F, Fair Value Rule.
Edited By: Kermit L. Hall, James W. Ely Jr., Joel B. Grossman
Edited By: Kermit L. Hall
Fair Value Rule.
Adopted as a constitutional standard by the Supreme Court in *Smyth v. Ames (1898), the fair value rule was an attempt to protect regulated industries against confiscatory rates. Under this rule a utility was entitled to receive a “fair return” on the “fair value” of investments employed for public service. Fair value was defined as the current value of the company’s assets. In theory the fair value rule provided the equivalent of a competitive market return. The rule, however, was difficult to administer because it required courts to make a complex assessment of the present value of utility assets. The fair value rule was abandoned by the Supreme Court in 1944.
James W. Ely, Jr.