AN ANALYSIS OF MISSOURI'S UTILITY EARNINGS AND RATE BASE FORMULA.
The article presents an analysis of the public utility earnings and rate base formula established in Missouri. First, an original cost undepreciated rate base is established. Second, a calculation is made, whereby, for study purposes only, a credit to operating revenue is set up for an amount equivalent to 3% per annum on the balance of the depreciation reserve. This amount, when added to the total actual operating earnings of the utility, gives a figure which will be compared with another figure equal to the established official rate of return applied to an undepreciated original cost rate base. Whenever the two figures coincide, the rate structure is considered to be sound. The Missouri concept grew out of the philosophy behind the original sinking fund method of depreciation. A utility has a choice of the disposition of the assets withheld as a consequence of operating expense charges for depreciation. The application of the sinking fund method in conjunction with an undepreciated rate base resulted essentially in the same equitable return to the utility stockholder as if there had been no fund and a fully depreciated rate base had been employed.
- DOI
- 10.2308/tar-7110563
- Volume
- 29 (3)
- Pages
- 429-446
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref