plant identical in all respects with that in existence or upon new plant of modern design; the other, can a new plant be placed where there is an older one existing.

20. New plant identical with old or one of modern design. It has been contended that the replacement cost of a plant should be that which it would cost to construct a new plant, modern in all respects and capable of furnishing the same service as that afforded by the older plant then under investigation. In other words, what it would cost a competitor to build a new and up-to-date plant of the same size and furnishing the same service. The fallacy of this argument is apparent when it is remembered that the valuation is made for the purpose of finding the present value of existing property. The replacement cost is one of the figures presented to show the cost-new of that property and from such cost-new must be deducted the depreciation which the property has suffered from its years of use. If the replacement cost should be made to show the cost-new of a different property, made up of units different either in size or in character, it would be utterly impossible to determine with any approach to accuracy the present value of the existing property.

It is true that the rule as to identical plant should not be carried out too rigidly. Some units of plant may be no longer manufactured and could not be obtained, at the present time, without abnormal cost. In such cases the purpose of the appraisal would be carried out more accurately and more satisfactorily by using the cost of the nearest modern substitute.

This line of reasoning appears to be that which has prevailed generally in valuations made in the United States. The Wisconsin Commission has said:

"From the facts we have so far obtained, the indications are that, in this state at least, the instances are not very nu

merous where the inventory and construction of the established plants can not be followed with a reasonable degree of safety."1

The Courts of the State of Maine in cases involving the valuation of water works have favored valuations based upon plants identical with those found in service.

"We think the inquiry along the line of reproduction should, however, be limited to the replacing of the present system by one substantially like it. To enter upon a comparison of the merits of different systems to compare this one with more modern systems - would be to open a wide door to speculative inquiry, and lead to discussions not germane to the subject. It is this system that is to be appraised, in its present condition and with its present efficiency." 2

21. Effect upon replacement cost of increased difficulty in placing plant. Clearly, a new plant, built at the present time by a competitor, for example, designed to furnish the public with the same service, would in many cases be much more expensive to place than was the case when the older plant was constructed. As an illustration, the case of the subway plant of a telephone company may be taken. In many cases in large cities the system of underground ducts and conduits was built at such an early date that relatively few obstructions were met as compared with what would be found at the present time. A new plant would be, therefore, much more expensive to construct. The contention could be made that, as the streets are so filled at the present time with underground pipes of various kinds including the conduit system under appraisal, the replacement cost, due to this fact alone, would be very much greater than the original cost. Replacement presupposes the non-existence of the present plant, and that no more obstructions would be met at the present time than probably were 1 Wis. R. R. Com. Rpts., Vol. 3, p. 637.

2 Kennebec Water Dist. v. City of Waterville, 54 Atl., p. 19.

found when the original plant was constructed. The replacement cost, therefore, must be based upon a conduit of the same size and character situated in the exact position occupied by the present structure. If it were ruled that the value of the present conduit was what it would cost to place a new one wherever space could be found at the present time for it in the streets, then the present conduit would prove an obstacle to the new and be itself a means of enhancing its own value, which is manifestly an absurdity. This contention has been fairly met in the Enid case, where the ruling of the Court was that,

"The plant, in our opinion in arriving at its cost of reproduction new, should not be considered as an existing obstruction upon the streets which would have to be worked around in constructing a new plant of a similar kind." 1

The case of land may be cited as another illustration of this condition. An undertaking in acquiring the land needed for its operation may have been obliged, in many cases, to purchase the buildings found upon the land and to remove them as unsuitable for their future needs. The original cost of the land was enhanced by the then value of the buildings and the expense which was incurred in their removal. In many cases the undertaking may have constructed special and, possibly, very expensive buildings suitable for its needs. In determining the fair present value of the land it would not be proper to enhance the value of the land at the date of the appraisal by the cost of the present buildings and by the cost of removing them. In other words, it cannot be considered as an "existing obstruction. . in constructing a new plant of a similar kind." The method to be followed in dealing with such a case will be considered later.

1 Supreme Court of State of Oklahoma, Pioneer Tel. & Teleg. Co. v. E. H. Westenhaver et al., 118 Pac. 354 (1911).

22. Period of construction. The replacement cost is an estimate of the cost of reconstruction at the present time of a plant identical with one in existence. It is impossible to make such an estimate without a definite assumption as to the time that will be required to bring together the materials needed and to perform the work necessary in placing the materials in the plant and fitting the plant for operation. It is impossible to conceive of the replacement of the plant of a large public utility as of a certain day. Time and usually much time before or after the date assigned for the valuation would be required in replacing such a plant.

The question, therefore, to be decided in each particular case is what length of time should be allowed for the construction period. The period of construction is clearly the time from the inception of the undertaking up to the time when the plant is turned over to the operating forces and is put into service. The point to be settled appears to be whether, in determining replacement costs, the entire present plant must be constructed and turned over as a complete plant, equal in size to that under valuation, or whether the hypothetical replacing plant shall be constructed piecemeal, in parts as large as may have been or would be built in a reasonable and practical construction of a new and similar plant.

As already stated, much time would be required in building a plant as large as that of most large utilities, a telephone company for example. In a recent investigation as to the time which would be required to replace a telephone plant of fair size, about 300,000 stations, experts have testified that it would take about seven years to make the necessary surveys for the new plant, obtain the required material and construct the plant. Moreover, that,

"It would be probably four or five years before he could take on any subscribers at all, and after that period he could commence joining up on such exchanges as were ready." . . . "If the work is to be done in a thoroughly efficient manner it ought to take that time. Hurried work as a rule is not satisfactory work." 1

There can be no reasonable question that, to construct a telephone plant costing $50,000,000.00 or more, an expenditure at an average rate of more than $10,000,000.00 a year would not be possible if the work is to be well done. It must be definitely understood that these figures are based on the supposition that the conditions, under which the new plant is supposed to be constructed, are no present plant, no engineering plans, no organization either in headquarters or in the field. There is every reason for feeling that a period of construction of five years for a plant of such size is conservative and fair.

In the case of the construction of water works, it has been stated:

"The period and rate of construction of any comparative plant will be determined by the ability to plan and build wisely and economically. Experience has shown that, except in cases where the work is so scattered as to make possible its subdivision into a large number of contracts, the annual expenditure of a sum in excess of $1,000,000.00 is not an easy matter." 2

The two above cases are given as an illustration of the line of reasoning which must be followed in each particular case in determining the period of construction, that is the period of time between the initiation of the work and the completion of a structure identical with that in existence.

It does not seem reasonable to contend that no por

1 Sir John Gavey's Testimony before Select Committee on Post Office, 1905 Report pp. 37 & 39.

2 Leonard Metcalf and John W. Alvord, Proc. Am. Soc. Civil Engineers, Vol. 37, p. 165.