60 VALUATION, DEPRECIATION AND THE RATE-BASE
franchise usually affords a definite basis for estimating its value.
When the rates for service rendered or for commodity furnished
are subject to regulation by public service commissions or other
similar rate-fixing bodies, this is not so, at least not until rates
thus regulated become dependable for a number of years and
the policy to be pursued by such bodies in the discharge of their
duties can be forecast with confidence.
Over-capitalization. — The cases have been so frequent where
exorbitant earnings, real or in some measure fictitious, have been
made the basis of enormous over-capitalization of enterprises
both private and quasi-public in character, that the general
public leans strongly toward extreme restriction of earnings
whenever the law and circumstances and the power of the rate-
fixing bodies will permit of such restriction. Why allow any
public utility to earn more than is ordinarily earned by a safe
investment? Why allow anything for unprofitable investments
even though made under good expert advice? Why take into
account any lean years of the past? If the utility was not
profitable or is not profitable, why should not the loss fall upon
those whose poor business judgment led them into a losing
venture? Such questions and others of similar character de-
serve serious consideration when rates are to be established,
which are to be fair alike to the owner and to the rate-payer.
Kansas City Water-Works Case and Intangible Value.— Justice
Brewer, in stating the conclusions of the Court in the Kansas
City Water-Works Case (Circuit Court of Appeals, Eighth Cir-
cuit, July 2, 1894, 62 Feb. Rep. 853), says:
“ A completed system of waterworks, such as the company
has, without a single connection between the pipes in the streets
and the buildings of the city, would be a property of much less
value than that system connected, as it is, with so many build-
ings, and earning, in consequence thereof, the money which it
does earn. The fact that it is a system in operation, not only
with a capacity to supply the city, but actually supplying many
buildings in the city — not only with a capacity to earn but
actually earning — makes it true that ‘the fair and equitable
value ’ is something in excess of the cost of reproduction. The
