Rate base: with respect to physical assets, the rate base represents the value of the plant, equipment, and other assets employed by a utility to provide service to its customers (e.g., utility-owned generation facilities, buildings, poles, wires, transformers, meters, vehicles, computers). Conversely, with respect to the financing of the investment required to purchase and maintain these assets, the rate base reflects the money provided to the utility by investors expecting a return on their investment. Accordingly, material increases in the rate base due to additional capital investment can result in a significant increase in the utility’s overall revenue requirement. Rate base is normally calculated based on historical cost accounting, using accounts prepared regularly in accordance with generally accepted accounting principles (“GAAP”). However, in some cases, such accounts may not exist. For example, if the utility has operated as a government department, records of historical costs may not be available. In such cases, the starting point for determining the value of the utility’s assets consists of two parts:
