CHAPTER III 
FUNDAMENTAL PRINCIPLES WHICH CONTROL WHEN 
APPRAISALS OF PUBLIC SERVICE PROPERTIES ARE 
TO SERVE AS A BASIS FOR: FIXING RATES 
1. The earnings of the public service property should be such 
that, within the life of the property, there will be returned to 
the owner, the capital which he has properly invested in it, 
and in addition thereto, interest at a reasonable rate upon 
such amount of capital as from time to time actually and prop- 
erly remains as an investment in the property. 
2. The reasonable cost of each item which goes to make up 
a property may be returned to the owner during the probable 
or during the actual life of that item or it may be returned to 
him in a lump sum when that item ceases to be useful. In the 
case of items which are of sufficient importance to be individu- 
alized the amortization of cost may be progressive during a 
fixed term which is generally determined by the probable life 
of the item. In the case of numerous articles the amortization, 
with equal propriety, may be deferred to the end of the term 
of usefulness of each article. 
3. During the early years of most public utilities the oper- 
ating costs will exceed the revenue. The business is conducted 
at a loss. When such losses are legitimate, they may be regarded 
as the cost of establishing the business and may be added to 
the invested capital. They may, as an alternative, be regarded 
as temporary advances which are then to be amortized within 
a reasonable time. 
4. The owner of the public service property is entitled to 
proper compensation for assuming the hazards of the business 
and for establishing and operating the utility. 
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