AN exact rate base is essential for effective public utility control, both to protect public and private interests and to carry out public objectives. It must appear as a definite fact from records kept under continuous public supervision. It must not be varied with changing costs and price levels, except possibly as adjusted through exact index numbers applied to stockholders' investment or through other methods which preserve prompt administrability and do not permit financial distortions. It must be a specific accounting category, possibly with precise statistical modification, not requiring physical appraisal.
Actual cost or investment conforms to all the criteria of effective administration and sound finance. It conforms, moreover, to the basic economic requirements of making capital available as needed for public purposes. For establishment, it depends upon direct legislative action to be provided as a matter of clear public policy. If it is to be instituted, it must be precisely defined by statute, and then preserved through accounting procedure. With systematic legal and technical provisions, it would furnish a continuous and exact basis of rate adjustment, preserve definitely the rights of investors as well as consumers, and facilitate extension and improvement of facilities as needed.
This chapter is concerned with the questions of how such a fixed rate base may be established and what specific provisions are necessary to bring about effective and sound regulation. The present basis of "fair value" is deeply entrenched in the law of the land. It can be replaced only by comprehen-