36 VALUATION, DEPRECIATION AND THE RATE-BASE
excess of value being the amount of the reward (including per-
haps some unearned increment) to which the owner is entitled
for having established and for managing the business.
17. Strategic value, resulting from a combination of circum-
stances such as low operating cost and ample market for the
output at prices fixed by or for competing concerns which have
not the same advantage of low operating cost, is a part of the
reward to which the owner of a public utility may be legitimately
entitled.
18. The various procedures for estimating the required earn-
ings of public service properties are usually based on the assump-
tion that the same procedure has been used from the beginning
of operations. A procedure which may be correct if consistently
and continuously applied, may be unfair to either the owner or
the rate-payer, if introduced at a later period. Consequently it
should be regarded as imperative that consideration be given
to past history when the rates of an operating concern are to be
fixed.
10. Franchises and water-rights and in general the privilege
to do business are not to be made a part of the rate-base except
in certain cases in which such rights and privileges have defi-
nitely ascertainable strategic value or have had to be purchased
as, for example, when a city sells the right to construct and main-
tain a street car system or when the acquisition of a water-
right involves the purchase of adverse riparian or other rights.
20. The net earnings of a public service property should in
some measure exceed the return from ordinary safe investments.
21. The prospective business must be taken into account
when the rates are to be fixed particularly in the case of a new
enterprise, where the rate-payers are too few at the outset to
produce, at a reasonable charge for the service, the revenue
which would yield a proper current return on the investment.
22. The replacement requirement is to be determined from
the expectancy (remaining years of usefulness), the probable life
when new of similar articles and the estimated cost of effecting
the replacement. It is not dependent on original cost nor age,
