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A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties; but it has no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures.
Plaintiff Bluefield Water Works & Improvement Company was a public utility company furnishing water to the city of Bluefield, West Virginia, and its inhabitants. Defendant state public service commission, authorized by statute to fix just and reasonable rates, made its order prescribing rates. Pursuant to W. Va. Code § 16, plaintiff instituted proceedings to suspend and set aside the order. Plaintiff alleged that the order was repugnant to the U.S. Const. amend. XIV and deprived it of its property without just compensation and without due process of the law, and denied it equal protection. A final order was entered by the state supreme court of appeals which denied plaintiff relief and dismissed the petition. Plaintiff brought the case before the U.S. Supreme Court on a writ of error.
Were the rates prescribed in the commission’s order confiscatory and therefore beyond legislative power?
Upon review the Court reversed the order. The Court noted that rates which were not sufficient to yield a reasonable return on the value of the property used at the time it was being used to render the service were unjust, unreasonable and confiscatory, and their enforcement deprived the public utility company of its property in violation of the U.S. Const. amend. XIV. The value of the property was to be determined as of the time when the inquiry was made regarding the rates. If the property, which legally entered into the consideration of the question of rates, increased in value since it was acquired, the company was entitled to the benefit of such increase. In the case at bar, the Court held that it was erroneous for defendant not to accord proper, if any, weight to the enhanced costs of construction as of the time when the inquiry was made regarding the rates which resulted in a valuation that was considerably and materially less than what would have been reached by a fair and just consideration of all of the facts, and which was insufficient to yield plaintiff a reasonable return on the value of its property. The Court, however, clarified that while a public utility was entitled to such rates as will permit it to earn a return on the value of the property which it employed for the convenience of the public, it has no constitutional right to profits such as were realized or anticipated in highly profitable enterprises or speculative ventures.