160 VALUATION, DEPRECIATION AND THE RATE-BASE
Other Factors Affecting Rates. — While it is important to
establish a rate-base whenever rates are to be fixed, there may
be cases in which other circumstances are of equal moment
with the rate-base as a guide to the allowable earnings. It
may happen that the public service requires only a small invest-
ment of capital compared with the volume of the business that
is transacted, and it may then be more desirable and equitable
to bring the compensation of the owner into some relation to
the volume of business transacted rather than to the capital
which is invested in the business.
The case may readily be conceived of a concern such as an
express company which rents its office facilities and operates
under contract with railroad and steamship companies and which,
outside of its trucks and other vehicles for the local distribution
of the parcels entrusted to its care, has made no investment of
any moment. It would be vain in such a case to attempt a
regulation of rates based solely upon a fair return upon the
invested capital. The whole field must be brought into view.
The volume of business transacted, and the value that would be
created if earnings are allowed which exceed, in some definite
fashion, the cost of conducting the business, should receive due
consideration. If earnings are thus allowed which exceed the
cost of operation by 10 to 15 per cent, this would not seem un-
reasonable unless the resulting rates are, in fact, more than the
traffic can or should bear.
Compensation for Hazard. — The risk of loss assumed by the
owner when he undertakes the development of a public service
enterprise is an element for consideration when a limit is to be
set upon the allowable earnings. This fact is generally recog-
nized. The compensation for this risk should be determined on
the basis of the risk that may be justly contemplated by those
who enter upon similar ventures under like conditions. This
principle is clearly set forth by the Supreme Judicial Court of
Maine in its instructions to the appraisers of the Maine Water
Company’s properties in the Kennebec Water District Case (97
Maine 185; 54 Atlantic 6):
