FUNDAMENTAL PRINCIPLES ) 
b. In amounts which increase from year to year, figured on 
the compound interest basis. (Equal Annual Payment Method.) 
¢. In equal annual amounts which together with compound 
interest thereon will in the life of an article amount to its cost. 
(Sinking Fund Method.) 
11. A public service property may be regarded as having an 
unlimited life. Taken as a whole when rates are to be fixed the 
accrued depreciation may then be disregarded; but provision 
must be made for the renewal of those parts which for any 
reason become useless. In this event there need be no repay- 
ment of capital, except only those portions thereof which may 
be regarded as temporarily invested. 
12. In so far as this may be practicable, the earnings of the 
public utilities should be adjusted to the ability of the rate- 
payer to pay. Ordinarily, therefore, the aggregate earnings 
should be kept relatively low in the early years when the number 
of rate-payers is small. 
13. The owner of a public utility has the right to do what he 
pleases with any portion of his capital which is paid back to 
him, which is, in other words, eliminated from the rate-base. 
14. The owner of a public utility should be held accountable 
for all sums collected from the rate-payers for the specific 
purpose of making repairs and renewals. A diversion to other 
uses of any fund intended for this purpose is equivalent to a 
repayment of capital. 
15. The basis of calculation, the starting point when rates are 
to be fixed for a public utility, is the amount of capital whose in- 
vestment was necessary to build the plant and develop its busi- 
ness and on which there should be a proper interest return to 
the owner. This may be either the legitimate original cost new, 
or it may be the properly invested capital reduced by the accom- 
plished amortization. This basic amount is for convenience 
called the “ rate-base.” 
16. As a general proposition the earnings present and pro- 
spective should be such that they will give the property a value 
in excess of the capital actually (and properly) invested — the 
35