42 VALUATION, DEPRECIATION AND THE RATE-BASE 
the country, a revaluation may be necessary if the same stand- 
ard of approximation to reconstruction cost is to be continuously 
maintained. At any rate, the public utility commissions of the 
country should see to it that useless work on these lines be not 
demanded. It is their province to fix the standard in this 
matter. 
When rates are to be fixed, they are based on a forecast of 
what the earnings should be. The exact result of charging for 
the service rendered at any fixed rates cannot be known until 
the rates have been in effect for a time. A deficiency in the 
earnings is discouraging to the owner and makes him prone to 
give inferior service. He may be forced into the courts and 
will then incur legal and other expenses which in the end will be 
paid by the consumer. An accumulating surplus, on the other 
hand, should insure high-class service and can be used to safe- 
guard the property against unforeseen accident and to make 
sure of its proper upkeep without giving to the owner, in the 
long run, any larger amount in dividends than he is legitimately 
entitled to receive. If there be error, it should be on the side 
of the adequate return, provided always that a limit is set to 
the rate of return on the investment and to the compensation 
for managing the business, and that the charge for the service 
rendered be a reasonable charge. 
Overhead Expenses 
Cost Includes Overhead Expenses. — Overhead expenses 
have already been defined. They include primarily the cost of 
management, engineering, interest during construction, taxes 
and insurance. 
In the determination of “cost” whether the actual cost or 
the estimated cost of reproduction, whether at present day 
prices or at prices applying to a selected period or to a par- 
ticular time, it will be essential to have due regard to the over- 
head expense. It is not enough to be able to state item for 
item what it would cost to reproduce each in its exact present 
condition of serviceability, but proper account should be taken