30 VALUATION, DEPRECIATION AND THE RATE-BASE
Public Utility. — A public utility is an enterprise which ren-
ders a service or which supplies a commodity of general neces-
sity or convenience to the public. There may be public owner-
ship of the utility, or the privilege of serving the public may be
delegated to a private person. When the private person is a
corporation, we have the public service corporation.
Rate-base. — The ‘‘rate-base” is the starting point, the
basis of the calculation when earnings are to be determined to
which the owner of a public utility is entitled. The owner is
entitled to a fair return on the legitimate investment which he
has made for the benefit of the public. He may also be en-
titled to more than what would be considered a reasonable
return on ordinary investments but this fact is to be deter-
mined by the circumstances in each particular case. To know
the legitimate investment, whether ascertained from book rec-
ords or by estimating the cost of reproduction or otherwise, is
fundamental.
The rate-base which is the most satisfactory is the actual
reasonable and proper investment or original cost new, includ-
ing a proper allowance for the cost of establishing and develop-
ing the business, undiminished by depreciation, though in some
cases, perhaps, diminished by the bonus which may have been
contributed by the public or by the rate-payer.
The endeavor is made in these pages to show that the value
of the service rendered and the earnings are independent of
accrued depreciation and that for this reason the present or
depreciated value of the physical elements is not the best cri-
terion for a determination of the legitimate amount of the
earnings. But the sacrifice which the owner has made, the
amount of money which is in the business legitimately as of
the date of construction, the original.cost, in other words,
less the capital which has been contributed to the work as a
bonus and not as amortization, is the essential element for con-
sideration and should be made the starting point when rates
are to be regulated. It is to be understood, as a matter of
course, that special consideration may have to be given to the
