24 VALUATION, DEPRECIATION AND THE RATE-BASE
The Current or Annual Replacement Requirement. — The
current or annual replacement requirement is that amount which
should annually be covered by the earnings, to meet the renewals
which must be made from time to time. The amount necessary
to accomplish this may be estimated from the known character,
number and cost of the articles which must annually be re-
placed or in the case of large units, from the rate of depreciation.
The Obligation to Replace. — The obligation which every
owner of a public utility has assumed to continue in business
for either a definite or an indefinite time period carries with it
an obligation to replace the articles which are essential for the
proper conduct of the business with equivalent new articles
whenever the original articles cease to be useful. This obliga-
tion to replace grows with the age of the article in service.
When expressed in money, it is equivalent to the accrued theo-
retical depreciation. This obligation to replace, together with
deferred maintenance, must be taken into account by the ap-
praiser of property which is to be purchased.
Deferred Maintenance. — “ Deferred Maintenance ”’ is the
neglect, expressed in dollars, which has resulted from failure to
keep an article in good condition and repair. It is the sum
which should at once be expended to restore the article to ordi-
nary good service condition, and to protect it against causes of
rapid destruction so that its deterioration will not be unduly
rapid. Ordinarily there should be no “ deferred maintenance.”
By proper attention to maintenance and repairs the service
rendered should be kept at the standard which is expected of
the plant. The plant in other words should, practically at all
times, be at 1oo per cent efficiency.
Wear and Tear. — “ Wear and tear ” is the term applied to
the deterioration of an article from use. The article is kept in
serviceable condition by the renewal of its worn-out parts and
by suitable attention to its wearing parts. Maintenance and
repair are to be included in operating expenses. The expendi-
tures for repairs and maintenance are intended to keep the
article at or near roo per cent efficiency.
