The term prudent investment is not used in a critical sense. There should not be excluded from the finding of the base, investments which, under ordinary circumstances, would be deemed reasonable. The term is applied for the purpose of excluding what might be found to be dishonest or obviously wasteful or imprudent expenditures. Every investment may be assumed to have been made in the exercise of reasonable judgment, unless the contrary is shown.

Except that rates may, in no event, be prohibitive, exorbitant, or unduly burdensome to the public. Covington & Lexington Turnpike Road Co. v. Sandford, 164 U. S. 578, 596; Smyth v. Ames, 169 U. S. 466, 544; San Diego Land & Town Co. v. National City, 174 U. S. 739, 757; Minnesota Rate Cases, 230 U. S. 352, 454; Mr. Justice Miller in Chicago, Milwaukee & St. Paul Ry. Co. v. Minnesota, 134 U. S. 418, 459.

In estimating replacement cost the first step is to determine what part of the property owned is used and useful in the public service. That involves, among other things, a consideration of retired or discarded property and the question whether the size and capacity of. the plant are, in part, excessive. The property included in the valuation is commonly treated under the following heads (See Report of Special Committee on Valuation, Amer. Society of Civil Engineers, October 28, 1916, Vol. 42 Proceedings, pp. 1708-1938): A. Tangibles: (a) Land and buildings. (b) Plant. B. Incidentals during construction: (a) Administration. (b) Engineering and superintendence. (c) Legal expenses. (d) Brokerage. (e) Promotion fees. (f) Insurance. (g) Taxes. (h) Bond discount. (i) Contingencies. C. Intangibles: (a) Good will. (b) Franchise value. (e) Going concern value. (d) Working capital. “ Going value ” was declared by the Special Report (p. 1727) to embrace, among other things, “efficiency, favorable business arrangements and design intangibles to include also “ leases, easements, water rights, traffic and operating agreements, strategic location and advantages and other privileges.”

Several different methods are used for measuring depreciation: (1) The replacement method; (2) the straight-line method; (3) the compound interest method; (4) the sinking fund method; (5) the unit cost method. It is largely a matter of judgment whether, and to what extent, any one of these several methods of measuring depreciation should be applied. They may give widely different results. Special Report, October 28, 1916, Valuation of Public Utilities, Amer. Society of Civil Engineers, Vol. 42 Proceedings, pp. 1723-1727; 1846-1900.

This Court declared in Smyth v. Ames, 169 U. S. 466, 547, that “present as compared with original cost of construction” is to be considered; and in Minnesota Rate Cases, 230 U. S. 352, 452, that “the cost-of-reproduction method is of service in ascertaining the present value of the plant, when it is reasonably applied and when the cost of reproducing the property may be ascertained with a proper degree of certainty.” Reproduction cost was thus held to be evidence of value. But it has never been held to be the measure of value.

Some of these so-called relevant facts are, as the rule has been applied: (a) Capitalization, i. e., bonds, stock, and other securities outstanding. (b) Book cost, i. e., the investment account as shown on the books. *295(c) Actual cost, i. e., amounts actually paid in cash for installing the original plant and business, and the additions thereto. (d) Historical' éóst, i. e., the proper cost of the existing plant and business, estimated on the basis of the price levels existing at the respective dates when the plant and the additions were constructed. This is often called prudent investment. Historical' cost would, under normal conditions, be equal in amount to the original cost. The phrases are sometimes used to denote the same thing. But they are not the same; and they are often ascertained by different processes. Original cost is the amount actually paid to establish the utility. The amount is ascertained, where possible, by inspection of books and vouchers, and by other direct evidence. If this class of evidence is not complete, it may be necessary to supplement it by evidence as to what was probably paid for some items, by showing prices prevailing for work and materials at the time the same were supplied. But the evidence of these prices is merely circumstantial, or corroborative, evidence of the amount actually paid. In determining actual cost, whatever the evidence, there is no attempt to determine whether the expenditure was wise or foolish, or whether it was useful or wasteful. Historical cost, on the other hand, is the amount which normally should have been paid for all the property which is usefully devoted to the public service. It is, in effect, what is termed the prudent investment. In enterprises efficiently launched and developed, historical cost and original cost would practically coincide both in items included and in amounts paid. That is, the subjects of expenditure would coincide; and the cost at prices prevailing at the fimp of installation would substantially coincide with the actual cost. (e) Reproduction cost of plant and business — estimated on price levels prevailing at the date of valuation. (f) Reproduction cost of plant and business, estimated on average price levels prevailing during periods of, say, 5 to 10 years preceding the valuation.

TMs, it appears, was the purpose of the board in Galveston Electric Co. v. Galveston, 258 U. S. 388.

A rate order will not be set aside, unless the evidence compels conviction that a fair-minded board could not have reached the conclusion that the rate would prove adequate. San Diego Land & Town Co. v. National City, 174 U. S. 739, 754; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 442; Knoxville v. Knoxville Water *297 Co., 212 U. S. 1, 17; Van Dyke v. Geary, 244 U. S. 39, 49; Galveston Electric Co. v. Galveston, 258 U. S. 388, 401, 402. The range for difference of opinion on each of the many factors to be taken into consideration in fixing the rate base is so wide that such compelling evidence can rarely be adduced, where the report filed recites that, after full hearing, all the so-called relevant facts were given consideration by the commission in reaching the decision made. There may often be found in opinions of utility commissions, after a lengthy and detailed discussion of a vast quantity of expert opinion, a conclusion like the following from Re Illinois Northern Utilities Co., P. U. R. 1920 D. 979, 999: Hence, a commission’s order must ordinarily be allowed to stand, unless it appears that there was some irregularity in the proceedings or that some erroneous rule of law was applied. Since Smyth v. Ames this Court has dealt with the validity (under the Fourteenth Amendment) of rate regulation by the States in over 50 cases. In only 25 of these has the Court passed upon the question whether a rate fixed, or approved, by a state commission denied to the utility the opportunity of earning a fair return upon the fair value of the property. In none of these 25 cases has an order of a state commission, made after a full hearing, been declared void by this Court, on the ground that the finding of the rate-base, or value, was too low. In none of them has the order been declared void on the ground that the commission fixed too low a percentage of return. Lower federal courts and state courts have occasionally intervened with effect. But the instances are relatively few as compared with the number of adverse decisions.of the commissions. Even where orders fixing rates have been set aside for irregularity or error, the result of the new hearing is not always advantageous to the company.

See Steenerson v. Great Northern Ry. Co., 69 Minn. 353, 374; San Diego Water Co. v. San Diego, 118 Cal. 556, 568; Metropolitan Trust Co. v. Houston & Texas Central R. R. Co., 90 Fed. 683, 687, 688.

Compare Mr. Justice Field in Railroad Commission Cases, 116 U. S. 307, 343, 344; Steenerson v. Great Northern Ry. Co., 69 Minn. 353, 374.

Thus in Re Marin Municipal Water District (Cal.) P. U. R. 1915 C, 433, 452, the several valuations of five experts were: $670,163; $723,001.85; $763,028; $919,204; $1,031,436. In Springfield v. Springfield Gas & Electric Co. (Ill.), P. U. R. 1916 C, 281, 307, the several valuations of five experts were $547,488; $588,262; $806,404; $898,785; $940,988. In Duluth Street Ry. Co. v. Railroad Commission (Wis.), P. U. R. 1915 D, 211, the valuations of two experts, both employed by the State were $600,000 and $1,100,000.

15 Mich. Law Rev. 205, 216; Re Grafton County Electric Light & Power Co. (N. H.), P. U. R. 1916 E, 879, 885-888. Compare Appleton Water Works Co. v. Railroad Commission, 154 Wis. 121, 154, quoting: “ Skilled witnesses come with such prejudice in their minds that hardly any weight should be given to their evidence.” In Re Michigan State Telephone Co. (Mich.) P. U. R. 1921C, pp. 545, 554, 555, the Commission said: In Public Service Commission v. Pacific Telephone & Telegraph Co., P. U. R. 1916 D, 947, 955, the Commission said: “ The old methods have proven uncertain, indefinite, • and unsatisfactory to honest utilities and commissions alike.” See also In re Northampton Gas Petition (Mass.), P. U. R. 1915 A, 618, 626; Public Service Commission v. Pacific Telephone & Telegraph Co., P. U. R. 1916 D, 947, 955.

Their action is in accord with views commonly held by legal writers. Compare Edwin C. Goddard, “ Public Utility Valuation,” 15 Mich. Law Rev. 205; Robert L. Hale, “ The ‘ Physical Value ’ Fallacy in Rate Cases,” 30 Yale Law Journal, 710; Donald R. Rich-berg, “A Permanent Basis for Rate Regulation,” 31 Yale Law Journal, 263; Robert H. Whitten, “Fair Value for Rate Purposes,” 27 Harv. Law Rev. 419; Henry W. Edgerton, “Value of the Service as a Factor in Rate Making,” 32 Harv. Law Rev. 516; Gerard C. Henderson, “ Railway Valuation and the Courts,” 33 Harv. Law Rev. 902, 1031; Armistead M. Dobie, “Judicial Review of Administrative Action in Virginia,” 8 Va. I.aw Rev. 477, 504. See also 32 Yale Law Journal, 390, 393; 19 Mich. Law Rev. 849.

The Public Utility Reports for 1920, 1921, 1922 and 1923 (to March 1) contain 363 cases in which the rate-base or value was passed upon. Reproduction cost at unit prices prevailing at the date of valuation appears to have been the predominant element in fixing the rate base in only 5. In 63 the commission severely criticised, or expressly repudiated, this measure of value. In nearly all of the 363 cases, except 5, the commission either refused to pay heed to this factor as the measure of value, or indeed as evidence of any great weight. The following summary shows the predominant element in fixing the rate base in the several cases:

Middlesex and Boston Rate Case, Public Service Commission (Mass.), October 28, 1914, report, pp. 7-14; Bay State Rate Case, P. U. R. 1916 F, 221, 233. And see ibid for a quotation from an address delivered at the “ Conference on Valuation ” in Philadelphia, November, 1915, in which the late John M. Eshleman, first president of the California Railroad Commission, said: “If we had this problem at the beginning and were not attacking it in the middle, we would have no difficulty in agreeing with the holder of capital upon this subject, for he would quite readily agree to take the cost of doing the business plus an earning upon the money actually invested comparable to the earning offered in other available investments. Therefore, the cost of doing the business, plus a return upon the capital necessarily invested in the business, which return shall be as great as is offered in other businesses of similar hazard, is all that ought to be accorded for the future, and it is all that will be accorded if the public has any business sense. And if more is asked by the *303private owner, then he may expect no sympathy when he finds the public his competitor and his earning power impaired.” No case involving the fixing of rates by a commission has ever come to this Court from New England. The only case involving in any way the validity of rates is Interstate Consolidated Street Ry. Co. v. Massachusetts, 207 U. S. 79. See also Re Cripple Creek Water Co. (Colo.), P. U. R. 1916 C, 788, 799, 800; Butler v. Lewiston, Augusta & Waterville St. Ry. (Maine), P. U. R. 1916 D, 25, 35.

Engineers testifying in recent rate cases have assumed that there will be a new plateau of prices. In Galveston Electric Co. v. Galveston, 258 U. S. 388, the company contended that a plateau 70 per cent, above the price level of 1914 should be accepted, and a plateau 334 per cent, above was found probable by the mastér and assumed to be such by the lower court. In Bluefield Water Works & Improvement Co. v. Public Service Commission, 679, post, one 50 per cent, above the 1914 level was contended for; in the case at bar a plateau 25 per cent, above. But for the assumption that there will be a plateau there is no basis in American experience. The course of prices for the last 112 years indicates, on the contrary, that there may be a practically continuous decline for nearly a generation; that the present price level may fall to that of 1914 within a decade; and that, later, it may fall much lower. Pricés rose steadily (with but slight and short recessions) for the 20 years before the United States entered the World War. From the low level of 1897 they rose 21 per cent, to 1900; then rose further (with minor fluctuations, representing times of good business or bad) and reached in 1914 a point 50 per cent, above the 1897 level. Then the great rise incident to the war set in. “ Wholesale Prices, 1890 to 1921,” U. S. Department of Labor, Bureau of Labor Statistics, Bulletin No. 320, pp. 9-26. These are averages of the wholesale prices of all commodities. In the Bureau chart the 1913 prices are taken as the datum *304line (100). As compared with them the 1897 level was 67, the 1900 level 81. The chart on page 10 of the pamphlet entitled, “ Price Changes and Business Prospects,” published by the Cleveland Trust Company, gives price fluctuations for the 110 years prior to 1921. It shows three abrupt rises in the price level, by reason of war; and some less abrupt falls, by reason of financial panic. These may be called abnormal. But the normal has never been a plateau. The chart shows that the peak price levels were practically the same during the War of 1812, the Civil War, and the World War; and it shows that practically continuous declines, for about 30 years, followed the first two wars. The experience after the third may be similar.

The new enterprises undertaken at the present high level, or projected, are many; among them, development-and long distance transmission of hydroelectric power, and of electric power generated at the coal mines. Moreover, nearly every utility now existing must make expenditures upon its plant to provide improvements, additions, or extensions. The growth of our communities, and increase in the demands of the individual, constantly compel enlargement of a utility’s facilities. The present annual investment in public utility enterprises is much greater in amount than at any time in the past. Some of the construction done during the war was at prices for labor and materials 120 per cent, above those prevailing in 1914. Recent construction was at prices 70 per cent, higher. If replacement cost should become the measure of the rate base, the return on enterprises entered upon after 1914 would, obviously, be imperilled. And a serious decline of the price level would subject the return on many utilities established earlier to like dangers. A collapse of public utility values might result. And the impairment of public utility credit might be followed by the cessation of extensions and new undertakings.

The community may, of course, demand, in respect to financing, as in respect to operation, that the right to earn a fair return be limited by the requirement that reasonable efficiency be exercised.

Of course, anyone who chances to have money to invest, when money rates are high, gets the advantage incident to investing in a favorable market. If he invests in utility bonds, the higher agreed return upon his capital would be provided for by a rule which measures fair return by capital charges, as suggested above. If he elects to invest in the stock, he would, under the rule suggested, have the opportunity of earning a return commensurate with the value of the capital at the time it was embarked as stock in the enterprise,

Compare Mr. Justice Field in Railroad Commission Cases, 116 U. S. 307, 343, 344; Mr. Justice Harlan, ibid, p. 341; Dow v. Beidelman, 125 U. S. 680, 690, 691; and Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362, 409, 412; where the necessity of limiting the broad power of regulation enunciated in Munn v. Illinois, 94 U. S. 113, was first given expression. See also “ Public Utilities, Their Cost New and Depreciation,” by H. V. Hayes, pp. 255, 256.

In 1898, when Smyth v. Ames was decided, only one State— Massachusetts — had control by commission of the issue of securities by all public utility companies. (New Hampshire controlled security issues of railroads and street railways; Maine and New York controlled increase of capital stock by railroads; and Connecticut, the issue of bonds by railroads.) In 1923 at least 24 States and the District of Columbia controlled through commissions the issue of securities of public utility companies. Legislation for 1923 and 1922 (in part) has not been’ available. Other States may have legislated on the subject in 1923 or 1922. In 1898 ho State had control by commission of the accounting of all public utilities. Massachusetts controlled the accounting of gas, electric light, street railway, and railroad companies; Iowa, of railways and carriers; New York, Texas and Vermont, of railroads only. In 1923 at least 36 States and the District of Columbia controlled through commissions the accounting of public utility companies. In 1898, only one State — Massachusetts—exercised through a commission control of all public utilities. In 1923 such control is exercised in at least 39 States and the District of Columbia. This does not include those States exercising commission control over railroads and related utilities, such as street railways, express companies, telephone and telegraph companies. These States number 47. The number of States having commission control of railroads in 1898 was 27. In 1922 every State except Delaware had commission control of railroads.