POSSIBLE PROCEDURES IN FIXING RATES 105
estimating the remaining value from the remaining years of
service. Theoretically this cost of effecting the replacement
should be taken into account, but it is sometimes convenient
to let the original cost less residual value take its place.
According to the selected method of procedure, the rate-base
is computed from the tabulated information by adding the cost
of establishing the business and of any other definitely ascer-
tainable items of intangible character, such as the cost of the
franchise, or the cost of the water-right, to the sum of items in
column (10) for the Sinking Fund Method or for the Unlimi-
ted Life Method of procedure; or by adding these items of
intangible character to the sum of the items in column (13)
when the Equal Annual Payment Method or the Straight Line
Method of procedure is to be adopted.
The Effect of Method of Procedure on Market Value. —
When a market value of a successfully operating plant is to be
fixed on the assumption that there is accrued depreciation but
that there is no deferred maintenance, special consideration
must be given to the method of procedure followed by the rate-
fixing authority:
If the Unlimited Life Method has been the procedure, the
owner may not have recovered any part of the accrued
depreciation in the earnings but only enough to meet
replacement requirements. The market value in that
event should not be less than the rate-base in column
(10) determined from the investment without deduction
of depreciation, plus some addition for value due to net
earnings in excess of interest on the rate-base.
But if, under the Unlimited Life Method or under the Sinking
Fund Method of procedure, the owner has received some
annual amount to forestall the replacement requirement
and retains possession of whatever amount there may be
in the replacement fund, the market value will be less
than the amount determined on the other assumption
by the amount which should theoretically be in the re-
placement fund.
