74 VALUATION, DEPRECIATION AND THE RATE-BASE 
mission. The lessening of worth is offset, or at any rate is in- 
tended to be offset, by an increase of the earnings. Depreciation 
then appears on both sides of the account. The owner of the 
property if fairly treated is no better nor worse off in consequence 
of deteriorating articles because they are made good to him as 
they deteriorate. But appreciation is usually not estimated 
from year to year and is not therefore entered with the annual 
revenue. When the occasional appraisal discloses appreciation, 
it appears as a profit. The Interstate Commerce Commission 
regards it as income. The United States Supreme Court holds 
that the owner of the public utility is entitled to the appreciation 
unless the same is excessive in amount in addition to a fair re- 
turn upon what would, without the inclusion of appreciation, be 
the reasonable amount of capital invested. How much simpler it 
would be to grant to the utility some reasonable share in the gen- 
eral prosperity not measured solely by the increase in the value 
of the real estate which it happens to own and use in the public 
service. 
The Secretary of the Treasury of the United States in decisions 
relating to the income tax says: 
« Profits realized on the sale of real estate during the year, 
also increase of value of unsold property, if taken up on the books 
of the corporation, (are) to be included in income.” 
Appreciation and the Rate-Base. — In weighing the question 
whether or not appreciation is to be added to the rate-base, con- 
sideration may be given to the alternative of the rental value 
of equivalent property. Suppose for example that among the 
properties owned by a public utility there is a large tract of land 
located in a region in which real estate values are advancing 
normally. If instead of acquiring this land the owner of the 
utility had entered into a lease thereof based upon an agreement 
that the rent from year to year should be commensurate with a 
proper valuation of the land, the amount of the rent increasing 
from year to year would be included in the cost of operation and 
rates would be fixed as though, in the case of actual ownership, 
the rate-base had included appreciation.