ESSENTIALS OF VALUE 67
of rates is that these shall be fair and subject to regulation. In
such cases the franchise value should not be made a part of a
rate-base, determined by investment, except only to the extent
that its acquisition has actually required legitimate investment,
as is the case, for instance, when a city sells to a Street Railway
Corporation the right to operate cars on certain streets for a
certain period of time. The franchise value together with the
value of other intangible elements is independent of the actual
cost of these elements; but a franchise value may result from
the establishment of rates which produce earnings in excess of
reasonable interest return on the capital invested in the physical
properties.
The ascertainment of franchise value and value of all other
intangible elements connected with public utilities is similar to
the ascertainment of the value of the good-will of a private
business but with this difference. . . . In the case of the public
utility there is usually protection against competition, while in
the case of the good-will of a private business, competition or
the possibility of competition is to be assumed and such com-
petition may materially affect the value.
A franchise is sought for and operations thereunder are un-
dertaken for profit. Sometimes, of course, the profit to the
party who accepts the franchise and operates thereunder is an
indirect one, as in the case of the railroads which make large
land holdings valuable. While the privilege to do business is
granted in order that certain property may be used for the
benefit of the public, the person or corporation undertaking the
business must be assumed to be doing so in the hope of reaping
an adequate reward.
The Franchise Term.— In many of the states perpetual
franchises have been granted. Rights to use water-powers,
wharf and water-front privileges, the privilege to supply gas or
water and the right to occupy streets for various purposes when
thus granted without time limit may acquire relatively high
value and may prove a serious obstacle to the ultimate rational
development of natural resources. The perpetual franchise
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