Opinion ID: 1422157
Heading Depth: 1
Heading Rank: 3

Heading: The Method to be Used to Establish the Rate Base.

Text: There is likewise eliminated from the present appeal any controversy as to the method to be used in arriving at the rate base. In City of Fort Smith v. Southwestern Bell Tel. Co. (Ark.), 247 S.W.2d 474, the court cites Pond on Public Utilities in discussing such separate methods as (a) original cost, (b) cost of reproduction, (c) outstanding capitalization, (d) present value, (e) prudent investment and (f) net earnings. In an informative article by Mr. Everett C. McKeage in the December 1948 American Bar Association Journal, 34 A.B.A. Journal 1096, the author presents a historical analysis of the various tests and rules applied over a long period of years by the United States Supreme Court. The Journal editors, in a preface to the article, refer to the problem of valuation as one that has troubled the courts and state commissions for many years    a field where the `glorious uncertainty of the law' reigns   . The various schedules filed by the utility and the figures used by it in the several hearings before the commission and in the district court and in its brief in this court indicate the rate of return resulting from application of net revenue to a rate base fixed in any one of three ways. 1. The highest rate base results from establishing what is called current cost rate base. [4] 2. The next highest figure results from applying an original cost rate base. 3. The third and lowest figure results from applying a net book cost rate base, which is the actual cost, less the depreciation reserve. While its witnesses were of opinion that current cost rate base was really the fairest method of arriving at the present fair value of the property, the utility, in answer to questions by the court during the oral argument, stated that it did not contend for the use of any single one of these methods. In like manner the commission stated that it did not contend that any one particular method should be used, but insisted that it had the right to use all methods and all available evidence in order to arrive at the fair value of the property devoted to the public service. So we have, as noted, no real contention as to the method to be applied. As the company submits, as agreeable to it, its net book cost rate base, which gives the lowest figure for fair value and indicates the highest return and is therefore most prejudicial to it in the present controversy, and as the commission naturally takes no exception to this method, we have used the same as a basis for the conclusions reached. This is not a judicial determination of the fact that such is the proper method or the only proper method or an exclusive method to use in fixing the rate base of this or any other public utility. In the present case the consideration of a current cost rate base or an original cost rate base would simply result in increasing the finding of present fair value and further diminishing the rate of return, thus unnecessarily presenting a fortiori support of the conclusions reached by us.