APPENDIX C CASH FLOW ANALYSIS - SPS ENERGY PRICED AT THE COST OF ALTERNATIVE BASE LOAD GENERATION It is possible for the owner of an SPS to price the SPS energy to the utilities at the incremental cost of alternative base load generation; if the inflation rates are high enough, the SPS owner will eventually make a reasonable profit. The amount of debt incurred each year as a result of this pricing arrangement and the total corporate debt as a function of time, are derived in this Appendix. The maximum allowed rate of return is defined by the condition that the corporate debt shall be zero at the end of the SPS life (30 years). It is this rate of return (i ) which will cc determine if this pricing concept is feasible. The numbers of years that must pass before the corporation can begin to repay the stock/ bond holders will also be important and can be derived from the maximum allowable discount rate. Inflation Rates It is possible to define two different inflation rates; the general inflation rate, i^, and the fuel inflation rate i^. The fuel inflation rate is the rate at which the price of fuel increases each year. While historically, these two rates have been roughly the same. This is unlikely to remain true as the more convenient fuels become scarce; it is the expectation of scarcity which is the basic rational for proposing to build the SPS. While i^ need not equal i^, it is unlikely to be less than i^. The general inflation rate affects the capital and
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