complish this end is to include in the valuation for rate making the accumulated deficits to date.
We must not stop at this point, however, in our discussion of deficits. The principle we are applying stands for fairness above all things; it is ethical in nature, recognizes rights and obligations which are mutual. If a public service corporation has in the past paid huge dividends, made distributions of stock, and then continued to pay dividends on these paper values; or if future profits, speculative values, have been capitalized and a return made on this capitalization, we are in the opposite position from that involved in the accumulation of past deficits. Early deficits incurred in the development period may long ago have been wiped out. Perhaps surplus funds have accumulated and extensions been made to the original property. In this case, the situation is just as clear as in the former. The returns over and above accumulated past deficits plus a "fair return" should be deducted from the cost-new. In this case the producer has taken more than his "fair return" in the past; the user has contributed more than his "fair rate." An adjustment could be made by having the producer disgorge, but this is not practicable, and the simple and obvious procedure is to permit the producer to retain what he has received, which assumably bears him interest, and deduct it from that capital sum on which the user is to provide a "fair return" in the future.
We are now in a position to discuss surplus, and it will afford another basis of attack on the problem recited just above. Surplus is more easy of definition than most of the elements we have been dealing with. It is the remainder of gross receipts after operating charges, including taxes and insurance, absolute maintenance charges, interest charges, and a "fair return" to investors, have been met. If it exists, it can belong to but one party—the user. The producer should have no benefit from it. The user is the residual investor, the "fair rate" is the dependent function, the user is called upon to make good depreciation, deficits, and to provide a "fair return." But if a surplus is accumulated, the user at last finds something that returns to him. Either the "fair rate" is subject to adjustment, or else the user can accept—and usually would do so under practical conditions—extensions and improvements in the utility. These added values should produce no increased returns to the producer.
If now we apply these principles to the conditions supposed above, involving past unduly large returns to producers, we find that had the parties concerned—the user and the producer—recognized their mutual rights and obligations, and, in consequence, had none but "fair return" been paid to the producer, there would have resulted a large accumulated surplus. As we have seen, this belongs to the user, and if the producer has appropriated it, he should return it, or the user should be relieved
