A third factor in depreciation is given in the chart on page 121 as contingent. The term would seem to indicate on the face of things that it is not a factor of sufficient definiteness and certainty to make possible its prevision and therefore the calculation of its effect. Hence it might seem that provision could be made for it only by means of a general reserve. In many individual cases and as to its application as a universally operative factor in the same sense that are use and wear and tear, the position is undoubtedly well taken. The term contingent, as here used, is meant to cover not only things which have happened and may happen again, but also things which in given localities and under known or knowable conditions are more or less inevitable. Hence while not found present in all cases, where conditions are favorable to the happening of any of the contingencies, from the standpoint of prudence and an equitable distribution of the burden of costs, provision should be made for them as one of the items comprising depreciation. Contingent depreciation may comprise three classes of contingencies, viz., (1) accidents, (2) diseases, and (3) diminution in supply.

Accidents. With regard to the first class, M. E. Cooley, in the Milwaukee Three-cent Fare Case, says: “An engine or a boiler may be wrecked and with it other machinery. This might, and probably would, involve a considerable expense for repairs or replacement, besides possibly crippling the plant in part. Cars may collide or a car may drop through a bridge. A bridge itself may fall or be carried away by floods. A storm, as a cyclone, may work havoc, entailing costs in excess of those proper to be charged to ordinary maintenance of property.” Accidents may happen either as a result of negligence or as a so-called “act of God,” i.e., the elements, or a hidden defect in the structure. With regard to depreciation from accidents it may be quoted, “There is always a certain amount of loss by accident which seems to be inseparable from the business. Usually it can be counted on in advance, and no amount of care and precaution will entirely eliminate it.”[24] The Railway Library for 1910 says that of 899 railroad accidents the various causes were:

Malicious acts 30accidents
Elements104”
Structural defects117”
Various forms of negligence  648”

In a large concern where past experience may serve as a guide to the future, depreciation of this sort can be rather accurately estimated. In the case of the rolling stock of a railroad, statistics make available the yearly loss due to accidents from whatever cause. It is argued that such losses are fairly uniform from year to year in a large system of that sort, and each year’s operation carries the burden simply by charging all repairs incident thereto against the revenues of that period. This is, of course, true in the main and may give sufficiently accurate results. The same treatment may also be applied to replacements, and if the units are sufficiently small in value in comparison with their number, practically no inequity as between periods will result. However, the Interstate Commerce Commission has ordered that depreciation reserves shall be set up for the proper handling of such accidents and this seems the better method. Statistics are available as to how frequently explosions in powder factories are apt to occur and the losses due to them, so that a manager can calculate the provision to be made on that account. Those are simply the risks of the particular business, and wherever it is known that they are applicable to any kind or group of equipment or other assets, certainly the current operations should bear their share.

After all, depreciation charges due to any causes are much of the nature of insurance which has to be carried by the enterprise itself because the risks have not yet been reduced to an insurable basis. Much as a proprietor may dislike to carry his own depreciation insurance, he is compelled to. In connection with accidents as a part of the depreciation charge, it should be noted that the product should not be charged twice for this item. If regular insurance is carried for fire, flood, tornado, earthquake, and the like, certainly those elements should be omitted from the insurance risk carried as depreciation by the concern itself.

Disease. Under certain conditions as to climate and local environment, the ravages of disease must be reckoned with. Diseases are caused by:

Losses and deterioration from these causes are quite appreciable in some enterprises. Telephone poles are subject to attack by borers and woodpeckers. “More than 50% of the weight of the wood may be removed ... without being greatly manifested upon the surface.” “At least 10% of the chestnut poles reset or replaced are injured by insects.” Railroad trestles, bridges, docks, piers, wooden shipping, and structures of all sorts are more or less subject to this kind of depreciation. Minute vegetable growths known as algae may cause a marked depreciation in a water utility. Other forms of vegetable and animal organisms sometimes cause growths in water-pipes, resulting in a partial shutting off of the capacity. Similarly, mineral growths may produce like effects. Iron oxide (common rust) and lime deposits or scale are frequent causes.

Electrolysis. Depreciation caused by electrolysis is a highly technical subject, discussion of which will not be attempted here. “Electrolysis is a chemical decomposition produced by an electric current. As applied to utilities, electrolysis is the disintegration of metal structure caused by the electrolytic action produced by stray electric currents, generally from the return circuits of single trolley electric railways.” The damage, both direct as above stated, and indirect as in the leaking of water, gas, etc., or in the flooding of adjacent premises or injury through gas explosions, is recognized by the courts, but the satisfaction granted is limited to enjoining a continuance of the injury.

Molecular Change. In some kinds of machinery subject to heavy strain and shock when in use, a disintegration of the structure itself takes place whereby its resisting power and therefore its efficiency are greatly impaired. This condition is known as a crystallization of the molecules.