issue. The market value of the system will depend largely on the net return that may be earned under the rate scale allowed. Rates in the case of the misplaced or partially obsolete plant or road cannot be based primarily on the value of the property but on what the service is reasonably worth and this in most cases is the amount that the consumer can reasonably afford to pay. The determination of the amount that the consumer can reasonably afford to pay is a process for which no rules can be laid down. It is usually determined in practice by noting the effect of rate variations on the volume of traffic. The net return resulting under reasonable rates as thus determined may be capitalized to determine the market value of the plant or road; but it is to be noted that value is here based on rates, not rates on value. § 59. Same subject-San Francisco Water Rate Case, 1911. In the case of Spring Valley Water Works v. San Francisco, 192 Fed. 137, decided October 21, 1911, District Judge Farrington states that in certain cases "fair value" means the value upon which a fair return can be earned at reasonable rates, and seems to recognize the need of a special standard in the case of the misplaced or partially obsolete plant. Judge Farrington says (at pages 154-155): It is impossible to consider the constant use of the word "fair" or the word "reasonable," in connection with value, by all the federal courts and the courts of this state in practically every recent statement of this rule, without feeling that regard must be given to the service performed by the property; that reasonable value and fair value are not always and under all conditions the precise equivalent of full actual value, or the value which would be awarded in condemnation proceedings; that the value upon which a fair return is due is the value which under all the circumstances is reasonable and fair as between the public and the person who has voluntarily devoted his amet property, or some portion or use thereof, to public convenience. 60. Market value the true standard-Justice Brewer in Reagan v. Farmers' L. & T. Co., 1894. In Reagan v. Farmers' Loan & Trust Company, 154 U. S. 362, 14 Sup. Ct. 1047, 38 L. ed. 1014, decided May 26, 1894, Justice Brewer says (at page 410): The equal protection of the laws-the spirit of common justice -forbids that one class should by law be compelled to suffer loss that others may make gain. If the State were to seek to acquire the title to these roads, under the power of eminent domain, is there any doubt that constitutional provisions would require the payment to the corporation of just compensation, that compensation being the value of the property as it stood in the markets of the world, and not as prescribed by an act of the legislature? Is it any less a departure from the obligations of justice to seek to take not the title but the use for the public benefit at less than its market value? § 61. Market value standard impracticable-California Supreme Court in San Diego Water Case, 1897. San Diego Water Company v. City of San Diego, 118 Cal. 556, 50 Pac. 633, decided October 9, 1897, is a case involving a valuation for rate purposes. The lower court held the municipal ordinance unconstitutional but was reversed by the Supreme Court and the cause remanded for a new trial. Judge Van Fleet in the majority opinion says (at page 568): The judicial test of market value depends upon the fact that the property in question is marketable at a given price, which, in turn, depends upon the fact that sales of similar property have been and are being made at ascertainable prices. But such property as this is not so sold, at least not often enough to furnish a fair criterion; and the very fact of governmental regulation would necessarily control the price. Until the rates are fixed, no one can say how much the property would sell for, and therefore that price cannot be ascertained as a basis for fixing those rates. § 62. Value as a going business concern-Circuit Judge McCormick in Metropolitan Trust Co. v. H. & T. C. R. Co., 1898. Metropolitan Trust Company v. Houston & T. C. R. Co., 90 Fed. 683, decided December 1, 1898, United States Circuit Court, Western District, Texas, was a suit for an injunction involving railroad rates adopted by the Texas Railroad Commission. Circuit Judge McCormick, in his opinion, considers at some length the basis of valuation in rate matters and states that the valuation submitted by the railroad commission is defective in that it fails among other things to make proper allowance for "favorable location," "seasoning," "established business," "good will" and "lost interest on investment" during some twenty years during which the railroad was not earning a fair return. He considers that cost of reproduction is not a proper basis but that the railroad should be valued as a going business concern on the same basis as if it were a valuation for condemnation purposes. He says (at page 687): It seems to be clear from the answer of the commission, the tone of the affidavits which it offers in support of its answer, and the argument of the attorney general and the assistant attorney general who represented it on this hearing, that in estimating the value of this railroad property no allowance was made for the favorable location of the same, in view of the advance in prosperity of the country through which it runs, and the increment to its value due to the settling, seasoning, and permanent establishment of the railways, and to the established business. and the good will connected with its business, which has been established through a long series of years, and all of which ought reasonably to be considered in fixing the value of the property and the capitalization upon which at least it is entitled to earn, and should pay, some returns by way of interest or dividends. This is practically the oldest railroad in the state. A few miles of another road were built earlier, but this road, running throughout the whole course of its main line through what is now the most populous and best-developed portions of the state, and still rapidly increasing in population and development, has established a business that would not and could not be disregarded in estimating the value of the railroad, if considered solely as a business property and venture. It cannot be so considered, because of its quasi public nature. Its duties, its obligations, and its liability to control are elements that must be considered. As popularly expressed, the rights of the people -the rights of shippers who use as it as a carrier-have to be regarded; but, as judicially expressed, these last have to be so regarded as not to disregard the inherent and reasonable rights of the projectors, proprietors, and operators of these carriers. . . In countries conditioned as Texas has been and is, such a railroad property and business cannot be reproduced, except substantially in the same manner in which this has been produced; that is, by a judicious selection of location, by small beginnings, and gradual advance through a number of years, more or less, of unproductive growth. The particular location of this road, of course, cannot be reproduced, and it cannot be appropriated by another private or quasi public corporation carrier by the exercise of the state's power of eminent domain. And, even if the state should proceed to expropriate this property for the purpose of taking the same to itself for public use, the location of this road cannot be appropriated, any more than any other property right of a natural person or of a corporation can be appropriated, without just compensation. It is therefore not only impracticable, but impossible, to reproduce this road, in any just sense, or according to any fair definition of those terms. And a system of rates and charges that looks to a valuation fixed on so narrow a basis as that shown to have been adopted by the commission, and so fixed as to return only a fair profit upon that valuation, and which permits no account for betterments made necessary by the growth of trade, seems to me to come clearly within the provision of the fourteenth amendment to the constitution of the United States, which forbids that a state shall deprive any person of property without due process of law, or deny any person within its jurisdiction the equal protection of the laws. It is true that railroad property may be so improvidently located, or so improvidently constructed and operated, that reasonable rates for carriage of freights and passengers will not produce any profit on the investment. It is also true that many railroads not improvidently located, and not improvidently constructed, and not improvidently operated may not be able, while charging reasonable rates for carriage of freight, to earn even the necessary running expenses, including necessary repairs and replacements. And there are others, or may be others, thus constructed and conducted, which, while able to earn operating expenses, are not able to earn any appreciable amount of interest or dividends for a considerable time after the opening of their roads for business. This is true now of some of the roads, parties to these bills. At one time or another, and for longer or shorter times, it has been true, doubtless, of each of the roads that are parties to these bills. Promoters and proprietors of roads have looked to the future, as they had a right to do, and as they were induced to do by the solicitation of the various communities through which they run, and by various encouragements offered by the state. The commission, in estimating the value of these roads, say that they included interest on the money invested during the period of construction. This is somewhat vague, but the "period of construction " tioned is probably limited to the time when each section of the road was opened to the public for business. And even if extended to the time when the road was completed to Denison and to Austin in 1873, nearly 20 years after its construction was begun at Houston, it would not cover all of the time, and possibly not nearly all of the time, in which the railroad company and its predecessors have lost interest on the investment. The estimate made on behalf of the railroad in this case of the cost to that company and to its predecessor company of the railroad property, and the business of that company as it exists to-day, may not be exactly accurate, clearly is not exactly "men |