484
Opinion of the Court
reasonable" rates were to be calculated. Id., at 601-602. See also FPC v. Natural Gas Pipeline Co., 315 U. S. 575, 602-606 (1942) (Black, Douglas, and Murphy, JJ., concurring). In the matter under review, the Federal Power Commission had valued the rate base by using "actual legitimate cost" reflecting "sound depreciation and depletion practices," and so had calculated a value roughly 25 percent below the figure generated by the natural-gas company's fair-value methods using "estimated reproduction cost" and "trended original cost." Hope Natural Gas, 320 U. S., at 596-598, and nn. 4-5. The Court upheld the Commission. "Rates which enable the company to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks assumed certainly cannot be condemned as invalid, even though they might produce only a meager return on the so-called 'fair value' rate base." 6 Id., at 605. Although Hope Natural Gas did not repudiate everything said in Smyth, since fair value was still "the end product of the process of rate-making," 320 U. S., at 601, federal and state commissions setting rates in the aftermath of Hope Natural Gas largely abandoned the old fair-value approach and turned to methods of calculating the rate base on the basis of "cost." A. Kahn, Economics of Regulations: Principles and Institutions 40-41 (1988).
"Cost" was neither self-evident nor immune to confusion, however; witness the invocation of "reproduction cost" as a
6 The fair-value concept survived to some degree in the "used and useful" qualification to the prudent-investment rule, that a utility can only recover prudently invested capital that is being "used and useful" in providing the public a good or service. For example, the Pennsylvania rate statute upheld in Duquesne Light Co. v. Barasch, 488 U. S. 299 (1989), provided that capital invested with prudence at the time but rendered useless by unforeseen events would not be recoverable through regulated rates, just as it would be worthless in terms of market value. Id., at 311-312, n. 7 ("The loss to utilities from prudent ultimately unsuccessful investments under such a system is greater than under a pure prudent investment rule, but less than under a fair value approach").
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