THE PURPOSE OF THE APPRAISAL 
Appraisals as a Basis for Fixing Rates 
Protection of the Investment. — In determining the invest- 
ment on which the investor in public service properties should 
be allowed a reasonable return, all attendant circumstances 
must be duly considered. It may be stated, however, that, 
apart from the determination of the rate of interest which should 
result from the investment, it will be equitable and fair to con- 
sider the public service corporation as the agent of the State or 
municipality, as the case may be, and to determine in what 
situation the State or municipality would have found itself had 
there been no intermediate owner or public service corporation. 
Let it be assumed that the owner of a public service plant 
has made his investment under good expert advice, and that 
the plant is in every respect the same as, or equal to, what the 
people would have constructed for themselves. Let it be fur- 
ther assumed that the plant is free from debt, that it will have 
no residual value, and that it and all its parts will have an 
actual useful life of # years. The owner will then be entitled: 
First. — To a reasonable interest on his investment; 
Second. — To operating expenses; including maintenance, re- 
pair and replacement expenditures; 
Third. — To an annuity which, in » years, at compound in- 
terest, will amount to his investment; 
Fourth. — To reasonable compensation for managing the busi- 
ness which may be based on the volume of business transacted, 
and on the general prosperity of the community. 
Purpose of the Accumulating Replacement Fund. — If it be 
now supposed that the owner actually received these amounts, 
estimated on a proper basis, and that he allows the annuity at 
compound interest to accumulate so that amortization will be 
an accomplished fact at the end of # years, then, as he has 
command of the amortization fund, he will have a decreasing 
amount of capital actually tied up in the plant. This decreas- 
ing capital or remaining value of the plant is the complement 
of the growing amortization fund. This fund, in the case of a 
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