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 XV. Elements deserving special consideration when rates are to be fixed

Collection:: Economics Books

200 VALUATION, DEPRECIATION AND THE RATE-BASE been correctly foreseen and as though funds for its replacement had already been collected from the rate-payers, it may still ap- pear on the books as an element of some remaining value, due to insufficient collections for its complete retirement. If this apparent remaining value were ignored, and rates were estab- lished as though the abandoned property had never been in use, the rate-payer would at once get the full benefit of the innovation and the owner would have made a sacrifice of capital which he could perhaps have avoided by being a less efficient manager and holding to the older, less efficient plan of operation. Let it be known that the usual procedure will be to forecast failures by obsolescence and to amortize the capital in such properties which become obsolete on the basis of assumed average conditions, which means inadequate amortization in many cases, and there will no longer be any inducement to the owner to improve the efficiency of his plant. He will conclude that it will be safest not to use new inventions or to introduce new processes so long as a sacrifice of capital is thereby involved. He might, in making an innovation, find that he had on his hands abandoned property, the cost of which has not only not been fully returned to him but concerning the further amortization of which the established rules of rate-regulating bodies may give no ade- quate assurance. Obsolescence Should Affect Rates After, not Before, the Event. — It seems self-evident that when the introduction of a new invention, whether the same applies to a machine or to a process, reduces the cost of operation, the resulting advantage should go to both the owner of the utility and the rate-payer. But it is also true that in such event there will be no hardship imposed on the rate-payer if the benefit of reduced cost of pro- ducing the output does not come to him immediately. A rea- sonable procedure would therefore be, in all such cases, to allow the rates to remain as they would have been without the new process (unless a reduction would result in increased demand and greater net profit to the owner), at least long enough to amortize so much of the original plant as is thereby rendered useless and,

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