present contracts expire. Thus industries which are heavily dependent on electrical power for their productive capacity may relocate toward the rectenna sites. Of key importance to industrial mobility spurred by energy is the price at which electricity is sold. There are several pricing strategies that can be applied to electrical energy. They include: average cost pricing, capacity-only pricing, peak and off-peak pricing, energy-only pricing, and marginal cost pricing. Average and marginal cost pricing are particularly important in considering industrial location incentives. In its simplest form, average cost pricing means that the price per kilowatt-hour (kWh) equals the total cost of generating the electricity divided by total output plus some predetermined fair rate of return. In terms of SPS, this would mean total annual operating costs plus design, development, test, and evaluation (DDT&E) costs plus construction costs divided by output. The ECON report on SPS costs indicates that for the photovoltaic concept, average costs are 35 mills/kWh.7 Marginal costs, on the other hand, are only the costs which occur in operating the system (extra cost per kWh). Hence, marginal cost pricing would set electric rates equal to marginal cost per kWh plus some fair rate of return. According to the ECON study,7 this results in an approximate price of 26.7 mills/kWh for the photovoltaic version of SPS. Thus, if marginal cost pricing is used, there would be a 24% decrease in electrical rates over average cost pricing. It can readily be seen that marginal cost pricing substantially lowers rates to the user and increases the likelihood that firms will relocate to the SPS rectenna-bearing regions. The question of whether to price the outputs of regulated industries at marginal cost is not a new one. Hotelling8 and many other economists have explored the marginal cost pricing concept. Hotelling contends that marginal cost pricing results in a net benefit to society and others point out that marginal cost pricing would redistribute wealth. That is, development and construction costs must be paid by income taxes in order to provide the lower marginal cost price. Since income taxes are progressive, wealthier individuals would bear a greater burden of the development and construction costs while not receiving increased benefits through greater electrical consumption. The question of which pricing mechanism is used is central to industrial location and should be studied in depth.
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