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THE GREEN BAG
factory basis of apportionment of these charges for this purpose, particularly where the purpose of apportionment is to deter mine the propriety of the rates from which gross earnings and net earnings result. In this case the earnings result from the rates in question. This annual charge for valuation is in a sense part of the carrier's cost, and to attempt to justify the appor tionment of costs by the earnings resulting from rates, and then to justify the rates by the apportionment of costs based on the earnings resulting from the rates, would clearly be reasoning in a circle. Nor can any suitable basis for apportion ment of this annual charge on account of valuation be derived from transportation statistics relating to passengers and freight, for the obvious reason that there is no common transportation unit, except the train-mile or car-mile, and the use of the train-mile or car-mile would give no help in apportioning between state freight and interstate freight, because no trains are devoted solely to either class of freight, nor is any considerable number of cars assigned exclusively to either class of freight. "Plainly, then, we have left only the operating expenses as a basis of appor tionment." Having determined that the operating expenses are the only available basis for apportionment, and being in possession of the operating expenses for both state and interstate traffic and of the amount of money which would be needed to pay interest, it ascertained that the interest fund was 43.95 per cent of the cost of operation. It then took the operating expenses chargeable against state freight which it multiplied by 43.95 to ascertain how much money should be derived from the state business in order to contribute to the interest fund; that contribution was found to be $542,744. This sum was added to the state operating expenses and was held to represent the fair amount which the carrier should receive from state traffic
because it included the two elements of actual cost of operation and a surplus with which to pay interest. Commenting upon its own method the Commission said: "The Commission does not, of course, undertake to say that the computations, the results of which are hereinbefore set forth, are mathematically accurate, for it is universally conceded that any exact state ment of the cost to a carrier for performing its freight service as compared with its pas senger service, or for performing a part of the freight service as compared with the remainder, can not be made. The Commisson has merely done the best it could with the figures and facts before it, but it has endeavored in all its computations to make the most liberal allowance for actual valua tion. Yet, with all this, we have a result showing charges by this carrier for intra state traffic, within the state of Kentucky, which are more than $774,000, in excess of just and reasonable rates" 1 From the adjudicated court cases it seems reasonably certain that the method used by the Supreme Court in Smyth v. Ames is inaccurate, for the relation which operating expenses bear to gross receipts does not and can never show the cost of transporting the commodities. The method used by the Circuit Court of the United States for the District of South Dakota could not stand the tests applied by the Supreme Court of the United States, which tests, it will be recalled, were different from the method formally used by that tribunal. The method used by the Kentucky Railroad Commission is clearly more elaborate if not more correct, 1 For the Louisville and Nashville Railroad and some other carriers, the Commission prescribed a schedule of rates based upon these findings. The schedule covers seventeen classes and dis tances from ten miles and less to four hundred and fifty miles (by five mile steps to one hundred miles, and by ten mile steps to two hundred and fifty miles, and by twenty-five mile steps to four hundred and fifty miles).
