of an undertaking, which has been in operation for a number of years, has replaced plant which has been abandoned or destroyed for the reason that it was no longer useful to the public. There is no question or doubt about the fact that the cost of such abandoned plant cannot be included in ascertaining the replacement cost of the property. It is the plant as it is that must be valued, the plant then in existence and useful to the public at the time of the appraisal.1 The question to be settled relative to original cost is whether the cost of such abandoned, destroyed or unserviceable plant is to be made a portion of the original cost. The best decision bearing upon this point was given in the Knoxville case. The defendants contended that amounts representing "complete depreciation" should be added to the present value of the surviving parts of the plant to reach the sum upon which the company should be entitled to earn a return. "Complete depreciation" was defined by the company as that part of the original plant which had entirely disappeared through destruction and obsolescence. The Court ruled, "The court refused to approve this method, and we think properly refused." 2 Again, in Switzerland, in cases involving the purchase of the railroads by the Government, it was ruled that property constructed and destroyed or abandoned could not be given any value.3 The logic of these rulings is apparent when it is remembered that an undertaking is entitled to such rates as will enable it to make annual reserves from income sufficient in amount to cover all losses occurring from the replacement of old or obsolete units of plant. If an 1 Wis. R. R. Com. Rpts., Vol. 5, p. 397. 2 Knoxville v. Knoxville Water Co., 212 U. S. 1. undertaking has made such reserves, the cost of the discarded plant has been paid for practically by the public in the form of the higher rates that such a practice has necessitated. What the Court requires is the "original cost" of the plant now found in existence. But there is confusion as to what "original cost" really means: does it mean the amount of money that was paid originally for the first unit brought into service, - a unit which, probably, has been replaced many times in the past; or does it mean the actual cost of the unit now found in service, — the unit now performing the same functions as the original unit? Logically, there seems to be but one answer to this question. The "original cost" must be the cost of the unit now in existence. The logic of this reasoning will be apparent when practical cases are considered. If a valuation of a street railway was being made, it would be quite absurd to furnish the court with the original costs of the cars drawn by horses, cars which had been replaced by cable cars and later by the electric cars now found in a portion of the property being valued. Or if a telephone, telegraph or electric light company was being appraised, there would be no assistance afforded the tribunal by presenting to it the prices paid for a pole at the time the plant was first constructed. Such a figure could furnish no indication of the value of a present pole, which possibly is the fourth pole that has been placed by the undertaking in that spot, each pole having replaced one that had had to be abandoned owing to its lack of physical strength arising from its years of service. It would seem, therefore, as if the original cost must mean actual cost, that is to say the price actually paid for the identical unit now found in the plant in use and useful to the service offered to the public. 76. Difficulty in obtaining original cost. The reason given for the absence of original costs in most valuations is the difficulty in ascertaining what the costs actually had been in the past. It is a very serious question whether this difficulty has not arisen from attempts to find the first cost of the original units. It is a fact that, for most electrical enterprises using units of plant of relatively low mean life, there should be no greater difficulty in finding the actual cost within as great a degree of accuracy as the replacement cost can be obtained. There can be no doubt that, if the officers or accountants of an undertaking were approached and asked for the actual cost of their plant, it would be impossible, in the case of older undertakings, for them to give it with such accuracy as they would desire. But, if an inventory, the same or similar in every way to that required and used in determining the replacement cost, was in hand with the probable age attributable to each unit,requirement for the determination of depreciation as will be described later, — most or all of the accountant's difficulties would be removed. a The difficulty in obtaining actual cost has been stated at some length in the following decision: "the court. . . directed an inquiry into the actual cost of the company's property in this city. The lapse of many years, the multitude of items making up the total, the wide diversity of present views as to what expenditures should have been or should now be included in the cost of construction, etc., the manner of keeping the company's accounts (though no dishonesty is attributable, inasmuch as no motive is conceivable which at that time tempted to deliberate wrong), and other considerations have so obscured the question of cost of the plant as to greatly weaken the value of this inquiry, laborious and painstaking as it appears to have been." 1 1 Cumberland Telephone and Telegraph Co. v. City of Louisville, 187 Fed. 637 (1911). This decision shows the error which, evidently, has been made by those attempting to obtain the actual cost. The actual cost need not accord with the books of the undertaking as far as classification is concerned; in fact it is probable that it could accord in but few cases and then only of properties that had been in existence for a short time only. The cost of some of the present plant may have been charged to replacements or current repair and not entered directly as a portion of the plant cost. By far the larger part of these difficulties is removed if the original cost is determined in substantially the same manner as was the replacement cost. An inventory is prepared showing all plant units now in useful service. Such an inventory is identical with that required for ascertaining replacement cost. The age of each unit is ascertained and entered in the inventory. As will be explained later, this figure for age is necessary for a determination of the loss in value of the investment arising from depreciation. From this age figure it is possible to find how many units of each class of elements were constructed in each year in the past. The engineer and an accountant familiar with the company's records can ascertain the unit costs of all elements for each year in the past. The sum of the products of the numbers of units constructed each year by the unit costs for that year will give the original cost. Overhead charges can be found for each year and applied to the cost of construction each year in a manner similar in all respects to that described under replacement cost. Thus it is seen that the method of determining original cost is practically the same as replacement cost except that in the case of the original cost there are several unit costs, one for each year in the past, for each element, whereas for replacement cost there is but one unit cost applicable to all units of the same kind. There can be no wider "diversity of present views" relative to original costs than to replacement costs if the above reasoning is correct. It is not at all improbable that some of the costs which should have been made properly a portion of original costs, some of the overhead charges most frequently, - may have been included on the books of the undertaking as a portion of the operating expenses, but a determination of original cost is not an investigation of the capital cost as shown by the company's books but rather what has been actually spent in the construction of the property now in use for the convenience of the public. 77. Unit costs. The unit costs developed for use in ascertaining replacement costs were obtained by taking the prices for labor and material which had prevailed in the past during a period of time assumed as that which would be required to reconstruct the property. For use in obtaining actual cost, unit prices must be obtained in which are included all of the items of cost noted in section 32, for each year in the past in which the units now in existence were installed. Clearly this period will depend upon the life of each element. The number of units of each element, introduced into the plant during each year, must be multiplied by the unit costs determined for that year. 78. Piecemeal construction.—The first point relative to piecemeal construction, the point discussed in section 26, cannot be questioned in any way whatever in a determination of the original cost. The original cost must be the actual cost to the undertaking of the work as it was actually done by it. The second point, discussed in section 27, requires very careful consideration, particularly for the reason that no decisions have been found bearing upon this question nor is there any precedent to establish an authority or |