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« Public Utility Property Everett C. M cKeage has been chief counsel of the California Public Utilities Commission since January of 1944. He has been a member of our Association since 1941, and is also a member of the National Association of Railroad and Utilities Commissioners. * I R. Co. v. Minnesota, 134 U. S. 418, 455 456, 33 L. ed. 970, 979-980. Th e opinion was written by Mr. Justice Blatchford; and a strong dissenting opinion was rendered by Mr. Justice Bradley, concurred in by Justices Gray and Lamar. Parenthetically, it is here pointed out that between 1877 and 1890, considerable change had occurred in the personnel of the Supreme Court, which may well account for the changed view ex­pressed in the Chicago, Milwaukee, and St. Paul case. In effect^ the Su­preme Court laid down the rule in i this case that the fixing of rates lay I with the legislature but that the determination of reasonableness of ] such rates lay ultimately with the \ courts. It was further ruled that the Jprescription of rates for a public [utility amounted to a taking of pri jvate property for public use, for {which ju st compensation must be 'made. The Court Again Reverses Its Position as to Control Th e rule announced in this case has often been referred to as the “ eminent domain rule” , and it would seem fair to so characterize it. In light of the interpretation placed upon this rule by later decisions of the Court, it is believed that the principles underlying it were clearly those underlying the rule applicable to eminent domain. That the de­cision in this case was a complete reversal of the position taken by the Court in M unn v. Illinois is demon­strated by a statement from the dis­senting opinion of Mr. Justice Brad­ley (134 U. S. 418, 461): I cannot agree to the decision of the Court in this case. It practically overrules Munn v. Illinois, 94 U. S. 113, and the several railroad cases that were decided at the same time. The governing principle of those cases was that the regulation and settlement of the fares of railroads and other public accommodations is a legislative prerogative and not a judicial one. This is a principle which I regard as of great importance. Consequences of Ruling That Rates and Values Must Be Reviewable Up until then (1890), very little had been said concerning valuation of public utility property, so far as court decisions were concerned. This is understandable for the reason that, if the legislature were free to prescribe rates from which no appeal to the courts could be had, valuation of property would not be of prime importance. However, since the Su­preme Court ruled that reasonable­ness of rates must pass muster before the courts, an entirely different situa­tion was presented. T h e courts hav­ing assumed to pass upon the reason­ableness of rates, obviously some touchstone or standard must be con­structed whereby “ reasonableness” might be tested. Therefore, valua­tion came into the picture in a big way, but much uncertainty existed as to methods to be used in valuing public utility property for rate-fixing purposes. • Th e Supreme Court sought to cure this uncertainty in Smyth v. Ames, 169 U. S. 466, 544-548, 42 I,, ed. 819, 848-849, decided in 1898. Instead of curing the existing uncertainty, that case added confusion to it, not to say bewilderment to those who were charged with the duty of interpreting and following the rule laid down in that case. Th e debate which raged over rate­making of public utilities and the methods to be used in valuing the property of such public utilities, as such controversy existed in the latter part of the nineteenth and early part of the twentieth centuries, ebbed and flowed in accordance with exist­ing economic conditions. It was nothing unusual for persons to change opinions on these subjects as economic conditions changed. It depended almost entirely upon the side which one took in this debate. In “ hard times” the man who had formerly argued for historical tost would be found advocating present value, and it was nothing unusual for this same person to change back to his original view in a time of high prices. Surely, it cannot successfully be gainsaid that existing economic conditions exercised a tremendous influence upon the shaping ol public opinion and the rules laid down by the courts concerning valuation con­cepts as applied to public utility property. In its attempts to create cosmos where chaos and uncertainty had theretofore existed, the Supreme ( lourt. in Smyth v, Ames, had laid down the following standards of guidance in the fixing of rates for public utilities (169 II.S, 466, 546-47): We hold, however, that the basis of a 11 raldilations as to the reasonahl<? ness of rates to he (barged by a cor­poration maintaining a highway under legislative sanction must he the lair value of the property being used by it for the conveniente of the public. And, in order to astertain that value, tlie original cost of construction, the amount expended in permanent im­provements. the amount and market value of its bonds and stock, the pres cut as compared with the original cost of construction, the probable earning capacity of the property under par-ticular rates prescribed by statute, and the sunt required to meet operating expenses, are all matters for ronsider-ation, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in esti­mating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public con vcnience. On the other hand, what December, 1948 • Vol. 34 1097