Accured Depreciation

Periodic and accrued depreciation.—As previously noted, the subject of depreciation of public-utility properties for purposes of rate-making has a twofold aspect: (1) the annual charge into operating expense to cover the expiration of value-in-use of fixed properties, and (2) the amount of expired use value to be deducted in the determination of the rate base on which there may be earned a fair return. That these two aspects of the problem are closely related is obvious. That any fraction of fixed property costs (original or reproduction) which has been collected from the consumer in the form of depreciation charges should thereafter be deducted in determining the rate base seems perfectly logical and equitable; in some respects these charges are similar to amounts paid on outstanding debt, which must thereafter be deducted from the principal in computing interest. ¹ That there have been many cases in which a public-utility company has collected from consumers in depreciation charges as much as 40 per cent of the original cost of the property, over and above all costs of maintenance, repairs, renewals, and replacements, and has thereafter maintained successfully in court that this same property was then in 90 per cent condition and should be included in the rate base at that percentage of cost (original or reproduction), seems unbelievable—until one reads actual cases on public-utility valuation. Commission and court decisions relating to public-utility regulation furnish ample evidence that there is not universal agreement that the depreciation charge and accrued depreciation are “Siamese twins” demanding simultaneous consideration in rate-making. ²