VALUE OF THE SERVICE AS A FACTOR IN RATE MAKING 535 that, under some circumstances, the state may not reduce rates to cost, this is to say that utilities are at liberty under those cir- cumstances to fix rates above cost; and again there is an end of the common-law question. But if, on the other hand, the rule of constitutional law be that the state may reduce rates to cost imder aU circumstances, what follows is simply that utiHties may not effectively fix them higher if the state objects. There is no com- pulsion on the state to object, and whether it does so is for its courts, subject to free correction by its legislature, to determine. The common-law question, in other words, is in this case an inde- pendent one. And it is in this second direction that the constitu- tional question is decided. It was pointed out above that the valuation of public-service property on another basis than that of cost must result, when the valuation is less than the cost, in the fixing of rates which, while they yield a reasonable return on the fair value of the property, do not yield such a return on its cost. This is a matter of valuation, of the basis on which returns are computed, with which this dis- cussion of rates of return has nothing directly to do. In just the same way, it has nothing directly to do with the valuation of property above its original cost. The Supreme Court is probably prepared to value property above its original cost in some cases.^ It would follow that rates, to be constitutional, must in such cases be high enough to produce a reasonable return on something more than cost; in other words, to produce more than a reasonable re- turn on cost. It does not follow that rates must ever be high enough to produce more than a reasonable return on fair value. And if a rate produces no more than a reasonable return on the fair value of the property employed, by hypothesis it does not exceed the cost of the service; since the cost of the service, by definition, includes a reasonable return on the fair value of the property. Similarly, there is some suggestion that the cost of operation of a particularly efficient and economical company should be reck- oned at something more than its actual current expenditures; in contra, Brooklyn Union Gas Co. v. New York, 50 N. Y. Misc. 450, 100 N. Y. Supp. 570 (1906), pointing out that the law does not require the consumer to take the service. " Cf. Willcox V. Consolidated Gas Co., 212 U. S. 19, 52 (1902); Minnesota Rate Cases, 230 U. S. 352, 454 (1913); San Joaquin Co. :;. Stanislaus County, 233 U. S. 454 (1914); Robert L. Hale, "The Supreme Court's Ambiguous Use of 'Value' in Rate Gas's," 18 Col. L. Rev. 208.
