Growth and Depreciation

It is generally assumed that a complex utility property will depreciate to an approximately fixed per cent condition. This is shown by theoretical and actual curves to be incorrect. It is shown that the manner of the company´s growth affects its per cent condition. The necessity for reserves, the manner in which they may be kept and the return which should be allowed on them, whether reinvested or not, is discussed. Several Commission and Court decisions are quoted to show the tendency to disallow a return on a reserve and arguments are presented in refutation of the decisions. The principal points are as follows: 1. The condition of a property is dependent not only on maintenance but also on its growth. 2. Property does not settle down to a fixed per cent condition. 3. Capital is kept intact by reinvesting reserve in extensions. Under this condition, depreciated value of the entire property is the fair one for rate making purposes. 4. For a company unable to use reserve in extensions a liquid depreciation fund will be necessary. 5. The same return, available for dividends, should be allowed on a reserve as on the remainder of the property.