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§ 1176. Unprofitable portions of the line not considered. In Steenerson v. Great Northern Railway 1 the court considered at length the subject of unprofitable lines; and held that the profitable portions of the system could not be compelled to pay the loss on lines built through a newly and sparsely settled country. The reasoning of Mr. Justice Canty is as follows: "If," he said, "the road was profitable a certain reasonable rate would be fixed. If then a new and unprofitable extension were made, and the accounts covered the whole system, the rates on the older portion of the road would necessarily be raised, and that portion would bear the burden of the new extension. But why should the older portion of the line bear a loss due to the mistaken management of the company? A portion of a line that is not self-supporting is not a feeder, but an incumbrance; and in determining what are reasonable rates on the rest of the line or system, any State has a right to reject such portion from the line or system. Of course, in rejecting the same all benefit to the rest of the line or system from traffic passing over such portion must also be rejected, and nothing can be allowed to the rest of the line or system on such traffic, except the operating expenses on the same, including the additional wear and tear on the rest of the road caused by such traffic. Whether this rule would apply where such a portion of a line or system ceased to be self-supporting by reason of some temporary cause, such as an unusual drought or a pestilence, we need not consider." 2 It is perhaps fair to point out that in a later portion of the same opinion the

same way in other public services. See:

Maine.-Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902).

New Jersey-Long Branch Comm. v. Tintern Manor Water

Co., 70 N. J. Eq. 71, 62 Atl. 474 (1905).

179 Minn. 353, 72 N. W. 713 (1897).

2 See also Chicago & G. T. Ry. v. Wellman, 143 U. S. 339, 36 L. ed. 176, 12 Sup. Ct. 400 (1892).

court expressed the opinion that the whole system should be entitled to share the prosperity of each constituent part of it.

§ 1177. Expenditures for different parts apportioned.

But in other cases it has been held that the receipts and charges of each part of a system should be considered separately. In San Diego Land and Town Company v. National City,' where it appeared that a water company was supplying a town and also a large agricultural territory outside the town, the court held that in determining what were reasonable rates for supplying water to the inhabitants of the town the charges should be fixed with a view to yielding a fair rate of interest on the value of that part of the plant referable to the territory embraced in the town, without attempting to make compensation for losses sustained in the distribution of water to the territory outside the town. On appeal to the Supreme Court of the United States this was upheld, and Mr. Justice Harlan said: 2 "One of the points in dispute involves the question whether the losses to the appellant arising from the distribution of water to consumers outside of the city are to be considered in fixing the rate for consumers within the city. In our judgment the Circuit Court properly held that the defendant city was not required to adjust rates for water furnished to it and to its inhabitants so as to compensate the plaintiff for any such losses. This is so clear that we deem it unnecessary to do more than to state the conclusion reached by us on this point." § 1178. Constituent companies operated under separate

charters.

It is held in some cases that the fact that the constituent roads still preserve their original charters and are theo

174 Fed. 29 (1896).

2 San Diego L. & T. Co. v. Na

tional City, 174 U. S. 739, 43 L. ed. 1154, 19 Sup. Ct. 804 (1899).

retically operated under them is sufficient to justify the requirement that each shall be treated by itself in rate regulation. Thus in one recent case,1 where the propriety of a reduction in rates ordered by the railroad commission of Florida was in question, it was shown that the Pensacola & Atlantic division of the Louisville & Nashville Railroad system was in reality a separate corporation. It was shown that the rates enforced would not give an adequate return upon the Pensacola & Atlantic Railroad itself, although the Louisville & Nashville system was shown to be profitable. Upon these facts Judge Pardee granted an injunction to prevent the enforcement of these rates, saying in substance: "The fact that a line of railroad is operated in connection with other lines owned by the same company, but under separate charters, whereby the earnings of such line are increased and its operating expenses reduced, does not prevent its being considered as a separate and independent line for the purpose of determining the reasonableness of rates thereon, fixed by the State; full consideration of the joint operation being given when the road is credited for the increased business and reduced expenses." 2

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§ 1179. Rent of leased portions.

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Where a bona fide lease of one road to another is made, the operating road is entitled to include the rent of the leased road in its operating expenses. It is the annual expense of providing its appliances for carrying on its public business, and as such is a proper annual charge against gross income. The rent must be agreed upon in good faith; otherwise it would be in the power of the owners of a railroad to increase the annual charges, by successive

1 Louisville & N. R. R. Co. v.

Brown, 123 Fed. 946 (1903).

2 Compare State ex rel. v. Sea

board A. L. Ry. Co., 48 Fla. 129, 37 So. 314 (1904).

378 Fed. 236 (1896).

leases, to such an extent that any rate would be reasonable. But granting the good faith of the lease and the reasonableness of the rent, it is a proper element of charge.

§ 1180. If rental becomes unjustifiable.

According to the Minnesota doctrine by which the reproduction value of the road is the only proper basis of charge, the operating line cannot charge to annul operating expenses the agreed rental of a leased line, even though it was reasonable at the time the lease was made, if it is now higher than is justified by the present rate of income and reproduction value of the leased road. "If the amount of such fixed charges exceed the amount of what is a reasonable income on the cost of reproducing the road, the patrons of the road should not be required to pay the excess."

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1 Canty, J., in Steenerson v. Gt.

Northern Ry. Co., 69 Minn. 353, 72
N. W. 713 (1897).

CHAPTER XXXV

DETERMINATION OF PARTICULAR RATES

§ 1190. Various theories as to rate making.

Topic A. Cost of the Service as the Basis

1191. Proper proportion of total costs.

1192. Apportionment of separate costs to different services.

1193. Allocation of joint costs.

1194. Apportionment between interstate and intrastate business. 1195. Apportionment of total expense.

1196. Basis of the distribution.

1197. Proportionate share of different classes.

1198. Average rate per unit of service.

1199. Recognition of the ton-mile cost basis.

1200. Ton-mile cost basis not oppressive.

1201. Authorities permitting disproportionate rates. 1202. Authorities opposed to disproportion.

Topic B. Factors Modifying Average Cost

1203. Cost of service insufficient in itself. 1204. Current theories as to relative rates. 1205. Amount of service asked as a factor. 1206. Local business peculiarly expensive. 1207. Special conditions affecting cost. 1208. Circumstances of particular service. 1209. Proportionate rates always legal. 1210. Full extent of the doctrine.

Topic C. Value of Service as the Basis

§1211. What the traffic will bear.

1212. Necessity of legal limitation.

1213. Worth of the service to the individuals taken as a whole.

1214. Cost of obtaining a substitute for the service.

1215. External standards of value.

1216. Rates reasonable per se.

1217. The Kansas City Stock Yards Case.

1218. The Niagara Bridge Case.

1219. These cases apparently distinguishable.

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