inal proceeding to 8 per cent, a minimum for going-concern, aecording to the company of $83,000 remains. In addition, the company claims, under the revised estimates, a cost of developing the business ranging from $15,000 to $35,000.

We must decline to follow the latter method as well as the former.

(3)Findings of fact and conclusions on the value of the business. (Development cost, franchise, value, going concern.)

We have in the first decision in this case [Decision No. 6537, P.U.R.1919F, 415] in considerable detail stated our views on these matters. Nothing has developed on rehearing that would lead us to change, on principle, the conclusions reached in the decision referred to. We think it is evident in law, and in fact, that the intangible quantity called business value in a regulated public utility differs in very essential particulars from that same quantity in an unregulated competitive private business. This essential difference, and, indeed, a consideration of the relation between a public utility and the people, which should rest on a permanent fairness to both sides, compels the rejection of the theory of the capitalization of profits. We adhere to that decision.

In Decision No. 6537, P.U.R.1919F, 415, 439, we said:

"If we eliminate from consideration in going-concern value those elements of overhead costs above referred to and which already have been cared for by adding 10 per cent to the reproduction cost new, together with an allowance of 3 per cent to cover the interest on invested capital during the period of construction, and if further the 'element of good will,' as indicating that element of value which inhered in the fixed and favorable consideration of customers arising from an established and wellknown and well conducted business is to be eliminated as indicated in the Des Moines Gas Co. case [238 U. S. 164-165, P.U.R.1915D, 577, 59 L. ed. 1250, 35 Sup. Ct. Rep. 811], then the only remaining element left for consideration as entering into going value must consist of losses sustained during the development period of the enterprise-losses which were incidental to the development period and of necessity incurred in bringing the plant into successful operation, and which have not

been returned to the company in rates during the latter period of successful operation. All public utility enterprises go through three stages of development. First, there is the construction period. The second may be termed the development period and the third the period of profit of going concern. In the first or construction period all items of expense, including capital invested in the enterprise and all necessary overhead required to put the plant in condition and readiness to render service, are properly chargeable to capital account. The second or development period may be said to begin when construction is completed and the plant is in existence ready to operate and to produce the product to be sold. With most business enterprises, whether public utility or otherwise, a shorter or longer period will elapse between the beginning of operation and the time when the business will earn not only its operating expenses, its depreciation allowances, the taxes to be paid and other carrying charges, but also the return on the investment, which return will be available for the payment of interest, dividends and other surplus. During this period the investment for the original plant remains constant and all expenses incurred in the production and in the marketing of the commodity to be sold are charged to operating expenses. In order that customers may be rapidly found it frequently occurs that the company must undertake additional and unusual expense to defray the costs of solicitation, advertising, etc. These and other costs may, and often do, so increase the operating expenses during the development period that the expenses are greater than the total receipts and an actual loss occurs during this period. These losses represent an actual outlay of money on the part of the company necessarily incurred in the establishment of a successful business and while generally and more accurately referred to as 'development costs' constitute a real and a tangible element of the 'going concern' value.

"If it is to be conceded that the actual amount of money expended by a company over and above the amount of its receipts during the development period, such expenditure being necessary to the establishment of a successful business, should be considered as an actual investment in the business, then in giving proper consideration to this item it will be necessary to fix a reasonable period of time for such development. Necessarily the

development period will vary with the circumstances and conditions surrounding each separate plant; upon the extent of the demand for such service, the size of the community to be served, the prosperity of the people and their desire and ability to buy. Roughly, this development period may well bear some definite relation to the time allowed for the construction of the plant. If, for example, as in this case, the time allowed for the construction of the plant is fixed at one year, it would, in my opinion, be reasonable to say that within two or three times the period allowed for construction, that is, two or three years, the company would have ample time to demonstrate whether the enterprise could or could not be made a successful going concern. If within a reasonable period of time the enterprise cannot be developed into a successful business, then the project is a financial failure and has no 'going concern' value, which attaches only to a successful business. In this case there is no question that the business is in successful operation. The plant has been operated successfully for a long period of years. Therefore, if in this case, we fix a period of three years for development of the business-the longest possible reasonable period that can be allowed in this case-it then remains for the company to show the extent of the actual losses necessarily incurred in the development of its business during this period, and also to show that the company after incurring such losses during the development period of its business has not later recouped itself from subsequent earnings for such losses."

The Commission is of the opinion that the rule laid down in the last sentence above quoted, in so far as it declares that the best evidence of development costs consists of showing what the costs actually amounted to during a reasonable development period, is sound and should be applied in all cases where it is possible to determine the nature and extent of actual losses, if any, during such development period.

To the contention that something over, above, and in addition to the fair allowance for that amount of money expended for the purpose of bringing the nonearning physical properties to a point of earning a reasonable sum within a reasonable time should be allowed and designated as a going-concern value, we find answer in the fundamental difference between the regulated

utility and the nonregulated enterprise. It is unquestionably true that there is a fundamental difference in the nature of investment of these different character of enterprises.

In the unregulated business, money may be invested under two separate and distinct theories, namely, fair and normal return on the money invested, and also because of a contemplated speculative value. At the outset, the investor may invest his money giving greater consideration to the staple investment character, or he may have greater hope of success through the speculative character of the investment, or, indeed, the two combined might be the attraction that induces the investment. These observations relate to such enterprises as are not public utilities. nor can under our law be converted into regulated utilities.

The inducement for investment in the construction of a publie utility property is, however, different, and this whether or not the investor is entirely conscious of this fact at the time of advancing his money.

Regulation not only imposes certain restrictions and limitations upon utility property, but also confers certain rights and privileges upon money invested in utilities beyond that conferred upon investments in nonutility and unregulated business and thereby affords a protection other and different and more beneficial to, in many respects, the money invested in a nonregulated business.

The owner of the nonutility, and, therefore, nonregulated business is, under our statutory as well as under our economic laws, privileged to reap speculative profits from investments. The regulated utility is accorded the right, and it is the duty of regulatory bodies to protect the right, of a reasonable return upon investment. In addition to that, many other privileges accrue to the utility, one of especial and very substantial benefit being that of monopoly and protection against destructive competition within the territory properly served. To such benefits enjoyed by public utilities should be added the legal obligation of regulatory bodies to allow a reasonable rate, benefits denied to unregulated business.

It seems unsound and illogical that the public utility should also enjoy that benefit which is enjoyed by the nonregulated utility, namely, the speculative value, and in the last analysis

it would seem that speculative value may be the proper characterization of that sum over and above the reasonable development costs hereinbefore referred to and a value which the utility. claims should be allowed by reason of the success of the venture.

In this particular case, unfortunately, it is impossible to determine the actual development costs incurred in the early period of the history of the enterprise. It is of record that the books of the company long have been destroyed, and actual records are not now available. Also it is of record that several companies competed with each other in the lighting business in the city of Redding and that the plant now in existence and the business. attached to it result from a merger or consolidation of these properties. In such circumstances it is clear that if the actual costs of developing the present business now could be ascertained from the books which have been destroyed, such showing would have but little value in this particular proceeding. Frankly, the Commission must declare that the rule above quoted, while perfectly sound in cases where it is possible to determine actual development costs, does not and should not apply in this proceeding.

The situation with which we are here confronted is this:

Allowances have elsewhere been made for all elements of value entering into "going concern"-the value of the business attached to the plant-except to the extent that the one single item of "development costs" enters into the computation of "going concern" value.

It has been established that the business now is, and for a long time has been, prosperous, and as such has a going-concern value. Allowances have been made for part of the "going concern value," but not for that portion of such value as may be reflected in "development costs," incurred after the construction of the plant and during the development period. "Just compensation" cannot be awarded unless all elements of value are considered and given proper weight. The extent of the actual development costs incurred during the development period cannot now be ascertained from the records of the company.

While it is in evidence that the company now is making a high rate of return on its Redding property, it cannot definitely be determined whether these later large profits have or have not