Rate base

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the value of property on which a public utility is permitted to earn a specified rate of return in accordance with rules set by a regulatory agency. In general, the rate base consists of the value of property as used by the utility in providing service. It may be calculated using one or more accounting methods such as fair value, prudent investment, reproduction cost, or original cost.

Pros

Provides a method to share public infrastructure cost amongst users of electricity (ratepayers).

Cons

The system can result in investments which are paid for by many while only benefiting few, e.g. a public utility constructing a microgrid for one community but not the others it serves.

Real Talk

The future of rate-based investments should be tracked and understood. Transitioning to 100% renewable energy will take a huge investment; rate-basing these investments may prove to be challenging to the extent that they benefit private investors more than ratepayers.

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