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The problem of measuring a fair rate of return in regulated industry with special reference to the motor carrier industry

University of British Columbia

The motor carrier industry of North America is subject to regulatory controls over its rate setting practices. In the United States and in Canada, public commissions must develop certain tools for measuring when an individual rate or an entire rate structure is either exploitive to the shipping public or confiscatory to the carrier. The tool that has been applied historically is the operating ratio, simply the relationship of total revenues to total expenses of the carrier. The operating ratio is not as reliable an instrument as the rate of return principle employed by regulators of other regulated industries. In the United States, where the operating ratio is more highly refined, it is greatly criticized. In Canada, students of the motor carrier industry are still faced with the problem of deciding what cost data must be compiled before the operating ratio can be used with any confidence by regulators . This thesis attempts to study the problems involved in making a judicial measurement of the financial effect a rate may be having on the carrier and the shipper. As a result, the operating ratio is examined at some length. In addition, the thesis confronts the problem, more pressing to Canadian regulators, that of what cost data must be collected and how to collect it before the operating ratio be developed. To study this problem, the thesis has brought together economic analyses of the motor carrier industry as contrasted to other regulated fields with certain research into the development of commission and judicial thought on the manner of how rate regulation should be effected. A pioneering effort was made to collect a set of costs for British Columbia motor carriers to supplement what is otherwise a mainly theoretical piece of writing. Clearly, this thesis has not been designed so that any concrete conclusions could be drawn about how effective or ineffective motor carrier rate controls are at present nor about precisely what data Canadian regulators should set about collecting. It is felt, however, that some needed focus has been brought onto an area of public regulation that is presently, at its best, badly neglected.

Text

2011-07-15

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http://hdl.handle.net/2429/35996

Business Administration

University of British Columbia

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