Cost, or Original Cost.—These terms refer to the actual amount of money paid for the property, either when it was originally constructed, or in its condition at the time of appraisal, the latter case being the original cost plus the cost of additions and betterments, less abandoned, replaced, or worn-out property. This figure ought to be represented by the "book cost," but it is not often that "book cost" and "actual cost" are the same.
Present Value, or Present Physical Value.[[3]]—These terms are used in describing the physical property as reproduced after it is affected by all elements of depreciation or appreciation. The use of the word "value" in this expression is unfortunate, as it may lead to some confusion. It must be kept clearly in mind that, where this term is used, it refers only to physical property as depreciated, and is in no case intended to refer to the final or "fair value" of the property.
Non-physical, or Intangible, Value.—These terms are used to represent those elements, entering into the final worth of the property as a business concern, which arise out of the operation of the property and are not attachable to the physical property.
All the foregoing terms have to do with the determination of the elements which enter into the final value.
What is "value"? In defining the exact meaning of this term, as applied to the property of a public service corporation, many elements must be taken into account. Standard authorities give many definitions of "value," none of which appears to meet fully the requirements of the term as used herein. Before considering the elements which enter into the value of corporation property, or attempting to determine the methods to be used in fixing proper figures of worth for each of these elements, it is proper and necessary to obtain a clear definition of "value," the thing sought to be ascertained by the inquiry.
The term, "commercial value," has been considered in place of "value," but is not used because it is held to be more properly applicable to the selling or exchanging value of fractional interests in the property, and the methods of computing the commercial value of securities which are in common use cannot be adopted in an engineering valuation. The Standard Dictionary definition of "commercial value" is:
"The source of commercial value, according to different schools of economists, is (1) the degree of want felt for a commodity as shown in the relation of supply and demand, (2) the amount of labor embodied in it, or (3) the cost of reproduction. Practically, commercial value is that for which a thing can be sold or exchanged at a given time and place."
The definition given by Professor Adams is:
"The estimate placed upon the worth of a property, regarded as a business proposition."
Both these definitions are in a measure involved, and the writer considers that the term, "Commercial Value," is too narrow and restricted to be properly used.