298 VALUATION, DEPRECIATION AND THE RATE-BASE
capital which the owner has invested and in part on the cost of
operation. The allowance for hazard if considered apart from
obsolescence and from losses due to fortuitous events, which
should ultimately fall on the public and not on the owner, will
ordinarily be small, and, if expressed in figures at all, can be
readily brought into relation to the volume of business. It is not
logical to bring it into relation to value which may be made up
largely of intangibles. It is not logical either to bring it into
definite relation to the natural rate-base. Hazard, too, there-
fore, had best be brought into some relation to the volume of
business.
D — Volume of Business
Public Utility Rates and the Volume of Business. — In pre-
senting the following ideas relating to the profit which the public
utility should earn, the writer disclaims any intent to appear as
an advocate of limiting the profit which the owner of the public
utility can make at reasonable charges for the service rendered
or the commodity furnished. When the owner succeeds by
efficient management in keeping operating expenses low he is
entitled to a suitable reward. His treatment by those who are
charged with regulating rates should be such that efficient man-
agement will be encouraged and not discouraged. The sugges-
tions which follow should be considered in the light of these
qualifying statements.
The compensation to which the owners of public utilities are
entitled for management and business hazards, or, speaking
broadly, the profit to which they are entitled, cannot be brought
into any definite, universally applicable relation to the capital
invested in such enterprises. Another element, the volume of
business, deserves consideration in this connection.
That there should, in the case of every legitimate public
utility, be some profit will be admitted. This profit will appear
as an excess of earnings, present and prospective, over a fair
allowance for the use of the money invested in the utility, pro-
vision having first been made for operating expenses and replace-
