Some Aspects of Cost and Demand in the Pricing of Electric Power.

More than a decade ago Leland Olds pinpointed the problem of private power companies in the cleverly phrased statement, "Rates are high because costs are high because consumption is low because rates are high." Presumably he meant that rates and costs of private power are high relative to those for public power, leading to lower consumption per potential consuming unit in areas serviced by private power. It is the purpose of this paper to elaborate on those aspects of cost and demand which support and enlarge the argument while leading to the same general conclusion. Private power companies have also been disadvantaged relative to public power in obtaining investment funds. First, they have needed to raise equity capital, which requires a greater return than does debt. Public power had no such problem. Government-financed river basin projects had many objectives only one of which was generation of electric power, and general taxpayers bore a large share of construction costs on that account.