ELEMENTS DESERVING SPECIAL CONSIDERATION 290
ment requirements. It has been customary heretofore to use
value as the starting point when rates are to be fixed with in-
clusion of some allowance for “ going value.” The general
practice also prevails of introducing into the calculation a rate
of return on the so-called “ fair value ”’ of the property, higher
than ordinary interest rates. Without giving special considera-
tion to the question of compensating the owner for management
and of allowing him to share in the general prosperity of the
community, which prosperity he has helped to create, a way has
thus been found to permit the utility to yield some profit. Under
such procedure there will be cases, however, in which the profit
will be very large and may be an onerous burden upon the rate-
payer, as in the case of certain utilities in which the amount of
invested capital is large when compared with their annual gross
income and particularly if the ultimate profit is swelled by the
increasing value of large holdings of real estate. And there will
be other cases in which the profit may be small and inadequate
under reverse circumstances, when the volume of business is
large in comparison with the invested capital. As an example of
the first kind, certain water supply enterprises on the Pacific
Coast might be cited. These not only require the investment
of relatively large amounts of capital but in connection with
some of them large areas of land are held for reservoir and re-
lated purposes. As an example of the second kind, certain
express companies which operate under contract with other
transportation companies and which do a large business on a
small investment of capital have already been cited.
Profit in Relation to Volume of Business. — The proposition
has, therefore, been submitted as above noted, that the equit-
able arrangement would be to bring the profit, covering com-
pensation for management, for hazard, and for participation in
general prosperity, into some definite relation to the volume of
business, that is, into some fixed relation to the amount of annual
gross income.
When the procedure is followed of applying the interest return
to a rate-base determined from the amount of capital legiti-
