Industrial Power Rates in the Mid-Eighties

The full impact of higher cost fuel and plant construction costs have not been factored into today’s industrial electrical power rates. New power plant units committed in the late sixties and early seventies at sharply higher costs, higher financing charges and the phasing in of higher fossil fuel costs will create the need for sizeable rate increases over the next eight to ten years. This paper presents one technique for forecasting future industrial rates which takes into account the impact of the major parameters of fuel, cost of capital (financing) and the utility’s rate base on the development of customer class revenue. A sensitivity analysis is included which examines the effect of changes in fuel costs, new rate design proposals and financing costs. It is shown that these variations will add from 0.72 to 1.85 cents/kWh to the projected base rate of 2.85 cents/kWh in 1985. This is a total increase of over 94–154 percent compared to the actual rate of 1.85 cents/kWh in 1974.