The Interstate Commerce Commission has indicated its doubt as to how far such values should be included, as is instanced by the following decision.

"Whatever the true economic or legal view may be as to the right of a carrier to consider the increase in value of its land as a part of the value upon which it is entitled to a reasonable return, such increase in value does not of itself establish the right of a carrier to increase rates upon a given service. It is a conservative statement of the law to hold that a railroad may not increase the rates upon a number of commodities solely because its real estate has risen in value.'

On the other hand the Wisconsin Commission has used quite generally the present value of land as a portion of the true present value upon which rates should be based.

"In view of these facts there would seem to be good ground, from both a legal and economic viewpoint, for giving such appreciations in value consideration in appraising public utilities. At any rate, we can not now see good reasons upon which to exclude these elements from the appraisal of utility properties." 2

It is unnecessary to quote at greater length decisions upon this point. A few references bearing upon this subject are given below. In reading these cases it is important to bear in mind that the present value of land, in which necessarily is included the unearned increment, must be used where the case is one of court investigation as to whether a rate imposed by state authorities is confiscatory or not. If the decisions are studied with this thought in mind, it will be seen that the logic of the theory

1 Interstate Commerce Commission Rpts., Vol. XX, p. 344. 2 Wis. R. R. Com. Rpts., Vol. IV, p. 579.

* Consolidated Gas Co. v. City of New York, 157 Fed. 854; Willcox v. Consolidated Gas Co., 212 U. S. 52; Shepard v. Northern Pac. R. R., 184 Fed. 806; St. Louis Pub. Serv. Com. on United Railways Co. of St. Louis, Nov. 19, 1912, p. 23; New York Pub. Serv. Com., 1st Dist., Decisions June 23, 1911, Aug. 18, 1911, Oct. 20, 1911, Nov. 17, 1911.

as to value used by the state authorities demands that cost must be the basis.

152. Paving. The cost of paving over that portion of the undertaking's property placed in a paved street or under it, which cost was not actually incurred by the undertaking, should not be included as a portion of the cost-new in such cases as are being now considered. All authorities are agreed upon this matter. This question has been discussed already in section 28 and will be treated later in section 156. Its exclusion is clearly called for by the theory upon which this study of present value is based.

153. Property acquired by gift. - Following strictly the theory that an undertaking can earn only upon the money invested in property now useful to the public, the value of all property, which has been acquired by gift or by contribution from outside sources, should be excluded from the cost-new used in determining the value upon which rates should be based.

Conditions of this kind are found very frequently in the case of railroads where, in many instances, grants of land were made by the Government or State to assist in the construction of a needed railroad in new country. Somewhat the same condition is present in the aid given in recent years by the state or towns to railroads for the elimination of grade crossings. Likewise with other classes of utilities, portions of the plant may have been paid for by the users in order to obtain service under special or unusual conditions.

On the other hand, utilities may have had to incur large expense upon property the title to which they do not possess, in order to meet the requirements of the public or public authorities. Such instances may be found where approaches to stations or changes in the grade of streets have been made at the expense of the undertaking.

Clearly such costs are a portion of capital invested in the undertaking and must be included in the value upon which rates can be earned.

A careful reading of all later decisions of courts and commissions on this subject seems to show a general recognition of the principle above laid down. Thus,

"It is well understood that, as a matter of equity, the Commission does not include services paid for by consumers in the valuation of public service property for the purpose of establishing rates." 1

"If services," water service pipes, "are installed by the utility, they constitute a part of the plant upon which the utility should be allowed to earn a return to provide for depreciation and interest; if put in by property owners, the cost of such services should not be included in the value upon which the utility is entitled to a return." 2

154. Cost-new of property. Investigation by court of statutory rates. Rate cases come before the court for a determination as to whether rates, imposed by the rate regulating authorities of the state upon the undertaking, are confiscatory of the property of the undertaking and, consequently, in violation of the 14th amendment of the Constitution of the United States. In such cases the cost-new must be the replacement cost; and the actual present value must be the replacement cost of the property less depreciation.

In considering the figures derived to indicate the basis of present value, the court may use original cost, capital value of stocks and bonds, and even their market value as checks, however, only as to the probable accu

1 City of Washburn v. Washburn Water Works Co., 6 Wis. R. R. Com. Rpts., p. 92 (1910); See City of Beloit v. Beloit Water, Gas & Elec. Co., 7 Wis. R. R. Com. Rpts., 215 (1911); Monheimer v. Brooklyn Union Elevated R. R. Co., 2 P. S. C. 1st Dist., N. Y. (1910).

2 Oscar A. Alter et al. v. Bd. Water Com. Manitowoc, 11 Wis. R. R., p. 387 (1912).

racy of the figure derived to show the cost of reproduction

new.

In cases of this kind it must be value-new of the property, as of the time of the investigation, in use and useful to the public and not at all the original cost, which is of importance. With this view it is clear that many of the items of value which may have been excluded by the state authorities will be included by the court. The reasoning followed in sections 151 to 153 relative to the value of real estate, of paving, and of donated property, no longer holds good. This difference in the theory of present value is so important that it will be well to reconsider these subjects in some detail.

155. Increased value of real estate. It is the present value of the real estate, which belongs to the undertaking, that should be accepted as a definite asset. It is the value of the land "as it is" that the courts will accept as the correct value. This has been established by a long line of court decisions which need not be quoted in detail.1

156. Cost of repaving. - Carrying out the theory of value above outlined it is clear that what it would cost to replace the pavement over or about the structures of an undertaking, whether such pavement had been paid for by the undertaking or not, should be the present value to the undertaking of its property. It is what it would cost at the present time to replace or reproduce that portion of its plant.

157. Property acquired by gift. - Here again it is the value of the property owned by the undertaking, no matter how acquired, that should be given its full present value.

1 Smyth v. Ames, 169 U. S., p. 546; San Diego Land Co. v. Nat. City, 174 U. S., p. 757; San Diego Land Co. v. Jasper, 110 Fed. 714; Shepard v. Northern Pacific R. R., 184 Fed. 806.

R.R

"The Special Master takes it to be a sound principle of law that where property is given to a railway company for a right of way, such property becomes as much a part of the property of the railway company devoted to the public use as does property purchased or condemned by it, and its value is just as much to be considered for rate purposes as is the value of any other property devoted by the railway company to the use of the public." 1

158. Value inherent in live plant. In cases before a court it would seem as if logic demanded that it should be the cost of developing the business anew as of the present time that should be regarded as the "going value" of the undertaking. It cannot be past costs as determined by the Wisconsin method (section 61), but that method described in section 62.

159. Brokerage. Discounts. - In the consideration of replacement cost in section 47, it was stated that the cost of raising capital, including cost of brokerage, underwriting or discounts, should not be included except in so far as such items might be effective in increasing the rate used in figuring the loss of interest during construction. This reasoning was based on the assumption that expenses of this character would not be capitalized but would be amortized through higher rates of return.

This subject was discussed further in connection with original cost in section 81, wherein it was stated that expenses of this character should not be included, for the reason that the par value of securities was another figure to be presented to the tribunal and with that figure and the original cost of the property a full knowledge of the difference between the cost of the property and par value of the securities could be obtained.

Whether or not these losses or expenses should be

1 Central of Georgia Railway Co. v. Railway Com. of Alabama, No. 261, in equity, U. S. Middle Dist., Ala.