Rate base

“ Rate regulation can well be confined to rates in the aggregate, rate-making applies to the adjustment of individual rates, and must necessarily be the work of men well versed in all the varied elements which control it and the particular conditions affecting the business of each particular road. ”

“ We shall examine the various issues presented by the rate structure in light of these interrelated criteria.
The first issue is whether the Commission properly rejected the producers' contention that area rates should be derived from field, or contract, prices. The producers have urged that prevailing contract prices provide an accurate index of aggregate revenue requirements, and that they are an appropriate mechanism for the protection of consumer interests. ”

“ When a through rate is made by combination of rates for intermediate distances, the rate for the later link in the shipment is, when lower than the local, spoken of as a proportional rate.' Atchison, T. & S.F.R. v. ”

“ And, similarly, by the use of normal as applied to wages and profits, we mean the stable rate or the rate towards which they are attracted. It is thus quite possible that the normal rate may differ from the average rate or the rate obtained over a term of yearsl For it may easily happen that as regards wages, for example, a high rate for a short period may lead to such an increase in that kind of production that for a much longer period the rate will fall below the normal. ”

“ This privilege was available in the primary markets under two different rate schemes: (1) the 'overhead through rate' and (2) the 'rate-break combination'.
(1) An overhead through rate is the rate from an originating point to the final destination, or to a gateway like Chicago, via a particular point. Thus, on a shipment of grain from Enid, Oklahoma, to Chicago via Kansas City, the overhead through rate was 38.5 cents per hundred pounds. ”

“ In any system of rates, therefore, which are accurately adjusted to the cost of the service, the rate of charge must increase considerably less rapidly than the increase in weight, that is to say, the rate would be degressive. ”

“ If the standard by which the reasonableness of charges is to be determined should fluctuate with the market prices of material, labor and land, no schedule of rates could be established for any length of time, for, under the circumstances, a rate that would be reasonable to-day might be very unreasonable to-morrow. ”

“ At certain times and in certain businesses the prevailing rate of exchange on the actual day, or the monthly average of daily rates, may need to be used to secure satisfactory results. With the use of the fixed average rate, as above, the totals of foreign sales and sales returns journals are converted into home currency and carried respectively as debits and credits to Accounts Receivable control, and credits and debits to Sales. ”

“ For, as is now well established by economic theory and reinforced by the observations of practical men, while any increase in the supply of loanable funds on the call-money market temporarily [Pg 642] reduces the "money rate," an increase in the general supply of standard money in the community, on the contrary, raises not only the price level of all commodities, but the price for the use of capital, which we call the general rate of interest. The increase of money as the standard of value inevitably tends to increase the general rate of interest. ”

“ Nevertheless there is evidence of a tendency towards a single rate, which, for want of a better term, is called the gold rate—as though gold or money of gold is or has a rate—as though money of credit has a rate at which alone it is equivalent to gold—an attempt at a definition, which, however unsuccessful, is evidence of the tendency. ”

“ The single circumstance of the decline that now took place in the rate of interest may be regarded as a proof of the growing abundance of capital, seeing that it cannot apparently be attributed to the only other cause by which such an effect could be produced, a diminution of the field for the employment of capital; for the rate of interest always represents the effective value of capital, which again (as with all other things that are marketable or exchangeable) varies directly as the demand and inversely as the supply. ”

“ The advantages of the absolute rate are many. In the first place, where the absolute rate is established, there can be no discrimination, because the rate is known, it can neither be raised nor lowered, and the railroads have no opportunity to favor one shipper at the expense of another. ”

“ For each of these classes a rate-sheet gives the actual rate charge per unit of weight between the various stations covered by the tariff. This rate increases as the distance increases, but not in equal proportion; while the rates from large trade centres to other trade centres at a great distance are not higher than those to intermediate points somewhat less remote; if the law permits, there is a tendency to make them actually a little lower. ”

“ To whatever extent the matter of costs may be a requisite element in rate regulation, we have no indication that the area method will fall short of statutory or constitutional standards. The Commission has stated in its opinion in this proceeding that the goal is to have rates based on the 'reasonable financial requirements of the industry' in each production area, 24 F.P.C., at 547, and we were advised at oral argument that composite cost-of-service data will be considered in the area rate proceedings. ”

“ When no rate is fixed by the laws of the State, or Territory, or District, the bank may take, receive, reserve, or charge a rate not exceeding 7 per centum, or 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the Federal reserve district where the bank is located, whichever may be the greater, and such interest may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run. ”

“ He must be compensated in the same manner for the risk which he will run till the bill be ultimately paid.
⁠As an index of the general position of trade, the value of short bills is the more important; whereas the rates given for long paper, as compared with those for bills on demand, point mainly to the rate of interest, and partially to the state of credit. ”

“ Current assets and liabilities are converted at the rates current at the date of the balance sheet because the balance sheet should represent these values at the exact cost of converting them into cash at the present moment. If in practice they were actually liquidated, this could not be realized but in principle it represents the present condition. Revenue items are convertible at the average rate because they represent items accumulating during the entire fiscal period ”

“ The general or comprehensive system of interdependent and fairly related rates, each so equitably adjusted to the others that any local change must of necessity throw the whole out of balance, is declared to exist only in imagination,-to be a fiction constructed in disregard of the facts of rate-making, and without attention to the inconsistencies shown by the schedules which had been in force. ”

“ The average rates proposed would, it is believed, admit of a uniform rate for any distance for minerals and other goods carried in bulk in open trucks, of no more than the lowest rate now in force, by charging higher rates for goods requiring closed trucks and more labour in handling, still higher rates for goods of abnormal size or weight, and higher rates still for single small parcels, on account of greater proportionate expense of handling. ”

“ But the general tendency to regulate rates by authority of the state has apparently rendered unnecessary the old plan of rate regulation through competition, even if it had not been demonstrated often and again that this form of regulation is costly for all concerned and is effective only during rare periods of direct conflict between companies. ”

“ The Commission may, and in controversies involving through rates often does, deal with one factor only of the combination of rates which make up the through rate, and that factor may be a proportional rate. ”

“ The policy of the Government, national and state, during the last twenty-five years seems to have been to decide rate questions in the great majority of cases in such a way that rates were rarely advanced and generally were reduced, and to introduce rules, regulations, and methods that increased expenses. ”

“ This rate structure is known as the class or 'paper rate.' Since the channels of commercial traffic are regular and well defined in accordance with the stability of trade, large commercial shippers seldom use the class rate but negotiate rates with the carriers known as 'commercial rates,' which are peculiarly suited and adapted to the requirements of the commerce involved. ”

“ One is the newly assumed responsibility by the government in the matter of rate making. The other is its intervention in cases of dispute between the carriers and their employees. In both cases it is imperative that there should be available data for a just determination of the issues at stake. There must be assurance that every essential feature of the situation is fully and fairly set forth upon the books. Otherwise, as in disputed rate cases, every fact as to cost of service,—a primary basis of measurement,—is vitiated. ”

“ If the rate is set by the 'financial requirements' of the higher cost producer it will be higher than that necessary to make it just and reasonable to the lower cost producer, thus resulting in a windfall to the latter. ”

“ Having found the average amount of the required revenue that each class must pay, and the average amount of the total output each class will use, dividing the former by the latter for each case will give the rate each class is to pay during the new period.
It is often found in plants that large extensions have been made to supply a special contract for a long period of time, and these extensions are set aside for the exclusive use of this contract. In such cases exclude the cost, etc., of this part of the plant from the "Fair and Equitable Value" in the matter of adjustment of rates. ”

“ Riggs proposes adding to the physical value a minus "going concern value," and he is logical in doing so, if it is conceded that values for rate-making rest on profits; but this the writer does not concede for an instant. Values for rate-making cannot rest on the very thing that it is aimed to regulate, to wit, the rates charged. Until engineers and public service commissions and Courts free themselves from this confusion of cause and effect, there can be no rational theory of rate-making. ”

“ The 'impact of the rate order' on any producer is not known.
The 'total effect' of the rate order on a single producer is not known.
It is said, however, that if any producer is aggrieved, it may apply for relief and if it fails to obtain relief it can resort to the courts. But unless we know the standards which will govern in case it applies for relief, we are, with all respect, mouthing mere words when we say the rate is 'just and reasonable.' In absence of knowledge, we cannot possibly perform our function of judicial review, limited though it be. ”

“ To arrive at the average rate in the case of fixed assets it is sufficient to take the rate prevailing at the end of each month throughout the year and divide the total by twelve. This becomes necessary where construction or purchases of fixed properties take place throughout the year. The difference, if the rate is less than par, is credited to the capital expenditure and debited to Profit and Loss on the head office books. The branch is notified of the adjustment and makes a similar entry crediting Exchange and debiting the head office with the amount. ”

“ Through the extreme stringency which existed in the autumn of 1907, the rate ran from 12 to 30 per cent., with the exception, perhaps, of one or two days when practically no money was procurable at any price, when the quotation ran up to 100 or 110 per cent. per annum. It would seem demonstrated by experience that the law of 1882 has been a most potent factor in reducing the interest rate in times of stringency and in rendering it at all times more stable and equable. ”

“ When the same rate of interest is employed, any divergence in the ratios of the annuity-values will of necessity be due to differences in the rates of mortality.
A prevailing fallacy in the popular mind, which has grown out of the practice of net valuations, is the inference that the average technical reserve represents the value of the individual policy. Each risk is properly assumed at its probable or average value at the time. ”

“ Much study and effort to reduce all the conditions under which assets depreciate to a common basis and so to a definitely stated rate for each set of conditions, have, so far, come to naught and all qualified experts say without reserve that the rate of depreciation is an individual problem. ”

“ Under almost any sensible banking system the rate of discount is one of the regulators of the volume of credit relatively to reserve. If there is undue expansion of credit relatively to the reserve, the rate of discount is raised to curb it. If, on the other hand, there is a plethora of reserve, the rate of discount is lowered to stimulate an increase of credit. As the expansion and contraction of credit are directly related to the price level, the rate of bank discount is thus concerned very vitally with the price level. ”

“ Dealers at the primary markets complained against this differentiation. The Commission again canvassed the perplexing factors of the tangled problem before it. After pointing out that at the earlier stages of the grain rate inquiry 'especially the markets' had supported the system of 'rate-breaks at market points and overhead rates with transit at local points', the Commission observed: 'No extensive rate structure can be made perfect nor can any rate structure be made permanent in any real sense in a changing world. ”