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

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter IX. Possible procedures when the rates for a public service are to be fixed

Collection:: Economics Books

POSSIBLE PROCEDURES IN FIXING RATES =] and that in regulating rates, consideration need be given only to the amount of capital reasonably and properly invested without any deduction for depreciation. The earnings, in other words, to be adequate, must include at least operating expenses of every character, a proper allow- ance for present and prospective replacements (so-called current depreciation) and a reasonable income computed at the proper interest rate on the invested capital. Comparison of Sinking Fund and Equal Annual Payment Methods. — Enough has already been said to show that the so-called Sinking Fund Method of procedure, when no distinc- tion is made between actual and probable life, is exactly equiv- alent in its results to the Equal Annual Payment Method. The former, in which the rate-base is roo per cent of the invest- ment, involves a single computation of the annuity which at compound interest will amount in the probable life term to the capital invested in any article. The latter, under which accrued depreciation is deducted from the investment, requires a re-estimate of the current amortization (depreciation) incre- ment from year to year and a new annual estimate of accrued depreciation. Amount of Amortization or Amount in the Replacement Fund. — If under any method of procedure the owner of a plant of numerous parts and all possible ages is required to place all sums earned as “ depreciation ” or earned to meet “replacement requirements ” into a special fund, and the depreciation or re- placement requirement has been actually earned from the begin- ning, the amount of amortization accomplished out of such a fund or the theoretical balance on hand, after meeting all current replacement requirements, will be as follows: Under the Straight Line Method of estimating amortization for old plants of full growth, the theoretical accumulation should be 50 per cent of the investment in perishable property — this accumulation is independent of the interest rate and this fund’s earnings are of no concern to the rate-payer. Under the method of estimating the “accrued obligation to 167

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