Public Utility Valuation for Purposes of Rate Control

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

CHAPTER IV
FAIR VALUE" PROBLEMS SINCE THE WAR

UP to the war there was not only general acceptance of reproduction cost as the basis of appraisal for old properties, but also an effort to establish actual cost on the basis of accounting records after initial appraisal of a property had once been effected. There was in the course of gradual development a distinct valuation policy incorporated as part of the rate control machinery.


CONDITIONS CHANGED BY WORLD WAR

This course was interrupted by the sharp turn of events due to the war. Before a policy could be firmly entrenched through established rate making usage, there was a quick upturn of prices and costs. This changed the situation entirely and nullified the efforts of commissions who for nearly a decade had been striving to bring about a system of rate regulation that could be satisfactorily administered.

The period covered by this chapter may be started with 1915. It represents in reality four distinct shifts in price trends. A rapid rise in prices and costs began almost immediately with the outbreak of the war. The high point was reached in 1920 when the average price level stood at about 150% above that of 1913, considered as the pre-war norm. The second shift was a sharp turn downward in 1920, which settled later near 75% above the pre-war level. This continued with relatively unimportant fluctuations up to the financial collapse in 1929. Third, there was then a rapid decline up to the forepart of 1933. Since then up to the date of writing, there has been considerable price recovery, but the average still stands near the pre-war level. Future price levels are extremely uncertain. That there will be substantial fluctuations,

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