THE FIXING OF RATES 2
“ The reasonableness of the rate may also be affected, for a
time, by the degree of hazard to which the original enterprise
was naturally subjected; that is, such hazard only as may have
been justly contemplated by those who made the original in-
vestment, but not unforeseen or emergent risks. And such
allowance may be made as is demanded by an ample and fair
public policy. If allowance be sought on account of this ele-
ment, it would be permissible at the same time to inquire to
what extent the company has already received income at rates
in excess of what would otherwise be reasonable, and thus has
already received compensation for this hazard.”
Earnings in Relation to the Rate-base and to the Volume of
Business. — If it can be accomplished without making rates un-
reasonable, there should be not only an interest allowance upon
the rate-base equal to the current rate on money invested in
industrial and related enterprises, preferably about 6 per cent
per annum, but also some additional allowance, perhaps gener-
ally less than 5 per cent, unless conditions are unusual, as a
reasonable participation in the general prosperity of the com-
munity (this in lieu of appreciation), plus some percentage al-
lowance on the reasonable cost of operation (not including in
this cost the interest on the invested capital). This latter
allowance should, perhaps, be so graded that it will be small
when the investment is large in relation to cost of operation
and that it will approach 10 per cent or, in some cases, be even
more, if the investment in relation to the cost of operation is
small. The objection which may be urged to such an arrange-
ment, that it will make it to the interest of the owner to inflate
the cost of operation, is to be weighed against the danger of
discouraging investment in public utilities if any less liberal
policy is pursued. Moreover, under the control which is now
exercised over the public utility by the public service commis-
sions, this objection will lose much of the force which it might
otherwise have.
The capitalization of the percentage allowance on the cost of
operation, plus any other allowance (except amortization) in
excess of a fair interest on the investment, will represent the
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