Depreciation System, by engineering
professors Frank
K. Wolf and W. Chester
Fitch, describes methods for estimating depreciation
for utilities.
Rates of regulated public utilities are usually based on balancing the public
need for affordable rates with then investor’s need for a reasonable rate of
return. While it is only one factor in setting utility rates, a reasonable
accounting of depreciation is needed to determine the rate base and assure that
the capital of the investors is recovered.
Depreciation can be estimated in several way, some more practicable and
popular than others. Wolf and Fitch present these methods in a systematic and
orderly fashion. They present a system of classification by which methods can
be compared or contrasted using a handful of more basic concepts or methods. This
permits them to be thorough, though the result is sometimes tedious.
Fortunately, they do not give equal attention to every possible combination of
elements because some are not used or are not very workable.
Some of the methods they describe have been in use for more than a
century, but the book was written in the early 1990s, so the authors assume the
readers will be using computers. Because this is mostly a matter of
spreadsheets, the computerized calculation methods hold up even after 20 years.
However, depreciation methods do not change rapidly; many depreciation
professionals are still using software that was developed in the mid-1980s,
which is still considered current (at least from a methodological point of
view).
Like most references or textbooks,
this does not make for interesting reading. I undertook the task for
professional reasons. It is a good reference, though. In some cases it may be a
little too complicated for someone new to the profession. In general, the
authors try to focus more on the concept than the more complex details (you
can’t write a reference that prescribes a solution to every problem a
depreciation professional might face), while still presenting thorough
descriptions, with examples, of the major methods in use.
If you’re interested in this book, you may also be interested in:
Wolf, Frank K., & W. Chester Fitch. Depreciation Systems. Ames, IA: Iowa
State University Press, 1994.
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