present day high peak cost of reproduction. The evidence shows that most of constructions of this property were made in years of low costs, and it would be unfair to patrons, and ultimately detrimental to the utility to accept a 'reproduction to-day' theory. Not only would rates be set skyrocketing, but with falling prices of materials and supplies, the assault by patrons would bring distress to the utility. Such a course ultimately must produce a chaotic condition for utilities, many of which, should regulatory bodies permit such practice, would be loaded down with obligations issued on the basis of inflated valuations which none expect to be maintained. Such a course also would make valuations of utilities as variable as prices of pipe, meters, pumps, and other materials. Public utility regulation does not contemplate such instability. Neither utilities nor patrons could survive the complications and bad relations that would attend the adoption of reproduction as of to-day."

In the same case, the Commission said: "The state, under present regulation, does not make rates to meet the requirements of stock and bonds which do not represent values. The only question to be determined here is what property is used and useful in serving the public and what is its value for rate-making purposes."

In Re Jefferson City Light, Heat & P. Co. Case No. 2192, Sept. 16, 1920, the Missouri Commission said: "If the value placed upon property for taxation is the proper rate base, then there was no need to enact the sections of the Public Service Commission which provide for a valuation by the Commission. Section 78 P. S. C. L. The Commission holds that the valuation fixed by it upon the property of the company is a proper rate base in this case and that the value fixed for taxation does not control.”

In Municipal Gas Co. v. Public Service Commission (1920) 183 N. Y. Supp. 900, the New York supreme court, in special term, said: "The valuation of the property of a gas corporation is the value as of the time when the inquiry is being made regarding the reasonableness of the rates fixed by the statute, and the corporation should be given the benefit of any increase in the value of the property since it was acquired."

II. Ascertainment of value for government acquisition.

In United States v. Boston, C. C. & N. Y. Canal Co. (1921) Fed., C. C. A. in a proceeding for the condemnation of certain land and appurtenances constituting the Cape Cod Canal, the court held that in submitting the question of valuation to a jury, they should be instructed not to consider the evidence of reconstruction cost upon the question of value unless they were satisfied that a reasonably prudent man would purchase or undertake the construction of the property at such a figure.

III. Accrued depreciation.

In Re Campbell Brothers Water Co. Case F-396, Order No. 752, Feb. 25, 1921, the Idaho Commission made no allowance for accrued depreciation of a water company, where no tangible depreciation could be observed, and the property was in every respect in perfect service condition.

In Fleming v. Troy Gas Co. Case Nos. 7697, 7712, March 1, 1921, the New York Commission, Second District, held that items representing theoretical depreciation should be allowed as well as actual expenditures made to make good depreciation.

such

IV. Overhead expenses.

In Re Mt. Vernon Water Works Co. No. 5031, Aug. 27, 1920, the Indiana Commission said: "Most, or all, of these items of overhead are found by this and other regulatory bodies, to attach to utilities, and percentages of allowance generally exceed 12 per cent, and not infrequently are found to exceed 20 per cent. Detailed proof of Overhead expenses is generally, if not always, difficult to obtain and often impossible. It is known that some of these elements as, for example, inevitable omission from inventory, contingencies, etc., attach, and that there are always periods when interest and taxes attach during construction, and that there are always certain engineering and construction costs attaching to the construction of such Properties. The question is whether these items have been carried to operating expense in the case of a utility such as the one involved, which has developed by slow growth."

In Re Kingston Consol. R. Co. Case No. 7860, Dec. 23, 1920, in considering the proper treatment of overhead expenses in a valuation for rate making, Chairman Hill, of the New York Commission, Second District, said: "Perhaps the fairest way to arrive at a proper allowance is by the application of a percentage of the physical costs of this entire group of items. The Commission has from time to time allowed such percentages ranging from 9 to 20 per cent. Such costs vary in companies according to their size and character. In this case whatever allowance is made must be a pure estimate. We think a fair allowance would be 12 per cent." In the same case, in considering the question of the treatment of interest during construction in a valuation for rate making, Chairman Hill, of the New York Commission, Second District, said: "The witness testified that, in computing interest during construction, he assumed that the money to cover the entire physical cost had been raised before the work began, and that the entire construction occupied one year, that the money cost 6 per cent, and that it was deposited and brought interest at the rate of 2 per cent on average daily balances. This is not only purely theoretical but it seems to us altogether im

probable, as only in the rarest instances is capital thus raised in advance. Ordinarily it is not actually raised until after it is needed and the bills are due."

In Re Wisconsin Minnesota Light & P. Co. Nos. U-1614, U-1615, U-1618, U-1632, U-1697, U-1698, U-1702, U-2185, Oct. 9, 1920, in valuing the property of a large electric company, the Wisconsin Commission said: "It is to be expected that on a development such as the Wissota property the general overhead expense would be a larger percentage of the total construction than on smaller jobs. We do not believe the customary allowance for overhead construction costs is of much value as an indication of reasonable costs where as many difficult engineering features are involved, as were involved in the construction of this property. In a large work of this kind where the length of time necessary for completion is relatively great, the interest charges and taxes during construction will be a relatively large proportion of the total cost. Such jobs also call for expert engineering services which make the charges for such services more than for ordinary plant construction. Likewise there is need for a force of inspectors, construction engineers, etc."

V. Valuation of tangible property.

In Re Galesburg & K. Electric R. Co. No. 8701, Jan. 7, 1921, the Illinois Commission held that the burden is upon the petitioner in a valuation proceeding to separate with definiteness and clearness items representing used and unused property.

In Re Plymouth Electric Light & P. Co. No. 5522, Jan. 29, 1921, the Indiana Commission made an allowance of about $8,000 for working capital of an electric utility valued at approximately $280,000.

In Re Ithaca Traction Co. Case No. 7946, March 1, 1921, the New York Commission, Second District, held that it had no authority to withdraw from the valuation of a corporation the cost of an improvement actually used in the public service merely because years after the fact it believes that expenditures made by directors in good faith, looking into the future instead of back upon the past, were unwise.

In Municipal Gas Co. v. Public Service Commission (1920) 183 N. Y. Supp. 900, the court said: "It seems to me that 'working capital' means the money that must be used for carrying on the business of the corporation, and is represented by its cash on hand and its inventories."

In Re Wisconsin Minnesota Light & P. Co. Nos. U-1614, U-1615, U-1618, U-1632, U-1697, U-1698, U-1702, U-2185, Oct. 9, 1920, the Wisconsin Commission made an allowance for working capital of an electric company of approximately one month's operating expenses. In Southwestern Teleg. & Teleph. Co. v. Houston (1920) 268 Fed. 878, it it held that by working capital is meant the amount of

cash and supplies necessary to be kept on hand to meet current expenses and contingencies as they arise in the proper conduct of the utility's business.

VI. Valuation of intangible property.

a. Going value.

In Re North Shore Gas Co. Nos. 7316, 10228, Dec. 30, 1920, the Illinois Commission allowed the sum of $200,000 as going value of a gas company valued at about $2,500,000. The Commission stated that, in addition to other proper revenue, a public utility enterprise is entitled to earn sufficient to care for the depreciation constantly accruing on its property. Southern Indiana Power Co. No. 5416, Oct. 29, 1920, the Commission, in speaking of the going value to be allowed. to an electrical company, said: "Undoubtedly, in this case there is present the organization of a business, and such organization includes a vast amount of experimentation and development and

In Re Indian a

adaptation of water power. While this was attended by lavish, wasteful and injudicious use of money which has been charged off to the extent of approximately $500,000, it has resulted in a plant organization for the manufacture of approximately 6,000,000 kilowatt hours annually by water power. There was a manufacture and sale of 6,00 0,360 kilowatt hours of electrical energy in the year 1919 at a plant generation cost of less than 10 per cent of cost of generation locally by steam, and in the first six months of 1920 a generation and sale of 4,301,520 kilowatt hours at a plant cost of only approximately 14 cost of local steam generation. Also changes in economic conditions and in the arts of the industry, have required and resulted in the exercise of a high degree of business ingenuity and the incurring of business hazards, represented by connection of arrangement for connection with sources of electrical energy at Indianapolis, Seymour, Columbus, Edwardsport, and Louisville." The Commission also said: "Counsel for respondent, the Bedford Stone Club, refers to the likelihood that changing conditions finally result in petitioner, to a very great extent, becoming a broker of electrical energy manufactured by, and purchased from,

will

others.

This is the strongest argument that can be made, it appears to the Commission, for going concern value, that is, that petitioner, as a business concern, exerts itself to keep down operating costs and to meet demands for reliable service by finding the cheapest and most reliable sources of supply. Such discretion and initiative does not inhere in a mere structural mechanism. It does not yet appear what will be the results of rapid changes now in process in the art. They ultimately may result in the discontinuance of operation of petitioner's steam generating units. However, such

P.U.R.1921C.

steam generation units are now in use and useful in serving the district, and the testimony is that they must be retained under any arrangement, as stand-by equipment for emergencies."

In Re Plymouth Electric Light & P. Co. No. 5522, Jan. 29, 1921, the Indiana Commission said: "To a going concern there should be attached a value therefor which should be added to the stripped structural or bare bones value and upon which a return should be earned, . . . but in the final analysis the amount so allowed for going value is usually a figure which is the result of the best and most reasonable judgment possible, based upon all relevant elements, but built purely on theory."

In Trustees of Patchogue v. Patchogue Gas Co. Case Nos. 7064, 7065, Oct. 21, 1920, the New York Commission, Second District, said: "The company also claims a right under the decisions in the case of the Kings County Lighting Company, 210 N. Y. 479, 104 N. E. 911, to a large allowance for going value. We do not understand the Kings County case to hold that a public service corporation, merely because it has been losing money, is entitled indefinitely, for rate making or any other purposes, to capitalize its losses. If we had evidence to show losses incurred in the early years while developing its business, consideration would be paid thereto. Continuing losses since 1915 are shown and these have been prevented by timely increases in rates or economies in operation according to the reason for the losses. The court of appeals certainly did not intend to make the value of a plant inversely proportionate to its earning power."

In Consumers of Gas in Hempstead v. Nassau & S. Lighting Co. Case Nos. 7376, 7385, 7402, 7489, 7504, 7505, Jan. 6, 1921, the New York Commission, Second District, held that an allowance for going value is legitimate if there is evidence from which it may be determined.

b. Franchise value.

In Re Peninsula Rapid Transit Co. Decision No. 8358, Application No. 6177, Nov. 22, 1920, the California Commission held that, in establishing a rate base, it would not permit the capitalization of amounts paid for franchise rates in excess of the actual cost of the original guaranty.

c. Water rights.

In Re Port Costa Water Co. Decision No. 8238, Application No. 4965, Oct. 15, 1920, the cost of litigation engaged in by a water company in defending its water rights was not included by the California Commission in the annual operating expenses of the company, but was considered as part of the costs of its rights to its water