134 VALUATION, DEPRECIATION AND THE RATE-BASE 
the opportunity for profit, of which he probably thought to 
avail himself when he bought a plant of depreciated value, and 
would place the rate-payer in the position of having made a 
profit at the expense of the original owner. This fact explains 
why the market value of stocks and bonds is cited so frequently 
as an indication of value. 
Improper Use of the Term * Value.” — It may be held that 
a determination of value for rate-fixing purposes, on the princi- 
ples herein set forth, is not a determination of value at all. 
This may be true, but it then becomes a matter of defining 
“ value,” as used by the courts in order that a distinction may 
be made between value and the appraisal of the investment on 
which rates may be properly based. 
The term ¢ value ” has been very generally used in matters 
involving the fixing of rates in the past. When fundamental 
principles are better understood, more attention will be paid to 
the capital reasonably and properly invested. 
Under a system of permitting the owner of public service 
properties to earn from year to year the actual average replace- 
ment requirements, the necessity for a close distinction between 
repair and replacement disappears. This is of some advantage, 
as it is at best difficult to discriminate between small items of 
replacement and large repair items. 
Basis of Rates in the Knoxville Case. — The United States 
Supreme Court in the Knoxville case Knoxville vs. Knoxville 
Water Co. (212 U. S. 1; 29 Sup. Ct. Rep. 148) says: 
“ A water plant, with all its additions, begins to depreciate in 
value from the moment of its use. Before coming to the ques- 
tion of profit at all the company is entitled to earn a sufficient 
sum annually to provide not only for current repairs, but for 
making good the depreciation and replacing the parts of the 
property when they come to the end of their life. The company 
is not bound to see its property gradually waste, without mak- 
ing provision out of earnings for its replacement. It is entitled 
to see that from earnings the value of the property invested is 
kept unimpaired, so that, at the end of any given term of years 
the original investment remains as it was at the beginning. It