U.S. Supreme Court
Knoxville v. Knoxville Water Co., 212 U.S. 1 (1909)
City of Knoxville v. Knoxville Water Company
Argued April 28, 1908
Decided January 4, 1909
212 U.S. 1
Ratemaking is a legislative function, whether exercised by the legislature or by a subordinate body to which power has been delegated, such as a municipality.
While courts may refuse to enforce legislation on constitutional grounds, the power should only be exercised in the clearest cases.
In ordinary equity suits, findings of the master and the court below are conclusive here unless unsupported by the evidence or made under erroneous view of law; but where the constitutionality of a legislative act is involved, this Court, from the respect due to legislative authority, will not regard such findings a conclusive.
In estimating for rate-fixing purposes the value of a plant, cost of reproduction is not a fair measure of value unless a substantial allowance is made for depreciation. Quaere whether anything can be allowed in the case of the plant of a public service corporation for "going concern" above the value of the separate tangible elements.
In valuing for rate-fixing the plant of a public service corporation, bonds and stocks issued for its purchase and construction in excess of it cost and by and to parties interested in and controlling the company afford neither measure nor guide. chanroblesvirtualawlibrary
In determining whether a rate affords a fair return, the amount must be considered as fixed by the ordinance, and not as voluntarily reduced by the corporation, even if such reduction be in accordance with custom and for the purpose of obtaining prompt payment.
In determining whether a rate is confiscatory, the court is not confined to evidence as to the income of the corporation affected for the fiscal year during or preceding that in which the rate was fixed; it may receive evidence as to such income in subsequent years.
Federal courts should not declare an ordinance fixing rates for a public service corporation unconstitutional and suspend its operation before it goes into effect unless the rate is clearly confiscatory, and unless complainant furnishes substantial evidence to that effect, the bill should be dismissed without prejudice to a further application to the courts if the rate after going into effect is actually confiscatory.
A sufficient amount should be allowed from the earnings of a public service corporation for making good depreciation of plant and replacing deteriorated portions thereof, but amounts so expended cannot be considered as additional to the original cost in valuing the plant for purposes of ascertaining whether a rate is confiscatory.
Quaere, and not decided, whether, under the circumstances of this case, an ordinance fixing a rate yielding a return of four percent after allowing two percent for depreciation is confiscatory, and amounts to a deprivation of property without due process of law or a taking of property without compensation.
The facts, which involve the constitutional validity of an ordinance of the City of Knoxville fixing maximum rates to be charged for water by the defendant water company, are stated in the opinion. chanroblesvirtualawlibrary