Public Utility Valuation for Purposes of Rate Control

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

CHAPTER V
SPECIAL CASE OF THE RAILROADS

THE early consideration of valuation in rate cases up to the time of Smyth v. Ames, involved principally railroads. Subsequently, especially with the creation of public utility commissions, other types of cases, street railways, gas, water, electricity, came to predominate. In dealing with valuation, courts have regarded the railroads essentially the same as other utilities; they have never recognized any fundamental distinction in economic characteristics.


RAILROAD RATE SITUATION UNIQUE

Actual experience with rate making, however, demonstrated that there is a fundamental difference between railroads and most other utilities. A local electric or gas property, for example, can be treated independently without regard to other concerns because of its local monopoly. Its total costs, including reasonable operating expenses, taxes and return on property, can be separately computed, and a rate schedule devised accordingly, so as to furnish the needed revenues. Such independent procedure is attainable if the local utility has an active economic status and has not, as a utility, suffered functional obsolescence through competition from other types of service. Rates for such a local utility can ordinarily be determined separately on the basis of local conditions. While commissions have sought maximum uniformity of rates over wide territories, actually they have treated each company distinctly as to its individual conditions and requirements.

In the case of railroads, the situation is fundamentally different. While costs to each company can be separately computed, including return on an independent rate base, no railroad can be treated by itself in establishment of rates, because

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