Masters Theses

Date of Award

5-1932

Degree Type

Thesis

Major

Electrical Engineering

Major Professor

J. S. Tarboux

Abstract

The rate base, upon which the income of a public utility is based, is of primary importance to both the company and to its patrons. If this base is established at too low a value the utility company will be deprived in part of its just and reasonable income. On the other hand, if the rate base is established at too high a value, the customers will be forced to pay an excessive rate for the services rendered them, and the utility company will make more than a fair return on its investment. If the rate base is fixed at its proper value, the financial status of the company will be such that in addition to profits, sufficient reserves will be established to take care of extensions to service, and to renew or replace elements of the property that may wear out or become obsolete. In fact, if this rate base is too low the ability property will actually depreciate because insufficient funds will be available for its upkeep. Thus it becomes evident that an insufficient return on a public utility property is not only detrimental to the company, but the benefits to be derived by the public from the services rendered by company will be reduced because of the inability of the company to furnish modern first class service. On the other hand, a rate base which is so nigh as to cause an unreasonable rate to be charged for the services rendered by the company will act to the disadvantage of both patrons and company. The public will refuse to use the service furnished by the company to its fullest extent if high rates prevail, and thus both the public and the company will be deprived of the mutual benefits which they should enjoy.

It is evident, therefore, that for any public utility company there is a definite value of the rate base that should be established for it. This rate base should be such that it will justify a rate for the services rendered by the company which will be of mutual advantage to both the company and its patrons.

Much writing has been dons on this subject by many able writers and students of public utility economics. However, much of this writing has been of a technical or legal nature, and it has been complicated by the addition of other problems in public utility economics. It is the purpose of this paper to present the problem of the rate base in as clear and logical manner as possible without complicating the matter by the introduction of kindred problems. It is believed that if the general public had a clearer understanding of the problems of public utility economics there would be less controversy over the matter of rates for public utility services, resulting in benefits to all parties concerned. It is to be hoped that papers of this nature will serve toward that end.

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