INTRODUCTION AND GENERAL NOTES 5 
problem to deal with. Depreciation enters into the cost of pro- 
duction and must be covered in the sale price if there is to be 
any profit. The cost of the perishable parts of the plant which 
are consumed, just as fuel is consumed though at a slower rate, 
must be recovered sooner or later. 
Definition of Terms. — The definitions of terms, herein pre- 
sented, relate to the sense in which these terms are used in this 
volume. There is not yet any perfect agreement among en- 
gineers and accountants relating to all of these terms and, as 
time goes on, some modification of terms or of the definitions 
of terms is to be expected. These definitions are therefore 
offered with due appreciation of the fact that some of them may 
not survive and that others remain subject to modification. 
The Agency Theory. — Every owner of a public service prop- 
erty is in a certain sense the agent of the rate-payer. If re- 
garded as such agent he is under obligation to render the service 
which he has engaged to perform in a satisfactory manner; he 
is entitled to protection against unreasonable competition, and 
he is entitled to protection of his investment, provided, of course, 
that the investment is a proper and reasonable one. There may 
be some cases, however, where unwise investments have been 
made, and others where part compensation for making the in- 
vestment has been found in the increased value of real estate 
or other property, perhaps not connected with the utility but 
owned by the same individuals who own the utility, and in such 
cases the value of the service rendered to the public may bear 
an unusual relation to the investment. 
Thus an irrigation canal, which was constructed to develop 
a region of little or no value without water, when considered by 
itself, apart from the land which it irrigates, may have cost so 
much that the service charges cannot be made high enough to 
yield a revenue on its cost. And yet the canal was justified, 
though perhaps not as a separate venture. In such cases a 
transfer of the canal to the land owner would be appropriate 
in order that the question of a reasonable return on invested 
capital might be eliminated, or as an alternative a bonus charge