188 VALUATION, DEPRECIATION AND THE RATE-BASE 
The Obligation to Replace. — In further substantiation of the 
advantage which results from use of a rate-base computed from 
the investment without any deduction of depreciation, attention 
may be called to the obligation to replace worn-out or discarded 
essential parts of every public utility plant which goes with the 
ownership thereof. It does not matter, in the case of any in- 
dividualized article, such as a steamboat, whether a replacement 
fund is being set apart to be kept inviolate and is accumu- 
lating interest at a rate which will bring it to the value of the 
steamboat in its life or whether there is no such fund. The 
owner of the steamboat is burdened with the obligation to re- 
place and this obligation is as real and as binding as though it 
were represented by an accumulated fund. It is optional with 
him whether to set apart a fund if none exists and let its earn- 
ings go toward a new steamboat or to simply let the obligation 
stand and to provide funds for the new steamboat when the old 
one goes out of use. To the extent of this obligation, that is, 
to the amount which should be in a replacement fund, any cap- 
ital which he commands is available for no other use than the 
replacement when the time comes. The interest on this fund, 
real or imaginary, is available for this use only and as the fund, 
together with the remaining physical value of the steamboat, is 
equal to the amount originally invested in the steamboat, it is 
plain that there is no need of annually drawing the dividing 
line between the remaining physical value and the amount 
which should be in the replacement fund (the so-called accrued 
depreciation). The remaining physical value plus the obliga- 
tion to replace is the invested capital on which the interest is 
to be computed whenever earned depreciation or replacement 
allowances are not regarded as amortizing capital. 
Period and Rate of Amortization. — When a municipality con- 
structs improvements under a bond issue or otherwise, suitable 
provision is made for the replacement of any of the worn-out 
parts of these improvements at the time that these parts go out 
of use. This is in strict conformity with the procedure under 
the Unlimited Life Method. But in the case of the municipal-