Abstract This article focuses on the prudent investment theory in public utility rate making. It is author's opinion that successful regulation of public utility rates cannot be accomplished under the fair-value doctrine and that the investment method must be sanctioned if justice is to be done to the consumer, the utility, and the general public as well. Stated somewhat differently the author believes the fair-value basis of rate making altogether impracticable and unworkable, that it is basically wrong in its economic concept, that the circumstances which gave birth to the principle have long since ceased to exist, and that is a reasonably good job of public utility rate regulation is to be achieved it is through investment approach. No review of rate regulatory procedures in this country would be complete without a brief reference to leading decisions of the Supreme Court of the U.S. on the subject. Not only did the fair-value doctrine, which plagued regulation for many years, have its real genesis in a decision of that Court, but the decisions of that body have greatly influenced the thinking and pretty well dominated the practices in respect to public utility rate regulation.

Abstract The Uniform System of Accounts of the Federal Power Commission, which was adopted on June 16, 1936, was the result of a joint effort of the Federal Power Commission and representatives of several state commissions. The principle of original cost constitutes an entirely new conception of plant accounting for public utilities. It is so important to the needs of regulation and so misunderstood by those outside the pale of regulatory realms and so little has been written to explain its philosophy, that perhaps a rather full treatment of what it is and the reasons for its existence may not be altogether inappropriate. The importance of plant accounting for public utilities can hardly be overemphasized. Plant assets constitute about 86% of total assets of all electric utilities in the U.S. Another factor, which goes a long way towards explaining many problems and economic consequences identified with public utilities, is that the annual gross revenues of electric utilities amount, on an average, to only about 18% of the total investment in plant, so that the plant investment turns over about once in five and one-half years.