THE FIXING OF RATES C1 
pay rather than to be deprived of the commodity or of the ser- 
vice, but that amount which the owner finds to be best adapted 
to maintain and increase his aggregate profits. He will in deter- 
mining this amount give consideration to all elements of cost, 
to his investment, to the hazards of the business, to the possible 
profitable extension of his business, to the value of the service 
and to profit. When rates are thus established by an owner, 
the net earnings bear no definite or fixed relation to the invest- 
ment and the value of the business is to be determined from a 
consideration of the present and prospective net earnings and 
of those elements which determine the permanency of the 
business. In such a case, in other words, it is proper to capi- 
talize assured net earnings to determine value. When value 
thus ascertained is in excess of cost, the excess represents profit 
and such excess has been all too frequently used as a basis for 
“ watering” stock and for over-bonding. Not only has this 
been the case, but, by ignoring depreciation, or by making 
inadequate provision for the replacement of worn-out parts, it 
has sometimes been possible to make the net earnings appear 
greater than they actually were, and thus to further swell the 
apparent though, in part, fictitious value. 
It is fundamentally sound policy to encourage the develop- 
ment of the natural resources of any country, state or region 
by permitting those who establish public utilities to earn a rea- 
sonable profit on the investment made for the benefit of the 
public, and to earn a fair interest rate, provided that the invest- 
ment has been wisely made. 
The Public Utility Affects the Value of Other Property. — No 
necessary public utility can be established without at once adding 
to the value of all real property in the district which it serves. 
The profit resulting from the establishment of the utility is 
general. No water-supply system can be put in to serve a 
municipality, no work for the improvement of a water-supply, 
such as high pressure fire protection can be added to the system 
without adding value to vacant lots as well as to those already 
built upon. Value is added when gas and electricity are brought 
ig: