Page:Harvard Law Review Volume 32.djvu/561

525 VALUE OF THE SERVICE AS A FACTOR IN RATE MAKING 525 not prove of much value if it loses a large part of its business because of the presence of competition or the inability of consumers to pay enough to ensure the company such a return." ^^ A case before the Colorado Public Utilities Commission in 1916 illustrates the same point. The commission declined to permit as large an increase in gas rates as the company asked for, although it expressly found that, at the rates which were adopted, the company would "not earn a fair rate of return on the present fair value of the gas properties." ^^ The commission made use of the argument that the schedule the company proposed would "result in rates and charges exceeding the value of the service rendered"; ^ but no such argument was necessary or pertinent. For the com- mission anticipated that, at the rates it prescribed, the company's income would increase, while it found that "in the event permission should be given ... to make a schedule of rates and charges which would" (theoretically) "bring about a fair rate of return upon the present fair value of the gas properties, such schedvile would result in a charge exceeding the value of the service rendered and would result in decreased revenues through consequent loss of patronage." ^ A case decided in 191 6 in the United States District Court for the district of Nevada involved a similar situation. At the rates which a water company was charging, many consumers bought their water from wagons instead of patronizing the company. The court sustained a reduction of rates, although the company did not appear to be making a large return. It cited some of the dicta to the effect that rates must not exceed the value of the serv- ice, and undoubtedly relied partly on the idea that the water was not worth what was being charged for it. But nothing turned on that theory; for the court did not anticipate that the reduction in rates would reduce the company's earnings. It said, "the pre- ^ In re Oconto City Water Supply Co., 7 Wis. R. R. Com. 497, 556, 557 (1911). Mr. Robert L. Hale, in an article on "The Supreme Court's Ambiguous Use of 'Value' in Rate Cases," 18 Col. L. Rev. 208, 210, cites these Wisconsin cases and observes: "The 'value of the services' concept was not needed to justify the com- mission in the situation described, as it must be quite clear that the company is de- prived of nothing at all when its rates are kept down to the point where they yield the utmost net earnings comjnercially possible." " Re Colorado Springs Light, Heat, & Power Co., P. U. R. 1916 E, 650, 658. » Ibid., 657. " Ibid., 659.