ELEMENTS DESERVING SPECIAL CONSIDERATION 203
The owner’s share in this risk allowance is only a proportionate
one, while the loss, when it occurs, cannot be distributed to the
other utilities of the country which escape such loss, but falls in
its entirety upon the one utility that may be affected thereby.
In recognition of the fact that most utilities escape such losses,
the usual allowance in the public utility rates for the element of
risk is small and probably in most cases negligible. The allowance
for management, for business hazards, together with the
allowance for participation in the general prosperity of the
country, in short the profit allowance, would probably in few, if
any, cases be materially reduced, if this element of risk were
entirely eliminated.
In all cases in which this interpretation of the present-day
procedure is substantially true, it would be unfair to an owner
whose public utility plant sustains material damage by flood,
by earthquake or by other fortuitous event, against which
insurance is impossible, to let the entire loss fall upon him without
recourse. That such losses should in some way ultimately
fall upon those who are served by the utility seems self-evident.
The most equitable procedure would be to let them be borne both
by the rate-payers before the event as well as by the rate-payers
of the future. But as they cannot be foreseen the practical alternative
would seem to be to let them fall in their entirety on the
rate-payers of the future as would be the case if the utility were
publicly and not privately owned.
In the case of a business not subject to regulation the opportunity
to make up for past losses exists if larger profits can be
made by charging what the traffic will bear. Owners of public
utilities should be allowed to recoup their losses, if this can be
done without making rates unreasonably high.
C — Hazard, Management and the Unearned Increment
The Allowance for Hazard, for the Unearned Increment and
for Management Should Not be Based on Value. — All rateregulating
authorities are devoting much thought and study to
