(d) Depreciation on the plant begins from the date of appraisement, and is estimated on the physical property by using for each section the percentages used in determining the "Fair and Equitable Value."
(e) Interest at the rate of 6% is allowed on the "Fair and Equitable Value," and 6% profit.
The question of extensions and betterments to the original plant must now be taken into consideration.
(f) The amount of the betterments and extensions have already been found for each year of the property's existence, and an average of them is taken as the amount the company will spend on extensions, etc., during each year of the new contract. On this sum 6% interest and 6% profit is allowed, and, for depreciation, the same percentage as used in the original plant.
It will be seen that all the expenses of operation, etc., of these extensions have been allowed in (b), where the increase has been added for each year for these extensions and betterments, as they are assumed to increase the cost of operation, etc.
(g) The amounts found by (b), (c), (d), (e), and (f) are now added together, and to the sum 5% is added for interest, taxes, operation, etc., which may be caused by the necessary increase in capital expenditures, for a greater growth than could be foreseen at the time the new rates were established, for losses, etc. This total is used as the basis for establishing the new schedule of rates.
14th.—The next step is to determine what part of the amount found by (g) must be paid by the different classes of consumers.
(I) First ascertain the yearly percentage of increase in the output of the plant for the five years before the new contract is to go into effect (or longer if, in the opinion of the examiner, it is necessary); then find the average increase of percentage during the before-mentioned five years. Add to the last year's output the percentage found above, this result representing the output for the first year of the new contract. Continue this operation for each year in the same way as the operating expenses were found in 13th (b). The average of these results will be the average estimated output during the life of the new contract.
(II) Next find the amount of the total output each class of consumers used during each of the five years, and then find the average yearly use during this period. Put these into percentages of the amount of the average output for the five years, and then use the percentages as the amount each class of consumer will use of the average output found in (I) during the period of the new contract.
This gives the average amount of the output each class of consumers will use during the average life of the new contract.