selves with the following observations from the case of Billings v. Billings Gas Company, decided February 19, 1924, and reported ante, at page:

"In the end, Mr. Justice Brandeis' forceful dissenting opinion in the Southwestern Bell Case may or may not prevail; but at present the majority opinion is to be accepted and followed, with all necessary implications from the result which it reaches. The Missouri Commission had fixed the rate base at $20,400,000. The steps by which it had reached this result were not very clear, but it apparently had given slight, if any, regard to reproduction cost. The evidence before the court offered by the utility showed the reproduction cost of the physical property, less depreciation, to be $24,700,000, the necessary working capital to be $1,050,000, and the cost. of establishing the business to be $5,600,000. This made a total of $25,750,000 of physical property and working capital. It appeared that the Commission had thought proper to deduct $500,000 from the physical property for that which was not used or useful, and to make some deduction from the working capital. It seems probable that, for the purposes of the opinion but without any decision thereon, the court excluded the cost of establishing the business; and then, upon the state of proof which we have recited, it says: 'We think the proof shows that for the purposes of the present case the valuation should be at least $25,000,000.' Particularly when we read the dissenting opinion, we must construe the majority opinion as the minority of the court interpreted it, viz.: as holding that, where it stands not impeached or attacked otherwise than it was in that case, the reproduction cost is the dominating element in the fixing of the rate base; and if a Commission, which leaves it substantially unimpeached, fails to give it that dominating effect, there is an error of law which the court must correct. The opinion in the Bluefield Water Case tends to confirm this construction of the Southwestern Bell Case. The rate base made by the Commission was set aside because due regard had not been given to reproduction cost. The court did not undertake to say just what 'proper consideration' would be. It did not think that the circumstances called upon it to say, as it did in the Southwestern Bell Case, what the minimum permissible valuation was. Possibly this was for the reason that the appeal was from the state court, and the state court had so obviously adopted the theory of historical costs that to correct that error in general terms was thought sufficient.

"Nor do we find anything inconsistent with this view in the opinion in the Georgia Power Case. It affirms only that the reproduction cost at the date of the inquiry is not necessarily controlling. The reproduction valuation was made at the end of 1921—about the peak of high costs. The company claimed this value to be $9,500,000. The Commission cut off $4,250,000. Two million dollars which the company included,

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"All here concerned are agreed that the Billings Gas Company is entitled to a fair return upon the fair value of the property which it employs in the public service in Billings. But the concord means little for this vague statement, generated in Smyth v. Ames, 169 U. S. 466, has given rise to as many, if not more conflicts, doubts and differences than any other generality in the law. The reports of the courts and commissions are strewn with attempts to reduce the statement to an

was for items obviously improper. About $500,000 was cut off from two items, upon findings which the court approved. This left the company's valuation of physical property as $7,000,000. It appeared that at the time of the trial court hearing construction costs were reduced, and that the court below had allowed some increases in the value of the property and had given careful attention to the whole matter of reproduction value. The true amount of accrued depreciation, the amount of fall in costs before the hearing, and of the other respects in which the company's valuation was attacked, do not appear. Comparison of the majority and minority opinions makes it clear that the majority did not think it was departing from the principle of the Southwestern Bell decision, but rather was adhering thereto. (Italics are ours.)

"It is plain from its exhaustive report that the Michigan Commission in this case followed practically in the lines of Mr. Justice Brandeis' dissenting opinion in the Southwestern Bell Case; and it will, of course, be noted that the action of the Commission was taken some time before this opinion was announced. The report of the Michigan Commission is most painstaking and thorough, and displays obvious intent to deal fairly with the utility according to the Commission's view of the legal questions involved in a degree which unfortunately has been absent in many cases in which judicial review of commission conclusions in other states has been sought. It will be noted, however, that, pursuant to a common practice, the report seeks to immunize itself against attack by a careful declaration that no one element is given controlling effect in fixing the rate base, but that actual cost, investment, capitalization, reconstruction cost, depreciation, etc., are given, and each is given due weight in reaching the final composite conclusion. As Mr. Justice Brandeis points out, such a report, like the general verdict of a jury, suggests immunity to any attack which depends upon showing that the Commission gave excessive or insufficient force to any one element. We do not see that an otherwise appropriate judicial revision can be escaped in this manner. It is the duty of the court to determine the rate base from the evidence before it; and while there must be great hesitancy in overturning a conclusion reached by the Commission, after it has considered all relevant facts, neither presumption nor express statement by the Commission that it has given due weight to everyone can prevail against a contrary inference required by the proofs."

intelligent rule of action. Counsel for the utility seem to conclude that the recent decision of the Supreme Court of the United States, in the case of State of Missouri ex rel. Southwestern Bell Telephone Company v. Missouri Public Service Commission et al., has cleared the atmosphere. He says that the court there laid down the fundamental rate to be followed in the valuation of property for rate-making purposes, although previous to this decision there was much difference of opinion as well as conflict of authority as to what the proper method was.' He quotes the following paragraph of the opinion:

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"It is impossible to ascertain what will amount to a fair return upon properties devoted to public service without giving consideration to the cost of labor, supplies, etc., at the time the investigation is made. An honest and intelligent forecast of probable future values, made upon a view of all the relevant circumstances, is essential. If the highly important element of present costs is wholly disregarded, such a forecast becomes impossible. Estimates for tomorrow can not ignore prices of today.' (The italics are ours.)

"We do not find this opinion of much aid. In reality it is but a restatement of the old formula vouchsafed to us in Smyth v. Ames. It has long been ruled that value, in essence always a matter of opinion, is to be determined as of the time the investigation is made with reference to it, that the inquiry is to concern itself with the realities of the situation and not with idle computations as to past figures and useless prophecies as to future price levels. Necessarily, then, estimates for tomorrow, that is, for future rates, cannot ignore today's prices, that is present relevant indicia of present value. Consequently, those people who think that the telephone decision established the principle that reproduction. cost is the only true measure of value, or indeed that reproduction cost is to dominate or control irrespective of all other circumstances shown in a given record, are, we think, in error. We think that the telephone case has been rightly appraised by the minority opinion and by the three Federal Judges who heard the application for a preliminary injunction in Monroe Gaslight and Fuel Company v. Michigan Public Utilities Commission et al., 292 Fed. 139.

"As we look at the decision in the telephone case, thus appraised, and after a study of the opinions of the Missouri Commission and the Missouri Court, the Commission proceeded to a finding of value on valuations upon certain parts of the company's property taken in 1913, 1914 and 1916, plus additions, at current prices, to June 30, 1919, and on theories by it adhered to without reference to the evidence presented by the company which stood practically unimpeached in the record. In other words, the vice denounced arose from the fact that the Missouri Commission paid little or no attention to the unimpeached evidence of the company. Our conclusion is that reproduction cost on valuation date is not by

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force of any existing judicial utterance the measure of value. It is a highly important element which must be given weight. In some cases it may be given dominant weight,- for example: where it is not attacked, or where it is not impeached by its own infirmities, or where a plant is new. We do not want it understood that, while we find the prudent investment theory presented by Mr. Justice Brandeis much more practical in application (and, we think, free from the vice of confiscation) that our respect for it influences decision herein. Our findings will demonstrate the contrary."

GRAND SUMMARY OF VALUATIONS, APRIL 30, 1923.

TOTAL...

Other work in progress.

GRAND TOTAL.

$14,514,220 24 $13,536,552 26 $13,057,945 00 $11,764,362 00

$14,617,169 24 $13,639,501 26 $13,057,945 00 $11,764,362 00

Whatever may be the difficulties encountered in the attempted solution of a rate case, we think it clear that we should proceed to a determination of a fair present value solely from the public service standpoint, that is, in recognition of the legislative policy which requires adequate service at reasonable rates and the encouragement of investments for the extension and perfection of responsible and well-managed utility properties.

Mr. Peters, the valuation engineer of The Mountain States Telephone and Telegraph Company, arrived at the sum of $14,617,169.24 as the cost of reproducing the plant and equipment and business of the company in the State of Montana. This included cost of establishing the business, working capital, and other work in progress. He determined the structural value, or what is sometimes known as reproduction cost new, less deterioration or depreciation, to be $13,639,501.26.

Mr. Snell, the engineer for the Commission, did not arrive at a figure for the cost of establishing the business, but, omitting that item, his valuation was $13,057,945 on the reproduction new basis, and his figure for reproduction cost, less depreciation, omitting cost of establishing the business, was $11,764,362, to which is added $275,505 for working capital, making $12,039,867. To this, if we add $1,221,842.25, cost of establishing the business, we get $13,261,709.25.

Both Mr. Peters' and Mr. Snells' method of determining the deterioration in the physical plant is based upon the inspection method largely. The difference in the per cent. condition of the property, as per the estimates of the two engineers, is something near 3 per cent. Mr. Snell's per cent. condition of property is 89.88 per cent., and Mr. Peters' approximately 93 per cent.

It is apparent that if Mr. Peters' estimate of the cost of establishing the business is correct, there would be added to Mr. Snell's figures the sum of $1,221,842.25, and perhaps the sum of $102,949, other work in progress.

There is, in reality, but little difference in the judgments of these two engineers, and since the record furnishes no evidence as to the value other than these judgments, we must, within the admonition of the Southwestern Case, supra, exercise our judgment on these two bases. We reject the suggestion that the rate base should be determined exclusively upon the theory of reproduction new. To follow this course would involve a wide departure from the actual history of the company's property in Montana and a direct

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