Legal Definitions - rate base

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.