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court below excluded that item, and we concur in that action.

In the above reasoning the court apparently goes back to a consideration of good will in the ordinary commercial sense and not to good will as established business and business organization which is the only sense in which the term was employed as pertinent to the case by either the master or the district judge. After reading the report of the master and the decision of District Judge Hough, it might be taken for granted that the Supreme Court statement "We are of the opinion that it is not a case for valuation of 'good will'," could only mean that established business and connections and business organization as defined in the National Water Works Company v. Kansas City, 62 Fed. 853, could not be considered in a valuation for rate purposes. Such a construction would, however, not harmonize with the opinion handed down the same day in Knoxville v. Water Co. (see § 556).

§ 556. Knoxville Water Rate Case, 1909.

The case of Knoxville v. Water Co.5 was decided the same day, January 4, 1909, as Willcox v. Consolidated Gas Co., quoted above. In this case the Supreme Court expressly states that it expresses no opinion as to whether going concern value should be included for the purposes of the case at hand, which was a water rate case. In delivering the opinion of the court, Justice Moody says (at page 9):

The first fact essential to the conclusion of the court below is the valuation of the property devoted to the public uses, upon which a company is entitled to earn a return. That valuation ($608,000) must now be considered. It was made up

5 Knoxville v. Water Company, 212 U. S. 1, 29 Sup. Ct. 148, 53 L. ed. 371, January 4, 1909.

by adding to the appraisement, in minute detail of all the tangible property, the sum of $10,000 for "organization, promotion, etc.," and $60,000 for "going concern." The latter sum we understand to be an expression of the added value of the plant as a whole over the sum of the values of its component parts, which is attached to it because it is in active and successful operation and earning a return. We express no opinion as to the propriety of including these two items in the valuation of the plant, for the purpose for which it is valued in this case, but leave that question to be considered when it necessarily arises. We assume, without deciding, that these items were properly added in this case.

§ 557. Cedar Rapids, Iowa, Gas Rate Case, 1909, 1912.

The case of Cedar Rapids Gaslight Company v. Cedar Rapids, 144 Ia. 426, 120 N. W. 966, decided May 4, 1909, Supreme Court of Iowa, involves the valuation of a gas plant for rate purposes. In regard to going concern, Judge Ladd says (at page 969):

Also the sum of $100,000 was included by these witnesses as enhancement of value by reason of being a "going concern." As previously intimated, the value of the plant is to be estimated in its entirety, rather than by the addition of estimates on its component parts, though the latter course will materially aid in determining the value. Advantages have accrued through the sagacity of its management as contended by appellant. So, too, there are the inevitable mistakes which would not be likely in the construction of a new plant; but to put a new plant in profitable operation time would be required, and, aside from the intangible element of good will, the fact that the plant is in successful operation constitutes an element of value. As said, the value of the system as completed, earning a present income, is the criterion. In so far as influenced by income, however, the computation necessarily must be made on the basis of reasonable charges, for whatever is exacted for a public service in excess of this is to be regarded as unlawful. Save as above indicated, the element of value designated a

"going concern" is but another name for "good will," which is not to be taken into account in a case like this, where the company is granted a monopoly. Cedar Rapids Water Company v. City of Cedar Rapids, 118 Iowa, 234, 262, 91 N. W. 1081; Willcox v. Consolidated Gas Co., 29 Sup. Ct. 192, 53 L. ed. 382. The witnesses for plaintiff took into account "good will" in giving their opinion of the enhancement in value because of being a going concern, and we have no means of separating these so as to ascertain their estimate of the separate advantage of completion so as to earn a present income.

Just what is meant by the above discussion and to what extent if any it modifies the former decision of the court (above, § 551) is not at all clear. On appeal to the Supreme Court of the United States the company claimed that the state court erred in not including an allowance for good will, going value or franchise value. The Supreme Court, however, affirmed the action of the state court in sustaining the rates in question (Cedar Rapids Gaslight Company v. City of Cedar Rapids, 223 U. S. 655, decided March 11, 1912). Justice Holmes in delivering the opinion of the court says (at page 669):

Then again, although it is argued that the court excluded going value, the court expressly took into account the fact that the plant was in successful operation. What it excluded was the good will or advantage incident to the possession of a monopoly, so far as that might be supposed to give the plaintiff the power to charge more than a reasonable price. Willcox v. Consolidated Gas Co., 212 U. S. 19, 52. An adjustment of this sort under a power to regulate rates has to steer between Scylla and Charybdis. On the one side if the franchise is taken to mean that the most profitable return that could be got, free from competition, is protected by the Fourteenth Amendment, then the power to regulate is null. On the other hand if the power to regulate withdraws the protection of the Amendment altogether, then the property is nought. This is not a

matter of economic theory, but of fair interpretation of a bargain. Neither extreme can have been meant. A midway between them must be hit.

§ 558. Urbana, Ohio, Water Rate Case, 1909-14% allowance for going value.

The case of C. H. Venner Co. v. Urbana Waterworks, 174 Fed. 348, decided November 6, 1909, United States Circuit Court, involves the valuation of a water plant in order to determine just rates for furnishing water to a city for fire purposes in the absence of a contract as to price. District Judge Thompson says (at page 352):

Upon consideration of the testimony of the experts, Hays, Williams, Mead, and Hill, I am of the opinion that the fair reproduction value of the property is $155,000, to which should be added $25,000, as the "going value" of the property.

Judge Thompson then refers with approval to the definition of value arising from "a system in operation" given by Justice Brewer and quoted above, § 551. In this case the allowance for going value is about 14% of the total fair value.

§ 559. Cleveland street railway appraisal, 1909-No allowance for going value.

The decision of United States District Judge Robert W. Tayler in the matter of the arbitration of the valuation of the property of the Cleveland Railway Company, December 16 and 17, 1909, contains no allowance for good will, or for going value. Judge Tayler contends that going value so far as the term can be applied to a street railway, must be covered by the expense incident to organization, superintendence, legal expenses, etc., which expenses in this case had been allowed for by a percentage addition to inventory value. Judge Tayler says:

I allow nothing for going value. Going value raises a ques

tion of definition, and it is sufficiently disposed of, according to my view, by saying that it only has a value, as applied to a street railroad enterprise, because of the expense incident to organization, superintendence, administration, legal expenses and interest during construction; it is involved in the general subject of necessary overhead charge and arises only out of, and is to be defined and limited entirely by, the money necessarily expended to put it into the shape where it has value as an operating instrumentality. Beyond that, I recognize no value to going value or no such thing as going value to be applied to a street railroad enterprise. Nor do I find anything properly allowable for good will, as that term is generally defined. A street railway company which has a monopoly, and especially if it has a franchise value remaining, can have no good will value.

§ 560. South Dakota railroad appraisal, 1910.

Carl C. Witt, the engineer in charge of the South Dakota railroad appraisal made under the direction of the state railroad commission, explains the omission of going concern and other intangible assets as follows: 6

No appraisal was made of the intangible assets. A great many arguments have been advanced for and against such an appraisal, and in South Dakota it was held that the earning ability of any corporation due to its franchise, strategic location, efficient organization, going-concern value, etc., while perhaps an element of value to be considered in a transfer of the property or if assessed on an income basis, should not enter into a valuation which would be used for determining a just and reasonable return on the investment, because the greater the earning power the greater would be the return, and that this condition would produce a never-ending increase in returns; whereas, when the returns reach a point at which they will not only pay a fair dividend on the investment, but take

6 Carl C. Witt in discussion of paper by Henry E. Riggs on Valuation of Public Service Corporation Property, in Proceedings of American Society of Civil Engineers, January, 1911, p. 123.

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