"The writer does not concede that 'going concern' is a proper element to consider in the physical value, as it does not represent any part of the cost chargeable to capital, and the physical valuation should be confined to the determination of capital invested."
Quotations might be multiplied. Those cited, however, will suffice to recall the author's view, and to make clear the point with which issue is taken.
Is Mr. Riggs right in his contention that going value is in fact an intangible value; that going value is not an element of real cost to the company, involving investment of capital; that going value, therefore, should not be included in physical plant value; and that the company is not morally entitled to earn interest and profit on it?
The writer contends that going value is as real an element of cost, in the property of any public service corporation, as is the cost of any portion of its physical plant. It pertains, however, to the business, rather than to the physical plant, of the corporation.
Whatever the difficulties of its computation may be, whatever the methods used—whether that adopted by the Wisconsin Public Service Commission (which is essentially one of determining the original cost of the going value and not its reproduction cost), or whether that perhaps first outlined by Mr. Benezette Williams and George H. Benzenberg, Past-President, Am. Soc. C. E., in the Middle West, and by William Wheeler, M. Am. Soc. C. E., in the East,[[42]] a method which seeks to determine the reproduction cost of the going value, rather than its original cost—the going concern value has come to be recognized, by water-works appraisers at least, as a substantial element in the cost of the plant, and hence as differing essentially from the franchise element or so-called unearned increments of value.
Is not going value in a "between" class—a middle ground between tangible and intangible values—tangible in that it has involved real cost and expenditure of money; intangible in that it is not as readily calculated as are other reproduction cost items, is dependent fundamentally on the earnings of the company, and that there is no tangible equivalent to show for the expenditure, except the existing income of the corporation? Surely its character is quite different from that of the franchise, as ordinarily found, the value of which, while real, from the rate-payers' point of view, seems to be made out of whole cloth; in short, seems to be of fictitious value.
Certainly, the conjectural and speculative character of the computations—as referred to by Mr. Riggs—involved in the determination of going value is no excuse for failure to recognize going value as a real element of cost, rather than as an intangible value. As a matter of fact, the variation in the views on going value, by engineers who have given this subject particular study, while greater than the variation in their estimates of the reproduction cost of the physical plant, is still far less than the variation in their views on franchise value.
As bearing on the proper basis for rate-making, the author's statement, that the "* * * physical property represents the measure of capital on which it [the public service corporation] is morally entitled to earn interest and profit * * *" cannot be admitted, equitably or legally; and it is not to be assumed that Mr. Riggs desired to imply that this sentence summed up his final views.
Are we not, however, approaching a basis of rate-making, predicated on the earning, by public service corporations, of operation and maintenance expenses, depreciation allowance, and return (i. e., interest and profit) on reproduction cost of the property, less accrued depreciation, plus going value, plus a nominal allowance for the franchise and other intangible values of the corporation? Is it not possible that the recent depression in the business world has been due, in considerable measure, to the shrinkage in the values ascribed to franchise and other intangible value in public service corporation property?
If we are approaching such a limitation, it is the more important that the public should be educated to the fact—not theory, for it is a fact—that going value, or going concern value, is a real element of cost, covering an outlay in effort and money on the part of the corporation, and as such is as much entitled to earn a return (interest and profit) as is the other capital invested in plant. It is not on any items of real and necessary cost to the corporation that the public objects to paying tribute, but on the "unearned increments" and the virtual monopoly "privileges" enjoyed by the corporation and created, in large measure at least, by the public itself and by normal conditions of growth and development for which the public, rather than the corporation, was perhaps responsible—though in many cases it may be urged truly that the corporation itself, rather than the public, has been responsible for the development.