DEPRECIATION, DEFERRAL, DENIAL. I have often discussed in Public Utilities Fortnightly the tendency for regulation to defer the recording and recovery of depreciation expenses. Therefore, Mr. William C. Schaeffer's discussion of this subject in the February 1, 1998 issue (see "Mail," p. 11) attracted my attention, especially his quoted claim of the Delaware public advocate that investors should be neutral to depreciation deferral on a present value basis.
My experience has been that present value arguments in regulatory proceedings relative to depreciation are in support of deferral. Regulators set tariffs based on nominal (undiscounted) amounts, so customers pay nominal amounts for service. Therefore, discounting does not provide a reasonable basis for determining the effect of depreciation deferral on customers.