Public Utility Valuation for Purposes of Rate Control

By John Bauer; Nathaniel Gold et al. | Go to book overview

CHAPTER I
INTRODUCTORY SURVEY

VALUATION has been accepted as a basic part of rate making in the existing system of public utility control. In legal and economic discussions it is commonly referred to as "fair value" or "present value" for rate making. In recent years it has been often termed as "rate base," which is the more precise designation from both the economic and legal standpoints.

The terms "fair value," "present value," "valuation," and "rate base," will be used interchangeably. Whatever the designation, it signifies the dollar amount representing the properties which are "vested with a public interest" and used in the public service upon which the owners are entitled to receive a fair return in the process of rate control through legislative authority. It is not "value" in the ordinary economic or commercial sense, but rather the basis for the determination of the return that must be allowed to public utility companies or investors.


NORM OF PRIVATE BUSINESS

For proper perspective, we may stop briefly to inquire into the character of public utilities which sets them apart from other business and subjects them to special public control. The general economic organization is essentially capitalistic. This means ownership and operation of enterprises by private persons, corporations or other firms, which represent primarily individual proprietorship in distinction from collective or governmental ownership and operation.

The ordinary business unit stands thus in our legal system as private in character. It is free to construct such plant as it pleases. It may obtain such capital and pay such returns as it wishes, or is able to attain, under generally prevailing competitive conditions. It is free, moreover, to supply such prod

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