294 VALUATION, DEPRECIATION AND THE RATE-BASE 
the establishment of a proper basis of calculation when the rates 
to be charged by public utilities are to be fixed. 
The highest court has said that value must be the starting 
point and the attempt is therefore generally made to comply 
with this apparent requirement of the court. The result is the 
use of a rate-base conforming to ‘ present value ” or to some- 
thing that may be called present value, even though in attempt- 
ing to use value as the rate-base it is occasionally found neces- 
sary to read new meanings into the word value. After this value 
has been ascertained in some fashion the owner of the utility is 
allowed to earn a return thereon, usually somewhat in excess of 
what would be a fair interest return on money for investment in 
enterprises of like character. 
When there is included in the rate-base thus established an 
allowance for “ going value,” the interest return allowed and 
earned on this increment of value together with earnings to cover 
the excess of the rate of return over the ordinary interest rate, is 
the owner’s compensation for hazards and for management and 
may also cover some participation in the prosperity and increas- 
ing values of the property in the community which is served by 
the utility. If the allowance for hazards has been correctly 
estimated, the owner will in the long run get little or no advantage 
therefrom, because this allowance will be offset from time to time 
by losses or sacrifices of various kinds. The allowance for par- 
ticipation in the general prosperity is not always recognized as 
being due to the owner for the reason that a part thereof, under 
the prevailing system of using value as the basis of the calcula- 
tion, makes its appearance in the increase of real estate values 
and in the increasing values resulting from the gradual but 
recognized rise in the price of materials and the rise in the wage 
scale. And yet every utility helps to create the general pros- 
perity. It adds to the unearned increment of the vacant lot and 
unused field as well as to that of the lot or field whose owner is a 
rate-payer. Some share of this prosperity should go to the 
utility, even when its property items do not include appreciating 
real estate. But, even when the earnings cover fair allowances