CHAPTER XV Piecemeal Construction § 360. Treatment of piecemeal construction by Wisconsin Railroad Commission. 361. Oklahoma Supreme Court denies allowance for piecemeal construc tion. 362. Discussion of piecemeal construction. § 360. Treatment of piecemeal construction by Wisconsin Railroad Commission. The effect of piecemeal construction upon the cost of a plant is discussed by the Wisconsin Railroad Commission in Hill v. Antigo Water Company, 3 W. R. C. R. 623, 634, decided August 3, 1909: This piecemeal construction, like all retail business generally, is supposed to be relatively more costly than if the entire plant had been built in one continuous operation. In fact, many engineers in testifying for the utilities have placed the additional cost through piecemeal construction at as high a figure as 10 to 25 per cent. of the total cost of the plant. But the Commission states that there are some savings in piecemeal construction: New extensions, for instance, are often entirely planned and supervised by the operating force of the plant which is already organized and which is merely performing these duties in addition to their other duties and without, perhaps, adding much of anything to the total expense. In this way the cost of engineering, supervision and management may become even relatively less for extensions than for the original part of the plant. . . . For these and other reasons it is by no means certain that the extensions are always any more costly, relatively, than the original part of the plant, or that plants which have been enlarged or extended from time to time are always relatively more costly than if they had been built as one continuous operation. . . . That the increase in the cost, however, because of piecemeal construction is often as great as to amount to 15 per cent. of the total cost of the plant, appears to us rather doubtful. In State Journal Printing Co. v. Madison Gas and Electric Company, 4 W. R. C. R. 501, 546-49, decided March 8, 1910, the Commission discusses at length the question of piecemeal construction: Among the elements of additional cost of piecemeal over continuous construction were mentioned the advantage that could be gained in buying materials in large quantities for continuous construction over small purchases as in piecemeal construction, the economy of laborers' time in continuous construction over piecemeal construction, in which latter case much time would be lost in traveling from one small construction job to another, the large expense of maintaining continuous operation of the plant during piecemeal construction as contrasted with continous construction, also an element of value arising from the fact that one might be willing to pay more for a plant that was completed and ready for operation and not have to take the risk of additional expense arising out of contingencies, this value being the premium for insurance on the business capacity and ability of the engineers and others connected with the project. The extent of this additional cost of piecemeal construction was estimated by one witness as being in some cases 100 per cent. over what continuous construction would cost, but, as stated, it was the opinion of three of the respondent's witnesses that an allowance of 15 per cent. would be sufficient on this account. . . The engineer of the Commission stated at the hearing, and in his revised statement of valuation, that the inventory valuation was sufficiently high to cover this alleged extra cost by reason of piecemeal construction. In making the valuation each item had been taken separately, as though purchased in open market, and no consideration was had of the fact that the company or contractor would secure special figures in purchasing larger quantities of the material, equipment and labor. Actual conditions of construction had been liberally represented. The above case involved the valuation of a gas and electric plant for rate purposes. In another rate case, City of Ripon v. Ripon Light and Water Company, 5 W. R. C. R. 1, 15, decided March 28, 1910, the Commission says: In making the valuation of respondent's property the Commission's staff has taken cognizance of the subject of piecemeal construction. The allowance of additional value for piecemeal construction, as requested by respondent, as a rule goes only to the outside plant, since the station with its equipment is constructed as a unit. The valuation of the distribution, system and other outside property has been made with regard to separate construction rather than a continuous building program. With the application of average prices, irregularities are eliminated and the valuation determined without regard, in so far as possible, to those forces which, after all, are as apt to operate in favor of one party as another. The question of piecemeal construction is further discussed in City of Beloit v. Beloit Water, Gas and Electric Co., 7 W. R. C. R. 187, 240, decided July 19, 1911. § 361. Oklahoma Supreme Court denies allowance for piecemeal construction. An allowance for piecemeal construction was denied in Pioneer Telephone and Telegraph Co. v. Westenhaver.1 In this proceeding the Oklahoma Supreme Court reversed an order of the Oklahoma Corporation Commission reducing the rates of the complainant in City of Enid, Okl. 1 Pioneer Telephone and Telegraph Company v. Westenhaver, 29 Okl. 118 Pac. 354, January 10, 1911. The company asked for an allowance of $6,000 on a total cost to reproduce of $94,000, to cover piecemeal contruction. The Supreme Court, however, refused to allow this item, holding that it formed no part of cost-ofreproduction-new (at page 357): The evidence upon which appellant insists item No. 2, refused by the Commission, should have been allowed is substantially as follows, quoting from one of its witnesses: "The necessity of concentrating the large number of wires required of the larger city of Enid makes it advisable to adopt a different distribution or arrangement of pole lines. This involved the moving of some of the old poles in the lines, in order to shorten up spans to get sufficient strength for carrying the larger cables. The moving of the poles is an expensive undertaking, as same must be moved without crossing up or interfering with the wires then being used in the old plant. In a great many instances new leads crossed old leads in such a way that extra work had to be done to prevent the new work from interfering with the operation of the old plant. The subscribers' instruments had to be rewired and adapted to work temporarily on the new plant until final changes should be made. In fact, there was no part of the new work that did not have to be worked out with some special regard to the protection of the old plant in order that service might be continued." We think, however, the Commission committed no error in refusing to allow this item. The fact that appellant's plant has been constructed piecemeal does not increase its present value, although the cost of construction by such method may have been greater than if it had been constructed at one time. The plant, in our opinion, in arriving at its cost of reproduction new, should not be considered as an existing obstruction upon the streets which would have to be worked around in constructing a new plant of a similar kind. The fact that other obstructions, such as telegraph systems or other telephone plants, exist in the streets at the present time, and would have to be worked around at this time in building a plant like appellant's, might require an allowance in arriving at the cost of reproduction new of appellant's plant; but a determination of that question is not required here, for it is not for such obstruction that this item is claimed. § 362. Discussion of piecemeal construction. From the above it will be seen that there may be a close relation between piecemeal construction and inadequacy. Of course in one sense it is perfectly true that there will be no additions or extensions unless the old plant is in some measure inadequate to meet the legitimate demands upon it. But properly speaking, a given structure or appliance becomes inadequate when through growth of the business it must be replaced by a larger or stronger structure or appliance. Inadequacy of this kind is undoubtedly a proper charge to operation. Under approved systems of accounting it would not be charged to capital. The reconstruction of pole lines (mentioned above) in order to secure sufficient strength for the carrying of larger cables is clearly a case of inadequacy rather than an illustration of increased construction cost due to piecemeal construction. Increased cost due to the necessity of working around the old structures and of keeping up the service during the progress of the work, seems to lie on the borderland between piecemeal construction and inadequacy. But decreased per unit cost of large jobs over small jobs due to the undoubted advantages of large scale production and construction is clearly the more usual basis of the demand for an allowance for piecemeal construction. Public utility plants are continuously in need of additions and extensions. The result is that the existing plant has been constructed piecemeal. Piecemeal construction is therefore an undoubted factor in estimating the actual cost of an existing plant. Whether it will also be considered in estimating cost of reproduction will depend on the interpretation of that term. If by |