and that said log rate be no more than 70 per cent of their lumber rate SO fixed herein; (2) make their rates on crossties no higher than their rates on lumber as fixed herein, and (3) make no charge for the transportation of stakes or standards used in equipping their flat cars for the transportation of logs and lumber. It is also ordered that each and all of said railroad companies shall charge, collect and receive no higher rates for the transportation of the aforesaid commodities than the rates fixed herein, and all rates in excess thereof are declared to be extortionate, unjust and unreasonable. All tariffs, classifications, rules and regulations in conflict herewith are hereby condemned. All other questions herein are reserved for future determination, and the Commission expressly reserves the power to revise, alter or amend the rates herein fixed, or to revoke, modify, or extend this order, when deemed just and proper. It is further ordered that this opinion and order shall be entered upon the record book of the Commission at its office in Frankfort, and an attested copy thereof furnished by registered mail to an officer, agent, or employe of each of the above-named railroad companies, and to said complainants.

This December 7, 1905.

C. C. MCCHORD, Chairman,
A. T. SILER,

MCD. FERGUSON,

Commissioners.

A Copy. ATTESTS C. C. McCHORD, Chairman.

The several complaints which, for convenience, have been consolidated and heard together in this investigation, raise for the first time in Kentucky the question of the reasonableness of all rates for the transportation of all commodities upon all railroads to and from all points within the State. Throughout the entire investigation this Commission has not been unmindful of the very great importance of the issues involved to the shippers and consumers throughout the Commonwealth as well as the railroads. It has been our endeavor to ascertain the truth in order that we might intelligently discharge our duties under the law. And we approach the determination of this exceedingly important case fully impressed with the magnitude of the responsibility thus devolved upon the Commission and the propriety of rendering a decision, which, under a broad view of all the attending circumstances, may be characterized as fair and just.

The annual reports of all the railroads for the fiscal year ended June 30, 1905, show the total mileage in the State to be 3,374, the total gross receipts $34,856,447, total net receipts $9,754,957. The valuation placed by the Railroad Commission upon all the tangible property of these railroads was for the year indicated $61,149,924.

Our investigation of the rate situation shows that all rates charged by the railroads in Trunk Line and Central Freight Association territory, which is that territory north of the Ohio and east of the Mississippi rivers, to and from points on the Ohio river are very much lower than are the rates south of the Ohio river. Through rates are

made to the Ohio river, but to points south of the Ohio river the full local rates are added to the through rates. We find that the principal portion of Kentucky is served by the Louisville & Nashville, the Illinois Central, the Southern Railway in Kentucky, the Cincinnati, New Orleans & Texas Pacific and the Chesapeake & Ohio Railway.

As regards the adjustment of rates, we find that the present rates upon all these railroads have been in effect for many years. In fact, very few changes in rates have been made except to occasionally lower or raise some of them, notwithstanding the fact that the volume of business has very greatly increased and the receipts of all the roads have steadily grown and the remarkable improvement in motive power and equipment enables them to handle the traffic with much less labor and cost proportionate to the volume of business done.

The lowest rates charged by any of the defendants are those charged by the Cincinnati, New Orleans & Texas Pacific Railway Company, and this road has forced the Louisville & Nashville Railroad Company on its Kentucky Central Division, embracing 254 miles, and also the Southern Railway in Kentucky, to meet its rates. It is claimed by the defendants that the rates charged by the Cincinnati, New Orleans & Texas Pacific Railway Company are entirely too low, and the fact is cited that some years ago this road was forced into bankruptcy, and that the Kentucky Central Division of the Louisville & Nashville Railroad Company, which was formerly an independent corporation, was likewise forced into bankruptcy, as was also the Louisville Southern Railway, now the Southern Railway in Kentucky. It is earnestly contended that it would not be fair to require the other railroads in the State to reduce their rates to those charged by the Cincinnati, New Orleans & Texas Pacific Railway Company.

It is true these roads were at one time forced into the hands of a receiver, but for years past they have been prosperous and moneymakers. In fact, the defendant, the Louisville & Nashville Railroad Company, which is conceded to be a good business institution, purchased the Kentucky Central Railroad, knowing that it would be compelled to charge the low rates forced upon it by the Cincinnati, New Orleans & Texas Pacific Railway Company. Under this adjustment of rates this latter road serves points like the city of Cincinnati and patrons on its line, with but few exceptions, at rates 25 per cent. lower than the Louisville & Nashville and Illinois Central serve their patrons out of the city of Louisville and patrons on their lines, except that to points on the Kentucky Central Division of the Louisville & Nashville south of Paris, the Louisville & Nashville Railroad Company serves its patrons out of Louisville at the Cincinnati rate.

It will thus be seen that under the present adjustment of rates one section of the State is served upon better terms than the others. It is argued that the various communities throughout the State and business institutions have been built up and fostered under the present adjustment of these rates, and that any radical departure from this adjustment would be disastrous not only to the shippers, but to the communities served by the railroads.

The Commission has endeavored to weigh all the facts and to familiarize itself with the conditions as they actually exist, and we do not believe any such disastrous results will follow the conclusions we have reached in this investigation.

The several complaints herein allege that all the rates upon all the railroads in the Commonwealth of Kentucky are unjust, unreasonable, extortionate and discriminatory. In view of the fact that most of the traffic in Kentucky is carried, and a greater portion of the State is traversed and served by six of the principal railroads, to-wit: The defendants, the Louisville & Nashville, the Illinois Central, the Chesapeake & Ohio, the Louisville, Henderson & St. Louis, the Cincinnati, New Orleans & Texas Pacific and the Southern Railway in Kentucky, this investigation has, so far, been mainly confined to these six roads. Copies of each complaint were furnished to the defendants, all of whom filed answers in which each and all denied that their rates as a whole or any part thereof are either unjust, unreasonable, extortionate, or discriminatory.

In order to intelligently pass upon these questions and to enable the Commission to have all information possible to be obtained bearing upon the question of rates and the operation of the railroads, a series of questions was propounded to each of the defendants pertaining to their capitalization, construction, operation, value and general conduct of their business as common carriers in relation to traffic wholly within the State. The defendants were requested to furnish statements showing the actual amount of freight and passenger traffic in Kentucky, both intrastate and interstate, the receipts, the cost of operation, and all other operating statistics for the year 1905. After labor and expenditure of a large sum of money. It was, therefore, these questions were propounded the defendants represented to the Commission that to furnish this information for the entire year would cause a delay of nearly twelve months and involve a vast amount of the information called for should be estimated for the entire year upon the showing for the months so selected. The defendant, the Louisville agreed that four representative months should be selected, and that

& Nashville Railroad, operating the largest mileage in the State, 1,265 miles, supplied the required information in greatest detail, though by no means as full and satisfactory as might have been expected, while the other defendants failed to furnish the information requested in such form and extent as to equal in value that furnished by the Louisville & Nashville. Indeed, in the whole conduct of this case, the burden of justification laid upon all the defendants has been largely borne by the Louisville & Nashville Railroad.

A number of extended hearings have been had, and each defendant has been given the widest latitude and the fullest opportunity to justify the rates in issue, and all have been urged to furnish to the Commission all facts having a tendency to throw light upon the subject and to facilitate bringing out everything pertinent to the inquiry.

The Commission understands that the theory of the defense of each of the defendants, and particularly that of the Louisville & Nashville Railroad, is based upon the plan which seems to have been agreed upon by complainants and the railroads in the case of Smyth v. Ames, wherein the percentage of operating expenses to gross receipts in Nebraska was used to measure the cost of doing all the business. The defendants herein have fallen into the same error that was committed in the Nebraska case, as we shall hereinafter endeavor to demonstrate. However, certain general rules or principles are stated by the Supreme Court of the United States in the cases of Smyth v. Ames, 169 U. S., 466, and Minneapolis & St. Louis R. R. Co. v. Minnesota, 186 U. S., 267, and which, taken together, appear to embrace the following propositions:

1. The value of the property used by the carrier in the service must be ascertained, or, at least, justly estimated.

2. While the amount and value of the stock and bonds must be considered, such amount and value are in no way conclusive upon the question of the actual property value, as the amount and market value of stocks and bonds can only bear upon that question by way of comparison. The actual property value is the cost of reproduction with such deductions therefrom as may be necessary to represent depreciation and thereby indicate the present condition of the property. If the actual property value is independently determined, that value can not be increased or decreased by the amount of securities the company has seen fit to issue.

3. A sufficient return from operation must be allowed to provide for necessary operating expenses and for taxes as a current yearly charge, and the operating expenses include such renewals and repairs as are necessary to keep up the property.