(where the improved efficiency of larger units coming on-stream after the 1950's displaced earlier, less efficient units). Load factors for use in economic comparisons have heretofore been selected primarily on the basis of technical aspects of plant life, and on the experience with a mix of generating sources — those that are more clearly “base load” (generally, higher capital costs but lower incremental costs - those units that are preferentially loaded); intermediate units (usually, older stations in semi- retirement); and “peaking units” such as gas turbines. In the long run, however, it is necessary that the load-duration characteristics of demand be taken into consideration. Only 40% of the kilowatt capacity installed in a system can be operated in the 80-85% range; for the rest, the load simply is not there. 6) Assumptions Concerning Capital Charges The estimated capital charge rates shown in Table 37 are based on the following assumptions: • Financing 50% by debt, 50% by common stock equity.* This debt equity ratio is fairly typical of the industry as a whole - although in some cases the percentage of debt rises as high as 60% or 65% and some economists argue for the higher percentage. © After-tax return on equity and the interest rates for AA bonds are based on Moody's public utilities stock and bond averages for the week of August 27, 1971 (reported in Volume 43, No. 14, August 31, 1971). ® Estimates . for state and local taxes, as well as property insurance and interim replacements, are based on estimates used by the AEC and are, again, fairly typical of the industry (although property insurance has recently risen appreciably). The resulting 16% capital charge is somewhat higher than the industry has experienced in the recent past when interest rates were lower and price-earnings ratios were higher. AEC estimates in 1967 totaled 13.7% — but this was, of course, before the serious escalation in interest rates. ADL has recently completed analyses for the Electric Research Council using 15% as more representative of conditions over the next 10 years. *This ratio is based on the market value of the utility's common stock rather than its book value. Market value, based on the number of shares outstanding times the current market price, more nearly reflects the financing conditions of utilities as they grow in the future, rather than book value which often reflects a long series of complex accounting entries.
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