§ 376. Rent of leased portions. 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 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.1 A railroad is entitled to a fair return upon the value of the property devoted by it to the public use; but it is not entitled to have that property paid for by the public, and cannot therefore demand unreasonably high rates on the ground that one of the railroads leased by it will request permanent improvements before the expiration of the lease, the money for which must come from the income from operation.5 § 377. If rental becomes unjustifiable. According to the Minnesota doctrine by which the reproduction value of the road is the proper basis of charge, the operating line cannot charge to annual 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 ex sonable for the average railroad in that section is untenable in itself without reference to the system as a whole. Acme Cement Plaster Company v. C. & N. W. Ry., 18 I. C. C. 105. 4 78 Fed. 236. 5 Receivers & Shippers Ass'n of Cincinnati v. C., N. O. & T. P. Ry., 18 I. C. C. 440. cess. On the other hand, if this theory should be followed, it would seem that the company should have the commercial profit of an advantageous lease. And there would be strong ground for urging that the company should have the profit of its trade: that is, if it had a lease at 4 per cent on the value of the property, it might claim the right to make 8 per cent on that value as a bonus. 6 Steenerson v. Gt. Northern Ry. Co., 69 Minn. 353, 72 N. W. 713. 7 7 Advance in Rates, Eastern Case, 20 I. C. C. 243. PART II THE RATES IN PARTICULAR CHAPTER IX COST OF PARTICULAR SERVICE § 380. Provisions of the Act. 381. Various theories as to rate making. Topic A. Cost of Service as the Basis § 382. Method of estimating cost of service. 383. Distribution of the burden. 384. Respect paid to the cost basis. 385. Cost of service the basic test. 386. Costs considered in comparative reasonableness. Topic B. Method of Determining Particular Costs § 392. Proper proportions of total costs. 393. Apportionment of separable costs. 396. Basis of the proportion. 397. Average rate per unit of service. 398. Recognition of the ton-mile cost basis. 399. Ton-mile cost basis not oppressive. 400. Argument for permitting disproportionate rates. 401. Authorities opposed to disproportion. Topic C. Factors Modifying Average Cost § 402. Cost of service insufficient in itself. § 409. Cost of handling business. 410. Proportionate rates always legal. 411. Relative reasonableness of rates. Topic D. Proper Distribution of Costs 412. Law of decreasing costs. 413. Cost of service for different systems. 414. Cost of service for different parts of the same system. 415. Cost of service estimated from special expenditures. 416. Distance as a factor. 417. Amount of traffic as a factor. 418. Costs of special service. 419. Conditions affecting transportation costs. 420. Current theories as to relative rates. 421. Conclusion as to proportionate rate. $380. Provisions of the Act. The requirements as to the reasonableness of rates in section 1 of the original act are in general terms, as has been seen, it being there stated simply that all rates must be just and reasonable, every unjust and unreasonable charge being prohibited and declared unlawful. The idea of the Act plainly is that there are standards already existing in the law by which the reasonableness of a rate charged may be determined. Vague though phrases in a statute may apparently be, yet they may well have a definite meaning in the law; and by the prevailing rule, when a given phrase has an accepted significance at common law, it should be taken in that sense in interpreting legislative enactments. In section 15, in giving the Commission power to fix maximum rates, if the existing charges are found unreasonable, the phrases used are somewhat more definite. If the Commission finds any individual or joint rates, classifications, regulations, or practices whatsoever of such carrier or carriers subject to the provisions of this Act are unjust or unreasonable or unjustly discriminatory, or unduly preferential or prejudicial or otherwise in violation of any of the provisions of the Act, the Commission is authorized and empowered to determine and prescribe what will be the just and reason able individual or joint rate or rates, charge or charges, to be thereafter observed in such case as the maximum to be charged, and what individual or joint classification, regulation, or practice is just, fair, and reasonable, to be thereafter followed, and to make an order that the carrier or carriers shall cease and desist from such violation to the extent to which the Commission finds the same to exist. The requirement that rates must not only be reasonable, but also cannot be discriminatory is discussed at large in Chapter XIII. § 381. Various theories as to rate making. Various theories as to the making of particular rates are still in vogue. Indeed, the first impression, which lasts after much reading on the topic, is that where there is not confusion upon the subject, there is disagreement. But apparently the more lawyerlike persons would base all particular rates upon the cost of the service to the company, while the more businesslike persons would make the universal test the value of the service to the patron. Opportunists would leave the making of rates to competition; paternalists would attempt to equalize the advantage of customers in making rates. But, however various they may seem, these theories as to the proper basis of rate making align themselves into two opposed groups, the legal, which gives chief place to the cost of service, and the economic, which makes the value of the service the basis.8 There used to be these two schools as to the whole schedule, one maintaining that the total receipts which a public service company might take was limited by law, the other one asserting that the corporations were entitled to what they could get out of the public. This matter of the whole schedule has so long been settled against economic freedom, and in favor of The carrier is entitled to ask a fair return upon the value of property devoted to public use; the public is entitled to demand rates higher than the services are reasonably worth. Morgan Grain Co. v. Atlantic C. L. R. R., 19 I. C. C. 460. |