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LSDefine
Simple English definitions for legal terms
rate base
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A quick definition of rate base:
Rate base: The amount of money or value of property that a company, especially a public utility, is allowed to use to earn a specific rate of return. It's like a starting point for how much money the company can make based on the amount they have invested or the value of their property.
A more thorough explanation:
Rate base refers to the amount of investment or property value that a company, particularly a public utility, is allowed to earn a specific rate of return on.
For example, let's say a utility company has a rate base of $10 million. The regulatory agency overseeing the company may allow the company to earn a 10% return on that rate base, which would equate to $1 million in earnings for the company.
Another example could be a transportation company that has a rate base of $5 million. The regulatory agency may allow the company to earn a 7% return on that rate base, which would equate to $350,000 in earnings for the company.
These examples illustrate how rate base is used to determine the amount of earnings a company is allowed to make based on their investments or property value.