Public Utility Valuation for Purposes of Rate Control

By John Bauer; Nathaniel Gold et al. | Go to book overview

CHAPTER III
"FAIR VALUE" -- SMYTH v. AMES TO THE
WORLD WAR

MOST legal discussions of rate decisions begin with Smyth v. Ames. Yet the fame of this "leading case" is rather meretricious. While it contains the first definite statement as to the rights of a utility beyond which public rate limitation cannot go, it constituted dictum so far as the particular decision was concerned; the rates were inadequate on whatever basis they might have been judged. But even the dictum was far less illuminating and more confusing than were earlier discussions by the Supreme Court itself and particularly by lower courts.


"FAIR VALUE" STATED

The statement, however, constituted the first comprehensive consideration of elements of value by the Supreme Court. It came, moreover, after extensive discussions by lower courts in various parts of the country. It appeared, therefore, as a decision of the issues that had arisen as to judicial limitation upon legislative rate action, even though it was not really a decision in the strict legal sense. Mr. Justice Harlan, who wrote it, had an attractive style and the opinion, while ambiguous in fact, has the apparent clarity of a highly finished composition. The following is the famous pronouncement as to "fair value" in Smyth v. Ames:

We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with

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