216 VALUATION, DEPRECIATION AND THE RATE-BASE
developed rather than to the actual investment in works for
developing and marketing this power. But this can only be
done within limits or so long as the rates for the service remain
reasonable. When it would require excessive rates, the owner
must suffer the penalty of having made an untimely if not an
unwise investment.
Illustration of Strategic Value. — As an illustration of special
water-right value the case of a water supply for general and
domestic use which affords water of prime quality in limited
amount may be taken, but which, when compared with other
sources in use in the same community, has the advantage of
proximity, elevation and reliability of service.
Let it be assumed, for example, that such a supply was the
first to come into use, that its water was distributed as required
throughout the built-up section of a growing town, but that at
length a time came when additional water had to be brought in
by a second system from some remote source, and that at the
time of the valuation the distributing pipes of each of the two
systems cover practically the entire built-up territory. The
original water-works may now be supplying only a small fraction
of the aggregate amount of water being used. Undoubtedly
under such circumstances, the charge for water by the two con-
cerns would be the same or very nearly the same. The water
from the newer works could not be supplied at a low enough rate
to drive the earlier concern out of business. Without any
reduction of rates, this original utility should hold its customers.
There need be no falling off in the amount of water which it
supplies, assumed to be the limit of its capacity. But, if, as
assumed, the rates charged by the two concerns are the same,
the relative amount of net earnings will be greater for the
original than for the new water-works. If it costs the original
concern 17.5 cents per thousand gallons to develop and market
its water crop (interest on the investment included) and it is
costing the new concern 20 cents to do the same, and if this
larger cost has been taken into account in fixing the water rates,
then the water-right and other intangible elements of value of
