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It has been held that mere quantity of freight shipped will not permit the carrier to make a discrimination in rates where it is not shown that the freight is so tendered or carried as to cost the carrier less to render the services. Thus a concession granted to all shippers who ship over 5000 tons in a year was held illegal, while a discrimination in rate in favor of a shipper who agreed to furnish coal in full trainloads every day was held to be reasonable, in Hayes vs. Penn. R. R., 12 Fed. Rep. 309. (See also Kinsley vs. Buffalo Co., 37 Fed. Rep., 181.)
In the United States vs. Delaware, L. & W. R. R. CO., 10 Fed. Rep., 104, it was held that a discrimination in the rate for shipping live stock may be based on the cost, expense and character of the service.
In Menacho vs. Ward, 27 Fed. Rep., 529, it was held that the carrier might make a discrimination in rate based on the quantity of goods shipped, as affecting cost of service.
In Burlington Company vs. Northwestern Company, 31 Fed. Rep., 652, it was held that where the rate of freight on large and small quantities was out of all proportion to the difference in the cost of carriage, it was illegal. The court did not deny the right of the railroad to make a reasonable difference in the rate based on the difference in quantity, as affecting cost of service.
In Edershed vs. London & Northwestern R. R. Co., Law Reports, 3 Queens Bench Division, 135, the court conceded the right of the railroad company to make a cheaper rate for a large quantity, provided the rate was open to all in the business.
In Business Men's L. vs. Atchinson Ry., 9 Interstate Commerce Reports, 318, it was held that lower rates could be made on carload lots than on other shipments, based on the cost of carriage.
The reasoning of the cases which forbid differentials by carriers based merely on the amount of shipments is based on the argument that the services to large shippers and to small shippers are practically identical, that the large shipper sends more carloads in the aggregate than the small shipper, but that it makes no real difference whether the railroad takes two cars from A or one car each from A and B; that it is plain that to carry two barrels of sugar for one person on a given day and . to carry one barrel of sugar for another person between the same points over the same route two days later are contemporaneous
and like services; that it is not at all certain that the shipper who furnished the most tonnage in the year may not have shipped in the most irregular way, in the most inconvenient quantities; that there is, therefore, nothing to differentiate the services performed for a large shipper from those rendered to a small one. (U. S. vs. Tozer, 39 Fed. Rep., 369.)
On these grounds, we believe the cases denying to carriers the right to make a differential rate based on mere quantity should not be considered as binding authorities from which there can be deduced a 'rule of law that electric light companies may not inake a differential rate based on the consumption of electricity and fairly proportionate to the cost of the different services.
The difference in expense and difficulty can be clearly shown, and there is no danger of the establishment of a monopoly by such a differential.
The differential rate for electricity based on quantity more closely resembles a party rate ticket, which has been sustained by the United States Supreme Court, as we have seen.
In U. S. vs. Toser, supra, the right of the railroad to charge for the same distance a higher local rate than its share of a through rate was sustained.
Competition with private plants makes differential rates based on quantity absolutely essential to the business of electric light companies, and, we believe, affords a complete legal justification for such rates.
The company must furnish large consumers with current at such a rate as they can afford to produce it themselves by their own plants. If this can not be done, it is plain to any one that the large consumer will build his own plant, and the electric light company will lose the business, and thus the cost of production will increase, necessitating a higher rate to the public generally.
Competition has always been recognized by the courts of this country as a proper basis for differential rates.
Where competition exists the circumstances and conditions are not the same, and discrimination is not an unjust preference.
In ex parte, Koehler, 23 Fed. Rep., 529, the United States Circuit Court in Oregon held that a railroad company, competing with water-craft at certain points on a river, could charge lower rates to such points than to other places requiring a shorter haul. The court recognized that the railroad must adopt the water rate. usually less, for all those competitive points, and that such a discrimination is caused by nature itself, and is a natural advantage of one point over another.
The Interstate Commerce Act, Section 4, provides that under the same circumstances and conditions the carrier shall not charge less for the longer haul than for the shorter haul, unless the Interstate Commerce Commission authorizes such a difference. As a matter of fact, the commission and the courts have always recognized the right of the carrier to charge less for the longer haul than for the shorter haul, where there was competition with carriers by water, or with foreign railroads, or in peculiar cases of competition between railroads, when a strict application of the general rule would destroy competition.
The United States Supreme Court, in East Tennessee Railroad Company vs. Commission, 181 U. S., 1, held that, where the differential rates were made to meet competition, preference was not undue or the discrimination unjust, and hence not forbidden by the statutes.
In Commission is. Atlantic Railway Company, 93 Fed. Rep., 83, the court said that, under the decisions of the Supreme Court, competition permitted the carrier to make a lower rate, and if not so low as to be unreasonable and unremunerative, it would not be undue or unreasonable preference in favor of the competitive point.
In Commission vs. Southern Railway Company, 117 Fed. Rep., 741, it was held that competition which is real and substantial, and exercises a potential influence on rates to a particular point, brings into play the dissimilarity of circumstances and conditions, and justifies a lesser charge for the longer than the shorter haul.
To the same effect Commission vs. Southern Railway, 105 Fed., 703, and R. R. Co. vs. Rehimer, 175 U. S., 648.
In Commission vs. Alabama Midland Railway Company, 168 U. S., 164, the Supreme Court of the United States held that competition is one of the most obvious and effective circumstances that make the conditions under which a long and short haul are performed substantially dissimilar, and as such must have been in the contemplation of Congress in the passage of the act to regulate commerce, and that it was no longer an open question in that court.
Differential rates on grain and other export traffic from the West to the eastern seaports have long been in existence, as approved by the Interstate Commerce Commission, and the commission has recommended that these export differential rates be continued in force. (See Federal Rate Bill of 1906, annotated by F. N. Judson.)
In Chicago Live-Stock Case, 11 Interstate Commerce Commission Reports, 296, a complaint was made that the rate on live stock was unduly preferential in favor of live-stock products, The court held, however, that the reduction of rates on livestock products was enforced by competition in that commodity, which did not exist in the carriage of live stock, that it was immaterial that the carrier was a party to that competition, and that a controlling competition justified a preference of commodities, as well as localities.
The conclusion, therefore, which we draw from the foregoing is that where the differential rate based on the quantity consumed is fairly proportionate to the difference in the cost of the service or is required by reason of the competition of private plants, such differential is entirely legal and should be sustained by the courts.
To sum up the whole matter, if the customer is treated fairly so far as the differential is concerned, the courts will sustain the action of the company.
DISCUSSION MR. W. W. FREEMAN (Brooklyn, N. Y.): In his most interesting discussion of this important question, Mr. Betts made reference to the case of Armour & Company versus the Brooklyn Edison Company, and, while every statement made by him was absolutely correct, it occurs to me that perhaps, unless some further explanation should be made of the case, members might form the erroneous impression that the Brooklyn Edison Company had been caught redhanded in a discrimination suit. Having somewhat of pride for the reputation of that company, and thinking that perhaps the present status of the case will be interesting to the convention, I ask for a moment in which to explain how the matter stands. It is true that the Brooklyn Edison Company was sued for discrimination, the claim being that we charged different rates for corresponding service to different customers, eliminating entirely from the question the matter of guarantees as constituting the reasons for the various rates. The counsel for the company, instead of meeting the issue squarely, interposed a technical defence and set up a demurrer on the ground that a contract existed between these companies and therefore there could be no claim of the kind properly raised. The judge before whom the case was tried sustained the demurrer, and Armour & Company appealed to the Appellate Division, citing the law, as stated in the paper, that if discrimination of the character named did exist Armour & Company should not be debarred from recovery because of the technical fact that a contract existed at the rates charged, leaving the case exactly where it was at the beginning and giving them a right of action in a case for discrimination. The case will not come to trial for some time, and I believe it will be decided in favor of the Edison Company on the trial of the issues.
A question that has not been stated in the report, which is the only element in the claim of discrimination that is at all embarrassing to our company at the present time, is the question of determining when a customer can change from one schedule to another and what his rights are in case he finds that had he adopted another schedule on a previous date he would have paid something less for the service than what he did pay under the schedule under which he operated. We have, as do most companies, differential rates, including a retail and a wholesale schedule in the series of schedules. It is not always possible for the customer or the company to state at the beginning of contract relations what is the best schedule for the customer to accept. Neither is it always possible for the company, though it may endeavor to protect the customer's interests, to tell just at what time during the contract relations it will be possible to change over from one schedule to another. The fact that a certain consumption of current exists in one month is not positive proof that it will continue through succeeding months, or that the customer can afford to guarantee for a year ahead the same amount of current he consumed in the one month. It has been claimed that when a customer finds after a year's experience that he would have paid somewhat less under one schedule than he did under another, the company has been discriminating against him. Claims have been made and one or two suits instituted on that theory; in fact, that is the theory of the Armour suit. Our