VALUE OF THE SERVICE AS A FACTOR IN RATE MAKING 521 built, or its promoters have been seriously overpaid, the law does not intend that its customers shall be saddled with the payment of interest on the money thrown away. In San Diego Land and Town Co. V. National City^"^ the Supreme Court held that the amount which a plant had actually cost its owners was not con- clusive of the amount on which the public must pay a return — the fair value of the plant. The company having complained that the proposed rates would not permit a reasonable return on the cost of the plant, the court said: "What the company is entitled to demand, in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public. The property may have cost more than it ought to have cost, and its outstanding bonds for money borrowed and which went into the plant may be in excess of the real value of the property. So that it cannot be said that the amount of such bonds should in every case control the question of rates, although it may be an element in the inquiry as to what is, all the circumstances considered, just both to the company and to the public." ^ San Diego Land and Town Co. v. Jasper ^* lays down the similar proposition that the "cost to another company which sold out on foreclosure to the appellant," when "seemingly inflated by im- proper charges . . . and by injudicious expenditures," is a differ- ent thing from the fair value of the property. In Stanislaus County V. San Joaquin Canal Co.,^ it appeared that expensive mistakes had been made in organizing the company, and the Supreme Court took this into consideration in holding that a return need not be paid upon the cost of the property; that it was enough that a return was allowed upon its value. In the recent case of Darnell V. Edwards, ^^ the court said by way of dictum: "The circmnstance that a road may have been unwisely built, in a locality where ^ 174 U. S. 739, 757, 758 (1899).
- The court observed that the cost-of-the-property basis was "defective in not
requiring the real value of the property and the fair value in themselves of the services rendered to be taken into consideration." Ibid., 757. But the reference to the value of the services, so far as it suggests that rates might on occasion be fixed at such a point that they would not pay a return on the fair value of the property, was pure dictum, as the court was engaged precisely in pointing out that, in the case before it, there was no evidence that a reasonable return on the fair value of the property would not be furnished by the rates complained of. " 189 U. S. 439, 442 (1903). » 192 U. S. 201, 214 (1904). » 244 U. S. 564, 570 (1917).
