298 VALUATION, DEPRECIATION AND THE RATE-BASE 
capital which the owner has invested and in part on the cost of 
operation. The allowance for hazard if considered apart from 
obsolescence and from losses due to fortuitous events, which 
should ultimately fall on the public and not on the owner, will 
ordinarily be small, and, if expressed in figures at all, can be 
readily brought into relation to the volume of business. It is not 
logical to bring it into relation to value which may be made up 
largely of intangibles. It is not logical either to bring it into 
definite relation to the natural rate-base. Hazard, too, there- 
fore, had best be brought into some relation to the volume of 
business. 
D — Volume of Business 
Public Utility Rates and the Volume of Business. — In pre- 
senting the following ideas relating to the profit which the public 
utility should earn, the writer disclaims any intent to appear as 
an advocate of limiting the profit which the owner of the public 
utility can make at reasonable charges for the service rendered 
or the commodity furnished. When the owner succeeds by 
efficient management in keeping operating expenses low he is 
entitled to a suitable reward. His treatment by those who are 
charged with regulating rates should be such that efficient man- 
agement will be encouraged and not discouraged. The sugges- 
tions which follow should be considered in the light of these 
qualifying statements. 
The compensation to which the owners of public utilities are 
entitled for management and business hazards, or, speaking 
broadly, the profit to which they are entitled, cannot be brought 
into any definite, universally applicable relation to the capital 
invested in such enterprises. Another element, the volume of 
business, deserves consideration in this connection. 
That there should, in the case of every legitimate public 
utility, be some profit will be admitted. This profit will appear 
as an excess of earnings, present and prospective, over a fair 
allowance for the use of the money invested in the utility, pro- 
vision having first been made for operating expenses and replace-