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

300 VALUATION, DEPRECIATION AND THE RATE-BASE it would not be fair in the individual case to treat all losses during lean years and all unproductive expenditures during the con- structive period, such as water tunnels or wells that produce no water, structures that are abandoned, damage by fire and flood, earthquake or war, as additions to value or as additions to a rate-base. These are losses and if occurring after operation has commenced are naturally treated as the reverse of earnings. They cannot with propriety be added to the valuation of the physical properties, though it may be eminently proper on ac- count thereof to estimate the cost of reproduction liberally. In some form they should be taken into account in fixing rates. It is rarely practicable to determine such losses and unproductive expenditures with accuracy. These expenditures and losses may be large and yet they may generally be regarded as having been incurred under competent advice. It should ordinarily be assumed, in other words, that it could not be foreseen that what turned out to be unproductive work would have no value. The easy way to deal with such expenditures is to add them to the rate-base valuation, giving them a name and treating them as a measure, in part at least, of intangible values. While this may appear reasonable when the amount involved is small, or not beyond what the sum of human experience would seem to indi- cate as fair, the other case can readily be foreseen, as already explained, in which this would not be so. To lay down a rule that actual losses whether during construction or in the early years of operation, are to be treated as elements of value is never logical. It should be noted, too, that there is a clear distinction to be made between the expenses ordinarily classed as “ overhead ” and “ development cost.” The overhead expense is an expense incurred during construction and is naturally and logically made a part of the cost of construction. The development cost is an additional outlay during operation, which is necessary to main- tain and operate the property during the time when the receipts for commodity furnished or for service rendered are insufficient to meet operating expenses including a fair interest return on the invested capital.

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