520 HARVARD LAW REVIEW The questions then arise : Is it true that rates may sometimes be fixed by the state so low as not to cover the cost of the service (including a reasonable profit), although a rate which covers cost is possible? Is it true that they may sometimes be fixed by the utility so high that they more than cover the cost of the service including a reasonable profit? In deahng with these questions, we are not concerned, evidently, with the meaning of such phrases as value of the service, reasonableness to the consumer, and reason- ableness to the public. If the answer to either question is yes, something other than cost must exist as a criterion superior to, or coordinate with, cost, and it will remain to inquire what that criterion is — whether value of the service (or reasonableness to the pubUc) or something else. If the answer to both questions is no, no such superior or coordinate criterion exists. It is assumed that the company is passably performing its duty to serve. If it is not, there is some suggestion that it should be encouraged to do so by denying it an adequate return in the meantime.^^ Some cases which have been treated as holding that a rate need not cover cost are to be explained by the doctrine of the fair value of the property employed. "The basis of all calculations as to the reasonableness of rates to be charged . . , must be the fair value of the property." ^° Although the sense in which the courts use the phrase "fair value" is less definite than it should be,^^ it seems clear that the term does not cover money stupidly, extrava- gantly, or corruptly spent. If a utility has been seriously over- unjust to the public." 27 Harv. L. Rev. 421. This also is no true exception to the rule that cost alone governs: since, in this situation, rates either (i) are kept below the point of cost by a state of facts instead of a rule of law, or (2) are not kept below the point of cost {i. e., reasonable return on the fair value of the property employed) at all, but only below the point of return on a higher, inflated value. The Northern Pacific case (note 55, infra) makes it clear that, if there is some rate which will bring in reasonable cost, a utility's right to charge that rate is quahfied by no considerations of reasonableness to the public. " Re Union Traction Co., P. U. R. 1918 B, 663 (Ind. Pub. Serv. Com.); Thorn v. Montgomery Light & Water Improvement Co., P. U. R. 1916 C, 406 (W. Va. Pub. Serv. Com.); In re Riverview Telephone Co., P. U. R. 1916 B, 442 (Wis. R. R. Com.). 20 Smyth V. Ames, 169 U. S. 466, 546 (1898). 21 Cf. Robert H. Whitten, "Fair Value for Rate Purposes," 27 Harv L. Rev. 419; Robert L. Hale, "The Supreme Court's Ambiguous Use of 'Value' in Rate Cases," 18 Col. L. Rev. 208. *
