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

I 36 VALUATION, DEPRECIATION AND THE RATE-BASE “ The depreciation in question is not that which has been over- come by repairs and replacements, but is the actual existing depreciation in the plant as compared with a new one. It would seem to be inevitable that in many parts of the plant there should be such depreciation, as, for example, in old struc- tures and equivalent remaining on hand, and when an estimate of value is made on the basis of reproduction new the extent of existing depreciation should be shown and deducted. . . . And when particular physical items are estimated as worth so much new, if in fact they be depreciated, this amount should be found and allowed for. If this is not done, the physical valuation is manifestly incomplete. And it must be regarded incomplete in this case.” In the Minnesota Rate Cases the Master, in ascertaining a basis for rate fixing, had allowed the cost of reproduction new without making any deduction for accrued depreciation. The Master did not deny that there was depreciation but found that the same was more than offset by the appreciation in value of certain items. It was this finding which the Supreme Court refused to approve. The Supreme Court in its decision as usual makes value the starting point. Consequently the court says that depreciation must be deducted from the cost of reproduction new. But cost of reproduction is not “value.” Not even the value of the property new is exactly determined by its original cost. The opinion of the court becomes illogical if it be conceded to be unnecessary to make value the starting point when rates are to be fixed. But the Master, too, seems to have overlooked this point and sought to find something, appreciation in this case, to offset depreciation. He was quite as much at fault as the Supreme Court. And yet the allowance of appreciation in de- termining present value as a basis for fixing rates or for the issue of bonds is not uncommon. Railroads claim appreciation of their road-beds. Though it may be granted that the com- pacted road-bed, long in service, is worth more than a recently constructed bed, this should have nothing to do with the fixing of rates, no more than accrued depreciation should have. The

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