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certain shippers or localities, provides that no carrier shall give any undue or unreasonable preference to any one and that no carrier shall charge more under substantially similar circumstances and conditions for a shorter than for a longer distance over the same line, the shorter being included within the longer. (U. S. Compiled Statutes 3156.)
As we shall see hereafter, this does not prevent the carrier from charging lower rates to competitive points, for such differential is held not to be under substantially similar circumstances and conditions. Another rate bill was passed last year, but the principles of law affecting the questions discussed here were not changed in any material way.
Differential rates naturally resolve themselves into two classes: (1) those based on constancy and (2) those based on the quantity of consumption, although, as a practical matter, the two are, of course, usually blended.
1-DIFFERENTIALS BASED ON CONSTANCY OF CONSUMPTION
As so ably pointed out in the report of the special master in the Columbus case, supra, it is an admitted fact that the cost of the service rendered to the one-hour customer is about double the cost of the service rendered to the three-hour customer. The conditions and circumstances under which the service is rendered and the cost of the service are, therefore, so different that under all the reported cases, the differential reasonably based on the difference in cost should be sustained as legal by the courts. The special master in the Columbus case held that if the company were compelled to supply these different customers at the same rate it would be an unjust discrimination against the three-hour customers, who would naturally demand such a rate as would be profitable to them as against competition or a private plant.
In the case of Choctaw, O. & G. Ry. Co. vs. the State of Arkansas, 82 Southwestern Reporter, 502, the Supreme Court of Arkansas held that where all shippers in the same situation at a given point on a railroad are treated alike in the matter of furnishing coal cars, the mere fact that the shippers who own spur tracks are furnished cars in preference to those who load cars on the railroad's own tracks from wagons, is not an unreasonable discrimination. To the same effect, Harp vs. C., O. & G. Ry. Co., 118 Fed. Rep., 169.
An excellent discussion of the law is found in the case of. Hover vs. Penn. R. R. Co., decided by the Supreme Court of Pennsylvania in 156 Penn. State, 220. In that case the court held that a railroad company might charge a lower rate of freight on coal delivered to a manufacturing company that undertook to take a certain amount per day and freighted its manufactured articles over the railroad, than to coal dealers in the same town.
In Hilton Lumber Co. vs. Atlantic Coast Line, 53 Southeastern Rep., 823, the Supreme Court of North Carolina held that a railroad could not give a customer a lower rate for shipment of logs than another merely because the former shipped the manufactured product over the railroad's line. In this case, however, there was no agreement to ship a definite quantity, and no difference in cost of carriage was shown.
In Armour Packing Co. vs. Edison El. Illum. Co., 100 N. Y. Supplement, 605, it was held by the New York Supreme Court that an electric light company was a public corporation and could not charge a customer greater rates than it charged others for the same services and under the same conditions, notwithstanding the charges are made the customer under a written contract. The court, however, expressly limited this ruling to charges for the same services under similar circumstances and conditions.
Had the difference in charge been reasonable and based on the difference in cost, assume the court would have approved it.
The law is well established that it is not an undue preference for telegraph companies to make to one patron a less rate than to another where there exist differences in conditions and in the expense or difficulty of the service rendered which fairly justify such a difference in rates and where such difference in rates is open to all under the same conditions. (Joyce on Electric Law, Section 730.)
In Western Union Telegraph Company vs. Call Publishing Company, 44 Nebraska, 326, the telegraph company charged a much lower rate to a morning newspaper for news dispatched in the night time than it did to an evening paper for news dispatched in the day time. The plaintiff alleged an unreasonable discrimination, but the Supreme Court of Nebraska held that there was no evidence to show that the difference in cost or difficulty in sending
the day messages was not fairly proportionate to the increased charge for the service, and held that where the conditions and cost of the service were different the telegraph company was justified in charging a higher rate. The court said:
"Where it is shown that a difference in rates exists, but that there is also a substantial difference in conditions, affecting the difficulty or expense of providing the service, no cause of action arises without evidence to show that the difference in rates is disproportionate to the difference in conditions. A jury can not be permitted to find such disproportion without evidence.”
On the second appeal in this case, 58 Nebraska, 192, the same principles of law were stated, and the judgment against the telegraph company, based on evidence that the difference in charge was disproportionate to the difference in conditions and expense, was sustained.
The case was carried to the Supreme Court of the United States, 181 U. S., 92, and the reasoning of the Nebraska court was approved, to the effect that where the services were different, and rendered under different conditions, a differential rate, fairly proportionate to the different conditions and expense, was legal, and was not an unjust discrimination.
One of the most frequent examples of these differentials is this difference between the night rate and the day rate charged by telegraph companies to the public generally, justified by reason of the difference in costs and conditions of the services.
We therefore conclude that the law will permit differential rates based on the constancy or uniformity of consumption.
II-DIFFERENTIALS BASED ON QUANTITY OF CONSUMPTION
In the practical operation of an electric light plant, it has been found to be exceedingly difficult and unsatisfactory to measure accurately the uniformity of consumption of each consumer, and unsatisfactory to the consumer himself. It necessitates another special kind of meter and an expensive system of accounting, and the consumer fears by the addition of convenient lights to raise his rate. Experience has shown, therefore, that the differential based on the quantity of current consumed during a certain period is more satisfactory both to the consumer and to the electric light company. This differential, it has been found,
as a practical matter, is also largely based on constancy of consumption, because if a certain amount has to be consumed in a given time, the average consumption per day can be determined.
In our opinion, therefore, the authorities cited under the constancy differential are fully applicable to the quantity differential.
It is quite customery for electric light companies to give lower rates based on large consumption. This is only carrying out the wholesale theory on which all trade is based, that the cost decreases as the amount increases. No one would expect to buy a few pounds of flour or potatoes at the same rate as a barrel, or a few bales of hay at the same rate as a carload.
Take a large city, where the average customer pays the electric light company $200 per year. His service involves an expense to the company of one account, one meter system, one installation and care of same, and for 125 of such customers there will be needed 125 meters, accounts, meter systems, installations, and so forth, involving a large area, with feeders and substations, for a radius of, say, one-half mile. One customer for light and power at, say, $25,000 necessitates an expenditure of only one one-hundred-and-twenty-fifth of the above charges.
The cost, conditions and circumstances of the service to the large customer are totally different from those of the service rendered to the small customer, and the cases cited under the preceding point have at once a bearing on the question. For
years the telegraph companies have allowed, without any interference by the courts, differential rates to newspapers and press associations, based on the amount of matter transmitted. The telephone companies to-day base their charges on the number of messages sent during the month, or year, giving a less rate to a larger customer.
As we have seen in the case of the Western Union Telegraph Company vs. Call Publishing Company, the rates charged the newspapers for telegraphing matter in large amounts were much less than those charged to ordinary patrons.
The cost of producing electricity decreases rapidly as the consumption increases. By giving a low rate to a big consumer, and preventing him from installing an independent plant, the company is able to give the small consumer a lower rate, even allowing for the differential to the large consumer.
In Northern Pacific Railway Company vs. Keyes, 91 Fed. Rep., 47, it was held that length of haul was an element of prime importance in determining rates for transportation; that the cost of conducting through railroad business was less than half that of conducting local freight business; that in determining the reasonableness of a local rate, as compared with a through rate, the court should take into consideration the expense of doing the local business, caused by partly-loaded cars, short trains, large billing, receiving and delivery charges, as against full cars, heavy trainloads, long distances, and smaller proportionate billing, receiving and accounting charges on the through shipments.
In the Interstate Commerce Commission vs. B. & O. R. R. Co., 145 U. S., 263, it was held that the issue of a party rate ticket for 10 persons or more at a less rate than that charged to a single individual for a like transportation did not make an unjust discrimination, for the conditions of service were different. The United States Supreme Court referred to the issuance of commutation tickets and trip tickets issued at reduced rates for limited times for the purpose of inducing travel, and cited with approval cases holding that where the cost of carrying the goods for one shipper was less than for the other a lower rate could be fixed.
In Fitchburg R. R. vs. Gage, 12 Gray, 393, decided by the Supreme Court of Massachusetts, it was held that a railroad could charge different rates for shipment of bricks and ice, although they were of the same class of freight.
In Cleveland, &c., Ry. Co. vs. Closser, 126 Indiana, 348, Judge Elliott said:
“1 common-law authorities fully support the doctrine that a mere discrimination will not invalidate a contract; to have that effect other elements must enter into the contract, but when such elements are present in such force as to make the discrimination unjust or oppressive the contract would be illegal. It is not necessarily or per se a legal wrong for a carrier to give better rates to one who ships many carloads of grain than to one who ships a single carload or a single bushel."
Where the effect of a discrimination in rates in favor of a large shipper has been to give the large shipper the monopoly of the business and prevent the smaller shipper from competing, the discrimination has been held to be illegal, as was the case in the State vs. The Ry. Co., 47 Ohio State, 130; and in Scofield vs. Ry. Co., 43 Ohio State, 571.