reasonableness of the rate may be affected by the degree of risk to which the original enterprise was naturally subjected, i. e., such a risk as may have been justly contemplated by those who made the original investment; 73 but if allowance be sought on account of this element of original risk, it seems permissible at the same time to inquire to what extent the company has already received income at rates in excess of what would otherwise be reasonable, and thus has already received compensation for this risk.74 The Supreme Court of the United States has summed up the situation as follows: "There is no particular rate of compensation which must, in all cases and in all parts of the country, be regarded as sufficient for capital invested in business enterprises. Such compensation must depend greatly upon circumstances and locality; among other things, the amount of risk in the business is a most important factor, as well as the locality where the business is conducted, and the rate expected and usually realized there upon investments of a somewhat similar nature with regard to the risk attending them. There may be other matters which, in some cases, might also be properly taken into account in determining the rate which an investor might properly expect or hope to receive and which he would be entitled to without legislative interference. The less risk, the less right to any unusual returns upon the investments. One who invests his money in a business of a somewhat hazardous character is very properly held to have the right to a larger return, without legislative interference, than can be obtained from an investment in government bonds or other perfectly safe security. The man that invested in gas stock in 1823 had a right to look for and obtain, if possible, a much greater rate upon his investment than he who invested in such property in the city of New York years after the risk and danger involved had been almost entirely eliminated." 75 An equivalent to the prevailing rate of interest may be a reasonable return and again it may not, depending largely on the hazards or difficulties in the particular place; 76 but it is said in some cases never be judged to be confiscatory." Ann Arbor R. Co. v. Fellows, 236 Fed. 387, 390. 73 Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537; Kennebec Water Dist. v. Waterville, 97 Me. 185, 60 L. R. A. 856, 54 Atl. 6. 74 Kennebec Water Dist. v. Water ville, 97 Me. 185, 60 L. R. A. 856, 54 Atl. 6. 75 Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034. 76 Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537. Rates permitting earnings equal to that a return of less than the legal rate of interest is unreasonable,77 at least in the case of common carriers.78 Thus, in Alabama, it is held that a railroad should be permitted to earn at least eight per cent, which is the legal rate of interest.79 It has been said that dividends upon stock, where there are outstanding bonds, ought to be allowed at a somewhat larger amount than the interest upon the bonds.80 In particular cases,81 the courts have upheld rates which yielded the statutory rate of interest are not confiscatory, at least if there are no unusual circumstances. Ann Arbor R. Co. v. Fellows, 236 Fed. 387, 390. 77 Brymer v. Butler Water Co., 179 Pa. St. 231, 36 L. R. A. 260, 36 Atl. 249, where the court said: "By what rule is the court to determine what is reasonable and what is oppressive? Ordinarily that is a reasonable charge or system of charges which yields a fair return upon the investment. Fixed charges and the cost of maintenance and operation must first be provided for; then the interest of the owners of the property are to be considered. They are entitled to a rate of return if their property will earn it, not less than the legal rate of interest; and a system of charges that yields no more income than is fairly required to maintain the plant, pay fixed charges, and operating expenses, provide a suitable sinking fund for the payment of debts, and pay a fair profit to the owners of the property cannot be said to be unreasonable." 78 Pennsylvania R. Co. v. Philadelphia County, 220 Pa. 100, 15 L. R. A. (N. S.) 108, 68 Atl. 676. 79 Western Ry. of Alabama v. Railroad Commission of Alabama, 197 Fed. 954, 957; Central of Georgia Ry. Co. v. Railroad Commission of Alabama, 161 Fed. 965. 80 New Memphis Gas & Light Co. v. Memphis, 72 Fed. 952. 81 St. Joseph Gas Co. v. Barker, 243 Fed. 206, gas company entitled to seven per cent; Landon v. Public Utilities Commission State of Kansas, 242 Fed. 658, 673, gas company entitled to eight per cent; Shepard v. Northern Pac. Ry. Co., 184 Fed. 765, 816, railroad company entitled to seven per cent in Minnesota. Seven and a half per cent is not unreasonable for street car company. Duluth St. R. Co. v. Railroad Commission, 161 Wis. 245, 152 N. W. 887. Rate between four and two-fifths and five and one-half per cent on estimated capital of water company held not confiscatory. Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa 234, 91 N. W. 1081. Water company "ought to get at the start a moderate rate of interest, say five per cent, on their investment after paying all expenses of operation and maintenance and a moderate allowance for depreciation in value." Per Vice-Chancellor Pitney in Long Branch Commission v. Tintern Manor Water Co., 70 N. J. Eq. 71, 62 Atl. 474, aff'd without opinion 71 N. J. Eq. 790, 71 Atl. 1134. Net return from water supply of ten per cent after allowing an annual depreciation charge of three and cne-half per cent is not confiscatory. Van Dyke v. Geary, 244 U. S. 39, 48, 61 L. Ed. 973, aff'g 218 Fed. 111. Telephone company held entitled to set aside from gross earnings every year a sum equal to seven per cent of the value of its property exclusive of real estate and cash capital and supplies on hand, to cover deprecia six,82 five and one-half,83 five,84 and even less than five per cent,85 as reasonable or not confiscatory. tion and keep the property in working order, and then to earn a net revenue equal to seven per cent on all its property. Cumberland Telephone & Telegraph Co. v. Louisville, 187 Fed. 637, 658. In Arkansas, where the legal rate of interest is six per cent and the contractual rate is limited to ten per cent, a rate is not confiscatory where it enables the company to pay dividends of from six to ten per cent according to the valuation of the electric light plant. Arkadelphia Elec. Light Co. v. Arkadelphia, 99 Ark. 178, 137 S. W. 1093. Seven per cent is a reasonable profit where company had loaned over two million dollars at six per cent to an allied company doing business in the same locality with approximately the same attendant risk as the interurban company. Puget Sound Elec. Ry. v. Railroad Commission of Washington, 65 Wash. 75, Ann. Cas. 1913 B 763, 117 Pac. 739. 82 Six per cent on the valuation of a gas plant is not necessarily confiscatory. Des Moines Gas Co. v. Des Moines, 238 U. S. 153, 172, 59 L. Ed. 1244. tract a rate may be agreed upon not to exceed ten per cent, and it is held in that state that rates of a telephone company yielding five and one-half per cent per annum are valid. Pioneer Telephone & Telegraph Co. v. Westenhaver, 29 Okla. 429, 38 L. R. A. (N. S.) 1209, 118 Pac. 354. 84 Lincoln Gas & Electric Light Co. v. Lincoln, 182 Fed. 926; Spring Valley Water Co. v. San Francisco, 165 Fed. 667, 685. 85 In California, net return of four and one-half per cent upon property devoted to a public use was not regarded as confiscatory in a particular case, but such a return may be confiscatory in some cases. Contra Costa Water Co. v. Oakland, 159 Cal. 323, 113 Pac. 668. "Now five per cent income on the entire investment was probably reasonable and fair when Pocatello was a mere village and the defendant had a comparatively small amount of money invested. But as the village has grown into a city of some 10,000 or more inhabitants, and the defendant has invested several times the original amount of money in extending and enlarging his water system, five per cent on so large an investment might be excessive. The amount of the investment, the conditions of the times, the extent of the use or the number of consumers, the permanence and security of the investment, are all elements that would enter into the question of what would constitute a reasonable income. It is notorious that men who have money to loan or invest expect and demand a higher rate of interest on a small investment than they do on a large investment; the security being sufficient and adequate in each instance." Pocatello v. Murray, 21 Idaho 180, 120 Pac. 812. In the Consolidated Gas Company case the court held that a rate which would permit a return of six per cent would be sufficient to avoid charge of confiscation, regard being had to the nature of the business, the fact of monopoly, the population of New York City, and the fact that six per cent was the return ordinarily sought and obtained on investments of that degree of safety in New York City. Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. Ed. 382, 48 L. R. A. (N. S.) 1134, 15 Ann. Cas. 1034. 83 In Oklahoma, the legal rate of interest is six per cent, but by con On the other hand, it has been held that, considering the fair value of money in a state like Iowa, and considering the hazards and liabilities, some of them certain and others contingent, and some of them destructive, an eight per cent return on the plant of a waterworks company is moderate.86 And rates yielding less than four,87 five,88 or six 89 per cent have been held unreasonable. In Kansas, a statute limits the regulation of rates which shall prevent the utility "from earning at least eight per cent on the amount of its actual cash investment.'' 90 VIII. PROCEDURE CONNECTED WITH REGULATIONS AND REVIEW THEREOF § 4549. General considerations. Government regulation of corporations is exercised either by the legislature, a municipality, or a public service commission. The procedure connected therewith divides itself into two classes. First, the procedure connected with the making of the statute, ordinance or order.91 Second, the procedure to review in the courts such statute, ordinance or order.92 The latter is divisible into the procedure to enforce the orders of the regulating board,93 and the procedure to prevent the enforcement of such orders.94 It is beyond the scope of this work to go into details as to the procedure of public service commissions and the procedure to enforce, attack or otherwise review their orders. So far as the Inter 86 Des Moines Water Co. v. Des Moines, 192 Fed. 193, 199, per Judge McPherson. 87 Water rates yielding less than four per cent on the present value of the property held unreasonably low, unjust and confiscatory. Spring Valley Waterworks v. San Francisco, 192 Fed. 137, 192. 88 4.03 per cent upon the present value of the property of a water company in use is not reasonable compensation. Spring Valley Water Co. v. San Francisco, 165 Fed. 667, 705. So an ordinance requiring a street railway company, which is charging five cent fare, to sell six tickets for twenty-five cents, is unreasonable, where the current rate of interest is six per cent, and the road is earning less than four and one-half per cent on its investment and is paying five per cent interest on its bonds. Milwaukee Elec. Railway & Light Co. v. Milwaukee, 87 Fed. 577. 89 Home Tel. Co. v. Carthage, 235 Mo. 644, 48 L. R. A. (N. S.) 1055, Ann. Cas. 1912 D 301, 139 S. W. 547. 90 Garden City v. Garden City Telephone, Light & Manufacturing Co., 236 Fed. 693, 696, holding "cash investment' does not exclude sums obtained from excessive rates and reinvested. 91 See § 4550, infra. state Commerce Commission is concerned, the procedure is regulated more or less in detail by the act of Congress creating the commission and its subsequent amendments, many of the features of which, so far as relating to procedure, have been copied to some extent by the state statutes creating public service commissions. It follows that decisions of the federal courts and of the federal commission itself, as to the procedure of such commission and the review of its orders, are often of much value in connection with state procedure, although of course they are not controlling in many cases because of the difference between the federal and the state statutes. So far as state commissions are concerned, the procedure is largely regulated by the express provisions of the statutes creating the commissions, which statutes, as to procedure, differ to a considerable extent in the several states, especially so far as the review of the orders of the commissions are concerned. It is therefore necessary to carefully consult the governing statutes and to avoid being misled by decisions construing statutes of other states, the terms of which are more or less different. So far as procedure is concerned, there is very little difference between regulations other than those relating to rates and regulations relating to rates, and hence the procedure governing both is considered together in this connection. § 4550. Procedure relating to enactment of regulation. If the regulation is by act of Congress, then of course the procedure is merely that which is necessary for the enactment of any congressional legislation, and this is also true where the regulation is by a statute of a state legislature. If the regulation is by a municipal corporation, then the rules applicable to the enactment of municipal ordinances govern unless a different procedure is provided for by statute.95 If the regulation is by the Interstate Commerce Commission, then the procedure which is fixed in detail by the statute creating the commission, with its amendments, must be observed. If the 95 If the procedure to fix rates is established by statute, ordinance or contract, that procedure should be followed. But ordinance fixing rates, passed after February, is valid although constitution required passage of ordinance in February. Fitch v. Board Sup'rs City and County of San Francisco, 122 Cal. 285, 54 Pac. 901. In some municipalities, by virtue of statute or charter provisions, the rates of a public service company may be fixed by an ordinance passed under the initiative and referendum. The adoption of rates by the initiative and referendum provision in a charter does not violate the federal or state constitution. Southwestern Telegraph & Telephone Co. v. Dallas (Tex. Civ. App.), 131 S. W. 80. |