Valuation, depreciation and the rate base

Bibliographic data

Monograph

Identifikator:: 174667931X

URN:: urn:nbn:de:zbw-retromon-119897

Document type:: Monograph

Author:: Grunsky, Carl Ewald http://d-nb.info/gnd/10180959X

Title:: Valuation, depreciation and the rate base

Edition:: 2. ed., revised and extended

Place of publication:: New York

Publisher:: Wiley

Year of publication:: 1927

Scope:: X, 500 Seiten

Digitisation:: 2021

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. The purpose of the appraisal

Collection:: Economics Books

THE PURPOSE OF THE APPRAISAL 135 is not only the right of the company to make such a provision, but it is its duty to its bond and stock holders, and, in the case of a public service corporation, at least, its plain duty to the public. If a different course were pursued, the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stocks. This course would lead to a constantly increasing variance between present value and bond and stock capitalization — a tendency which would inevitably lead to dis- aster either to the stock-holders or to the public, or both. If, however, a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired, whether this is the result of unwarranted dividends upon over issues of securities, or of omission to exact proper prices for the output, the fault is its own. When, therefore, a public regula- tion of its prices comes under question, the true value of the property then employed for the purpose of earning a return cannot be enhanced by a consideration of the errors of manage- ment which have been committed in the past.” According to this statement by the Court, the owner of a public utility should be required to exact prices for his output, which, at the beginning of operation and at all times thereafter, will cover the current depreciation of the physical elements of his plant. Yet, as elsewhere explained, in the early years, this is frequently impossible, and in nearly every case is inadvisable and would work unnecessary hardship upon the consumer. Losses in the early years when rate-payers are few are often- times unavoidable and these losses deserve consideration. Past history cannot be ignored if rates are to be so fixed as to be fair alike to the owner and to the rate-payer. In other words, not all shortage of earnings in the past is to be ascribed to errors of management. It is difficult to reconcile the language of the Court with this principle even as it is difficult to under- stand why so many of the Courts have held that value which results from earnings must be made the starting point when rates are to be fixed. “ Value ” Defined in the Minnesota Rate Cases. — Justice Hughes in delivering the opinion of the U. S. Supreme Court in the Minnesota Rate Cases (June 9, 1913) (230 U. S. 352) said:

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