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physical plant.' Take, for example, a manufacturing plant: Suppose a manufacturing plant has been established for some ten years and is doing a good business and is sold as a going concern; it will sell for more on the market than a similar plant reproduced physically would sell for immediately on its completion, before it had acquired any business." 16

On this point also Mr. Justice Savage well said in Kennebec Water District v. Waterville:17 "The defendants, in request 9, ask that in determining the amount to be added to structure value, in consideration of the fact that the system is a going concern, the appraisers should consider, among other things, the present efficiency of the system, the length of time necessary to construct the same de novo, the time and cost needed after construction to develop such new system to the level of the present one in respect to business and income, and the added net incomes and profits, if any, which by its acquirement as such going concern, would accrue to a purchaser during the time required for such new construction, and for such development of business and income. We think this instruction should be given. These are all proper matters for consideration 'among other things.' They are not controlling. Their weight and value depend upon the varying circumstances of each particular case. Of course a plant, as such, already equipped for business, is worth more, if the business be a profitable one, than the mere cost of construction."

§ 370. Value of "going business," whether entitled to a return. So far as the value of a "going business" is increased by the mere element of good will, it cannot demand a return from the rates charged. "It is proper here to say that in reaching these conclusions we have not attempted any estimate of the 'going value' of the waterworks as a distinct and severable item in the

16 Citing National Waterworks Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 U. S. App. 165, 27 L. R. A. 827 (1894). 17 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902).

calculation. By 'going value' we understand is meant that value which arises from having an established 'going' business. While not the exact equivalent of 'good will,' as applied to ordinary business, it is of a somewhat similar nature, and attaches to the business, rather than to the property employed in such business. The fact that the business is established is, of course, a material fact in ascertaining the value of the plant, and especially is this true where the property is being estimated for the purposes of sale or condemnation; but as a basis for estimating profits its significance is less apparent. The merchant who sells an established business may properly place a high value on the good will which he relinquishes to the buyer; but so long as he continues in the enjoyment of the business he has created he does not add the value of the good will to his capital stock in estimating the percentage of his annual profits."18

So far, however, as a going business involves the elements discussed in the last sections, its property is actually more valuable than the mere physical elements of which the plant is composed. The physical connections of its plant, the cost of fitting it for its purpose, the loss of interest on the investment during construction and until the plant is in complete and lucrative operation, all add an actual value to the plant and are properly included in the construction account and form part of the actual capital employed in the enterprise. To this effect is the language of Mr. Justice Savage in Kennebec Water District v. Waterville:19 "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 build

18 Cedar Rapids Water Co. v. Cedar Rapids, 117 Iowa, 250, 91 N. W. 1081 (1902).

19 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902).

ings 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.'

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371. Consideration given to the entrepreneur.

The suggestion was thrown out in one opinion of the Interstate Commerce Commission20 that a certain return upon the ability to conceive and execute the project might be taken into consideration. But in the light of the context, this appears to be no more than a fair return upon the investment. The quotation follows: "As already remarked, the Southern Railway is the consolidation of numerous independent railroad properties. It has become through this process of growth a great railroad system embracing to-day a mileage of more than 6,000 miles. In this operation properties which were worthless have been put together to form a valuable whole. The physical condition of those properties has been enormously improved. The facilities afforded to their patrons have been increased. The whole territory involved must be benefited by this amalgamation, so far as its physical service is concerned. This enterprise is a perfectly legitimate one. The men who have conceived and executed it are entitled to a fair return upon the money which has been actually invested in it. They are entitled, in addition, to a reasonable profit upon the ability to conceive and execute a project of this sort. They have no right to exact a return upon an extravagant capitalization, but whatever has honestly and in good faith and reasonably gone into this enterprise should be protected. On the other hand, the people in this territory are entitled to protection."21

20 Danville v. Southern Ry., 8 I. C. C. Rep. 409.

21 See, also, Metropolitan Trust Co. v. Houston & T. C. R. R., 90 Fed. 683, B. & W. 342 (1898).

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§ 382. Rates fixed must not produce a deficit.

383. Some return requisite.

384. Adequate return ought to be left.

385. Rates may be reduced provided reasonable return is left. 386. Reasonableness of return a judicial question.

387. Fair rate of return.

TOPIC B-INTEREST UPON BONDS.

§ 388. Interest upon outstanding bonds protected.

389. The rate of return upon investments in general.

390. Rates at which governments can borrow, no criterion.

391. More than current rates of interest not secured to bondholders.

392. Prevailing rate of interest allowed.

TOPIC C-DIVIDENDS ON STOCK.

§ 393. Reasonable dividends allowed.

394. Current rates of return.

395. Usual business profit.

396. Rate of return dependent upon locality.

397. Paying dividends dependent upon commercial conditions.

398. Recoupment in prosperous times.

399. No right to raise rates in prosperous times.

400. Creating a fund for payment of uniform dividends.

TOPIC D-RATE OF RETURN DEPENDENT UPON THE CHARACTER

OF THE ENTERPRISE.

§ 401. Larger returns in risky enterprises.

402. Hazards of the business considered.

403. Whether the return upon all property should be the same.

404. Rate of interest dependent upon the safety of the investment.
405. Risk by reason of depreciated security not considered.
406. General policy for allowing fair return.

§ 381. Elements in determining a fair return.

What constitutes a fair rate of return may not be fixed by general rule but is largely a question of the particular case. It depends to a certain extent upon the character of the enterprise; in established businesses a lower rate should be expected than in new ventures. Again, it depends upon the nature of the security; upon bonds a lower rate of interest is secured than the percentage payable in dividends upon stocks. These are the principal considerations, but as the discussion advances it will be seen that there are other minor matters to be taken into account.

It will make some difference, also, in what manner the matter comes before the court for decision. If the question is whether a rate fixed by one in a public service is producing an unreasonably high rate of return, that is one thing. If the question is whether a rate fixed by public authority, either by the Legislature directly or by a commission acting in pursuance of legislative authority, is unreasonably low, that is another matter. It is obvious that there is all the difference of reasonable alternatives between these two aspects of the problem, that eight per cent. might not be too much return by a schedule fixed by the company in one case, while a reduction of a schedule by legislation so as not to produce more than six per cent. might not be outrageous in the other.

TOPIC A-ESTABLISHMENT OF THE DOCTRINE OF ADEQUATE

RETURN.

§ 382. Rates fixed must not produce a deficit.

As will be seen, the earlier cases under the Fourteenth Amendment established that the State might regulate the rates of those engaged in public employment. The attention of the court was directed to showing that the power to regulate existed, and practically nothing was said about the limitations upon

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