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V 4 must agree that such a standard of valuation would be indefensible and would work a fraud upon the rate­paying public. Many standards of value, in addition to "fair value", have been put forward during the years since Smyth v. Ames. W e have original or historical cost, actual le­gitimate cost, and prudent invest­ment. In the final analysis and in the effect of actual impact upon the rate-payer and the utility, these lat­ter formulae mean the same thing, for they have implied in them the qualification and requirement that the cost of property must be reason­able and, if not reasonable, must be revised to a figure of reasonableness.- If the cost be not ascertainable, a reasonable cost figure must be con­structed from available evidence and, as constructed, recognized in the rate base. T he theory behind this reasoning is that the utility is entitled to a reasonable rate of return only upon . capital prudently invested in the business. In this connection, it is [minted out, as observed by the Sup­reme Court in United Fuel Gas Co. v. Railroad Commission of Ken­tucky, 278 U.S. 300, 309, 73 L. ed. 390, 390, decided in 1929, that a pub­lic utility exercises an extraordinary privilege and occupies a privileged position. In effect a public utility is a public servant performing a service that otherwise would be performed by the state, as was so convincingly [minted out by Justices Brandeis and Holmes in the Southwestern Bell Telephone case. Th e status of the privileged and sheltered position of a public utility, under regulation, carries with it corresponding obli­gations to the public. It must follow that a public utility may not law­fully demand the application of the same rules to its operations that are applicable to an unregulated busi­ness. Having undertaken to serve the public and having acquired the status that entitles it to claim the enjoyment of the extraordinary priv­ileges available to it, a public utility may not also claim that it is entitled to the speculative profits to which the unregulated business is entitled. It Public Utility Property must be remembered that a public utility is guaranteed against many of the hazards to which the unregulated business is subject. Extreme Position of the Court as to Depreciation Practices Th e most extreme position taken by the Supreme Court, apparently opposed in degree to the foregoing, was in United Railways and Electric Co. v. West, 280 U.S. 234, 252-254, 74 L. ed. 390, 409-411, decided in 1930, in which Justices Brandeis, Holmes and Stone registered a force­ful dissent, which dissent now re­presents the prevailing view of the Court with particular regard to de­preciation practice. In my opin­ion, the failure to recognize the true legal status of a public utility is responsible for some of the mis­understanding arising out of the subject herein discussed. Th e posi­tion taken by many of the utilities in the past was simply that they wanted to eat their cake and have it. too. When it came to a question of protection and privilege, the public utility was eager enough to avail itself of the reasoning that justified the exercise by it of these extra­ordinary privileges and the enjoy­ment by it of the protection that comes from regulation; but when it came to honoring the obligations that logically flowed from such status, many of the public utilities argued that they were entitled to the same treatment as the unregulated business. O f course, the courts never did agree with such an extreme posi­tion. Generally speaking, the posi­tion of the courts was a compromise. West v. Chesapeake ir Potomac Tele­phone Co., (1935) 295 U.S. 662, 673, 79 L. ed. 1640, 1648. The Swing in the Court Away from the Fair Value Rule It was in the Chesapeake ir Potomac Telephone case that the eminent domain theory reached high tide. That tide appears to have com-menced receding at about that time. With the views of the majority in that case, Justices Stone, Brandeis and Cardozo vigorously disagreed. However, it may be pointed out that the earlier case of Lindheimer v. Illinois Bell Telephone Co., 292 U.S. 151, 167-169, 78 L. ed. 1182, 1192- 1193, decided in 1934, indicated a trend away from the fair value rule by recognizing cost of property as the basis for computing depreciation charges. In many decisions, the Court had pointed out that no particular formula or combination of formulae need be employed by a regulatory body in arriving at the fair value of the property of a public utility for the purpose of establishing reason­able rates, so long as the rule in Smyth v. Ames was adhered to. But in 1938 the Court, in Railroad Com­mission v. Pacific Gas ir Electric Co., 302 U.S. 388, 397-401, 82 L. ed. 319, 325-326, would appear to have de­parted in spirit from the Smyth v. Ames rule. T h e majority view met with a lengthy and trenchant dissent from Justices Butler and McReynolds, with Mr. Justice Sutherland taking no part in the consideration and decision of the case. Mr. Justice Van Devanter was not then on the Court, having retired June 1, 1937, and being succeeded by Mr. Justice Black. Th e case was given lengthy consideration by the Court, being first argued on April 30, 1937, and later reargued on October 13, 1937. Whatever may have been the proper evaluation of the decision in the Pacific Gas ir Electric Company case, we find the Court in 1942 deciding Federal Power Commission v. Nat­ural Gas Pipeline Co., 315 U.S. 575, 579-581, 586, 86 L. ed. 1037, 1046, .1049-1050, upon a theory in line with the Smyth v. Ames rule. Also, the Court pointed out, as had been ob­served in prior decisions, that a regulatory body is not constitutional­ly bound to any single formula or combination of formulae in rate fixing. In that case, the Federal Power Commission had adopted the com­pany's own valuation figures com­puted in accordance with the rule (Continued on page 1154) December, 1948 • Vol. 34 1099