1 be excluded. As Mr. Justice Savage said in a water works case already quoted: "The rates which it would be reasonable for the company to ask depend upon what would be a fair return, under the circumstances, upon the value of the property used-a question which we shall discuss later on. In determining what would be a fair return, undoubtedly the amount of money actually and wisely expended is a primary consideration. Actual cost bears upon reasonableness of rates, as well as upon the present value of the structure as such. It thus bears upon what is a fair return upon the investment, and so upon the value of the property. In estimating structure value prior cost is not the only criterion of present value, and present value is not what is to be ascertained. The present value may be affected by the rise and fall of prices of materials. If in such way the present value of the structure is greater than the cost, the company is entitled to the benefit of it. If less than the cost, the company must lose it. And the same factors should be considered in estimating the reasonableness of returns." § 1101. Value as a going concern. There is more to present value than a mere inventory will show. Certain it is that, when the question is as to the present value of a public service property that is being taken over by the State or a municipality either by eminent domain or by virtue of some clause in the original franchise, the value of the property as a going concern is to be taken. In Gloucester Water Supply Company v. Gloucester, before cited,2 Mr. Justice Loring said: "It is 1 Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902). See State ex rel. v. Seaboard Air Line Ry. Co., 48 Fla. 129, 37 So. 314 (1904). Compare Seaboard Air Line Ry. Co. v. Florida, 203 U. S. 261, 51 L. ed. 175, 27 Sup. Ct. 109 (1906). 2179 Mass. 365, 60 N. E. 977, (1901). See also Spring Valley Waterworks v. San Francisco, 124 Fed. 574 (1903). plain that the real, commercial, market value of the property of the water company is, or may be, in fact greater than 'the cost of duplication, less depreciation, of the different features of the 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." On this point also Mr. Justice Savage in Kennebec Water District v. Waterville1 gave this instruction: "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." § 1102. Whether return allowed on such value. 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. "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 197 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902). See also Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537 (1904). In case of sale to a municipality Nor the value of the plant as a going 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." To a certain extent however, a going business 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. "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.” 2 § 1103. Franchise value upon purchase. Whether when the plant of a public service company is taken by a city, by eminent domain or by contract, compensation is to be made for the franchises of the company is not entirely clear on the authorities. The question should of course be determined according to whether, in view of the purchase or taking, any value remains in the franchise. Although the company may be compelled to submit to statutory rates which make no account of the existence of a franchise, the franchise may nevertheless be of some value. Even when the rates are so limited, 1 Quoted from Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa, 234, 91 N. W. 1081 (1902). 2 Quoted from Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902). the company is still permitted to receive a return on its capital which is greater than that on a government bond; the ownership of the plant may, therefore, have a certain value which the franchise gives. And if the franchise actually has a value, compensation for it should be made. If, then, a public service company has obtained from the public authorities an exclusive franchise for a term of years, which has been granted in such a way as to form a contract which the State cannot impair, the franchise has obviously a certain value, for the opportunity to make a fair rate of return in a business so safe as this is by reason of its monopoly in a public necessity is worth a certain sum in itself. But no more than this need really be paid even for such an exclusive franchise, no matter what its present profits may be, since the State may at any time reduce its rates to a fair return upon its actual investment. Even if there is no monopoly, if the franchise is practically exclusive, it presumably has a value, for which the company must be paid if the plant is taken by eminent domain or is bought under a clause in the charter. The value of this franchise is greater or less according to the practical possibility of competition; it is greatest if the franchise is legally exclusive, and grows less as the likelihood of actual competition increases.2 § 1104. Franchise values not considered in rate regulation. It should be clear that in estimating the capital upon 1 Bristol v. Bristol & Warren Waterworks, 23 R. I. 274, 49 Atl. 974 (1901). Compare Gloucester Water Co. v. Gloucester, 179 Mass. 365, 60 N. E. 977 (1901). 2 Quoted from Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902), citing, among other cases, Long Island Water Supply Co. v. Brooklyn, 166 In case of sale to a city the value of company's contract with the city is to be considered. Covington Gaslight Co. v. City of Covington, 22 Ky. L. Rep. 796, 58 S. W. 805 (1900). 1 which a public service company is entitled to a fair return the value of a franchise enjoyed by the company cannot be considered. The value of the franchise is itself based on the capacity of the company to earn profits; and it becomes greater when the earnings of the company are increased. If, therefore, a high rate of income could be justified on account of the great value of the franchise, this fact would in turn enhance the value of the franchise itself and so justify a still higher charge; and there would be no limit to the legal charge of the company which could be enforced should such franchise value be permitted to increase in this way the capital charges. As Mr. Justice Savage said in a late Maine case involving this point: "In connection it should be noticed that to say that the reasonableness of rates depends upon the fair value of the property used, and that the fair value of the property used depends upon the rates which may be reasonably charged, seems to be arguing in a circle. If we should say that reasonableness of rates depended solely upon the value of the property, and that value of the property depended solely upon the rates which may be reasonably charged, such would be the case. But neither proposition is true." It unquestionably follows that such franchise values cannot stand in the way of rate regulation. As Mr. Justice Peckham recently said in the Supreme Court of the United States as to a valuation of the property of the Consolidated Gas Company 2 which included some mil 1 In Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537 (1904). But see 'Spring Valley Works v. San Francisco, 124 Fed. 574 (1903). It may well be that if a price is paid for the franchise to the governmental authorities granting the franchise this sum must be ac counted a part of. the cost of the plant; and if this must be periodically renewed a provision for its amortization would also seem proper. 2 Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. 192 (1909). It seems that if the State in the |