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TOPIC 2: CONCEPT OF VALUE AND THE COST OF

ENGINEERING INFRASTRUCTURE

1.0 Introduction

Valuation of a property is an ancient art. Engineering of valuation is however

regarded as a modern art that assumed a systematic and formally organized character

since 1890. Valuation as an art is capable of estimating the fair monetary measure of the

desirability of the ownership of specific properties for specific purposes.

The words valuation and appraisal are often used interchangeably because they

are synonymous. The value of a property must be expressed in terms of a recognized

medium of exchange, which is usually the monetary unit of currency of the country in

which the property is situated. Where the purpose of a valuation entails international

exchange the value unit adopted is usually an international accepted money unit like the

U.S. Dollar, the German Dutch Mark, and the Pound sterling of Great Britain etc.

1.1 Types of Valuation

The discussion above gives an average assessment of what engineering valuation

is likely to mean. It is important to note that depending on the angle from which it is to

be employed. There is more than one type of valuation:

i) Ordinary Valuation

This is used in the ordinary exchanges of property, the value of which is determined

by the judgement of the seller and the buyer, each taking into account the knowledge

of the property, the prevailing condition for such property and his own exigencies and

those of the other party. Both the seller and the buyer make such ordinary exchanges

authoritative and binding only through acceptance of the terms of the exchange.
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ii) Formal Valuation (F.V.)

In this type of valuation, the value of the property is determined by the judgement of

specially qualified valuators. Such valuers/valuators or appraisers are formally

required to be licensed for revenue purposes. Formal valuation may be used for

property sales or for many other purposes such as taxing property, securing loans,

determining rents, and establishing fair commodity prices. F.V. is fixed by expert

judgement that may or may not rely on technical computation.

iii) Engineering Valuation (E.V.)

This has to do with the art of estimating the value of specific properties with

professional engineering knowledge and judgement. The properties covered under

this type of valuation are mines, factories, buildings, machinery, industrial plant,

engineering construction of all kinds and public utilities.

Estimate in engineering valuation is used in a sense to indicate a carefully considered

computation of some quality, the exact magnitude of which cannot be determined.

The estimate should be as close to the true magnitude as can be determined by the

exercise of sound judgement based on appropriate computations.

1.2 THE EVOLUTION AND NATURE OF ENGINEERING VALUATION

The development of engineering valuation dates back to 1890, from which date

the engineers, industrialists and the courts began to be involved actively in formal

valuation. Hitherto, valuation was considered the province of the merchants,

accountants and the financiers. Organized literature on engineering valuation was not

readily available until about 1900. Since then the art of engineering valuation has
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been undergoing improvements on continuous basis. Engineers, accountants,

economists and lawyers work together as a team on various phases of valuations. In

developed economies such as those of the United States of America, the federal and

state governments have established various commissions to regulate public utilities.

These commissions are publishing their opinions and decisions on valuation matters

in official reports. From both states and federal, courts in the US and elsewhere, a

long line of decisions have been handed down over the years which have guided and

influenced the gradual evolution towards the development of comprehensive and

clearly formulated valuation fundamentals. Nigeria has entered this club with the

establishment of the Utilities Tariff Commission in 1990.

The end point of Engineering valuation analysis and judgement is value. Like in

other activities in Engineering practice – such as in design, inspection, etc., the result

(in this case “value”) stated by one valuer may not agree with that started by other.

In looking at the value estimated, the methods employed to reach a value and the

weights accorded the factors that cause value to exist are important as they may vary

between appraisers. An engineer studying the art of engineering evaluation must bear

in mind this situation and maintain an open mind when considering any questions

relating to valuation of property. A typical example of how investments or properties

are valued is contained the section below

2.0 Valuing Investments

To value investments or properties, a classic formula that links an asset’s depreciation

expense to its net value is used according to the expression.

At = ((I + a)* Kt-1 – Kt)

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Where Kt is the (net) value of the asset at time t,

a is the rate of return on capital, and

At is the depreciation expense, i.e. the normal remuneration for the use of

the asset between t-1 and t.

The methods used to establish an asset’s value include

i) The accounting method

In this method, an asset, with purchase cost Io and accounting lifetime T, is

generally valued in the company’s accounts according to the formula:

Kt = (T – t) Io
T
This method however does not have a true economic basis: it simply reflects

the accounting conventions adopted by the company, even if this economic

valuation, must, in principle reflect an economic valuation of the asset.

ii) The Replacement Cost Method

Here, the value Kt of an asset aged n years, with lifetime d (n<d) at date t, is based on

the fact that by owning it, the owner can put off investing in a new equivalent asset.

Therefore, this value is equal to the difference between

• the actualized cost of the “new” line”. Where it is necessary to invest at

date t, then renew the investment with an equivalent asset every d years.

• the actualized cost of the “maintained” line: the asset is kept for a period

equal to its residual lifetime, i.e. for (d – n) years, the equipment then

being renewed every d years.

This method can use a technical progress rate g, which takes into account price

decreases, which can be observed, or predicted, over time for the acquisition of the
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same asset. By “same asset”, we mean an asset, which provides the same services

(same production capacity, same operation and maintenance functions).

Thus, an asset purchased new Io at time t =0, at time t is supposed to cost new

It = Io / (1+g)t

This method supposes, in addition to the use of discount rate a, the evaluation of a

technical progress rate g, the definition of a lifetime d, the determination of the age of

each asset and that of its residual lifetime.

In fact, the value of the depreciation expense At, does not depend on the age of

the asset in question: Thus, using this method, the value of the depreciation expense

for one year can be established by considering the value of the new asset at the

beginning of the year, and a residual value at the end of the year determined by the

replacement cost method.

The only difference between the two methods is the distribution between the

return on capital and depreciation. When we consider the effective age of the assets,

using the replacement cost method, we determine their “current” value.

Key definitions:

(A) Equipment lifetime

The term lifetime can have several possible meanings:

Accounting lifetime: this is, for a given asset category, the lifetime chosen by a

company to depreciate this asset category in its accounts

Real lifetime: this is the time, whether observed or expected, during which the

asset is actually used

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Economic lifetime: this is the optimum renewal period for an asset when we take

into account the increase in operating costs for the asset; indeed it may appear

preferably to renew the asset early to minimize operating costs and usage costs.

In a replacement cost method, which does not include changing operating

costs, the lifetime is an exogenous parameter, which must be the real lifetime of

the asset.

B. The technical progress rate.

The technical progress rate is not the same for all types of equipment. To

evaluate the technical progress rate, we need econometric studies in order

to establish series of historical prices with constant functions

C. The discount rate (or return on capital)

This value is obtained using a weighted average cost of capital method

(cost of debt, cost of shareholders equity) and using an evaluation of the

cost of shareholders’ equity involving measuring the risk differential

between the activity in question and the entire equity market.

INDUSTRIAL INFRASTRUCTURE

Industrial infrastructure pertains to tangible things required for smooth running of an

industry as well as others that will hasten the process of industrialization.

These include manpower in terms of skill, electricity, natural gas, potable water,
industrial water, sewage and industrial wastewater, industrial waste disposal system, raw
materials, products and by-products, telecommunication and transportation network. All
these factors affect the value of the finished product and they have to be considered in the
valuation of the product.
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(i) Manpower
The smooth operation and growth of an industry depends on the level of skill of
the workers involved in the operation of the industry. For each operation, adequate
technological know-how is required particularly in handling of machines. Where required
skill in handling softwares, systems and techniques for managing development
information and database building is required (most especially in industries with
automated or sophisticated machines) appropriate level of staff (capability, skill,
educational background) should be detailed to handle a job. For instance, if a graduate
Engineer is handling a job which a laboratory assistance can handle, that will increase the
cost of production.
(ii) Availability of standard parts
An industry without any reference standard parts will take a long time to take off
and develop. This is because a lot of trials and errors will be involved before a standard
parts can be developed. In such process wastage of materials may take place. The cost
implication of lack of standard parts is that parts may have to be machined, and shaped to
the required size and form. This added to the cost of production.
(iii) Electricity
Adequate electricity is required in an industry. The amount required depends on
the scale of production (whether small, medium or large scale) Proximity of the industry
to the source of electricity affect the ultimate cost of getting electricity to the site. The
sources of electricity include hydro electricity (water), wind turbine, solar etc. Frequent
disruption of electricity also adds to the production cost because it is more expensive to
run on a generator than the online electricity.

(iv) Natural gas

This also has to be available adequately for industry that utilises it. A good
network of distribution of the gas is important. The amount required also depends on the
scale of production. The non availability of gas can lengthen production time and
increase the value of the product.

(v) Potable Water

This refers to water for domestic uses by the workers in the industry. The quantity
required depends on the workforce of the industry. Such water should be of good quality.
Storage reservoirs should be provided at strategic locations within the plant.
(vi) Industrial Water
This refers to water for industrial operations. The water distribution network for
such purposes should be separated. Such water should also be analyzed regularly to
ensure conformity with the industrial requirement. Adequate pumping station is required.
(vii) Industrial Waste
Sewage and Industrial waste water systems. There should be efficient system of

disposing all sort of wastes from the industry. To avoid environmental pollution

industrial wastewater should be treated before evacuation. Solid waste treatment should

also be available.
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(viii) Procurement Raw Materials and distribution of Products and By-products

There should be adequate linkages with other companies that exchange services

or share facilities with the industry. By products of company are often sold to another

which in turn manufacture materials needed by its neighbour.

(ix) Telecommunication
There should be efficient network to provide industries with access to a high-

speed data transmission service. High speed internet link (nowadays) and presence of

wireless communication gadgets are important to have quick access to information

affecting the operation of the industry. An efficient intercommunication is very essential.

(x) Transportation Network

Transportation could be by road, sea, rail or air.

In road transportation system, difference vehicles are involved e.g. truck, buses and cars.
Trucks are useful in conveying bulky materials but usually more on low speeds. Their
cost is also very high when compared with buses or cars. Buses can be used for mass
transportation and are usually faster than trucks. Cars are mainly used for carrying
passengers.

The choice depends on the operating capacity of company, availability of spare parts and
reliability of such vehicles.

Transportation by sea is common in riverine areas. Transportation by air is needed for

extremely fast delivery of goods, information etc.

The cost implication of using

(1) Rail system
(2) Trucks
(3) Big Buses
(4) Small buses
(5) Cars
(6) Motor cycles, Bicycles.

VALUATION OF ENGINEERING INFRASTRUCTURE

Engineering infrastructure are services provided for the comfort and use of the populace.
They aid the economic and social development of the society. Engineering Infrastructure
is usually provided by the Government or Multinationals freely or at subsidized prices. In
most cases, the government/financial organisation provides the over head costs while the
populace are made to pay for the recurrent costs. Overhead costs are the cost of capital
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projects (building, machines, and the initial cost of setting up the service) while recurrent
are costs associated with the running of the service. This includes salaries of workers
running the service, maintenance cost, and cost of consumables.

Valuation is the act of placing value or worth on article. The value or worth could be
tangible or intangible worth is the one that cannot be quantified in monetary terms but in
the usefulness in relation to other one. Valuation of Engineering Infrastructure is the act
of placing worth or value (both tangible and intangible) on Infrastructural services. These
services include Water supply, Roads, Electricity and Telecommunication. It is done for
one or combination of the following reasons:
(1) For deciding on the price to charge users
(2) For deciding on the price to charge users
(3) For deciding on the cost of share if the part of the service is to be sold out.
(4) For deciding on the maintenance cost and scheduling
(5) For estimating expansion or extension cost.

Engineering Infrastructures are designed to provide continuous service with constant

changing of old components and extension to cater for growing population. Steps in
valuation of Engineering Infrastructure.

(1) Examine or run the service

(2) Determine the efficiency or effectiveness of each component of the
service and determine what is needed to bring each up.
(3) Check the estimated design period and projected users population
(4) Check the age of the service at the time of valuation and current
user population
(5) Determine the life span of each component of the system.
(6) Check the initial cost of the project.

The valuation is estimated as follows:

A = Net Present Value of Initial Cost - (Cost of rehabilitation of

inefficient components +
Cost of additional
component to meet target design
Population + Depreciation of
the efficient system

Net Present Value of Initial Cost

The present value of an initial cost is best determined from the present quotations by
adjusting the original
quotations to the current date due to inflation.

The NPV = Initial Cost

C.E.F

Where CEF = (1+r)a

(1+r)a-1
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Where C.E.F. = cost of escalation factor

a = present age of the system
r = inflation rate or annual rate of cost escalation

Cost of Rehabilitation of Inefficient System

It is possible that at the time of valuation, some components are not working as desired
or the useful lives have
Expired. Such components are not working as desired or they useful lives have expired,
such components need to be
charged entirely or rehabilitated to in order to perform offer the desired service at the
designed efficiency.
Cost of Additional Component
Sometimes, the infrastructure does not provide the required service to cover the target
population or coverage on which the initial estimate was based. In such a situation,
additional expenses required to make service to meet the designed coverage or target
population must be considered in arriving at the present value of the infrastructure.

Depreciation of the efficient system

Each component of the service must be depreciated separately and then the individual
depreciations added to give the total depreciation. Thus

The annual depreciation and interest cost is calculated as follows

ADC = ECRFj RWj

J=1

CRF = I(1+I)UL
(1+I)UL-1

where
ADIC = annual depreciation and interest cost
CRF = capital recovery factor
NC = number of system components
RWj = Real worth of component j
i = annual interest rate (decimal)
UL = Useful lie of component (years)

Real Worth: is the amount that must be invested at the beginning of the project to return
the equivalent of a component’s initial cost plus interest by the end of useful life
of the component.

RW = IC-SV (1+r)UL
(1+Ii)

where RW = Real worth of component (Naira)

IC = Initial cost component (Naira)
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SV = Salvage value of component (Naira)

R = Expected annual rate of cost escalation (decimal)
UL = Useful life of Component (years)

The second term of the above equation is the real worth of the salvage value considering
the effect of cost escalation.

Useful Life of Components

This is by far, the most difficult term to estimate. However there are guides in the
literature.

Water Supply
Components Type Useful Life
Pump Diesel 15
Gasoline 10
Electric 25

Treatment Concrete 30
Plant Steel 15

Reservoir Concrete 25
Steel 10

Pipes asbestos-cement and PVC buried 40

Aluminum, gated surface 10
Steel coated buried 40
Steel uncoated buried 20
Steel coated surface 10
Steel coated and lined surface 20
Reinforced plastic mortar, buried 40
Plastic surface 2

Roads
Components Type Useful Life
Tarred High density, No Restriction 15
Medium density 20

Asphalt layered Medium Density 8

Low Density 10

Untarred with Drains Medium Density 8

Low Density 10

Untarred without Drains Medium Density 5

Low Density 2

Electricity Supply
Components Types Useful Life
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Transformers Step-up Kw>5000 15

Step-up Kw<5000 20
Step down Kw> 5000 20
Step-down Kw<5000 25

Transmission lines Conduct 40

High tension Surface 20

Transmission lines Conduct 40

Low tension Surface 20

Generators Diesel Kw>2500 20

Diesel Kw<2500 25
Petrol 10

Poles Wood coated 15

Wood uncoated 5
Steel 10
Reinforced concrete 20

References
Oyo State Ministry of Works and Housing. Feasibility studies on the Oregeji-Agungun
road net works. 1994.

Osun – Oshun River Basin Development Authority. Feasibility studies on the water
supply for Nihort, Ibadan 1992.

Badafash Consulting Engineers: Design and Installation of Water supply for Mukwa
town 1983.

James LG. Irrigation system costing in Irrigation system Design. Kriegher publishing
company, Florida U.S.A. 1993

Federal Ministry of Works.

ANNEXURE TO TOPIC NO. 2

1.0 BASIC CHARACTERISTICS OF VALUE

In common parlance, the word ‘value’ has many different well established meanings.
In engineering valuation however, uses of the word which apply to other than tangible
or intangible property are of no concern; application of the word to property being of
primary concern.
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1.1 MEANING OF ‘VALUE’

In most uses of the word value, as applied to property there is implied by the speaker
or author, a sense of worth, a desirability of ownership or possession, or the
exchangeability of property as it can be measured in terms of the monetary unit,.
Usually there is the implication that it is of little consequence whether one possesses
at the particular moment the property or the cash stated to be its value.

The arms ‘assessed value’, ‘earning value’, ‘market value’, and ‘replacement value’
are intended to indicate the basis upon which may have been computed, and thus
these terms qualify the value as being under these conditions.

‘Real value’, ‘fair value’, sound value’, and true value’ are terms that attempt to
indicate the justness or reality of the value state.

1.2 USE OF ‘VALUE’IN ENGINEERING; VALUATION

In engineering valuation practice, the value of property is used in the concept of the
desirability of ownership or value to the owner, when ‘owner’ is defined as anyone or
everyone who may have or expects to have an interest in the property.

Desirability of ownership of property is measured by the probable returns, benefits, or

satisfactions that may accrue in the future to the owner.

Market price, cost of replacing the service rendered by the property, and present value
of the future returns from the property are usually relatively good measures of the
value of the property to the owner. The basic value of the property to the owner arises
from his power to exchange his property for other property in a direct exchange or
through the medium of a money exchange.

Sentimental values and values arising from personal pride of owners are not
considered in engineering valuation.

1.3 APPLICATIONS OF THE WORD ‘VALUE’

Value is a relative term by which the desirability of ownership of the property I

question is stated in terms of other property or money. The conditions under which
the value is arrived at and the conditions under which the value is to have a real
significance.

The time, place, purpose, and parties thereto all affect the measure of the value of
property.

An R & D laboratory may value at N100,000 a highly specialised and complicated

pressure integrator to be used on a research project for a customer, for whom the
integrator was specially designed and constructed. To another person however, or to
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another company, this equipment is worthless, except as scrap metal. Assuming that
research results indicate within the next month that the original objective cannot be
achieved within a profitable cost, and the customer then cancels his contract. The
special pressure integrator, valued at N100,000 the previous month by the owner
previous now useless and valueless to him, except for salvage at about 2% of original
value.

During an economic depression owners of second hand capital goods would value
their machines as scraps metal, or at best as obsolete machines; but if a boom is
suddenly occasioned for machine tools activities, the same machines would command
high prices comparable will prices of new machines.

A warehouse within an area to be flooded by a dam under construction is only of

scrap-value to any one so far as the construction materials of the building are
concerned. The owner, however might place a high value on the warehouse because
of the future returns he could earn through its use were it not for the reservoir.
Because of this, the owner is paid compensation on the basis that he could continue
to operate the property and earn a satisfactory return. Once in the hands of the new
owner (the authority constructing the reservoir) the same building ceases to have
value.

1.4 CONDITIONS OF VALUATION

Any statement of the value of property is usually without significance, unless the
party to whom the property has value is known. Also, for a stated value to have
complete significance, the time and place ought to be known. Thus in the process of
valuating property, no progress can be made until the purpose of valuating
established.

The assessed value of a property is as much a value of the property as is its market
value or replacement value; yet it is safe to state that no two of three values are ever
identical.

Money itself has changing value in its purchasing power; each year sees some change
in monetary values.

The changing of value with time comes about not only because of the changing of
circumstances which give rise to the value of property in the first instance, but in
many cases values of property are not realisable values except as certain future
conditions prevail.

Values that lie in the future are usually discounted when they are expressed as of the
current time or other time short of their expected realisation. A given sum of money
in hand today is worth more than then same sum to be received at some future date.

Fig. 1 shows present worth, at different rates of compound interest, of N1 receivable

1 to 100 years in the future. The rate of compound interest used in any calculation of
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present worth should be that which long-time investments of the particular character
being valued must earn to justify the investment risks considered.

1.5 FUNDAMENTAL BASIS OF VALUE

The fundamental basis of the value of any specific property is the present worth, to
the present owner and to the would-be purchaser, or the probable future services
expected from the property during its probable future productive life in service.

The future life in service and a measure of the annual returns during the future service
life cannot be determined with exactness and certainly. They are estimated basis of
judgement. All values are of the nature of forecasts of events and are subject to the
uncertainties of all prophecies. Values fluctuate with changes in prevailing opinions
of what the future is likely to bring.

2.0 RELATION OF COST TO VALUE

‘Cost’ and ‘Value’ are distinct from one another.

Price is the amount of money paid to the seller by the purchaser of the property

Cost is the price paid plus all other expenses incurred by the purchaser in the
acquisition of the property.

The terms actual cost, original cost, and historical cost are used to indicate the outlay
which was made by either the present owner or by the owner in its normal function.

In ordinary book keeping, original cost refers to the investment made in the property
by the present owner in acquiring possession of the property.

In valuation work however, original cost usually means the investment made in the
property by the owner who first used the property when it was new.

With land however, original cost is taken to mean the price paid by the present owner.

The cost of a property is not necessarily equal to its value. On the other hand, cost is
considered as an evidence of value, and in establishing value of property it is
customary to investigate both original cost and replacement cost. It is usually safe to
consider that the value of a property to the owner was at least to its cost at the
moment he took possession. The cost represents the minimum value to the purchaser,
because a shrewd trader pays less than maximum value to him to acquire his property.
Certainly to another person or for another purpose, the original cost bears no positive
relationship to the value of the property.
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2.1 DEFINITIONS OF VALUE

Value is a measure of the desirability of ownership of property.

Fair Value is that estimate of the value of a property which is reasonable and fair to
all concerned, every proper consideration having been given due weight.

Market Value is the value established in a public market by exchanges between

willing sellers and willing buyers. The market value fluctuates with the degree of
willingness of the buyer and seller and with the conditions of the sale. The use of the
term market suggests the idea of barter. When numerous sales occur on the market,
the result is to establish fairly definite market prices as the basis of exchange. Such
market prices fluctuate to some extent and at any one time may be above or below the
level which infallible judgement would adopt when appraising property.

Replacement value refers to that value of a property determined on the basis of what
it would cost (usually at the current price level) to replace the property or its service
with at least equally satisfactory and comparable property and service.

The stock and bond value of an industrial property is the sum of:

i) the par values in Naira of the different issues of bonds multiplied by the
corresponding ratios of the market price to the value and

ii) the number of shares of each issue of stock multiplied by the corresponding market
prices in Naira per shares. Stock and bond value is a special form of market value for
enterprises which can be owned through possession of their securities.

Earning value of a property is the present worth of its probable future net earnings, as
prognosticated on the basis of recent and present expenses and earnings and the
business outlook.

Service worth value of a property is what its earning value would be if the rates
and/or prices charged were just equal to the reasonable worth to customers of the
services and/or commodities sold.

The capitalized value of a uniform perpetual income is that sum of money whose
annual return, at the highest rate which it can certainty earn, is equal to the given
perpetual income. Annual incomes to be received at remote future dates do not affect
the earning value greatly; if the income in question is reasonably certain to be
received for a long period of years, it may often be treated as if it were perpetual.
Capitalized value is a special case of earning value.

Taxable Value, or Assessed Value: The assessed value of a property is that value
entered on the official assessor’s records as the amount of taxes to be assessed against
that property.
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Going Value is that element of value possessed by an operating enterprise advanced

to the state of successful operation as compared with an enterprise not so developed
and advanced.

Salvage Value is net sum (actual or estimated), over and above the cost of removal
and sale, realized for a property retired from service. Salvage value and scrap value
are identical when the property retired from service for the value of its materials, in
lieu of additional further serviceable use of the property.

Book Value is the original investment as carried on the company books less any
allowance for depreciation entered on the books. In this sense, book value is actually
book cost.

4.0 DEFINITIONS RELATED TO VALUE

Physical Property The physical property of an enterprise is that part of the property
which has a physical existence, so that it can be apprehended by the senses. The
physical property of an industrial enterprise consists of many physical units: lands,
building, machines, poles, wires, ties, rails, roadbeds, culverts, bridges, and dams may
be cited as examples.

Intangible Property Intangible property is that part of the property which does not
have a physical existence. Examples are organization, financing, goodwill, patents,
and contracts.

Investment: The investment in an enterprise may be taken to be the sum of the

original costs of the several items of existing property that constitute the enterprise.

Present Investment Present investment in an enterprise is the investment at original

cost adjusted for any decreased usefulness of the property brought about by age and
prior uses of the property.

Prudent Investment: Prudent investment is that amount invested in the acquisition of

the property of an enterprise when all expenditure were made in a careful, business
like, and competent manner.

Reproduction Cost: Reproduction cost of a property is the estimated cost of

reproducing substantially the identical property at a price level as of the date
specified.

Replacement Cost: Replacement cost of a property is the estimated cost of replacing

the service of the existing property by another property, of any type of achieve the
most economical and preferred service, but at prices as of the date specified.

Trended Cost: The trended cost of a property is its replacement cost estimated buy
multiplying the original costs of each items of property by the ratio of the appropriate
cost indexes for the two time periods concerned.
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Fair Return: The fair return for an enterprise is that amount of annual monetary gain
in income about all expenses of operation which represents a fair, reasonable, and
appropriate compensation to the owners;

i) for their investment in the enterprise,

ii) for their assumption of the risks and uncertainties of operation, land

iii) for management functions not otherwise rewarded.

Base Rate: Rate base of a public utility is that monetary sum established by the
proper regulatory authority as a basis for determining the charges to customers
and the “fair return” to the owners of the utility.