214 VALUATION, DEPRECIATION AND THE RATE-BASE 
definiteness the value of water at its source and would remove 
much of the uncertainty that now obtains in relation to the 
value of water-rights. If thus determined, the value of the 
water-right will not be subject fo unreasonable fluctuation nor 
to too wide a range. Where the average regional cost of 
development, including everything necessary to make water 
available for distribution, is 1o cents per 1000 gallons and the 
allowance for water-rights is to be about 10 per cent of this 
amount, or 1 cent per tooo gallons, a change of 1 per cent in the 
cost of water development would only modify the value of the 
water at the source by 0.01 cent per 1000 gallons. A 10 per cent 
increase or decrease in the regional cost of development would 
be necessary to affect this value by o.1 cent. In other words, 
when, in any region, an amount is generally recognized as a proper 
allowance to be made for the value of the right to water at its 
source, or rather, when such value is to be created by a suitable 
allowance of earnings, this value will be fairly stable and will 
thereafter pass as the market value whether or not the cost of 
development is below or above the average. 
Strategic Value of Water-Rights. — In addition to the basic 
value at its source, a water supply may have additional value, 
due to an inherent advantage of quality and location and other 
circumstances that determine its development cost in comparison 
with the development cost of competing supplies. Such value 
is properly termed strategic value.” 
To illustrate, a riparian ownership which controls a water- 
power may be cited. The case may readily be conceived of a 
water-power, limited in amount, but completely controlled by 
the riparian owner. When such a source of power is to be 
valued in a region where the market for power is good, where, 
for example, the water-power will be delivered to a market in 
which it displaces a like amount of power generated by steam, 
the cost of the latter in comparison with the cost of the former 
affords a legitimate means of determining value, or, better 
stated, an upper limit of value. The valuation becomes a 
simple matter when, under such circumstances, the power is