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

292 VALUATION, DEPRECIATION AND THE RATE-BASE a fair extent, they should, in the course of time, be amortized out of earnings. As a rule no provision for other than ordinary risks is made in the allowed rate of return. Consequently, after a catastrophe, for which the owner is not responsible, but which entails a large investment of new capital to rehabilitate a public utility plant, there should be some provisions for amortizing the loss. It will, in such event, be better to let the amortization take place within a reasonable time rather than to carry an equiva- lent sum in the rate-base as though it were a permanent, though unproductive, interest-bearing investment. It will perhaps be claimed, by some, that such losses should not be differentiated from the ordinary losses due to unforeseen causes, and that whatever hazard is involved in any enterprise has unqualifiedly been assumed by the owner of the utility. Under such a theory the allowance for hazard should at all times be liberal enough to compensate the owner for the chance which he takes of at some time suffering material loss. He would be compelled to take the gambler’s chance and the rate-payer should stand the higher rate. Under such a practice there would be an owner here and there who would suffer large loss, while the great majority of owners, escaping the great catastrophes, would get what really should be paid, in the exceptional case, to the unfortunate owner. Under such a treatment of this matter, the tax for the risk would fall upon those who are paying rates before a catastrophe occurs, as well as upon those who receive service from the rehabilitated works. The more logical procedure would be to relieve the rate-payers from the burden of making the in- adequate provision for catastrophes which may never occur and letting the loss that actually results from a catastrophe be met out of future earnings. The usual provision for meeting losses which result from such fortuitous events as are here under dis- cussion, is inadequate. The owner does not, as in the case of losses which must be made good by assurance companies, get the full benefit of the allowance for risk which is distributed in small measure or is at least supposed to be distributed among all public utility owners and is supposed to be collected in the earnings.

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