set at the incremental cost of alternative base load generation, the SPS energy would be used to meet the base load. Thus, the SPS could be owned by an independent corporation and the power still be used to meet base load. Financial Comment Despite the possibility of purchasing bulk power from nearby producers, utilities frequently prefer to install sufficient generating capacity to meet all of their normal power requirements. In large part, the nation's electric utilities are privately-owned and the primary financial duty of their management is to secure an adequate return on the stockholder's investment. The regulatory commissions in each state allow for a return on plant equity but set the rates so that operating costs are merely recovered. The financial effect of not building base load plants and purchasing base load power from a neighboring utility is to transfer revenues from the equity cost category, on which there is an allowance for return to the investors, to the operating cost category on which there is no return. This provides a significant incentive to the utilities to maintain their own generation mix. This effect.is explained by the Averich-Johnson theory of utility operations. On the other hand, if a utility has difficulty in raising the required funds, the only choice may be to postpone or eliminate capital projects such as base load generators. Broadly speaking, utility companies were once preferred customers in the capital markets. This is not now the case. Bond ratings provide the best indication as to the borrowing abilities of the electric utilities and other companies. Over the last five years, most utilities have experienced some decline in ratings. Moreover, given the reluctance of many regulatory commisssions to authorize timely rate increases, many investors tend to apply different standards to industrial and utility issues. For example, an institution might invest in industrial bond offerings rated A or higher, but might only invest in utilities rated AA or AAA.
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