and convey this franchise if it was given, for, when granted, it was given to George H. Norman, his heirs and assigns."

$366. Value of a non-exclusive franchise.

If, however, the company, in case it retained its plant, would be subjected to competition by the city, its franchise would cease to have any value. In Gloucester Water Supply Company v. Gloucester, Mr. Justice Loring said:

"In determining the true construction of these provisions of § 16, it is important to bear in mind the purpose, which the Legislature had, in making the right of the city to supply itself with water conditional on its buying the company's property, in case the company elected to sell it to the city, and in providing that in ascertaining the 'fair value' of that property, it should not be enhanced 'on account of future earning capacity, or future good will, or on account of the franchise of said company.'

"It is also plain, so long as a water company has no competitor in supplying a town or city with water, it is practically in the enjoyment of an exclusive franchise, although its franchise is not legally an exclusive one. For that reason, the past earnings of this company were not evidence of the 'fair value' of this property. The earnings of a company which is in the enjoyment. of what is practically an exclusive franchise are not a criterion of the 'fair value' of the property apart from an exclusive franchise. We are of opinion that the evidence of past earnings offered by the water company was properly excluded.”

§ 367. Value of a practically exclusive franchise.

When the franchise is practically exclusive, it presumably has a value, for which the company must be paid if the plant is taken by eminent domain or is bought under a clause in the

5 179 Mass. 365, 60 N. E. 977 (1901).

6 Citing Newburyport Water Co. v. Newburyport, 168 Mass. 541, 47 N. E. 533 (1897).

charter. The value of this franchise is greater or less according to the practical possibility of competition; it is greatest if the franchise is legally exclusive, and grows less as the likelihood of actual competition increases. This was well discussed by Mr. Justice Savage in Kennebec Water District v. Waterville.8 "The Legislature may at any time, according to its own wisdom, grant to the municipalities within which this water system is situated franchises similar to the ones in question It may grant similar franchises to one or more corporations like the Waterville Water Company or the Maine Water Company. " It has granted similar franchises to this plaintiff, a municipal district, and has even authorized it to take away from the defendant water company all the franchises it needs within the district and Benton and Winslow.10 But the defendants say that the Maine Water Company was "practically in the enjoyment of an exclusive franchise," because it had no competitor, although its franchise may not be legally an exclusive one.11 And we say that the

9

fact that the company was doing its business without competition may and should be considered by the appraisers when they are valuing the property of the defendant as a going concern. The fact is one of the characteristics of the going business, and may enhance its value. We are considering now only the legal situation of the company. There is a difference between a franchise which is practically exclusive and one which is actually exclusive, as there is a differ

7 Monongahela Nav. Co. v. U. S., 148 U. S. 312, 37 L. Ed. 463, 13 Sup. 622 (1892).

897 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902).

9 Citing In re City of Brooklyn, 143 N. Y. 596, 38 N. E. 983, 26 L. R. A. 270 (1894); Long Island Water Supply Company v. Brooklyn, 166 U. S. 685, 17 Sup. Ct. 718, 41 L. Ed. 1165 (1897).

10 Citing Kennebec Water District v. Waterville, 96 Me. 234, 52 Atl. 774 (1902).

11 Citing Gloucester Water Co. v. Gloucester, 179 Mass. 365, 60 N. E. 977 (1901).

ence between uncertainty and certainty. The distinction is vital in principle, and it may be important in fixing value. Of how much or how little importance it is can only be estimated by the appraisers after hearing the evidence. Again, the charters under which the company operates are subject to repeal by the legislature. The franchises are not perpetual and irrevocable. It may be that it is extremely unlikely that the Legislature would repeal the charters without providing for compensation in some way. The probabilities are fairly open to consideration. But the legal condition exists. It is a factor to be considered for what it is worth.”12

§ 368. Physicial adaptation to a growing business.

In the case of National Waterworks Company v. Kansas City, 13 the suit was brought by the company to enforce the statutory obligation of the city to pay to the company "the fair and equitable value of the whole works." The method of ascertaining this value was discussed by Mr. Justice Brewer as follows: 66 The company insists that the test is to take the income or earnings, and capitalize them. The earnings pay 6 per cent. on four millions and a half. In other words, the company has produced a property which earns 6 per cent. on four millions and a half; and that, it is claimed, is the fair valuation of the property, 6 per cent. being ordinary interest. On the other hand, the city insists that the franchise has ceased, and that basing the value upon earnings is in effect valuing a franchise which no longer exists, and which the city is not to pay for; that the true way is to take the value of the pipe, the machinery, and real estate, put together into a waterworks system, as a complete structure, irrespective of any franchise,-irrespective of any thing which the property earns, or may earn in the future. We are not satisfied that either method, by itself, will show that which, under all the

12 See, also, Brunswick & T. W. Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537 (1904).

13 62 Fed. 853, 10 C. C. A. 653, 27 L. R. A. 827 (1894).

circumstances, can be adjudged 'the fair and equitable value.' Capitalization of the earnings will not, because that implies a continuance of earnings, and a continuance of earnings rests upon a franchise to operate the waterworks. The original cost of the construction cannot control, for 'original cost' and 'present value' are not equivalent terms. Nor would the mere cost of reproducing the waterworks plant be a fair test, because that does not take into account the value which flows from the established connections between the pipes and the buildings of the city. It is obvious that the mere cost of purchasing the land, constructing the buildings, putting in the machinery, and laying the pipes in the streets-in other words, the cost of reproduction -does not give the value of the property as it is to-day. A completed system of water works, such as the company has, without a single connection between the pipes in the streets and the buildings of the city, would be a property of much less value than that system connected, as it is, with so many buildings, and earning, in consequence thereof, the money which it does earn. The fact that it is a system in operation, not only with a capacity to supply the city, but actually supplying many buildings in the city, not only with a capacity to earn, but actually earning,— makes it true that 'the fair and equitable value' is something in excess of the cost of reproduction."

§ 369. Value as a going concern.

9714

But in discovering present value, the value as a going concern is to be taken. In Gloucester Water Supply Company v. Gloucester, before cited,15 Mr. Justice Loring said: "It is plain that the real, commercial, market value of the property of the water company is, or may be, in fact, greater than 'the cost of duplication, less depreciation, of the different features of the

14 Acc. Spring Valley Water Works v. San Francisco, 124 Fed. 574 (1903); Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537 (1904).

15 179 Mass. 365, 60 N. E. 977, B. & W. 328 (1901).

physical plant.' Take, for example, a manufacturing plant: Suppose a manufacturing plant has been established for some ten years and is doing a good business and is sold as a going concern; it will sell for more on the market than a similar plant reproduced physically would sell for immediately on its completion, before it had acquired any business." 16

On this point also Mr. Justice Savage well said in Kennebec Water District v. Waterville:17 "The defendants, in request 9, ask that in determining the amount to be added to structure value, in consideration of the fact that the system is a going concern, the appraisers should consider, among other things, the present efficiency of the system, the length of time necessary to construct the same de novo, the time and cost needed after construction to develop such new system to the level of the present one in respect to business and income, and the added net incomes and profits, if any, which by its acquirement as such going concern, would accrue to a purchaser during the time required for such new construction, and for such development of business and income. We think this instruction should be given. These are all proper matters for consideration 'among other things.' They are not controlling. Their weight and value depend upon the varying circumstances of each particular case. Of course a plant, as such, already equipped for business, is worth more, if the business be a profitable one, than the mere cost of construction."

§ 370. Value of "going business," whether entitled to a return. So far as the value of a "going business" is increased by the mere element of good will, it cannot demand a return from the rates charged. "It is proper here to say that in reaching these conclusions we have not attempted any estimate of the 'going value' of the waterworks as a distinct and severable item in the

16 Citing National Waterworks Co. v. Kansas City, 62 Fed. 853, 10 C. C. A. 653, 27 U. S. App. 165, 27 L. R. A. 827 (1894). 17 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902).