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\ Public Utility Property IMPARTIAL VALUATIONS of INDUSTRIAL and COMMERCIAL PROPERTY Thirty-nin* years of factuol appraisal service to America’s more conservative business institutions. District offices in principal cities. 596-598, 601-607, 88 L. cd. 333, 341-342, 344-347, decided in 1944. Much has been written in books, journals, magazines, and newspapers, and in court decisions, concerning this particular decision. Some claim to know exactly what was decided in the H o p e case, the claim often stem­ming from preconceived views or wishful thinking. Suffice it to say that no man should undertake to venture an opinion on what was therein decided until he has care­fully read all the opinions rendered in that case. Some of those who have given little or no study to this decision oftentime express the most confirmed opinions as to what the decision actually held. Some have said that the rule con­tended for in the concurring opinion of Justices Black, Douglas and Mur­phy in the N atural Gas P ip elin e C om pany case was adopted in the prevailing opinion in the H o p e case. W r ite r ’s V ie w o f W h a t W a s H e ld in th e H o p e C ase However, a reading of this concurr­ing opinion in the former and the prevailing opinion in thb latter demonstrates the unsoundness of such interpretation. The concur­rence in the N atural Gas P ipelin e C om pany case attacked and rejected the rule laid down in the C hicago, M ilw a u kee & St. Paul R ailroad C om pany case, which provided for (a) judicial review of the reasonable­ness of rates, and (b) made ap­plicable to rate-fixing the constitu­tional rides underlying eminent domain principles and procedure. Also, that concurrence denounced and rejected the valuation rule laid down in Smyth v. Am es. Apparently, die plea was for a return to M u nn v. Illinois. The question, therefore, is: Did die prevailing opinion in the H o p e rase wreak the destruction that was urged by this concurring opinion in the N atural Gas P ipelin e C om ­pany case? I think not. Here are, conservatively and briefly, what I believe were the major holdings in the H o p e case: I. Clearly the decision in that case destroyed the valuation rule laid down in Smyth v. Ames. 2. The so-called eminent domain rule was repudiated; rate-making was held to be a species of price-fixing under the police power. )3. Depreciation procedure, based upon cost, was approved; and the holding in the United Railways ix Electric Co. case (280 U. S. 234, 253- 254; 74 L. ed. 390, 410, 411) that de­preciation should be based upon cur­rent value was expressly rejected. 4. Valuation based upon actual le­gitimate cost along the line of the prudent investment theory put for­ward by Justices Brandeis and Holmes in their concurring opinion in the Southwestern Bell Telephone Com­pany case would appear to have been approved. But the Court was at pains to point out that the regulatory body is not bound to any particular formula or formulas. Other formulas and methods might be employed. Fair value was held to be the end product, not the starting point. Jud icial R eview on R easonablen ess o f R ates W a s N a t R ejected The Court did not reject judicial right of review as to reasonableness of rates. Neither did it hold that a rate base or other similar hitching-post is unnecessary, whereby to test reasonableness of rates. Much mis­understanding seems to have arisen on this latter point. Obviously, if ft be held that no touchstone or yardstick is necessary, whereby to test the reasonableness of rates, then judicial review as to reasonableness o f rates would become utterly mean­ingless. This is not to say that the Supreme Court sits as a "board of revision. Once it be conceded that judicial review as to reasonableness is unnecessary, it must follow that any judicial review would be of small consequence, except to restrain plain “ murder” in procedural due process. I concede that the H o p e case is a landmark decision and that it re­jected and threw into the discard many supposedly sacred principles of rate-making, but it did not free rate-fixing bodies from judicial re­view as to reasonableness of rates. C o u rt N o w Leans T o w a rd the Cost Basis fo r V alu a tio n s It would appear that the Supreme! Court now leans toward the cost! basis for valuation purposes. This trend is indicated in the H o p e case and was followed in the C olorado Interstate Gas C om pany case, 324 U.S. 581, 601-605, 89 I., ed. 1206. 1224; the Panhandle Eastern C om ­pany case, 324 U.S. 635, 648, 89 I.. ed. 1241, 1250-1251; and in several other cases. The Natural Gas Act approves the "actual legitimate cost” rule and the Federal Power Act the “actual legitimate original cost” . The H o p e and subsequent cases cited were decided under the provisions of the Natural Gas Act. Clearly, the trend at the presenti time is toward the cost basis in/ valuing the property of a public utility for rate-making purposes, whether it be termed actual legiti­mate cost, historical cost, original cost or prudent investment. It is generally conceded that the cost basis should be applied to property other than land. Why land is excepted is not readily understood. The Court devised the particular rule applicable to land to overcome an unfair situa­tion, which could have been over­come more rationally by adopting the cost basis with the qualification December, 1948 • Vol. 34 1155