Public Utility Valuation for Purposes of Rate Control

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

CHAPTER VII
REPRODUCTION COST ASSUMPTIONS

DETERMINATION of "fair value" under the law of the land as it stands, virtually starts with reproduction cost of properties used in public service. While actual cost has not been eliminated; while other basic considerations may be taken into account; or indeed the entire procedure changed according to circumstances of each case or to general economic conditions, -- the primary factor appears to be cost of the properties if they were to be reproduced at the time of valuation. This chapter will be devoted exclusively to underlying considerations that are involved in physical appraisal of utility properties at reproduction cost.

The conception of reproduction cost has an appearance of clarity and definiteness which are not found under actual conditions of appraisal. While some special points concerning such appraisal have been cleared up by the Supreme Court, others have not been presented as definite issues to require decision. As to these, commissions are free to adopt such specific applications of reproduction cost as may seem reasonable under the particular circumstances. Their mode of treatment in relation to the conditions is likely to be determinative in the final decision of a special point by the Supreme Court.


VALUATION MUST BE OF ACTUAL PLANT

As to general conceptions, the Court has made clear that in an appraisal it is the actual properties used in public service whose "fair value" is to be determined. It has specifically excluded consideration of hypothetical plant such as would be constructed under conditions prevailing at the time of appraisal. The actual plant may have been most up-to-date and best suited to public requirements at the time of construction.

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