Valley & Siletz Railroad v. Thomas

In Banc. This suit was instituted in the circuit court of Marion county, Oregon, by Valley Siletz Railroad Company, against the public utilities commissioner of Oregon, to set aside an order previously made by that officer fixing the maximum carload rate on log shipments from Olson, on the Valley Siletz line in Polk county, to Winona, on a branch line of the Southern Pacific Company in the same county. The order of the commissioner also prescribed other rates on carload shipment of logs between points on the Valley Siletz line. The Charles K. Spaulding Logging Company, a corporation, hereinafter to be referred to as the Spaulding Company, was permitted to intervene as a party defendant.

On December 13, 1932, the Spaulding Company filed a complaint with the commissioner, naming the Valley Siletz Railroad Company and the Southern Pacific Company as defendants, alleging that the joint rates of $3.90 per thousand feet, board measure, on logs between Olson and Winona were unreasonable and unjust. After an extensive hearing the commissioner on May 17, 1933, entered an order, in which, after referring to the testimony introduced, he made the following finding:

"From a careful consideration of the entire record in this proceeding and based thereon, I am of the opinion and find:

"That the present joint-line haul rate of respondent carriers applicable to the transportation of carload shipments of saw-logs shipped from Olson and nearby shipping points located on the Valley Siletz Railroad Company to Winona, Oregon, located on Southern Pacific Company's line, in so far as same exceeds the rates and charges hereinafter prescribed, is unjust and unreasonable; * * * *Page 83

"That just, reasonable and lawful rates and charges for the future, to be applied jointly and locally by defendant carriers for the transportation of carload shipments of saw-logs between points on their lines, shall not exceed the following: from Olson, Oregon, and nearby shipping points to Winona, Oregon, applicable to loads of fifteen or more carloads shipped at one time, based on the use of cars not exceeding forty-three feet in length, $18 per carload. Applicable to shipments in loads of less than fifteen carloads, $3 per thousand feet B.M., carload minimum six thousand feet B.M."

Upon the hearing before the circuit court additional testimony was introduced and the matter was, pursuant to § 62-138, Oregon Code 1930, resubmitted to the commissioner. After referring to the testimony introduced in the circuit court the commissioner found that his former order should be revised by eliminating therefrom all rates except those applying to carload shipments of logs between Olson and Winona, and that such order should be further amended by providing "that a just, reasonable and lawful rate and charge for the future, to be applied jointly by defendant carriers for the transportation of carload shipments of saw-logs, based on the use of cars not exceeding forty-three feet in length, applicable to shipments of one or more carloads shipped at one time from Olson, Oregon, and nearby shipping points to Winona, Oregon, is and for the future shall be $20 per carload".

The circuit court entered a decree for the defendants, and the plaintiff has appealed.

Before discussing in detail the facts relating to the rates prescribed by the commissioner, we shall dispose of the first two assignments of error presented by the appellant in its brief. *Page 84

It is first insisted that the order of the commissioner is void, on the ground that he did not make detailed and specific findings of fact relating to the matter before him, and that the failure to make such findings of fact invalidates his entire order. This contention is based on the wording of §§ 62-125 and 62-134, Oregon Code 1930. The first of these sections, with reference to investigation of rates, provides that "if upon such investigation the rate or rates, fares, charges * * * or any joint rate or rates * * * or service complained of, shall befound to be unreasonable," the public utilities commissioner "shall have power to fix and order substituted therefor such rate or rates" as he "shall have determined to be just and reasonable and which shall be charged, imposed and followed in the future".

Section 62-134, as far as material here, is as follows: "Whenever, upon an investigation made under the provisions of this act", the public utilities commissioner "shall find any existing rate or rates, fares, charges, or classifications, or any joint rate or rates * * * affecting the transportation of * * * property * * * are unreasonable" he "shall determine and by order fix a reasonable rate, fare * * * or joint rate to be imposed, observed, and followed in the future in lieu of that found to be unreasonable".

The commissioner is granted power to change existing rates only in the event that he finds such rates unreasonable. The law does not confer upon him legislative authority to require the substitution of other and different rates as in his discretion he may from time to time deem desirable. He is given authority to prescribe other and different rates only in such instances as he finds existing charges unreasonable. *Page 85

The sections of the code above referred to do not require the commissioner to make what commonly is considered a finding of fact. They merely provide that, in the event he finds certain rates to be unreasonable, it then becomes his duty to prescribe what are reasonable rates. In the order above mentioned he found definitely that certain rates were unreasonable and specified what would be reasonable rates.

In United States v. Baltimore O.R. Company, 293 U.S. 454 (55 S. Ct. 268, 79 L. Ed. 301), the court pointed out that an order of the interstate commerce commission could not be supported where there was complete absence of the basic or essential findings required to give the commission jurisdiction of the matter. With further reference to this subject, the court there said:

"In the Florida case the legal distinction was pointed out between what may be termed quasi-jurisdictional findings, there held to be indispensable, and the `complete statement of the grounds of the commission's determination' which was declared inBeaumont, S.L. W.R. Co. v. United States, 282 U.S. 74, 86, to be desirable for a proper consideration of the case in the courts. The lack of such a complete statement, while always regrettable, because unnecessarily increasing the labor of the reviewing court, compare Virginian R. Co. v. United States,272 U.S. 658, 675, is not fatal to the validity of the order. It is true that formal and precise findings are not required, under § 14 (1) of the Interstate Commerce Act, which declares that the report `shall state the conclusions of the commission together with its decision.' Compare Manufacturers R. Co. v. UnitedStates, 246 U.S. 457, 487; Meeker v. Lehigh Valley R. Co.,236 U.S. 412, 428. That provision relieves the commission from making comprehensive findings of fact similar to those required by Equity Rule 70 1/2. But § 14 (1) does not remove the necessity of making, where orders are subject to *Page 86 judicial review, quasi-jurisdictional findings essential to their constitutional or statutory validity."

In Wichita R. Light Co. v. Public Utilities Commission,260 U.S. 48 (67 L. Ed. 124, 43 S. Ct. 51), relied upon by the appellant herein, it was held that the order of the commission failed to find the existing rates to be unjust and unreasonable, and that the commission under the Kansas law had no power to substitute other rates unless it did so find. In support of this conclusion the court cited Public Utilities Commission v. Springfield GasCompany, 291 Ill. 209 (125 N.E. 891). In the Illinois case, with reference to the duty of the regulatory body of that state, the court quoted from the Public Utilities Act as follows:

"At the conclusion of such hearing the commission shall make and render findings concerning the subject matter and facts inquired into, and enter its order based thereon."

It will readily be seen that the requirements of the Illinois act are more exacting, as to what the findings shall consist of, than those of the Oregon statute. Although the Illinois case was cited by the United States supreme court in Wichita R. LightCo. v. Public Utilities Commission, supra, there is nothing in the opinion in the latter case from which it can be inferred that anything more is necessary than the quasi-jurisdictional findings, that is, of the unreasonableness of existing rates.

Following the Illinois decision is the case of NorthernPacific Railway Company v. Baker, 3 F. Supp. 1, which is based upon a statutory provision closely similar to, if not identical with, the Illinois act, requiring the department of public works of the state of Washington to "make and render findings concerning the subject matter and facts inquired into". *Page 87

In State of Florida v. United States, 282 U.S. 194 (75 L. Ed. 291, 51 S. Ct. 119), it was held that before the interstate commerce commission could fix intrastate rates it was necessary for that body to make a finding as to the effect of such rates on interstate rates, and without such a finding it had no legislative authority to act.

In the case at bar the railroad companies, in the hearing before the public utilities commissioner, introduced in evidence copies of numerous orders of the public service commission of Oregon (predecessor of the public utilities commissioner) passing upon the reasonableness of rates on various commodities on different railroad lines in this state. The findings included in those orders were not, in most instances, any more specific or detailed than the one in the case now before us.

The sufficiency of the commissioner's findings was questioned for the first time by the appellant in its pleading by amendment of the complaint after the cause was submitted to the circuit court for its decision.

As said in the case of United States v. Baltimore O.R.Company, supra, it would be "desirable for proper consideration of the case in the courts" that a complete statement of the grounds of the commissioner's determination be given, and the lack of such a complete statement is always regrettable. The failure, however, in a case of this nature, to make comprehensive findings of fact does not invalidate the order prescribing new rates. A "basic or essential" finding that the existing rates are unreasonable is all that the statute demands. *Page 88

See, also, in this connection, Mills v. Lehigh Valley RailroadCompany, 238 U.S. 473 (59 L. Ed. 1414, 35 S. Ct. 888).

In its second assignment of error the appellant contends that the public utilities commissioner had no jurisdiction or authority, on the pleadings before him, to change the rate on logs from one based on scale measurements to one on carload lots. In support of this argument it is pointed out by the appellant that the complaint of the Spaulding Company filed with the commissioner did not ask for a change in the basis of the rate but merely objected to the rates then in effect as unreasonable.

The case of Northern Pacific Railway Company v. Baker, supra, is relied upon in support of this assignment. In that instance the court held that the change made by the department of public works of the state of Washington, from scale measurement of logs to carloads, was arbitrary as shown by the reasons advanced by the department. The conclusion of the court was not based upon the insufficiency of the complaint before that department.

In the case at bar, on the hearing before the commissioner much of the testimony was directed to a comparison of carload rates on logs in this and adjoining states. The fact was brought out that on many of the roads rates were based on carloads rather than scale measurements. It was further pointed out that one of the principal reasons for basing rates on carload lots was to eliminate the cost of scaling logs and obtaining computation of freight revenue, also to avoid dispute as to the accuracy of such computation.

The evidence before the commissioner was to the effect that the average carload of logs during the year 1929, which was the last year of normal log shipments *Page 89 on appellant's road, was one of 7,890 feet, and for the five years 1926 to 1930, inclusive, the average carload was 7,520 feet. It must be assumed that the rate of $20 per car fixed by the commissioner had reference to the average carload as established by the evidence submitted to him.

In attacking the commissioner's order, the appellant alleged in its complaint in the circuit court that the fixing of rates on carload lots would tend to overloading of the cars, with greatly increased damage to the roadbed and equipment, also increase in loss of logs in transportation and additional expense for salvaging and reloading such logs, and would "result in largely increased claims for damages for loss of logs and injury to employees and other persons". In its brief the appellant seems to have abandoned, to a large extent if not entirely, the foregoing objections to carload rates raised in its complaint. This undoubtedly is due to the fact that no evidence was introduced, either before the commissioner or at the hearing in court, which could be said to sustain with any degree of certainty such grounds of objection.

In the event, however, that any abuse in this respect may develop, the commissioner has not only ample authority to limit the load but it will be his duty to enforce regulations to carry out the intent of the order, which doubtless is that the average load shall not exceed what the evidence shows it to have been in the past. To set aside the order on the conjectural ground that it will permit overloading of cars would be to treat too lightly the commissioner's authority and to underestimate the scope of his supervisory powers.

The remaining two assignments of error assail the carload rates on logs fixed by the commissioner as being confiscatory of appellant's railroad facilities and *Page 90 property. In the discussion of this subject much is said concerning the evidence as to the effect of such rates with reference to the Southern Pacific Company. Both the Valley Siletz Railroad Company and the Southern Pacific Company were named as defendants in the proceeding before the commissioner. The only rate here in question is a joint one applying to lines of both companies. When an attempt was made by the complainant to show the division of the then existing joint rate between the two lines, counsel for the interested carriers objected, on the ground that this question was not involved, and the objection was sustained by the examiner.

The Southern Pacific Company has not questioned the order of the commissioner, and therefore it must be assumed that the rates prescribed by him are satisfactory to that railroad. The Valley Siletz Railroad Company, however, seems to presume that the Southern Pacific Company has just grounds of complaint against the commissioner's order. Any imaginary cause of grievance on the part of the latter company can not avail the Valley Siletz Railroad Company in its attack on the rates in question.

As was said in Aetna Insurance Company v. Hyde, 275 U.S. 440,446 (72 L. Ed. 357, 48 S. Ct. 174):

"Companies whose constitutional rights are not infringed may not better their position by urging the cause of others. Supervisors v. Stanley, 105 U.S. 305, 311; Heald v. District of Columbia, 259 U.S. 114, 123. * * * Rates sufficient to yield adequate returns to some may be confiscatory when applied to the business of others. But the latter have no constitutional right to prevent their enforcement against the former."

The appellant in attacking the rates prescribed by the commissioner alleges that such rates "will not *Page 91 provide revenue sufficient to earn its proportion of the said reasonable, or any, return upon the capital investment of plaintiff in said line and said rates as so prescribed are and will be confiscatory of the property of the plaintiff devoted and used in furnishing said service. * * * For a number of years last past plaintiff has not been able to, and is not now earning even its operating expenses and taxes and is and has been for a number of years last past making no return either to the amortization of said line or a reasonable return on its capital investment therein".

Also contained in the complaint are general allegations that the rate prescribed by the commissioner "is a taking of the property of the plaintiff without due process of law".

In Aetna Insurance Company v. Hyde, supra, the court, in referring to proceedings to set aside rates as confiscatory, observed:

"The complaint was framed to secure judicial review (§ 6284) of the determination of the respondent. The ground of attack was that the aggregate profits were not excessive and that the aggregate collections permitted under the reduced rates were too low. Allegations asserting in general language that the findings, order and reduced rates are confiscatory and repugnant to the Fourteenth Amendment are not sufficient. In order to invoke the constitutional protection, the facts relied on to restrain the enforcement of rates prescribed under the sanction of state law must be specifically set forth, and from them it must clearly appear that the rates would necessarily deny to the plaintiff just compensation and deprive it of its property without due process of law. Louisville Nashville R.R. Co. v. Garrett,231 U.S. 298, 314; Atlantic Coast Line v. Florida, 203 U.S. 256. Jurisdiction of this court to set aside state-made rates as confiscatory will be exercised only in clear cases. And the burden is on one seeking that relief to bring forward and satisfactorily prove the invalidating facts. Chicago, c Ry. Co. v. *Page 92 Wellman, 143 U.S. 339, 344-345; San Diego Land Town Co. v. Jasper, 189 U.S. 439, 441, 446; Knoxville v. Water Co.,212 U.S. 1, 8, 16; The Minnesota Rate Cases, 230 U.S. 352, 433, 452; Brush Elec. Co. v. Galveston, 262 U.S. 443, 446."

The supreme court of the United States in Beaumont S.L. W.R.Company v. United States, 282 U.S. 74, 88 (75 L. Ed. 221,51 S. Ct. 1), said:

"Appellants claim that the commission's order, if enforced, will operate to deprive them of their property without due process of law in violation of the Fifth Amendment to the Constitution.

"It is well established by the decisions of this court that, in order to invoke such constitutional protection, the facts relied upon to prevent enforcement of rates prescribed by governmental authority must be specifically alleged and from them it must clearly appear that the enforcement of the measure complained of will necessarily deny to the utility the just compensation safeguarded to it by the Constitution. Aetna Insurance Co. v. Hyde, 275 U.S. 440, 447-8, and cases cited. * * * There is no allegation in the complaint, or evidence in the record to show that any division to any of the appellants will not yield operating expenses chargeable to the service covered by it plus a reasonable return on property value fairly attributable to that service."

The complaint in the case before us does not specifically allege facts showing or tending to show that the rates involved are confiscatory of plaintiff's property. The allegations in that respect are merely conclusions.

Passing for the time being the sufficiency of the complaint, we shall turn to other phases of the case, after briefly reviewing the functions of the court in cases of this nature, wherein it is contended that rates prescribed by legislative authority are confiscatory. *Page 93 In Los Angeles Gas Electric Corporation v. RailroadCommission, 289 U.S. 287, 304 (77 L. Ed. 1180, 53 S. Ct. 637), it is said:

"We approach the decision of the particular questions thus presented in the light of the general principles this court has frequently declared. We have emphasized the distinctive function of the court. We do not sit as a board of revision, but to enforce constitutional rights. San Diego Land Town Co. v. Jasper, 189 U.S. 439, 446. The legislative discretion implied in the rate making power necessarily extends to the entire legislative process, embracing the method used in reaching the legislative determination as well as that determination itself. We are not concerned with either, so long as constitutional limitations are not transgressed. When the legislative method is disclosed, it may have a definite bearing upon the validity of the result reached, but the judicial function does not go beyond the decision of the constitutional question. That question is whether the rates as fixed are confiscatory. And upon that question the complainant has the burden of proof and the court may not interfere with the exercise of the state's authority unless confiscation is clearly established."

Again, in Mississippi Valley Barge Line Company v. UnitedStates, 292 U.S. 282, 286 (78 L. Ed. 1260, 54 S. Ct. 692), we find this statement:

"The structure of a rate schedule calls in peculiar measure for the use of that enlightened judgment which the commission by training and experience is qualified to form. Florida v. United States, 292 U.S. 1. It is not the province of a court to absorb this function to itself. I.C.C. v. Louisville Nashville R. Co.,227 U.S. 88, 100; Western Paper Makers' Chemical Co. v. United States, 271 U.S. 268, 271; Virginian R. Co. v. United States,272 U.S. 658, 663. The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body." *Page 94

The court in State of Florida v. United States, 292 U.S. 1,12 (78 L. Ed. 1077, 54 S. Ct. 603), observed as follows:

"The question of the weight of the evidence was for the commission and not for the court. * * * The purpose for which the commission was created was to bring into existence a body which, from its special character, would be best fitted to determine, among other things, whether upon the facts in a given case there is an unjust discrimination against interstate commerce. United States v. Louisville Nashville R.R. Co., 235 U.S. 314, 320. That purpose unquestionably extended to the prohibited discrimination produced by intrastate rates. In relation to such a discrimination, as in other matters, when the commission exercises its authority upon due hearing, as prescribed, and without error in the application of rules of law, its findings of fact supported by substantial evidence are not subject to review. It is not the province of the courts to substitute their judgment for that of the commission." [Citing numerous authorities.]

In West Ohio Gas Company v. Public Utilities Commission,294 U.S. 63 (79 L. Ed. 274, 55 S. Ct. 316), it is said:

"This court does not sit as a board of revision with power to review the action of administrative agencies upon grounds unrelated to the maintenance of constitutional immunities. Los Angeles Gas Electric Corporation v. Railroad Commission of California, 289 U.S. 287. Our inquiry in rate cases coming here from the state courts is whether the action of the state officials in the totality of its consequences is consistent with the enjoyment by the regulated utility of a revenue something higher than the line of confiscation. If this level is attained, and attained with suitable opportunity through evidence and argument (Southern Ry. Co. v. Virginia, 290 U.S. 190) to challenge the result, there is no denial of due process, though the proceeding is shot through with irregularity or error." *Page 95

It is essential to a clear understanding of this case to refer briefly to some of the more pertinent facts concerning the organization and operation of the Valley Siletz railroad.

The William W. Mitchell Company, a Wisconsin corporation, hereinafter to be referred to as the Mitchell Company, sometime prior to 1910 became owner of a large tract of timber land near Valsetz in Polk county. In 1910 a forest fire burned over approximately 4,000 acres of this land, and to salvage the burned timber it was necessary to build a railroad into the Mitchell tract. The stockholders of the Mitchell Company organized, in 1912, the Valley Siletz Railroad Company, built the railroad and put it into operation as a common carrier in 1918.

The road extends from Independence, Polk county, in a general westerly direction following the Luckiamute river, to the station of Olson in that county, a distance of 35.6 miles, thence in a northwesterly direction to the town of Valsetz, a total distance of 40.6 miles from Independence. The construction of this road was well described by Mr. J.P. Newell, who at the time of the trial had had 46 years experience as a consulting engineer, 20 years of which were spent in the location, building and maintenance of railroad lines, and 22 years as a consulting engineer for the public service commission of Oregon. In his testimony before the commissioner, Mr. Newell explained the construction of this railroad as follows:

"The road crosses level territory in the Willamette valley for about twenty-five miles of its total forty, and then enters the canyon of the Luckiamute river, which is fairly open for a considerable distance up the canyon. Steep grades cover about ten miles all told. Part of that is only about one and one-half per cent *Page 96 grade, but it runs up to a three per cent grade, which covers about three miles. There are some five or six miles of quite heavy work. The work for the rest of the distance is — there are three or four miles of moderately heavy work, and all the rest of it could be classed as light construction. I mean by that easy construction. The road is, for a logging road, quite unusually well built. It is a fairly good branch line permanent road. The curvature is as light, I would say, as could reasonably be made in that sort of country. It has no very sharp curves anywhere and not many that are even moderately sharp. The roadbed has been constructed of a reasonable width. I noted particularly one thing that is not always observed, especially in logging roads, that across all the flat country of the Willamette valley it has been raised a little above the general level, instead of being laid, as it is quite often laid, right flat on the ground. It has been put upon a little embankment so that it is well drained and more easily maintained than it would be had it been cheaper in that respect. The rail is as heavy as could be reasonably used on such a road. It is well tied. There is a moderate amount of ballast. I would say that it would class as a good example of a well constructed branch line road."

The three per cent grade mentioned by Mr. Newell is between Valsetz and Olson, beyond the shipping points of the Spaulding Company; and from Olson to Independence the track is either level or on a down grade.

The Spaulding Company began shipping logs over this line to Winona on the Southern Pacific branch line in 1918. From that year to and including 1929 this company paid to the Valley Siletz railroad and the Southern Pacific $784,617 on outbound log shipments, and in excess of $100,000 on inbound freight.

In 1920 the Mitchell Company through an affiliated corporation completed a large sawmill at Valsetz. *Page 97 Originally its timber holdings in that vicinity aggregated 1,675,000,000 feet. By January 1, 1920, when the mill began operating, this total had been reduced to 1,580,000,000 feet, and on January 1, 1925, the timber had been further reduced to 1,317,000,000 feet.

The Spaulding holdings are located near Olson and now consist of 450,000,000 feet of timber. For a number of years prior to 1931 this company had been engaged in cutting the timber and shipping the logs over the Valley Siletz railroad to Independence, thence on a branch line of the Southern Pacific to Winona, a distance of 11.3 miles on the latter line, where the logs were placed in the Willamette river and floated down and across the river to the Spaulding mill at Salem. The total distance the logs were shipped by train was 46.9 miles. In describing this shipment, the commissioner states:

"Handling of saw-logs by the Valley Siletz line from plaintiff's [the Spaulding Company's] shipping points at and near Olson station to Independence appears to be a very simple operation. At the shipping points both the empty and loaded cars are interchanged between the common carrier and plaintiff's private logging road by means of side tracks requiring very little, if any, extra switching service. At Independence the loads are pulled directly upon interchange track with Southern Pacific Company without extra switching service. From Olson to Independence the loads move over either a gradually descending grade or over practically level track."

In the progress of the hearing before the commissioner exhibits were introduced showing operating revenues and expenses of the Valley Siletz railroad from and including 1918 to and including 1931, taken from the reports filed with the public service commission *Page 98 of Oregon. Operating revenues included freight, passenger, mail and express earnings, demurrage and two or three minor items. The amount received for freight service varied from $83,319 in 1919 (which is some $4,000 less than the preceding year) to $229,809 for 1926. The 1926 freight earnings did not vary greatly from the amount received in each of the next three years. In 1929, the last year of normal freight movement, the freight revenue was $222,227. The next year it dropped to $160,605, and in 1931 to $77,599.

The total railway operating revenue, including freight and passenger services, was $251,351 for 1929, which was exceeded in only one year, 1926, when it reached $259,800. In 1931 the entire revenue was $88,405.

In making its report to the federal and state regulatory bodies, the appellant included, beginning with the year 1925, an item designated "depreciation of way and structures", which was explained to be an entry covering amortization. This item increased from $36,536 for 1925 to $40,823 for 1931. With this allowance included, the grand total of operating expenses dropped from $194,881 in 1929 to $80,825.56 in 1932.

The net income of the railroad, figured on the basis above indicated, was given by this tabulation as $48,066 in 1929, while in 1932 the expenses exceeded the income by $65,135.21. The total operating revenue for the latter year was $20,008.44.

The year 1929 was adopted by both the complainant and the respondents in the hearing before the commissioner as a basis of ascertaining cost of transportation of freight over the Valley Siletz line, because that year was representative of normal business on the line *Page 99 and was the last year of such business. In 1929 the outbound joint shipments were the following:

Number Commodity of cars Total revenue

Lumber ______________________ 3,432 $124,573.20 Logs ________________________ 1,919 42,064.17 Logs (hardwood) _____________ 13 307.86 Hog fuel ____________________ 1,250 18,219.79 Pulpwood ____________________ 95 1,841.74 Wood exclusive of oak _______ 183 3,449.83 Wood (oak) __________________ 16 250.40 Miscellaneous (scrap iron, grain, etc.) ______________ 9 738.17 ___________ $191,445.16

Local shipments outbound, consisting of 501 cars, earned a revenue of $8,276.69. They comprised three cars of lumber, and the balance of wood, hog fuel, sawdust and slabwood.

The inbound freight for that year, local and joint hauls, totaled 79 cars and earned an aggregate revenue of $4,821.87. Revenue for the same year derived from passenger service, including transportation of passengers, mail and express, amounted to $26,838.

There was a great deal of testimony taken at the hearing before the commissioner and many exhibits were introduced containing compilations of the cost per car-mile, average return per car-mile, expense of operation per car-mile, and so on. Many of these exhibits were for the purpose of facilitating comparison between rates on the joint haul here involved and those for similar distances on other lines.

The Spaulding Company attempted to prove by the testimony of Mr. Newell the direct or out-of-pocket cost of transporting logs from Olson to Winona. This witness went into detail regarding various items going to make up such direct cost, and his testimony was *Page 100 based on the annual reports of the Valley Siletz Railroad Company filed with the public service commission, supplemented by his own knowledge of general cost of operation, gained from practical experience and observation as a consultant. His conclusion was that the direct cost did not exceed $12.74 per car, and of this amount he apportioned $7.42 to the Valley Siletz road and the balance of $5.32 to the Southern Pacific.

The appellant points out that this $12.74 does not include $1.50 per car rental for log cars paid by the Valley Siletz railroad to the Southern Pacific. Mr. Newell explained that those cars were owned by one of the carriers sharing in the joint rate and should therefore be considered as capital investment, with the result that there was no justification for figuring their rental as part of the direct cost affecting the joint rate.

The further contention is made by this carrier that in apportioning some of the direct cost between its freight and passenger services Mr. Newell used as a basis for such allocation the ratio between revenues of the respective branches of service, and on that basis allotted 10.9 per cent of such expense to passenger service and 89.1 per cent to freight; whereas instead of this ratio, the appellant contends, the apportionment should be made on a car-mileage basis, which would make the division 4.7 per cent to passenger service and 95.3 to freight. In view of all the evidence on this subject, we are of the opinion that the basis used by Mr. Newell does not allocate to the passenger service too great a proportion of the undistributed operating expense of the railroad.

In this connection it might be observed that the passenger service on the Valley Siletz railroad for *Page 101 1929 amounted to 29,313 train miles, as against 24,441 train miles for freight; and that in view of this fact the apportionment of 10.9 per cent of some of the items of expense to passenger service is much less than the proportion of the respective items actually occasioned by, and fairly chargeable to, that service.

There was also some testimony by Mr. Newell to the effect that because of the reduced cost of labor and materials in 1933, when the hearing was held before the commissioner, the direct cost of hauling a carload of logs from Olson to Winona did not exceed $8.98. Probably the rate fixed by the commissioner in his first order, $18 per carload in fifteen-carload lots, reflected this decrease in wages and cost of materials. However, after additional testimony was taken in the circuit court showing that such decrease did not then exist, the commissioner raised the rate to $20 per carload, applicable to all shipments.

Neither the Valley Siletz railroad nor the Southern Pacific attempted to prove by direct testimony the out-of-pocket cost of transporting logs in carload lots for this joint haul. They contented themselves with distributing, on the basis of car mileage, both the direct and the indirect costs of the Valley Siletz railroad as shown by its published report for 1929. By this method of cost finding, no distinction is made between classes of freight handled.

In referring to a similar process of attempting to prove the cost of transporting a single commodity, the court in NorthernPacific Railway Company v. Department of Public Works,268 U.S. 39 (69 L. Ed. 836, 45 S. Ct. 412), observed:

"The department's findings concerning operating costs rested largely upon deductions from data found in published reports of the carriers and in their exhibits *Page 102 filed in this case. Instead of attempting to show by evidence, reasonably specific and direct, what the actual operating cost of this traffic was to the several carriers, the department created a composite figure representing the weighted average operating cost per 1,000 gross ton miles of all revenue freight carried on the four systems and made that figure a basis for estimating the operating cost of the log traffic in Washington. This was clearly erroneous.

"A precise issue was the cost on each railroad of transporting logs in carload lots in western Washington, the average haul on each system being not more than 32 miles. In using the above composite figure in the determination of this issue the department necessarily ignored, in the first place, the differences in the average unit cost on the several systems, and then the differences on each in the cost incident to the different classes of traffic and articles of merchandise, and to the widely varying conditions under which the transportation is conducted. In this unit cost figure no account is taken of the differences in unit cost dependent, among other things, upon differences in the length of haul, in the character of the commodity, in the configuration of the country, in the density of the traffic, in the daily loaded car movement, in the extent of the empty car movement, in the nature of the equipment employed, in the extent to which the equipment is used, and in the expenditures required for its maintenance. Main line and branch line freight, interstate and intrastate, carload and less than carload, are counted alike. The department's error was fundamental in its nature. The use of this factor in computing the operating costs of the log traffic vitiated the whole process of reasoning by which the department reached its conclusion."

There is ample evidence to sustain Mr. Newell's conclusion that $12.74 would cover the direct cost of hauling a carload of logs from Olson to Winona in the year 1929. The record does not disclose that the cost of operation was any greater in 1934, at the time of the hearing in the circuit court, than it was in 1929. *Page 103

Turning now to the question of indirect cost, we find that one of the items in dispute is the sum of $38,858 which the Valley Siletz railroad credited for the year 1929 to amortization. This sum is accounted for by the company on the basis of an application which it filed with the interstate commerce commission in the early part of 1925, in which it requested permission to amortize its investment over a period of twenty-four years from January 1, 1921. This application stated that the railroad "was built for the purpose of bringing out to other transportation or markets the forest products from timber lands owned by" the Mitchell Company. It was further shown therein that all timber owned by that company would be removed in twenty-four years from January 1, 1921.

The investment in the Valley Siletz road and equipment was represented to that commission as $1,169,856.62 on December 31, 1924, of which amount $87,128.09 covered "equipment which is already being depreciated". The application further stated that salvage at the end of the operation of the road would amount to $108,554.52, leaving a balance of $974,174.01 to be amortized. The bureau of accounts of the interstate commerce commission in authorizing amortization of this investment permitted the setting up of the sum of $235,750.09 for the period prior to January 1, 1925, and tentatively permitted the remainder, $738,423.92, to be spread over the twenty-year period beginning on the date last mentioned.

It developed on the hearing before the public utilities commissioner that there was a total of 4,000,000,000 feet of timber tributary to the Valley Siletz railroad, and it was contended by the complainant there that the period of amortization would more properly be forty years than the shorter period authorized by the *Page 104 bureau of accounts of the interstate commerce commission, which was based solely on the timber holdings of the Mitchell Company. Figuring this extended period of forty years for amortization, an exhibit was introduced by the complainant showing that a proper charge for this purpose for the year 1929 would be the sum of $21,502, instead of the $38,858 set up by the Valley Siletz railroad. Referable to the amount of timber available for transportation in the area tributary to this railroad, the record discloses that approximately 22 1/2 cents per thousand feet of standing timber in the tributary area would be sufficient to set aside for amortization of the road.

During the period that the Valley Siletz railroad has been in operation it has turned over to its stockholders the sum of $360,063 as repayment of their investment, which amount should be deducted from the amount invested by the railroad company in its property; and when this deduction is made there is left a valuation of $905,425 as of the year 1931. The valuation for 1929, after deducting the amount repaid to that time, was $924,319.

In 1929 the Valley Siletz Railroad Company after charging off depreciation and all other expenses incidental to its railroad operation, including a sufficient allowance for amortization, realized a fair return on the value of its property for rate-making purposes. The same is true of a number of years' operation prior to 1929. Figuring the amount to be allowed for amortization extending over a period of forty years from 1925, we find the net income, computed by this method, was as follows: 1926, $80,109; 1927, $61,950; 1928, $71,009; 1929, $65,421. These revenues, based on various valuations for the years covered, are equal to rates of *Page 105 return as follows: 7.51 per cent, 6.01 per cent, 7.51 per cent, and 7.02 per cent, respectively, for those years.

According to the report of the business done by the Valley Siletz railroad during the year 1929, the gross revenue for logs hauled by that railroad amounted to $42,064.17, the only log movement being from Olson to Independence, so far as that company's line was concerned. If we were to apply to log shipments for that year the rate prescribed by the utilities commissioner, figured at one-third less than the rate then in effect (that is, $20 instead of $30.77), the company would have earned $14,021 less than the amount it actually did earn. It has already been pointed out that the net earnings of the railroad for the year 1929, on the valuation of its property for rate-making purposes, amounted to a return of 7.02 per cent.

The difference between the amount allowed by the interstate commerce commission, to wit, 5.75 per cent, and that actually earned as above shown, on a valuation for the year 1929 of $924,319 for rate-making purposes, amounts to $12,273. Had the $20 rate been in effect in 1929 and the revenue from the joint haul from Olson to Winona been distributed to the two carriers on the same basis, the Valley Siletz railroad would in that year have earned only $1,748 less than 5.75 per cent of the value of its property on which it was entitled to a return. Surely a discrepancy as small as this could not be called a confiscation of the company's property. But we find that in the figures above used, showing the net return to the Valley Siletz railroad, there were included in the expenses for the year 1929 depreciation accounts of $1,680 on locomotives and $3,746 on cars, although the amount invested in this equipment had prior thereto been fully covered by allowances for depreciation. In addition thereto, the maintenance of *Page 106 way and structure expenses, amounting to more than $64,000, were termed by one of the witnesses excessive, and even Mr. Watson, superintendent of the Valley Siletz railroad, testified: "Well, our 1929 maintenance there took in quite a good deal of extra work. For instance, we laid five miles of rail, changed from fifty-six to eighty-five, which is quite an expense." A considerable part of this latter cost should be charged to capital investment. If the deficiency of $1,748 above referred to were to be considered material, it could easily be absorbed by the excessive allowances claimed by the Valley Siletz railroad in the respects here noted.

There was testimony to the effect that, in the event a reasonable rate could be established on logs from Olson to Winona, the Spaulding Company would ship from 4,500 to 5,400 cars per year. If we subtract the $12.74 actual cost per car found by Mr. Newell from the $30.77 which the railroads, the Valley Siletz and the Southern Pacific, have been receiving on carload shipments of logs from Olson to Winona, the remaining $18.03 may be considered as applicable to indirect costs such as upkeep of the railroad, return on investment, and so on. Figuring this $18.03 per car for the year 1929, when 1921 cars (sometimes referred to as 1,919 cars) of logs were shipped from Olson to Winona, we have a total of $34,635.63 over and above the direct cost of operation. If we take the increased traffic which would bring the total shipments up to 4,500 cars per annum, at $7.26 per car, the difference between the $20 rate fixed by the commissioner and the $12.74 above referred to, we have a total of $32,670 over and above the out-of-pocket cost. If we use the larger estimate of 5,400 cars, we have a total annual *Page 107 revenue of $39,304 to the railroad companies in excess of the actual cost of operation.

Included in the item of $34,635.63 realized by the carriers on the 1,921 cars of logs shipped in 1929, over and above the direct cost of such shipments, there might be figured the amortization of the Valley Siletz railroad at $1.77 per car, amounting to $3,400.17, which, when deducted from the larger amount, leaves $31,235.46. If a similar procedure be followed with relation to the estimate of 4,500 cars at the lower rate fixed by the commissioner, the resulting $32,670 would be reduced to $24,705. On a basis of 5,400 estimated cars, net receipts of $39,304 at the new rate, with deduction for amortization, would leave $29,746 over and above the direct cost of operation.

Whatever additional expense there would be in connection with the maintenance of roadbed, tracks, equipment and cars, due to the increase in tonnage, would be absorbed in the $12.74 per car. In other words, such expense in connection with the maintenance of the railroad as may not be attributed to the direct cost of operation is incidental, and is not increased by an increase in traffic. The greater the traffic, the less per car would be this continuing or indirect cost, if it were to be allocated to every car hauled. By increasing the amount of shipments from 1,921 cars for the year 1929, the railroad would receive, after deduction for amortization, a revenue of $1,490 less on a possible 5,400 cars shipped at the rate of $20 per car than it received in 1929 for actual shipments at its then prevailing rate of $3.90 per thousand feet, board measure. It would, however, receive on this larger estimated movement of logs $6,157 more to be applied to amortization than available at $1.77 per car on the actual shipments of the year 1929. *Page 108

There has been no movement of logs whatever over the Valley Siletz railroad since some time early in 1931. In the event that the rate established by the commissioner should result in shipment by the Spaulding Company of 4,500 to 5,400 cars of logs annually, at the rate of 18 cars per day, the railroads would receive something like $130 per day above their out-of-pocket cost of operation. This, of course, is to figure the direct cost at $12.74 and the newly-established rate at $20 per car.

There was admitted in evidence, without objection, a copy of the opinion and order of the interstate commerce commission (reported in 180 I.C.C. 28) on an application made by the Oregon Electric Company in 1930, to purchase the Valley Siletz Railroad Company at a valuation of $2,000,000. This application was resisted by the Southern Pacific Company. The request of the Oregon Electric Company was denied, but, in passing upon the earnings of the Valley Siletz railroad, the interstate commerce commission observed: "Under present conditions the Valley Siletz is earning a net income of approximately $87,000 per annum, which is sufficient to provide a 5 3/4 per cent return on $1,500,000 and provide a sinking fund. The earnings of the Southern Pacific amount to $167,000 over its out-of-pocket cost for the part of the service which it performs in connection with the competitive traffic to and from the Valley Siletz." This statement is significant, in view of the fact that many of the exhibits introduced in evidence were based on reports filed with the interstate commerce commission under its uniform accounting rules, and that commission is probably in a much better position to analyze and apply the items covered by such reports than is a court of law. *Page 109

Before leaving the subject of the interstate commerce commission's above report, it might be well to refer to the reasons why the Southern Pacific railroad was opposing the application of the Oregon Electric Company. These reasons are stated as follows:

"The Southern Pacific opposes the application of the Oregon Electric on the grounds that the Valley Siletz connects only with the Southern Pacific and is in fact an auxiliary of that system; that the Valley Siletz is assigned to the Southern Pacific in Consolidation of Railroads, 159 I.C.C. 522, and, in accordance with that plan, it should be acquired by the Southern Pacific in order to preserve and maintain existing routes and channels of trade; that the Southern Pacific has established a line of transcontinental rates placing the Valley Siletz on the same basis as its own branch lines; that the purchase of the Valley Siletz has been contemplated for some time and an attempt to open negotiations therefor was made in the fall of 1930, without encouragement from the officers of the Valley Siletz, and that the traffic from the Valley Siletz is essential to bolster up the earnings of the Southern Pacific lines in Oregon, which lines represent a large investment on which the return has been low due to light traffic."

The appellant would apportion the indirect cost of its operation on the basis of carload shipments or car-mile haul. To a carload of logs consisting of approximately 8,000 feet, board measure, and valued at $40 to $50, it would assign the same amount as to a carload of lumber of 25,000 feet, having a value of at least $250 and in many instances in excess of $500. One of the arguments it advances for such computation is that both logs and lumber are forest products and hence are not commodities of different classes. The very statement of this last proposition refutes the appellant's *Page 110 contention. An article in its raw state is not the same commodity as the finished product.

The carrier can not complain of a violation of its constitutional rights, if it is compelled to make a rate for some particular service which will not equal a proportionate share of the entire expense of the road: Minneapolis St. Louis R. Co.v. Minnesota, 186 U.S. 257 (46 L. Ed. 1151, 22 S. Ct. 900);Atchison, Topeka Santa Fe Railway Company v. United States, 203 Fed. 56 (affirmed, 231 U.S. 736 (58 L. Ed. 460,34 S. Ct. 316)).

The commissioner has a wide range of discretion in the exercise of the power to prescribe reasonable charges, and he is not bound to fix uniform rates for all commodities or to secure the same percentage of profit on every sort of business. "There are many factors to be considered, — differences in the articles transported, the care required, the risk assumed, the value of the service, and it is obviously important that there should be reasonable adjustments and classifications. * * * With respect to particular rates, it is recognized that there is a wide field of legislative discretion, permitting variety and classification, and hence the mere details of what appears to be a reasonable scheme of rates, or a tariff or schedule affording substantial compensation, are not subject to judicial review": NorthernPacific Railway Company v. North Dakota, 236 U.S. 585 (59 L. Ed. 735, 35 S. Ct. 429, Ann. Cas. 1916A, 1).

In Dayton-Goose Creek Railway Company v. United States,263 U.S. 456 (86 L. Ed. 388, 44 S. Ct. 169, 33 A.L.R. 472), Mr. Chief Justice Taft observed:

"To regulate in the sense intended is to foster, protect and control the commerce with appropriate regard to the welfare of those who are immediately concerned, *Page 111 as well as the public at large, and to promote its growth and insure its safety. The Daniel Ball, 10 Wall. 557, 564; County of Mobile v. Kimball, 102 U.S. 691, 696, 697; California v. Pacific R.R. Co., 127 U.S. 1, 39; Wilson v. Shaw, 204 U.S. 24, 33; Second Employers' Liability Cases, 223 U.S. 1, 47; Luxton v. North River Bridge Co., 153 U.S. 525, 529. * * *

"It should be noted that, in reaching a conclusion, upon this first proposition, we are only considering the general level of rates and their direct bearing upon the net return of the entire group. The statute does not require that the net return from all the rates shall affect the reasonableness of a particular rate or a class of rates. In such an inquiry, the commission may have regard to the service done, its intrinsic cost, or a comparison of it with other rates, and need not consider the total net return at all."

Economic conditions have always exerted a definite influence upon the rate-making processes of both carriers and regulatory bodies. If economic facts were to be disregarded, there would be little occasion for the classification of freight. As was said inAnn Arbor Railroad Company v. United States, 281 U.S. 658 (74 L. Ed. 1098, 50 S. Ct. 444), with reference to a joint resolution of Congress:

"The resolution is in three paragraphs. The first declares it to be a true policy in rate making that the conditions which at any given time prevail in the several industries `should be considered' in so far as it is `legally possible' to do so, to the end that commodities may move freely. This policy is not new. In rate making under existing laws it has been recognized that conditions in a particular industry may and should be considered along with other factors in fixing rates for that industry and in determining their reasonableness, and it also has been recognized that so far as can be done with due regard for the interests affected rates should be such as will permit the commodities to which they relate to move freely in the channels of commerce." *Page 112

Something was said at the hearing before the commissioner concerning the necessity of an outlay by the Valley Siletz Railroad Company of approximately $32,000 for repairing the roadbed before log transportation could be resumed. Mr. Watson, superintendent of this railroad, testified that this expenditure would be required if it should be found necessary to move "even a few cars of lumber". During the circuit court hearing this same witness testified that the railroad had resumed lumber shipments and was hauling as many as five cars in a train. Apparently, then, this expenditure has already been made.

We are here dealing with a situation in which, at the present time, there is no shipping of logs. This may be due to financial conditions or to excessive rates. If the lower rates prescribed by the commissioner should stimulate log shipments and that traffic should reach the volume contemplated, it would then appear that the carriers were benefited. If no shipments should result, there would be no injury.

The appellant, in its brief, states:

"The function of the court in this case is not to substitute its judgment for that of the regulatory authority as to what a reasonable rate under the circumstances should be but to determine whether or not the state regulatory authority has under the principles of law submitted in such cases, under the evidence adduced, established a rate which takes the property of the defendant without due process of law as defined in the cases referred to, and if such is the case, it is then the duty to set aside and annul the order of the state regulatory authority as confiscatory.

* * * * * "We have refrained from discussing the other testimony and exhibits of the various witnesses before the commission [commissioner] for the reason that the *Page 113 function of the court is not to substitute its judgment for that of the commission [commissioner] in determining the reasonableness of the rate to be applied but its function is limited to the determination as to whether or not the rate established by the commission [commissioner] is confiscatory."

The correctness of the foregoing views expressed by appellant renders unnecessary a lengthy discussion concerning the force and effect of the commissioner's order prescribing reasonable rates. See, however, in this connection: Oregon-Washington Railroad Navigation Company v. Public Service Commission, 120 Or. 517 (252 P. 955); Interstate Commerce Commission v. Union PacificRailroad, 222 U.S. 541 (56 L. Ed. 308, 32 S. Ct. 108); andChicago, Rock Island Pacific Railway Company v. UnitedStates, 274 U.S. 29 (71 L. Ed. 911, 47 S. Ct. 486).

In conclusion, it is well to give careful attention to the language of this court in Hammond Lumber Company v. PublicService Commission, 96 Or. 595 (189 P. 639, 9 A.L.R. 1223):

"The plaintiffs have not maintained the burden of proof of showing that the commission exceeded its powers or acted in violation of any principle of law. Moreover, in the very nature of things, the factors involved in an inquiry of this kind are so many and so variable that it is impossible to fix rates that will be mathematically correct or exactly applicable to all the new conditions that may arise even in the immediate future. In practice, it is reasonable and just in most instances to give the rates in question a fair trial under actual operation. This is the teaching of Darnell v. Edwards, 244 U.S. 564 (61 L. Ed. 1317,37 Sup. Ct. Rep. 701), a leading case cited by the plaintiffs: See, also, Lincoln G. E. Co. v. Lincoln, 250 U.S. 256 (63 L. Ed. 968, 39 Sup. Ct. Rep. 454). Besides all this, the establishment of a given rate sheet is not absolutely final and conclusive for all time; for new conditions may *Page 114 arise tomorrow which will make unreasonable, one way or the other, a rate which today is just and fair. The whole matter is continually under the scrutiny of the commission, in the exercise of a flexible administrative authority, and can be reopened at any time, either on its own motion or on the petition of interested parties: Section 6906, L.O.L."

The appellant has not shown by its complaint or by the evidence in the case that the rates prescribed by the public utilities commissioner are confiscatory. The decree appealed from will therefore be affirmed.

RAND, J., not participating.