300 VALUATION, DEPRECIATION AND THE RATE-BASE
it would not be fair in the individual case to treat all losses during
lean years and all unproductive expenditures during the con-
structive period, such as water tunnels or wells that produce no
water, structures that are abandoned, damage by fire and
flood, earthquake or war, as additions to value or as additions
to a rate-base. These are losses and if occurring after operation
has commenced are naturally treated as the reverse of earnings.
They cannot with propriety be added to the valuation of the
physical properties, though it may be eminently proper on ac-
count thereof to estimate the cost of reproduction liberally. In
some form they should be taken into account in fixing rates. It
is rarely practicable to determine such losses and unproductive
expenditures with accuracy. These expenditures and losses
may be large and yet they may generally be regarded as having
been incurred under competent advice. It should ordinarily be
assumed, in other words, that it could not be foreseen that what
turned out to be unproductive work would have no value. The
easy way to deal with such expenditures is to add them to the
rate-base valuation, giving them a name and treating them as a
measure, in part at least, of intangible values. While this may
appear reasonable when the amount involved is small, or not
beyond what the sum of human experience would seem to indi-
cate as fair, the other case can readily be foreseen, as already
explained, in which this would not be so. To lay down a rule that
actual losses whether during construction or in the early years
of operation, are to be treated as elements of value is never logical.
It should be noted, too, that there is a clear distinction to be
made between the expenses ordinarily classed as “ overhead ”
and “ development cost.” The overhead expense is an expense
incurred during construction and is naturally and logically made
a part of the cost of construction. The development cost is an
additional outlay during operation, which is necessary to main-
tain and operate the property during the time when the receipts
for commodity furnished or for service rendered are insufficient
to meet operating expenses including a fair interest return on
the invested capital.
