12 VALUATION, DEPRECIATION AND THE RATE-BASE
without deduction for depreciation his starting point in determining
 what he can afford to pay.
This last case is in conformity with the requirements herein
explained, that the investment in a public utility should remain,
at all times, unimpaired. It is at variance with the plan advocated
 by many and approved in various court decisions, that
the appraisal for rate-fixing purposes shall fluctuate from year
to year with the age and remaining service value of the perishable
 elements that go to make up a public service plant.
Present Value as a Starting Point. — Despite prevailing sentiment
 and rulings of the public service commissions and decisions
 of the courts in favor of making ‘‘ present value’ the
starting point when rates are to be regulated, it will be apparent
 to the student that what is estimated as ““ depreciation ”
which may never have been earned and collected has not necessarily
 been a repayment of capital and that therefore “ present
value ” is not always the best starting point.
The wisdom of starting with present value ”” or with “ value ”
in any form may well be questioned because value is a result of
assured earnings and such values as are not covered by the investment
 do not exist until the earnings create them. In appraising
for rate-fixing purposes the aim should be to make the legitimate
investment and not the depreciated value the rate-base.
It is sometimes difficult to modify the “fair value” basis of
rates as heretofore insisted upon by the courts so that it will fit
local conditions as in the following illustrations:
1. Adjacent to the built-up section of a community which
is being supplied with water at satisfactory and in every way
equitable rates, a large subdivision of acre property is being
made. Streets have been laid out and paved, sidewalks have
been constructed, an adequate sewer system has been provided
and a system of water mains has been constructed. These
water mains conform in every respect to the requirements of
the owner of the water-works to whom this system of mains is
now offered on the sole condition that he supply prospective
customers with water.