10 VALUATION, DEPRECIATION AND THE RATE-BASE
payer and with his approval. Consequently the rates should
be fixed with a view to amortize sooner or later such expenditures.
In thus making provision for unproductive expenditures determined,
 perhaps, from actual expenditures legitimately incurred
 in excess of cost of works in use, care must be taken not
to go too far. Wasteful expenditure is not to be sanctioned
and wise and prudent management is entitled to reward. Experience
 alone can determine what allowance should be made
for hazards of the business and for the cost of establishing the
business and bringing it up to a paying basis. If it be found,
for example, that a suburban electric road will not be on a paying
 basis for a number of years, the losses (or deficient earnings)
during these years may be added to the cost of the road not as
elements of value but as a part of the investment on which an
interest return is to be allowed or as the preferable alternative,
net earnings in excess of interest on the cost of the road can be
allowed in such amount that within a reasonable time the early
losses will be amortized. Thereafter a continuation of some
excess of earnings above the returns from ordinary safe investments
 will be the owner’s reward for having engaged in the
enterprise.
Franchise and Water-right Values. — When the public
through properly constituted authority grants a franchise or
confers a privilege to enter upon a business which is in the
nature of a public service, as, when it grants the use of water
for power, for irrigation or for other purposes, the franchise or
water-right is valuable only to the extent that the public provides
 a market for the service rendered or commodity supplied.
When the rates to be charged are subject to regulation and are
not fixed in the franchise or water-right grant, no basis exists
(except in the cases of strategic value) for determining franchise
 or water-right value. This value depends, as will be
explained, upon earnings in excess of a fair return on the investment
 and if earnings are not protected by franchise terms, it
will lie in the power of the rate-fixing body to eliminate franchise
 and water-right value altogether. This is as it should