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 VIII. The fixing of rates

Collection:: Economics Books

THE FIXING OF RATES 3 “ The actual rates which may have been charged heretofore, and the actual earnings, are both admissible and material in determining the value of the plant. The value of the evidence, however, will depend upon whether the appraisers shall find that the rates charged have been reasonable.” The Basis of the Calculation when Rates are to be Fixed. — Enough has been said to show that, when an appraisal is to be made as a basis for establishing the rates to be charged for the commodity or the service output of a public utility, something else is needed besides value. The starting point in the last analysis is not the value of the property, but the amount of the legitimate investment necessary to establish the business sup- plemented by the volume of the business transacted. The legitimate investment is not necessarily the actual cost of con- structing and developing the property and bringing it to a paying basis, but it is the amount which may reasonably be assumed to have been properly and legitimately invested in the public ser- vice. This amount may for convenience be called the * rate- base,” and as here defined is to be distinguished from “ value.” It is to be understood that this definition of the rate-base is more or less academic and has not yet obtained general recog- nition. The ordinary practice has been to attempt to make “ present value ” the basis of the calculation when fixing rates. The endeavor to do this, with inclusion in the amount on which an interest return is to be computed, of certain elements of value which can have no existence unless created by adequate earnings, has met with only indifferent success and has led the rate-fixing bodies into much confusion from which there now appears to be a strong desire to escape. The “ rate-base,” as thus defined, may include some or all of the cost of establishing and developing the business. It would be unwise to lay down an inflexible rule that the entire cost of establishing and developing the business should be included in the rate-base because any such rule would result in placing a premium upon inefficient management. The aim should be to include a reasonable allowance for this item which in one case I5¢C

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