Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Hybrid Finance

A solution to high electricity prices in restructured states.

Fortnightly Magazine - September 2010

no greenhouse gases. If taxes are levied or other restrictions on carbon are imposed, the economics of new efficient generation, particularly nuclear power, would be enhanced. The relatively inefficient generation would operate less of the time, while highly inefficient plants likely would be forced to shut down because of the lack of profitability—an advantage associated with competitive markets that is incorporated into the market hybrid approach. In either case, production of greenhouse gases and other pollutants would be reduced significantly.

Furthermore, it should be noted that nuclear power or any other highly efficient baseload technology wouldn’t displace energy efficiency, wind or photovoltaic sources of power because these latter technologies have zero or extremely low marginal costs of operation. Similarly, the market hybrid approach could be structured to produce revenues to finance additional conservation and renewables yielding further environmental benefits.

Economic Growth Benefits

Infrastructure development is an essential component in encouraging economic growth, creating new jobs and boosting the region’s economy. In many states, economic growth is required to enhance revenues without increasing taxes to provide resources for various needed social goods such as schools, health care, transportation infrastructure and pension obligations.

Construction of a new baseload generating unit would have a material impact on economic growth due to its multi-billion dollar cost, labor intensity—particularly skilled union labor—and the associated multiplier impact on related industries, most notably construction materials. There also would be substantial permanent employment associated with the continuing operation of the plant. Unlike tax increases that produce a reduction in demand, offset by increased state spending, construction financed by private-sector debt and equity has a more powerful economic impact and doesn’t affect the debt capacity of the state. Increased economic growth leads to increased tax revenue without an increase in tax rates, providing the enhanced revenue required for social good.

At the consumer level, lower residential electricity prices free up resources for the purchase of other goods and services, thereby enhancing individuals’ standard of living. The residential cost of electricity is regressive because low-income households spend a larger proportion of their income on the consumption of energy. All consumers benefit from lower electricity prices, but low-income consumers realize a proportionately greater benefit similar in effect to a tax cut targeted to people with low incomes. An ancillary benefit is ameliorating the cost of universal service and other energy assistance programs.

Not only does infrastructure enhance the efficiency of production, it also provides economic incentives to the private sector and influences firms’ investment decisions. As a key input in many production processes, lower electric prices increase profitability, thereby providing incentives for business investment and growth. The construction of new baseload generation sends a clear signal to businesses that there will be a reliable supply of electricity available in the future, which is important in retaining and attracting commercial and industrial enterprises, particularly in the technology sector. The multiplier impact on the regional economy from the construction of a new baseload power plant is likely to be substantial. Lower electricity prices enhance consumers’ standards of living and spur consumption. Increased consumer spending and