ESSENTIALS OF VALUE .
No compensation for hazard or management is included in the
foregoing figures. The property as assumed will yield more
than operating expenses after the first five years. Unless the
excess over operating expenses is more than 6 per cent on the
total outlay of $1,438,220 the owner will still be conducting
business at a loss and unless it is sufficiently in excess of 6 per
cent to compensate him adequately for management and risk
he will not realize all that he had a right to expect.
By reason of increase of population increased demand for his
output, or for the service which is rendered by the utility it
may be possible after the first five years to reproduce the utility
or to construct a substitutional plant with established business
at a less cost than $1,438,220.
The question is how to determine what will be fair earnings.
Two procedures are open:
a. The actual cost of developing the business may be added
to the cost of reproducing the physical plant and the sum ap-
proximating $1,438,220 may be introduced into the calculation
as the rate-base.
b. The cost of reproducing the physical plant together with
actual cost of franchises, water-rights or rights-of-way or about
$1,000,000 is made the rate-base, and the cost of developing the
business, in this case approximately $438,220, is estimated and
treated as a business loss subject to amortization in a reasonable
number of years.
Any allowance less than will result from these procedures
would be confiscation of a part of the investment and therefore
unfair to the owner, who is in this illustration assumed to have
used good judgment in undertaking and developing the enter-
prise.
Kennebec Water District Case on “ Going Concern.” — In
this connection, too, the instructions issued by the court in the
Kennebec Water District Case to the appraisers of the Maine
Water Co. (97 Main 185; 54 Altantic 6) may be cited:
“In estimating even the structure value of the plant, allow-
ance should be made for the fact, if proved, that the company’s
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