DEFINITIONS ;
Fair Value. — The term “fair value” is used so frequently
in the valuations of public service properties for rate-fixing
purposes, that it deserves more than passing notice. As a basis
for the fixing of rates it is difficult to define. Apparently it is
usually intended to mean market value, — the value which
would be ascertained by a prudent purchaser making thorough
inquiry relating to all circumstances affecting value. But in
reality the value is a result and not a basis of earnings. It
should not be made the rate-base.” The term ‘fair value ”’
has been used in a measure, no doubt, to rule out ““ book value ”
or cost which may include items and amounts of doubtful
propriety and to rule out estimates of value based on stock and
bond issues and the market value of such securities.
The term fair value as used by the courts has not yet been
satisfactorily interpreted and no attempt will here be made to
reconcile divergent views in relation thereto. But attention may
be called to the difficulty which has been experienced by all who
have attempted to make appraisals for rate-fixing purposes, in
reconciling the value to a purchaser with the “fair value”
which the courts wish to have considered when fixing rates.
Why should there be one valuation for purchase and another for
rate-fixing? The answer that has been given by the courts is
practically to the effect that there should be no such difference,
and experts have found difficulty in so appraising values that
any such difference shall disappear.
The value to an investor is unhesitatingly determined from
the net earnings, with due regard to hazards of the business.
The value for rate-fixing purposes as the courts say is to be
that value on which, with the same regard for the hazards of
the business, the owner is to be allowed to earn a fair interest
return. Value should be the same whether determined by a
rate-fixing body or whether determined for a purchaser.
When the acquisition of the properties of the Maine Water
Company by the Kennebec Water District was under consider-
ation, the Supreme Judicial Court of Maine included in its in-
structions to the appraisers (Dec. 27, 1902) the following:
I
