The rate base is the amount of assets a utility is allowed to
include in the calculation of the rates charged to users. Rate
increases must be approved by a state utility board. The
approved rate is normally based on a target return on the
allowed rate base. The idea that part of the assets be excluded
from the rate base came about in the era of the WHOOPS debacle.
The industry set out to overbuild nuclear power plants some of
which were not completed. By excluding some investments, the
utility must charge the asset in question or the expense to its
shareholders. Usually the expense comes out of shareholders
equity. Rate base becomes a critical issue as the approval time
for power plant installations increases and are sometimes
challenged in court on environmental grounds. The state utility
board becomes an important player in investment decisons.