of whose physical units put together into a completed plant approximates $100,000, cannot be constructed instantly. It requires time to assemble the physical properties, and still a greater length of time to put those units into place, where they may be used to render service. During this period, the capital invested must of necessity be idle, and no income can be derived therefrom. When the construction of the plant is completed, no willing seller, who is not forced to sell, would take for his plant the cost of the physical units and the cost of the labor in the construction, because the plant has cost him in addition thereto the use of the capital, or a certain part thereof, invested in the physical properties during the time of construction. A willing buyer could afford to pay, and would pay, more than the actual cost of labor and material, assuming that the plant has been economically constructed, because such cost would not represent the total expenditures the purchaser would have to make, in order to construct the plant himself. In addition to such expenditures, he would have to expend the earnings of his capital during the period of construction. No case has been cited, and in our investigation we have found no case, involving this question, where a reasonable amount has not been considered and allowed for loss of interest during construction as part of the cost of construction.*

In addition to the foregoing items disallowed by the Commission, and the items allowed as constituting the fixed capital of the company, appellant contends for an allowance of item No. 4, as working capital, on which, also, it is entitled to receive a fair return. The Commission allowed the sum of $2,433.56 for stock on hand at Enid. Item No. 9 of Mr. Player's appraisal shows that sum to be the amount of stock and supplies on hand at Enid at the time he appraised the plant. Appellant maintains a general office at Oklahoma City, where are kept tools and teams, stock on hand in the general storehouse, a repair shop, cash to meet the current expenses of its plants and system throughout the state, and general office fixtures that are used by the general officers of

4" Included in plaintiff's estimate of value are: Interest on capital during construction, $22,415; promotion and organization, $14,943.69; and engineering, $18,679.61. These are mere estimates of what might be expended for these purposes in the construction of a new plant. Of course, all the money required would not necessarily remain idle during construction, and the witness admitted that the only expense for promotion and organization he could think of would be attorneys' fees in preparing proper papers. The expense for engineering was said to be the percentage taken into consideration by those contemplating such enterprises. Manifestly these estimates are largely speculative. Nothing can be allowed for the promotion and organization of the company, for it is immaterial by whom the plant may be owned in estimating its value." Cedar Rapids G. L. Co. v. Cedar Rapids (1909), 144 Ia. 426, 438. Compare City of Ripon v. Ripon L. & W. Co. (1910). 5 Wis. R. C. R. 1, 13; Shepard v. N. Pac. Ry. Co. (1911), 184 Fed. 765, 809.

allowed.

the company, whose time is devoted to the entire properties of the company. . . . Discussing the question of working capital, the Railroad Commission of Wisconsin, in Cunningham v. Chippewa Falls Water & Light Co., 5 W. R. C. R., 302, said:

"Plants of this kind, the same as practically all other business enterprises must have on hand a reasonable cash balance and other current resources, in order to operate economically and effectively. That this is the case is most self-evident. It has been pointed out in other decisions of this Commission, in Hill v. Antigo Water Co., 3 W. R. C. R. 623, 631, and particularly in State Journal et al. v. Madison Gas & Electric Co., 4 W. R. C. R. 501, 550. Just what sum represents a fair amount for working capital is nearly always a matter of judgment, and to this there is no exception in this case." . . .5

The commission committed error in refusing to allow anything on items Nos. 3 and 4, disallowed, and should have allowed $4,000 on item No. 3, and $7,249.24 on item No. 4, or a total of $11,249.24. While the Commission, in disallowing these items in arriving at the present value of appellant's plant, committed error prejudicial to appellant, such error, we think, is offset by an omission of the Commission which operates against appellees and the public.

In finding the present value of the physical properties of the plant, the Commission treats the reproductive value of such properties new as the present value. But the physical properties of this plant are not new. Some parts of the same have been used for several years. It is true that a large portion of the same had been used only for periods of one and two years at the time of the hearing, but, as established by appellant's evidence, which we shall consider later, every year there is a depreciation in the physical properties of the plant that is not, and cannot be, taken care of by current repair, and, although some of the physical units have been used only for a brief time, such use brings about a depreciation; and the reproductive value new of such physical units represents the present value only when there is deducted therefrom the amount of annual depreciation. Knoxville v. Knoxville Water Co., 212 U. S. 1, 29 Sup. Ct. 148, 53 L. Ed. 371..

All the evidence is to the effect that there is an annual depreciation of the properties of a telephone plant of the character of appellant's plant at Enid in the approximate amount of 7 per cent. per year over what can be taken care of by current repairs. Seven per cent. of the construction value of this plant for the years 1906, 1907, and 1908 makes a total depreciation in the sum of $15,410.46.

5 See Consolidated G. Co. v. City of N. Y. (1907), 157 Fed. 849, 859: Mayhew v. Kings County L. Co. (1911), 2 P. S. C., 1st D. of N. Y. 659, 688.

During the year 1908, $1,340.60 was expended in replacing those parts of the plant so depreciated that they could no longer be made serviceable by repair. This amount should be deducted from the total depreciation, which would leave a net depreciation of $14,069.86. This amount of depreciation for those three years, based on the estimate of 7 per cent. annual depreciation which the Commission failed to consider in determining the reproductive and present value of the plant, exceeds the amount of said items Nos. 3 and 4, which it refused to allow in finding such value. Owing to the fact that this plant is in large part new, the depreciation for the said three years would probably not reach the annual average. There is no evidence, however, as to what the ratio of depreciation of these three years would be to the average; but, since approximately one-third in value of the physical properties of the plant consists of old property existing in the plant at the time of purchase by appellant, there would be considerable depreciation during each of said years; and, from all the facts in the case, we think it cannot be said that the amount erroneously disallowed by the Commission is greater than the element of depreciation which the Commission failed to consider. It does not clearly appear that the finding of the Commission that $94,663.69, exclusive of going concern value, is the present value of the plant upon which appellant is entitled to receive a fair return is so erroneous that it should be disturbed, and, exclusive of the element of going concern value, we adopt said sum as the total value of appellant's property on which it is entitled to a fair return.

There is no contention that any value on account of un

Value as a expired franchise or for good will should be added to the repro-goving

concen

ductive value, in order to ascertain the present value; but it is contended that, by reason of the fact that appellant's plant has an established system of operation, has at present customers sufficient allowed in number to pay the operating expenses and annual depreciation and some profit, it has a value beyond the mere cost of reproducing the plant. This element of value contended for has been generally referred to by the authorities as "the going concern value" or "going value." No case from the Supreme Court of the United States involving the reasonableness of rates or charges, wherein this question has been considered by that court, has been called to our attention. In Knoxville v. Knoxville Water Co., supra, the lower court added to the appraisement of the physical properties the sum of $60.000 for going concern value. The Supreme Court assumed, without deciding, that this item was properly added. There are many cases wherein the fair market value of public service property was involved, under franchises reserving to the municipality

the right to purchase the plant at or after a stipulated time for the fair market value thereof. These cases, so far as we have been able to examine them, uniformly hold that, in the absence of a provision in the franchise to the contrary, the going concern element of value must be considered in ascertaining the fair value of the plant.

One of the leading cases so holding is the National Water Works Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827. In that case it was said in the opinion by Mr. Justice Brewer: "Nor would the mere cost of reproducing the waterworks plant be a fair test, because that does not take into account the value which flows from the established connections between the pipes and the buildings of the city. It is obvious that the mere cost of purchasing the land, constructing the buildings, putting in the machinery, and laying the pipes in the streets-in other words, the cost of reproduction - does not give the value of the property as it is to-day. A completed system of waterworks, such as the company has, without a single connection between the pipes in the streets and the buildings of the city, would be a property of much less value than that system connected, as it is, with so many buildings, and earning, in consequence thereof, the money which it does earn. The fact that it is a system in operation, not only with a capacity to supply the city, but actually supplying many buildings in the city, not only with a capacity to earn, but actually earning, makes it true that the fair and equitable value' is something in excess of the cost of reproduction. . . . The city, by this purchase, steps into possession of a waterworks plant, not merely a completed system for bringing water to the city, and distributing it through pipes placed in the streets, but a system already earning a large income by virtue of having secured connections between the pipes in the streets, and a multitude of private buildings. It steps into possession of a property which not only has the ability to earn, but is in fact earning. It should pay therefor, not merely the value of a system which might be made to earn, but that of a system which does earn."

Other similar cases supporting this doctrine, some of which cite the foregoing cases, are: City of Omaha v. Omaha Water Co., 218 U. S. 180, 30 Sup. Ct. 615, 54 L. Ed. 991; Spring Valley Water Works v. City of San Francisco (C. C.) 124 Fed. 574; Gloucester Water Supply Co. v. City of Gloucester, 179 Mass. 365, 60 N. E. 977; Kennebec Water Dist. v. City of Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856; Newburyport Water Co. v. City of Newburyport, 168 Mass. 541, 47 N. E. 533; Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537... For the purpose of taxation, it is well established that this element of value must be included in assessing the property. Galves

ton, Harrisburg & San Antonio Ry. Co. v. State of Texas, 210 U. S. 217, 28 Sup. Ct. 638, 52 L. Ed. 1031; State ex rel. Foster v. Williams, 123 Wis. 73, 100 N. W. 1052; Chicago & N. W. R. v. State, 128 Wis. 553, 108 N. W. 557.

Whether, however, all matters which are considered in the foregoing two classes of cases as part of the going value, for the purposes involved in those cases, should be considered in determining the value as a basis for rate making is not necessary to determine in this case. It is apparent, however, that a complete telephone plant, without a single subscriber, or with but few subscribers, is less valuable, both to the owner of the plant and to the members of the public it serves, than the same plant with a larger patronage. The more people a subscriber can communicate with over a telephone exchange, the more service, as a general rule, is such exchange to him; and it is only when such exchange has subscribers that the property of the owner invested therein has an earning power. But subscribers are not obtained without expenditure of money, labor, and time, during which the capital invested in the plant earns nothing, and often fails to pay operating expenses. The customers must be connected with the system of the plant; trained employés must be obtained; and a system of operation must be established. Few industries, if any, involving an investment of $90,000 or more, can be made self-sustaining from the first day of their operation. The uncontradicted evidence in this case discloses that appellant's plant, for the years preceding the first hearing, failed to produce revenue sufficient for operating expenses, current repair, and lay aside an amount for depreciation. During the time of development, there is a loss of money actually expended and of dividends upon the property invested. How shall this be taken care of? Must it be borne by the owner of the plant? Or by the initial customers? Or shall it be treated as part of the investment or value of the plant, constituting the basis upon which charges shall be made to all customers who receive the benefits from the increased servicerendering power of the plant by reason of these expenditures? It seems that the last solution is the logical, just, and correct one. If rates were to be charged from the beginning, so as to cover these expenditures, and earn a dividend from the time a plant is first operated, the rate to the first customers would be in many instances, if not in all, so exorbitant as to be prohibitive, and would be so at the time when the plant could be of least service to them. On the other hand, the public cannot expect as a business proposition, or demand as a legal right, that this loss shall be borne by him who furnishes the service; for investors in public service property make such investments for the return they will yield; and, if the law