Cite as: 535 U. S. 467 (2002)
Opinion of the Court
impossible once a single company had become the only provider in nearly every town and city across the country. This regulatory frustration led, in turn, to new thinking about just and reasonable retail rates and ultimately to these cases.
The traditional regulatory notion of the "just and reasonable" rate was aimed at navigating the straits between gouging utility customers and confiscating utility property. FPC v. Hope Natural Gas Co., 320 U. S. 591, 603 (1944). See also Barnes 289-290; Bonbright 38. More than a century ago, reviewing courts charged with determining whether utility rates were sufficiently reasonable to avoid unconstitutional confiscation took as their touchstone the revenue that would be a "fair return" on certain utility property known as a "rate base." The fair rate of return was usually set as the rate generated by similar investment property at the time of the rate proceeding, and in Smyth v. Ames, 169 U. S., at 546, the Court held that the rate base must be calculated as "the fair value of the property being used by [the utility] for the convenience of the public." In pegging the rate base at "fair value," the Smyth Court consciously rejected the primary alternative standard, of capital actually invested to provide the public service or good. Id., at 543-546. The Court made this choice in large part to prevent "excessive valuation or fictitious capitalization" from artificially inflating the rate base, id., at 544, lest " '[t]he public . . . be subjected to unreasonable rates in order simply that stockholders may earn dividends,' " id., at 545 (quoting Covington & Lexington Turnpike Road Co. v. Sandford, 164 U. S. 578, 596 (1896)).4
But Smyth proved to be a troublesome mandate, as Justice Brandeis, joined by Justice Holmes, famously observed
4 And the Court had no doubt who should make the sacrifice in that situation. " 'If a corporation cannot maintain such a highway and earn dividends for stockholders, it is a misfortune for it and them which the Constitution does not require to be remedied by imposing unjust burdens upon the public.' " Smyth v. Ames, 169 U. S., at 545 (citation omitted).
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