Valuation, depreciation and the rate base

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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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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 105 estimating the remaining value from the remaining years of service. Theoretically this cost of effecting the replacement should be taken into account, but it is sometimes convenient to let the original cost less residual value take its place. According to the selected method of procedure, the rate-base is computed from the tabulated information by adding the cost of establishing the business and of any other definitely ascer- tainable items of intangible character, such as the cost of the franchise, or the cost of the water-right, to the sum of items in column (10) for the Sinking Fund Method or for the Unlimi- ted Life Method of procedure; or by adding these items of intangible character to the sum of the items in column (13) when the Equal Annual Payment Method or the Straight Line Method of procedure is to be adopted. The Effect of Method of Procedure on Market Value. — When a market value of a successfully operating plant is to be fixed on the assumption that there is accrued depreciation but that there is no deferred maintenance, special consideration must be given to the method of procedure followed by the rate- fixing authority: If the Unlimited Life Method has been the procedure, the owner may not have recovered any part of the accrued depreciation in the earnings but only enough to meet replacement requirements. The market value in that event should not be less than the rate-base in column (10) determined from the investment without deduction of depreciation, plus some addition for value due to net earnings in excess of interest on the rate-base. But if, under the Unlimited Life Method or under the Sinking Fund Method of procedure, the owner has received some annual amount to forestall the replacement requirement and retains possession of whatever amount there may be in the replacement fund, the market value will be less than the amount determined on the other assumption by the amount which should theoretically be in the re- placement fund.

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