states that: "The value in equity and justice must include whatever is contributed by the fact of the connection of the items making a complete and operating plant. The difference between a dead plant and a live one is a real value and is independent of any franchise to go on, or any mere good will as between such plant and its customers." (See $535.) Aside from valuations made by the Wisconsin Railroad Commission and which are fully described in chapter 24, the above are the only purchase cases found in which going concern has been considered entirely apart from the value of the franchise. The opinions in the above cases throw no light on the method by which going concern may be calculated. They seem to point however to commercial value rather than to cost or investment as the basis of determination. CHAPTER XXII Going Concern in Rate Cases § 550. Texas Railroad Rate Case, 1898. 551. Cedar Rapids, Iowa, Water Rate Case, 1902-Distinction between value for rate purpose and value for purchase. 552. Columbus, Ohio, Electricity Rate Case, 1906. 553. Consolidated Gas Case-Report of special master. 554. Consolidated Gas Case-United States District Judge Hough. 555. Consolidated Gas Case-United States Supreme Court. 556. Knoxville Water Rate Case, 1909. 557. Cedar Rapids, Iowa, Gas Rate Case, 1909, 1912. 558. Urbana, Ohio, Water Rate Case, 1909-14% allowance for going value. 559. Cleveland street railway appraisal, 1909-No allowance for going value. 560. South Dakota railroad appraisal, 1910. 561. Oklahoma Railroad Rate Case, 1910. 562. Des Moines, Iowa, Water Rate Case, 1910, 1911-10% allowance for going value. 563. San Francisco Water Rate Cases, 1903-1911. 564. Louisville, Ky., Telephone Rate Case, 1911-Valuation as a going concern identified with cost-of-reproduction-less-depreciation. 565. Oklahoma Telephone Rate Case, 1911-20% on reproduction cost for cost of establishing the business. 566. Oakland, Cal., Water Rate Case, 1911-No going value included— Deficit method rejected. 567. New York Public Service Commission, First District-Going concern considered in rate of return but not in fair value. 568. New York Public Service Commission, First District-Adjustment of parts, established connections and business experience as elements of going concern. 569. Summary. § 550. Texas Railroad Rate Case, 1898. The case of Metropolitan Trust Company v. Houston & T. C. R. Co., 90 Fed. 683, decided December 1, 1898, is an injunction proceeding involving railroad rates adopted by the Texas Railroad Commission. Circuit Judge McCormick in his opinion considers at some length the basis of valuation in rate matters and states that the valuation submitted by the railroad commission is defective in that it fails among other things to make proper allowance for "favorable location," "seasoning," "established business," "good will" and "lost interest on investment." He says (at pages 687, 689): It seems to be clear from the answer of the commission that in estimating the value of this railroad property no allowance was made for the favorable location of the same, in view of the advance in prosperity of the country through which it runs, and the increment to its value due to the settling, seasoning, and permanent establishment of the railways, and to the established business and the good will connected with its business, which has been established through a long series of years, and all of which ought reasonably to be considered in fixing the value of the property and the capitalization upon which at least it is entitled to earn, and should pay, some returns by way of interest or dividends. . . The commission, in estimating the value of these roads, say that they included interest on the money invested during the period of construction. This is somewhat vague, but the "period of construction" mentioned is probably limited to the time when each section of the road was opened to the public for business. And even if extended to the time when the road was completed to Denison and to Austin in 1873, nearly 20 years after its construction was begun at Houston, it would not cover all of the time, and possibly not nearly all of the time, in which the railroad company and its predecessors have lost interest on the investment. The estimate made on behalf of the railroad in this case of the cost to that company and to its predecessor company of the railroad property, and the business of that company as it exists to-day, may not be exactly accurate, clearly is not exactly accurate; but it seems to me that it is not beyond the fair value of the property, as it is shown to have been built up and constituted, and to exist to-day as a going business concern. § 551. Cedar Rapids, Iowa, Water Rate Case, 1902-Distinction between value for rate purpose and value for purchase. The case of Cedar Rapids Water Company v. City of Cedar Rapids, 118 Iowa, 234, 91 N. W. 1081, decided October 27, 1902, Supreme Court of Iowa, involves the constitutionality of an ordinance regulating rates. The decree of the District Court is reversed and the validity of the ordinance sustained. In regard to going value Judge Weaver says (at page 1091): It is proper here to say that in reaching these conclusions we have not attempted any estimate of the "going value" of the waterworks as a distinct and severable item in the calculation. By "going value" we understand is meant that value which arises from having an established "going" business. While not the exact equivalent of "good will," as applied to ordinary business, it is of a somewhat similar nature, and attaches to the business, rather than to the property employed in such business. The fact that the business is established is, of course, a material fact in ascertaining the value of the plant, and especially is this true where the property is being estimated for the purposes of sale or condemnation; but as a basis for estimating profits its signification is less apparent. The merchant who sells an established business may properly place a high value on the good will which he relinquishes to the buyer; but so long as he continues in the enjoyment of the business he has created he does not add the value of the good will to his capital stock in estimating the percentage of his annual profits. § 552. Columbus, Ohio, Electricity Rate Case, 1906. The Special Master, in his report to the United States Circuit Court in Columbus Railway and Light Company v. City of Columbus writes as follows: 1 Complainant is also entitled to a fair valuation of what may 1 The Columbus Railway and Light Company v. City of Columbus, no. 1206, in equity, Circuit Court of U. S., S. D. Ohio, E. D., Report of Special Master Talfourd P. Linn, June 8, 1906, p. 47. be called its going business, or its good will; that intangible addition to the assets of every corporation which arises out of its management, and is a gradual growth from its organization, consisting in this case of a knowledge of the business, a knowledge of the wants and demands of its customers, a knowledge of the growth of the city, and the tendencies of that growth as it has been observed through a period of years; the organization of its office and operating department, and in general, all the experience which belongs to and is the property of every going concern, and which is acquired through a period of years of active operation. In one sense of the word, the operating organization of a going concern, whether it be a common carrier, a gas company, or water company, a light company, or a private manufacturing company, may be said to be of even more value than its physical assets, its brick and mortar. The physical property is practically worthless without the management or organization; the management or organization is powerless without the physical property, and an electric plant for the purpose of furnishing light and power to the city of Columbus, standard built and equipped of the most modern type, with its lines extended and connected, its lamps installed in houses and business places, its wires connected up to furnish power for machines, without an efficient organization and management would fail utterly to fulfill the purpose for which it was constructed, until that organization and management could be assembled, and acquire a knowledge of the city, the wants of its people, and the demands of the business. Granted that with a plant so established, there could instantly be found skilled, capable and efficient employés to occupy every position necessary to operate its business, and to deliver its product or service, still this want of knowledge on the part of those employés and officials would necessarily hinder and delay the delivery of light and power, cripple the conduct of the business, and cause great loss until that knowledge had been acquired by the only teachers possible-time and experience. This knowledge possessed by complainant, derived by it from its own experience, and by acquisition and purchase from |