154 VALUATION, DEPRECIATION AND THE RATE-BASE
ordinary operating expenses (including depreciation) and these
years are generally followed by others in which the return is
not commensurate with what the investment should earn. The
deficiency in the earnings of the early years in the case of any
legitimate public utility should be made good to its owner in
some way at some time. This may be done by treating any
ascertainable deficiency in the earnings as a permanent invest-
ment representing cost of establishing the business or by mak-
ing suitable provision to amortize it in a reasonable time. When,
therefore, the appraisal of a rate-base or the fixing of rates for
a long-established public utility is in question, it should be as-
sumed to be quite as likely that past history will show a defi-
ciency as that it will show an excess of earnings over what should
be considered a reasonable return. It follows that past history
relating to insufficient earnings should be brought under review
and that there may be cases in which the contrary opinion of
the U. S. Supreme Court, as expressed in the case of Knoxville
vs. Knoxville Water Company (212 U. S., p. 14) (29 Sup. Ct.
Rep., p. 148), does not strictly apply. In this case, quoted at
greater length on p. 134, the Court says:
“ Tf, however, a company fails to perform this plain duty and
to exact sufficient returns to keep the investment unimpaired,
whether this is the result of unwarranted dividends upon over-
issues of securities, or of omission to exact proper prices for
the output, the fault is its own.”
The omission to exact prices for the output that would keep
the investment unimpaired may be due to the fact that the
service rates necessary to accomplish this would have been
greater than the service would bear. The failure to secure ade-
quate earnings is not always the fault of the owner of the prop-
erty. It may even be the deliberate program to let the ample
returns of future years make good the early deficiency as, for ex-
ample, when the Unlimited Life Method of procedure is adopted.
In the Kennebec Water District Case (97 Maine 185; 54
Atlantic 6) the Court in its instructions to the appraisers of the
properties of the Maine Water Co. said:
