12 VALUATION, DEPRECIATION AND THE RATE-BASE
without deduction for depreciation his starting point in de-
termining what he can afford to pay.
This last case is in conformity with the requirements herein
explained, that the investment in a public utility should remain,
at all times, unimpaired. It is at variance with the plan ad-
vocated by many and approved in various court decisions, that
the appraisal for rate-fixing purposes shall fluctuate from year
to year with the age and remaining service value of the perish-
able elements that go to make up a public service plant.
Present Value as a Starting Point. — Despite prevailing sen-
timent and rulings of the public service commissions and de-
cisions of the courts in favor of making ‘‘ present value’ the
starting point when rates are to be regulated, it will be ap-
parent to the student that what is estimated as ““ depreciation ”
which may never have been earned and collected has not neces-
sarily been a repayment of capital and that therefore “ present
value ” is not always the best starting point.
The wisdom of starting with present value ”” or with “ value ”
in any form may well be questioned because value is a result of
assured earnings and such values as are not covered by the invest-
ment do not exist until the earnings create them. In appraising
for rate-fixing purposes the aim should be to make the legitimate
investment and not the depreciated value the rate-base.
It is sometimes difficult to modify the “fair value” basis of
rates as heretofore insisted upon by the courts so that it will fit
local conditions as in the following illustrations:
1. Adjacent to the built-up section of a community which
is being supplied with water at satisfactory and in every way
equitable rates, a large subdivision of acre property is being
made. Streets have been laid out and paved, sidewalks have
been constructed, an adequate sewer system has been provided
and a system of water mains has been constructed. These
water mains conform in every respect to the requirements of
the owner of the water-works to whom this system of mains is
now offered on the sole condition that he supply prospective
customers with water.