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 III. Fundamental principles which control when appraisals of public service properties are to serve as a basis for fixing rates

Collection:: Economics Books

FUNDAMENTAL PRINCIPLES 5. The owner of a public utility is entitled to a reasonable share in the general prosperity of the community which he serves. For this reason he should be allowed a share in the increase of value which results from population growth. If present value is made the rate-base, he will get the apprecia- tion of real estate (if such increase be not excessive). If the public utility has but little or no property which appreciates then some other factor may be brought into consideration in determining the fair return. It would be sound doctrine to exclude appreciation from the rate-base thus avoiding uncer- tain and accidental reward and to allow the unearned incre- ment to appear in the net earnings. 6. Where the invested capital is small and the volume of business large, the owner of the utility is entitled to have the volume of business considered as well as the invested capital when rates are to be fixed. It would generally be good prac- tice to take the volume of business into account as well as the rate-base when rates are to be regulated, but this is not yet an established practice. 7. The depreciation of an item used in the public service does not reduce the value of the service or commodity which the public utility supplies to the consumer. The value of the service is ordinarily unaffected by depreciation. Depreciation is a lessening of worth which may result from any cause. Wear and tear suggest themselves as the prime cause of the deprecia- tion of articles in use, but it is sometimes difficult to establish a connection between the rate at which an article is consumed in service by wear and tear and its lessening worth. The accrued depreciation of any article is ascertainable from the probable life new of the article, the cost of replacing it at the end of its life, its probable remaining term of usefulness, and its original cost. In practice the accrued depreciation is usually computed from the cost of the article or rather from its wearing value, its prob- able life new and its expectancy. The cost affords a convenient basis for approximation. (This does not apply to certain articles which are readily replaced such as automobiles when 33

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