lating on the value of a similar plant would adopt such a rule. The cost of the pipe, the prices at which it ordinarily had sold, in connection with present prices, should be considered in connection with depreciation by inevitable decay.

In the appraisals made by the New York Public Service Commission for the First District the unit figures are averages for several years where there has been much fluctuation in prices. Unless there is considerable fluctuation, present prices are taken.

§ 233. Average price for period equal to construction period. In the rules laid down by the Supreme Judicial Court of Maine to govern appraisers in appraising a water plant for purposes of condemnation it is stated that reproduction cost shall be based on the normal or average price for a period of years prior to the date of taking, corresponding to the probable period of construction. Judge Savage says: 5

It is suggested that in fixing the value on January 1, 1904, allowance must be made for the fact that a plant ready to be delivered on a given date must have been commenced a considerable time before, certainly. When we say "present prices" we mean prices within a period necessary for construction.

Henry L. Gray, Engineer to the Railroad Commission of Washington, in describing an appraisal of the Seattle Telephone Companies, discusses the question of the use of average price or prevailing price:

6

In preparing such appraisals, it has frequently been the custom to use the average of prices prevailing during several years previous, this method being based upon the assumption that the number of years selected would cover the con

5 Brunswick and T. Water District v. Maine Water Co., 99 Me. 371, 59 Atl. 537, 542, December 14, 1904.

6 In Engineering and Contracting, May 3, 1911, pp. 520, 521.

struction period. The wisdom of so selecting prices has not been clearly demonstrated. If the plant is new, and actually was constructed during the years selected, then the advantage is obvious, but if the date of appraisal is remote from the date of construction, why average a number of prices that bear no relation to the actual cost, or the prevailing prices? It is equally fair, and much more convenient to assume that the date of the appraisal represents the beginning of the construction period, rather than the end. It may be well said that the past years exhibit the prevailing cost of work, while those of the future do not. Nevertheless, it should be borne in mind that practically all the material will be contracted for at the beginning of the work, and that labor costs are not apt to vary materially in three or four years. After all, the probable construction period is an assumption, either way it is taken, and the folly of splitting hairs over assumptions, and entailing a great deal of additional work, should be evident, particularly when it is remembered that the cost of reproduction is only one element of the value.

§ 234. General considerations.

If it is desired to base fair value on the reproduction method in its strictest form, present prices are doubtless the more logical. If the problem is, what will it cost to-day to replace the existing plant, the prices of to-day will naturally be used. The theory that an average for a period of years preceding equal to the assumed construction period shall be used has difficulties, certain of which have been pointed out above by Mr. Gray (§ 233). Moreover, price movements are quite frequently in long cycles and therefore present prices may be nearer the average for the next few years than would be an average based on the past few years. On the other hand it is clear that a process of averaging by five or ten year periods greatly reduces the fluctuation in price level. A curve showing monthly prices averaged annually is uneven, while with each lengthening of the period to two years,

five years and ten years, the curve is smoothed out and the variations from year to year correspondingly reduced. This is brought out clearly by a chart published by the Wisconsin Railroad Commission in City of Appleton v. Appleton Water Works Company, 5 W. R. C. R. 215, decided May 14, 1910. If the reproduction method is used not as an end in itself but as a means of finding a fair and equitable basis for determining the relations between the investor and the consumer, a modification reducing the effect of price fluctuations is not inconsistent. A five year average is good but in certain cases a ten year average is probably better.

241. Appraisal of Chicago surface railways, 1906.

242. Appraisal of Chicago Consolidated Traction Company, 1910. 243. Appraisal of Chicago gas plant, 1911.

244. Cleveland street railway appraisal, 1909.

245. Columbus, Ohio, Electricity Rate Case, 1906.

246. Des Moines, Iowa, Water Rate Case, 1910.

247. Lincoln, Neb., Gas Rate Case, 1909.

248. Appraisal of street railways for Massachusetts Validation Board, 1911.

249. Appraisal of N. Y., N. H. & H. R. R. for Massachusetts Validation

Board, 1911.

250. Memphis, Tenn., water plant appraisal, 1902,

251. Michigan railroad appraisal, 1900-1901.

252. Minnesota railroad appraisal, 1908.

253. New Jersey Public Utility Commission, 1911.

254. New York Consolidated Gas Case, 1907.

255. New York Public Service Commission, First District, 1911. 256. Oklahoma Telephone Rate Case, 1911.

257. South Dakota railroad appraisal, 1910.

258. Washington railroad appraisal, 1908.

259. Washington Railroad Commission, 1910.

260. Seattle, Wash., Telephone Rate Case, 1910-1911.

261. Wisconsin railroad appraisal, 1903.

262. Wisconsin Railroad Commission.

280. Engineering and superintendence.

281. Contingencies.

282. Contingencies-Michigan railroad appraisal, 1900-1901.

283. Contingencies-Massachusetts appraisal of N. Y., N. H. & H. R. R.,

1911.

284. Contingencies-St. Louis Public Service Commission, 1911.

285. Contingencies-Oklahoma Telephone Rate Case, 1911.

286. Contingencies-Wisconsin Railroad Commission, 1911.

287. Contractor's profit.

288. Contractor's profit-St. Louis Public Service Commission, 1911. 289. Contractor's profit-New York Public Service Commission, First

290. Contractor's profit-Valuation of Falmouth, Mass., water plant. 291. Interest during construction.

292. Interest-Minnesota Railroad Rate Case, 1911.

293. Interest-Oklahoma Telephone Rate Case, 1911.

294. Interest-Wisconsin Railroad Commission.

295. Interest-St. Louis Public Service Commission, 1911.

296. Interest-New York Public Service Commission, First District, 1911.

297. Interest-State railroad appraisals.

298. Interest-Massachusetts appraisal of N. Y., N. H. & H. R. R.,

1911.

299. Promotion and organization.

300. Promotion-St. Louis Public Service Commission, 1911.

301. Promotion-New York Public Service Commission, Second District,

1908.

302. Promotion-New York Public Service Commission, First District, 1912.

§ 240. Introductory.

Under the term overhead charges as here used are included percentages on the cost of reproduction for the following purposes:

1. Engineering and superintendence.

2. Contingencies.

3. Contractor's profit.

4. Interest during construction.

5. Legal and general expense, company organization, taxes and insurance.

6. Promotion.

Bond discount, working capital, piecemeal construction, adaptation and solidification, franchise and going concern while sometimes classified with overhead charges have not been included here but have been made the subject of separate chapters. Brokerage is treated with bond discount in chapter 13. In a few appraisals, however, an allowance for brokerage has been included with overhead charges so that the tabulated overhead charges contained in this chapter contain a few brokerage allowances. A comparison of percentage allowances for overhead charges