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

ELEMENTS DESERVING SPECIAL CONSIDERATION 290 ment requirements. It has been customary heretofore to use value as the starting point when rates are to be fixed with in- clusion of some allowance for “ going value.” The general practice also prevails of introducing into the calculation a rate of return on the so-called “ fair value ”’ of the property, higher than ordinary interest rates. Without giving special considera- tion to the question of compensating the owner for management and of allowing him to share in the general prosperity of the community, which prosperity he has helped to create, a way has thus been found to permit the utility to yield some profit. Under such procedure there will be cases, however, in which the profit will be very large and may be an onerous burden upon the rate- payer, as in the case of certain utilities in which the amount of invested capital is large when compared with their annual gross income and particularly if the ultimate profit is swelled by the increasing value of large holdings of real estate. And there will be other cases in which the profit may be small and inadequate under reverse circumstances, when the volume of business is large in comparison with the invested capital. As an example of the first kind, certain water supply enterprises on the Pacific Coast might be cited. These not only require the investment of relatively large amounts of capital but in connection with some of them large areas of land are held for reservoir and re- lated purposes. As an example of the second kind, certain express companies which operate under contract with other transportation companies and which do a large business on a small investment of capital have already been cited. Profit in Relation to Volume of Business. — The proposition has, therefore, been submitted as above noted, that the equit- able arrangement would be to bring the profit, covering com- pensation for management, for hazard, and for participation in general prosperity, into some definite relation to the volume of business, that is, into some fixed relation to the amount of annual gross income. When the procedure is followed of applying the interest return to a rate-base determined from the amount of capital legiti-

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