigned to log transportation...........$1,923,198
“Taxes assigned to log transportation ...................... 173,758
“Total expense .............. $2,096,956
“Total net................... $818,448
“In arriving at the operating expense assigned to the log traffic, the cost of freight operation within the *597State of Washington was calculated upon the basis of cost per 1,000 gross ton miles of handling all freight upon the combined systems of the four principal carriers, and in this manner the total cost of freight operation assignable to the State of Washington was found to be $38,678,870, which is equivalent to a unit operating cost of $5,321 per 1,000 revenue gross ton miles handled by the four principal carriers within the state during the year in question. On this basis the cost of handling the log traffic within the state during the year by such carriers was $1,923,198. The taxes assigned to the log traffic are one-half of those contended for by the carriers after the elimination of income taxes. All of the figures used in this calculation are contained in the annual reports filed with us by the carriers, or were taken from exhibits supplied by the carriers in this case. ’ ’
It is my opinion that the department here erred in its method of procedure. The first reason for so concluding is that the department went too far afield in its •search for a unit of measurement. The jurisdiction of the department to fix rates of carriage for either passengers or freight is confined solely to the intrastate traffic of the carriers. With their interstate traffic, or with their traffic in other states, it has nothing to do. The power to regulate such traffic is vested exclusively in other bodies with whom the department in this state has not even an advisory control. The conditions under which a carrier is permitted to conduct its traffic must always materially affect its cost. The number of trains it must run within a given time, the terminal facilities it must provide, the number of train operatives it is required to furnish, and like matters, all enter into the cost, and, as these are necessarily different in the different jurisdictions, any unit of measurement based upon the cost of hauling over the entire system cannot be a correct unit to measure the cost of *598hauling a particular commodity in this state. In my opinion, the department should have confined its inquiries to the .cost of haul of freight traffic within this state. This, as I understand it, is the rule announced hy the supreme court of the United States in Smyth v. Ames, 169 U. S. 466. A quotation from the opinion will make the point clear. The court there used this language:
“It is further said, in behalf of the appellants, that the reasonableness of the rates established by the Nebraska statute is not to be determined by the inquiry whether such rates would leave a reasonable net profit from the local business affected thereby, but that the court should take into consideration, among other things, the whole business of the company, that is, all its business, passenger and freight, interstate and domestic. If it be found upon investigation that the profits derived by a railroad company from its interstate business alone are sufficient to cover operating expenses on its entire line, and also to meet interest, and justify a liberal dividend upon its stock, may the legislature prescribe rates for domestic business that would bring no reward and be less than the services rendered are reasonably worth? Or, must the rates for such transportation as begins and ends in the state be established with reference solely to the amount of business done by the carrier whofiy within such state, to the cost of doing such local business, and to the fair value of the property used in conducting it, without taking into consideration the amount and cost of its interstate business, and the value of the property employed in it? If we do not misapprehend counsel, their argument leads to the conclusion that the State of Nebraska could legally require local freight business to be conducted even at an actual loss, if the company earned on its interstate business enough to give it just compensation in respect of its entire line and all its business, interstate and domestic. We cannot concur in this view. In our judgment, it must be held that the reasonableness or unreasonableness of rates prescribed *599by a State for tbe transportation of persons and property wholly within its limits must be determined without reference to the interstate business done by the carrier, or to the profits derived from it. The State cannot justify unreasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, over which, so far as rates are concerned, the State has no control. Nor can the carrier justify unreasonably high rates on domestic business upon the ground that it will be able only in that way to meet losses on its interstate business. So far as rates of transportation are concerned, domestic business should not be made to bear the losses on interstate business, nor the latter the losses on domestic business. It is only rates for the transportation of persons and property between points within the State that the State can prescribe; and when it undertakes to prescribe rates not to be exceeded by the carrier, it must do so with reference exclusively to what is just and reasonable, as between the carrier and the public, in respect of domestic business. The argument that a railroad line is an entirety; that its income goes into, and its expenses are provided for, out of a common fund; and that its capitalization is on its entire line, within and without the State, can have no application where the State is without authority over rates on the entire line, and can only deal with local rates and make such regulations as are necessary to give just compensation on local business.”
See, also, the Minnesota Rate Cases, 230 U. S. 352, where the case is cited with approval upon this point.
Another reason for concluding that the department erred is that the rule adopted, if permissible, would furnish no just rule of measurement for hauling the particular commodity her in consideration. Some of the reasons for so concluding are these: The average length of haul for logs is, in the state of Washington, but little more than thirty miles; while the average *600length of haul of general freight over the combined system of the railways involved is several hundred miles, and it is conceded that the cost of haul decreases as the length of haul increases. The rule takes no account of the difference in cost of hauling over the tortuous, winding, heavily graded road beds in the mountainous regions of Washington, and the cost of hauling over the straight and level road beds of the great plains of the middle West; yet this, also, is an element concededly affecting the cost. It takes no account of the difference in movement of empty cars between the hauling of logs and the hauling of general freight, although it was shown that rolling stock fitted for hauling logs can be used for no other purpose while so fitted, and that the consequent movement of empty cars is always greater in proportion to loaded cars than it is in the hauling of general freight; the percentage in the one case equalling fifty, while in the other it is about thirty-three and one-third. It takes no account of the cost of upkeep of the rolling stock; the percentage of breakage and damage to the rolling stock devoted to the log traffic being greater than it is in any other. The rule takes no account of the fact that the movement of logs in the state of Washington is principally upon branch lines — the ratio between branch and main lines being as 75 is to 25 — and that the' cost of haul upon branch lines is substantially twice as great per ton mile as it is upon main lines; and it takes no account of the somewhat abnormal number of empty cars required to originate one loaded car.
All these conditions were shown by the evidence, and, clearly, each of them tends to show that the cost of hauling logs in the state of Washington is greater per thousand gross ton miles than is the average cost of hauling general freight over the combined systems *601of the railway companies. Indeed, a statistician of one of the railway companies presented somewhat elaborate tables by which he sought to show the cost of hauling on the lines of his company one thousand gross tons of logs one mile. His deductions were that the cost was $7.61 per mile as against $5.321 as found by the department. I quote his figures with more confidence since, as I understand the record, his method of deduction met with the approval of the distinguished traffic expert now in the employ of the department, and who has so ably and so long served the state in that capacity.
Another reason is that the department, in fixing'its unit of haul, purposely excluded the federal taxes paid by the railway companies. That this is an expense necessarily to be taken into consideration was decided by the supreme court of the United States in Galveston Electric Co. v. Galveston, 258 U. S. 388.
The department was of the opinion that operation for a limited time under the rates fixed by it would of itself determine whether or not the rates were reasonable and just, and this seems to have been in some degree a controlling influnce with the majority of this court.' But I am afraid this consideration is going to prove illusory. If the earnings under the present traffic rates do not prove the reasonableness of the cost of haul, I am unable to see how the earnings under a materially reduced rate are going to prove so. There is but one proper way to determine the reasonableness of the cost of haul, and that is, to take into consideration all of the elements that enter into the cost. The earnings from the haul is only one of such elements and, at the end of the probationary period, the department, it seems to me, is going to be confronted with the same problem that now confronts it. I concede, of *602course, that had the order related to the entire intrastate traffic of the companies involved, their gross earnings from the combined traffic, compared with the gross cost of haul, would in some degree determine the reasonableness of the rates fixed. But the case here is not this. There is here a fixing of a rate upon a single commodity, and nothing but a general inquiry, which the department is as well prepared now to make as it will be- after the test period, can determine the reasonableness of the rate.
There are other objections to the order which I think are worthy of consideration, but I have not the time, nor do I think the necessities of the case require that I pursue the inquiry further. In passing, I will say that I fully appreciate the difficulties that confront a rate-making body when it attempts to determine the cost to a carrier of hauling a single commodity. Owing to the many different. elements that enter into such cost, which are common to the entire traffic and which at best can only be approximately apportioned, there is nó rule by which it can be definitely ascertained. I appreciate also that the record discloses that the members of the department gave to the consideration of the question much earnest thought and careful consideration ; but I feel that they have considered matters that ought not to have been considered, and have excluded others that ought to have been included, and for this reason alone. I conclude that error has entered into their order.
In my opinion, the judgment appealed from should be reversed and the cause remanded to the department for further consideration.
Main, C. J., and Mackintosh, J., concur with Fullerton, J.