In practice, underground cables in a telephone system are drawn into a conduit one at a time as the demands of the business may require. The entire underground cable system has been built in this manner, and definite knowledge has been obtained, as the result of large experience, as to the cost of laying and splicing cables in this manner. At the present time there will be found a large number of cables in a given manhole, running between that manhole and the next. It is manifest that it would be less expensive with the construction men and material at a manhole to draw in all of the cables, rather than to bring the men and material necessary for the drawing in operation to that point to draw in one cable alone. Again, there may be a thousand telephone stations in one large office building; clearly it would be a matter of less cost to install and connect all of these stations as one operation rather than to place them practically one at a time, in the manner that the original system was constructed.

Before entering upon a discussion of this question, it is important to emphasize a fact which has been touched upon already in section 22. In determining replacement cost the appraiser must not assume that he has definite plans and information as revealed by the inventory of the kind and position of each unit of plant. If this assumption were made there would be a usurpation of property of the undertaking which it had cost the undertaking much time and expense to obtain. Replacement assumes the rebuilding of a plant of the same size and composed of the same units placed substantially in the same positions as in the existing plant, but a knowledge of what kind of units and of their position would have to be acquired through the labor and skill of an engineer and with a public demand similar to that which had been met in the past by the existing company. The theory of replacement costs would not be complied with and there

would be manifest injustice to the undertaking, if the inventory of the plant of that undertaking was turned over to a contractor and the figure, which he might give as the cost of replacing the plant, used as the replacement cost.

Replacement cost is the normal present cost. Practically no large utility has ever been constructed wholesale and such a method would be clearly abnormal. It is true that assumptions have been made as to a construction period much shorter than the normal period of growth of most utilities, but the period chosen has not been one which necessarily required wholesale work. There should be nothing inconsistent in an assumption of piecemeal construction and such definite and reasonable periods of construction as have been suggested. Normal costs of construction work can be obtained from reports as to the cost of work performed under usual and customary conditions. It would be difficult and many inaccuracies would probably result if an attempt were made to develop costs on a wholesale method of reconstruction. There seems to be every reason in logic and equity for the adoption of costs based on piecemeal construction in a determination of the replacement cost of a plant.

The Wisconsin Commission agree in this and say that,

"In appraising utilities which have been constructed on this basis, the problem seems to be to find units of cost that represent a fair average of these conditions. To find such units appears to be practicable. In fact, it would seem that the extra costs of piecemeal construction can be more readily and accurately taken into account in this manner than by an arbitrary allowance of a lump sum to be added to a cost that has originally been computed upon the basis of continuous construction.” 1

The two illustrations given above represent extreme cases. As a practical matter, for a very large portion of 1 Wis. R. R. Com. Rpts., Vol. 4, pp. 548-549.

most public service plants, the question of piecemeal or wholesale construction does not enter as an important consideration, for the reason that it is usual to construct portions of the plant on a scale sufficiently large to make the difference between piecemeal and wholesale construction negligible.

27. Piecemeal construction. Effect of changes and enlargements on cost. The above reasoning relative to piecemeal construction must not be carried too far. The existing plant may be composed of units, buildings for example, which have been enlarged to meet the growing demands of the business; because the total cost to the undertaking of the original building, plus the costs of enlargement, was greater than what it would cost to replace it to-day in one operation, can be no reason for an increased replacement cost on the theory of piecemeal construction.

It has been contended that it requires the greatest skill of the management and of the engineer to determine for what length of time in the future a plant such as that required for a public utility should be constructed. If a plant is constructed initially of a size which will meet the demands of the public many years in the future, it is necessary for the public in the intervening years to pay, in the way of rates, the charges upon a very large idle plant. On the other hand, if the plant is constructed of insufficient size it will have to be reconstructed or enlarged at frequent intervals at a much greater cost than would be the case if it were built of its "ultimate" size at one time. In other words, the engineer is obliged to balance the additional cost of what may be called piecemeal construction against the interest charges upon an idle plant.

The question is, therefore, whether, in determining the replacement costs of a plant, these increased costs which

have been wisely incurred by building the plant no more rapidly than was consistent with the greatest economy should be considered, or whether the replacement cost should be construed strictly as originally defined, that is, the sum which would have to be expended at the present time to replace a plant identical with one already in service: whether a company which has constructed its plant as the public required it, and has so timed the periods of its enlargement that the total expense to the company, and in consequence to the public, has been kept at a minimum, should be obliged to suffer by the use of unit costs of replacement built up on what may be called wholesale construction rather than by piecemeal construction of the plant.

There can be but one answer to this question. The replacement cost must be figured upon the plant as it now exists. If a plant unit has cost more, because it has been enlarged, than it would cost to construct it anew as it now stands, such increased cost must be due in a large measure to a virtual rejection of some material and labor which formed a part of the original construction. On this question the rulings of the courts are definite. The valuation must be based upon the plant as it is.

28. Pavement over construction. Portions of the plants of many public utilities are placed under the highways. In some instances the streets have been paved after the underground construction had been installed, or a cheaper grade of pavement has been replaced by a more expensive kind. In such cases the pavement may have cost the undertaking relatively nothing but, if the underground construction had to be replaced at the present time, there would be considerable expense involved in taking up and replacing the pavement.

It has been contended quite generally that the cost of

paving not actually paid for by the undertaking at the time of the original construction should not be made a portion of the replacement cost. Such a contention if carried out is subversive of the fundamental principles of the development of replacement costs. The cost of replacing paving found over underground structures must be made a portion of the replacement cost.

The original cost will show properly what it had actually cost the undertaking to construct its underground system with or without pavement. The replacement cost is what it would cost to-day to construct a new plant similar to one in existence and similarly placed. If the underground system was found under paved streets, the replacement cost should include the cost of taking up and replacing the pavement of the particular kind found. The replacement cost may be made in this way higher than the fair present cost, or it may not; it remains for the courts to determine judicially what weight shall be given to these two sets of figures, "original cost" and "replacement cost," in view of all prevailing conditions. Because those preparing the figures to show what it would cost to build a new and similar plant feel that pavement not paid for should not be made a portion of the true present value seems an insufficient reason for presenting figures which do not represent the facts, the actual replacement cost.