Gambar halaman
PDF
ePub

tional and void, if it compels a service to be rendered at less than cost, irrespective of its effect upon the entire business.1

In all cases, therefore, where the rule laid down in Smyth v. Ames, that the reasonableness of the rates must be tested upon an aggregate basis, has no tendency to show whether the rates are reasonable or unreasonable, that rule must be rejected. It must be remembered that in the railroad cases in which the rates were held unreasonable,2 there existed a classification of traffic based upon the value, weight, and size of various kinds of freight, the distance transported, and many other factors, applicable to which a schedule of rates based upon these considerations had been voluntarily put in force by the carriers themselves. Inasmuch as the state regulation consisted of a horizontal reduction of these rates it is apparent that such regulation affected the earnings as a whole, similar in manner as it affected the earnings of any class of traffic. That is, the total receipts and expenditures of the railroad reflected the receipts and expenditures of any particular class of service. What, therefore, was true of the reasonableness of the schedule as a whole was true of the various classes of traffic. As the carrier did not challenge the propriety of any particular rate on any particular class of traffic, it was quite natural that the court should test the constitutionality of the legislation upon an aggregate basis. It does not, however, follow, because such aggregate method of proof was adopted in those cases, that if the complainant had expressly challenged the right of the state to establish certain classes of service, the question would not have been determined upon the basis of the value or the cost of such service.

For similar reasons the reasonableness of a regulation which fails to classify a business in which the costs of the various classes

1 Beale, R. R. Rate Regulation, § 325; Noyes, American Railroad Rates, 250, 252. In Atlantic Coast Line R. R. Co. v. Florida, 203 U. S. 256, 260, Mr. Justice Brewer for the court said: "And here we face this situation: the order of the commission was not operative upon all local rates, but only fixed the rate on a single article; to wit, phosphate. There is no evidence of the amount of phosphates carried locally; neither is it shown how much a change in the rate of carrying them will affect the income, nor how much the rate fixed by the railroads for carrying phosphates has been changed by the order of the commission. . . . But there is nothing from which we can determine the cost of such transportation. We are aware of the difficulty which attends proof of the cost of transporting a single article, and in order to determine the reasonableness of a rate prescribed, it may sometimes be necessary to accept as a basis the average rate of all transportation per ton per mile." See Seaboard Air Line v. Florida, 203 U. S. 261; Alabama, etc., Ry. v. Mississippi, 203 U. S. 496.

2 Reagan v. Farmers' Loan & Trust Co., supra, Smyth v. Ames, supra.

of service are different, or which arbitrarily classifies such service without regard to the cost thereof, could not be tested by the rule laid down in Smyth v. Ames. Take, for example, the establishment of a single maximum rate of five cents per ton-mile for all railroad traffic, both freight and passenger, and suppose that at such rate the total number of ton-miles transported during the previous year would yield sufficient income to pay the operating expenses, fixed charges, and earn something on the stock. If the carrier were able to continue business on this basis, it might be said that five cents per ton-mile was a living rate, but does this method of proof show that five cents is a proper maximum rate, in view of the fact that the traffic of the railroad is so diversified that the various costs of service per ton-mile may vary from one to ten cents. It is, moreover, extremely unlikely that under the conditions suggested the railroad could secure the same amount of traffic after regulation as it had before. An arbitrary rate of five cents per ton-mile would prohibit the transportation of many commodities which could have been carried at a profit at a less rate. The amount of traffic carried would depend not only upon the law of supply and demand, but also upon the price which the public could afford to pay for the commodities transported. Even if the result of such regulation would be to give to the company a profit on its entire business, would not the application of the rule in Smyth v. Ames result in entirely losing sight of the fundamental purpose of rate regulation, the assurance to the public of reasonable rates of charge? Can it be said that every rate is a proper maximum rate which is the result of lumping the entire business and striking an average? Is the right to fix a maximum rate to be construed to mean an average rate? If so, the purpose of governmental regulation would be entirely changed, for theoretically the right of the state is merely to prevent extortion and oppression, while if such method were adopted many rates might be legally established at a price below the actual cost of service. No one would contend that it was necessary for the protection of the public, demanding a certain. class of service, that the maximum rate be fixed below the cost of furnishing that service. The judiciary, in framing a test or method for determining the validity of such a legislation, should carry out the fundamental purpose of the police power; that is, if the power of the state is limited to fixing a reasonable maximum rate, the test or method of proof should not permit the state to further encroach upon the rights of private property. The rule in Smyth v. Ames

will be of no assistance in solving the constitutional question of the reasonableness of particular rates on a portion of the traffic, or of a single maximum rate or a complete schedule of rates based upon an arbitrary classification, for it is obvious that the application of such a test entirely loses sight of the fundamental purpose of rate regulation.1

The ultimate position of the Supreme Court of the United States is unquestionably forecasted in the recent case of Atlantic Coast Line R. R. Co. v. North Carolina Corporation Commission.2 Although the court enforced an order of the commission compelling the railroad to operate a train between certain points at an actual loss, yet it carefully distinguished an order in respect to a public convienence which did not necessarily entail a loss, and the regulation of rates which would inevitably have that result. And in disposing of that particular case, the court, by Mr. Justice White, said: 3

"Let it also be conceded that a like repugnancy to the Constitution of the United States would arise from an order made in the exercise of the power to fix a rate when the result of the enforcement of such order would be to compel a carrier to serve, for a wholly inadequate compensation, a class or classes selected for legislative favor, even if, considering rates as a whole, a reasonable return from the operation of its road might be received by the carrier. . . . It follows, therefore, that the mere incurring of a loss from the performance of such a duty does not in and of itself necessarily give rise to the conclusion of unreasonableness, as would be the case where the whole scheme of rates was unreasonable, under the doctrine of Smyth v. Ames, or under the concessions made in the two propositions we have stated."

The importance of this "concession," as bearing upon the fundamental rules of rate regulation cannot be overestimated, as the court is evidently of the opinion that the rule as laid down in Smyth v. Ames is not controlling in all cases, and should not be applied if it has no tendency to demonstrate the unreasonableness of the rate. Great emphasis was placed upon the importance of a just classification of the service and the allowance of remunerative rates for furnishing each class of such service; i. e. constitu

1 The reasonableness of individual rates may be tested without making an elaborate analysis of costs by merely showing the customary or current rates for similar service under similar conditions. Cotting v. Kansas City Stockyards, supra, 97, 98; Canada Southern Ry. v. Internat'l Bridge, 8 App. Cas. 723. 8 P. 26.

2 206 U. S. 1.

tional protection should not be limited to the entire business of a public service company, but should be applied and enforced whenever the legislation compels the company to serve a distinct class of service at a loss, "to the detriment of other class or classes upon whom the burden of such loss would fall."

The following analysis covers the field of rate regulation in respect both to its extent and to the uniformity or diversification of the cost of service:

I. A schedule of maximum rates for the entire business.

2. A single maximum rate for the entire business.

3. A single maximum rate for a portion of the business.

The cost per unit of rendering public service may be either uniform or diversified, owing to varying conditions.

The various combinations under the above classification will be considered separately.

First: Where a schedule of maximum rates applies to the entire business of a company, the proper test is that employed in Smyth v. Ames; i. e., if such schedule is based upon the classification adopted by the railroad and consists of a horizontal reduction. If, however, the state does not base its regulation upon existing classifications and rates of the company, the situation presented is that considered under the fourth heading.

Second: Where a single maximum rate applies to a service of which the cost per unit is uniform, the aggregate net earnings of the company reflect the measure of profit for the unit, and the reasonableness of the rate as a maximum.1

Third: Where a single maximum rate is made applicable to a certain class of service, the test of the reasonableness of such rate is the value or cost of furnishing such service.2

Fourth: Where a single maximum rate is made applicable to the entire business and the cost of service per unit is variable, the legislation cannot constitutionally ignore this variable quantity which requires a classification of the service and the proper adjustment of rates thereto. In the absence of such a classification and adjustment the propriety of the single maximum rate must be tested with respect to the cost of rendering each separate and distinct class of service which the public may demand under such

1 Such, for instance, was the test in San Diego, etc., Co. v. National City, supra ; San Diego, etc., Co. v. Jasper, 189 U. S. 439; Stanislaus County v. San Joaquin, supra. 2 This appears to be the principle laid down in Minneapolis & St. Louis R. R. v. Minnesota, supra.

regulation. This precise situation was presented in the case of The Columbus Railway & Light Co. v. City of Columbus.1 A single maximum rate of five cents per kilowatt hour was there made applicable to a service which varied in cost from twelve cents per unit to about three cents per unit. The ordinance was held unconstitutional, regardless of the fact that upon the entire business of the company there would be a reasonable return, for the reason that "a single maximum rate requiring that a substantial definitely ascertainable portion of the service be rendered at less than cost, is a violation of the Fourteenth Amendment, and constitutes a taking of property without due process of law." Where there is no existing classification of rates established by the company, which might operate as an estoppel in pais, the same rule applies to a schedule of maximum rates in which the legislation improperly classifies the service and improperly adjusts the rates thereto.2 These conclusions are sustained by other considerations growing out of the fundamental obligations of public service. In addition to the duty of rendering service at reasonable prices, a public service company must do so without unjust discrimination, and furthermore, such a company must continue to render service to the public whether it desires to do so or not. If such company could refuse to render any unremunerative service, or any service at all, as in case of a lender of money under the usury laws, the situation would be very different. The right, therefore, of every member of the public to demand service makes it imperative that the question of the value or cost of that service be taken into consideration in the establishment of either a schedule of rates or of particular rates on a portion of the entire business. The interests

1 Decided August 1, 1906, by the Circuit Court of the United States for the Southern District of Ohio.

2 Atlantic Coast Line v. North Carolina, supra, 25, 26.

"Let it be conceded that if a scheme of maximum rates was imposed by state authority, as a whole adequately remunerative, and yet that some of such rates were so unequal as to exceed the flexible limit of judgment which belongs to the power to fix rates, that is, transcended the limits of just classification and amounted to the creation of favored class or classes whom the carrier was compelled to serve at a loss, to the detriment of other class or classes upon whom the burden of such loss would fall, that such legislation would be so inherently unreasonable as to constitute a violation of the due process and equal protection clauses of the Fourteenth Amendment." 8 Western Union Tel. Co. v. Call Pub. Co., 181 U. S. 92; Hays v. Pennsylvania Co., 12 Fed. 309; Scofield v. Ry. Co., 43 Oh. St. 571; Messenger v. Pennsylvania R. R., 36 N. J. L. 407; United States v. Trans-Missouri Freight Ass'n, 166 U. S. 290, 321,

« SebelumnyaLanjutkan »