in money, which is supposed to exist on the part of persons with different interests, which creates the variation in present value which may be assigned to the same property depending upon the purpose of the valuation, whether for sale, for rate regulation, for taxes or for the issue of securities.

Original cost or cost of replacement, therefore, is not indicative of value necessarily. The cost of the physical property of an undertaking, either when originally constructed or rebuilt at the present time but not in use, might be very large but such costs would not be indicative of the value of the property. The property would have value, would be desired, only when it had been enlivened by operation or could be shown that it could be so enlivened and made capable of producing a

return.

These two figures, original cost and replacement cost, must be translated into value and this can be done only by including with such cost figures representative of the value inherent in the physical property, produced by the fact that the physical property consists of a live plant, composed of units in co-ordination and articulation with each other, and "thus forming a complete mechanism, capable of performing useful service," productive or potentially productive of a return to the owners.

This enlivening factor is frequently called the value of a property as a "going concern."

13. Value as "going concern"-It is to be noted that the figures, to be presented as indicating value, are to represent the value of the property of the undertaking. The property of a public utility rarely consists of plant alone. The undertaking has other property of distinct value to it and to the public, which is not apparent or tangible and consequently cannot be made a portion of an inventory as can the physical property. This intan

gible property consists of the value inherent in the utility due to the fact that the utility is operating a "live plant," a plant connected with users.

This value inherent in a live plant, or, as it is frequently called, "value as a going concern," has been recognized in most of the later decisions bearing upon the value of the properties of public utilities. The decision of Mr. Justice Lurton in the Omaha Water Case brings out very clearly this intangible value.

"The option to purchase excluded any value on account of unexpired franchise; but it did not limit the value to the bare bones of the plant, its physical properties, such as its lands, its machinery, its water pipes or settling reservoirs, nor to what it would take to reproduce each of its physical features. 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 a plant and its customers. That kind of good will, as suggested in Willcox v. Consolidated Gas Co. (212 U. S. 19), is of little or no commercial value when the business is, as here, a natural monopoly, with which the customer must deal, whether he will or no. That there is a difference between even the cost of duplication, less depreciation, of the elements making up the water company plant, and the commercial value of the business as a going concern, is evident. Such an allowance was upheld in National Waterworks v. Kansas City, (62 Fed. Rep. 853), where the opinion was by Mr. Justice Brewer. We can add nothing to the reasoning of the learned Justice, and shall not try to. That case has been approved and followed in Gloucester Water Company v. Gloucester, (179 Mass., 365), and Norwich Gas Company v. city of Norwich, (76 Conn. 565). No such question was considered in either Knoxville v. Knoxville Water Company, (212 U. S. 1), or in Willcox v. Consolidated Gas Company, (212 U. S. 19). Both cases were rate cases, and did not concern the ascertainment of value under contracts of sale." 1

1 City of Omaha v. Omaha Water Company, 218 U. S. 212, (1910).

In another case the Court says:

"Nevertheless it has value as a structure. But, more than this, it is a structure in actual use; a use remunerative to some extent. It has customers. It is actually engaged in business. It is a going concern. The value of the structure is enhanced by the fact that it is being used in, and in fact is essential to, a going concern business. We speak sometimes of a going concern value as if it is or could be separate and distinct from structure value so much for structure and so much for going concern. But this is not an accurate statement. The going concern part of it has no existence except as a characteristic of the structure. If no structure, no going concern. If a structure in use, it is a structure whose value is affected by the fact that it is in use. There is only one value. It is the value of the structure as being used. That is all there is of it. . . The district obtains and the company yields its plant, its structure; but it is the structure as being used, with the rights to use it as stated; no less, no more. We apprehend that some difficulty in discussion has arisen from attempting to differentiate in logic what is inseparable in fact. The property taken is a single thing, to which belong certain characteristics which affect its value. The thing cannot be taken without these characteristics. If it is attempted to value the thing separate from its inherent characteristics, elements which add value to the thing are omitted. If these elements are omitted, the owner fails to receive the full and fair value of the thing, and thereby is denied just compensation." 1

The opinion of Mr. Justice Lurton above quoted clearly indicates the distinction which must exist between cost and value when the plant has been quickened or vitalized by operation. The original cost and replacement cost must be presented, therefore, in such a way as to show not only the cost of the physical property but the value inherent in that property as a "live" plant, productive or potentially productive, of a return to the owners. Fundamentally the value inherent in a live plant is meas

1 Brunswick & Topsham Water Dist. v. Maine Water Co., 59 Atl. 539, (1904).

ured by its earning capacity, and this earning capacity, except for the control exercised by the State over Public Utilities, would be due to some characteristics of the property inherent in the position of the plant or of its operation. Thus in the case of a railroad the trend of tonnage down grade rather than up grade; of the density of population and traffic as related to the location of the road; of the value to the road of facilities for producing business for the road, such as grain warehouses or elevators, flour mills, saw mills and manufacturing establishments of all kinds; of the low cost of fuel; of ownership of waterpower rights sufficient to provide for electrical operation on mountain grades; of the availability of skilled employees; or of reasonable costs of living. All of the conditions of this character may tend greatly to enhance the value of the property but they are all characteristic of the plant location, are inherent in the plant as an operating organization and, in consequence, any values that may attach properly to them must be considered as a portion of the value of the property.

"The value of a railway system does not depend upon the mere cost of its embankment or its equipment. It is rather a question of location, of connections, of terminal facilities, of enterprises along its line; and shall nothing be allowed to the foresight and ability which have marked out and perfected that system?" 1

But in the case of a public utility, the state has the power to say what rates and, consequently, what return can be earned by the organization operating under conditions of a location which has been granted to it. The state need not consider the relative advantages of one undertaking as compared with another offering substantially the same service. Each undertaking stands by itself and, in case of a controversy which is carried to

1 Interstate Commerce Commission Reports, Vol. IX, p. 402.

the courts, the court decides simply whether the rates imposed will afford such a low return upon the present true value of the property as may be deemed confiscatory of the property of the undertaking. All of the rulings of the courts, however, recognize that the live plant, the plant enlivened by successful operation, is more valuable than the bare bones of the physical plant, and agree that some enhancement in value should be made by them in a determination of the true present value of a property.

The value inherent in a live plant includes other elements than that of its value as a going concern, such as the value of "good will" or the value of the "franchise rights." Whether or not definite values can be attributed to each of these factors individually, and whether such values, if present, can be included as a part of present value of a property in all cases, will be considered in a later chapter.

The court

14. Determination of fair present value. or commission, depending upon the nature of the case, is alone competent to assign the true present value of the property of an undertaking. For the purpose of aiding such decision, the above six sets of figures have been ruled by Mr. Justice Harlan as requisite. In forming its decision the tribunal must base its judgment upon the facts and figures applying to each particular case. No hard and fast rules have ever been laid down and probably never can be laid down to govern all cases. This is clearly indicated in the decision rendered in the Spring Valley case which is quoted below:

"He is entitled to a fair return, not always upon the cost of the property, because it may have cost too much; not always upon the outstanding indebtedness, because it may be in excess of the real value of the property; not always upon the total amount invested, because some portion of that which is acquired