ESSENTIALS OF VALUE 3
other causes, should be regarded as investment, will depend
upon the circumstances of each case.
The Commission discusses methods of ascertaining the ‘ cost
of establishing the business ”” and “ going value ”’ in Green Bay
vs. Green Bay Water Co. (Wis. R. C. R,, Vol. 11, p. 243-252),
and in this case says:
“The method which is generally followed by the Commis-
sion aims to determine, as far as possible, what the actual cost
of developing the business in question has been, and to what
extent, if at all, such losses have been recovered in later years of
operation. There are a number of difficulties in determining,
by this method, what the cost of building up a business has been,
among which may be mentioned:
“1. Entire or partial lack of records covering the develop-
ment period.
“2. Difficulty of finding original cost of physical plant.
“3. Difficulty of eliminating from reported operating expenses
amounts which are the results of extravagance, inefficiency, or
other causes which tended to keep the costs above a nominal figure.
“. .. This method, where it can be applied to its full ex-
tent, enables the investigator to determine what it has actually
cost the utility in question to build up its business. This sum,
added to the actual investment in the physical plant, gives the
total amount which the plant and the business have actually
cost. . . . Where it is impracticable to determine what the
actual cost of the physical property has been the only method
of arriving at the value of that property is to ascertain the cost
of reproduction.
“ The method of determining going value as followed by Mr.
Alvord, and which, for the sake of convenience we will refer to
as Alvord’s method, is an attempt to fix the amount which it
would cost to reconstruct the business of the utility, somewhat
as a physical valuation reveals the cost of reconstructing the
physical plant. There are two assumptions vital to this method:
“1. A city similar in all respects to the one under considera-
tion, except that there is no public water supply system but in
which the people are in a general way cognizant of the advan-
tages of such a water supply.
“2. Capital seeking investment which may be either used to
construct a plant and business in the city with no water supply
or to purchase the existing plant and business.
6¢