approximately equal to generation costs and, therefore, consumer cost is double the generation cost. However, it is generally not necessary to include transmission and generation costs in a comparative analysis of alternate power plants, since these components of cost would normally be the same for all alternates.) The generation cost for the electricity produced by an SPS is simply that price which must be charged for each kilowatt-hour of energy such that the total money investment in the systems has been recovered at the end of its useful life. If the time value of money did not have to be considered (resulting from the fact that investors in the system require a return on their investments) , the price would simply be the total money invested (in mills) divided by the total power generated (in kilowatt-hours). However, since investors (stockholders, bondholders, and noteholders) require a return before they will invest their money, these dividend and interest payments must be passed on and added into the generation cost. Thus, as shown in Figure 14-2, the generation cost can be calculated by dividing the total expenditures, including the time value of money charges, by the total power generated. Realize that the resulting generation cost automatically includes profit, because the dividends paid to the stockholders are the profits. That is, revenue over and above that used to pay for the operating costs, to repair the facilities, to pay executive salaries, to buy new equipment, to pay debts, etc., is distributed to the shareholders. In actual practice, however, there are more sophisticated economic techniques available to facilitate the calculation of the generation costs than the method described. Specifically, present value analysis (discounting) was employed in a manner consistent with the capital budgeting methodology that a private utility might use to determine the generation cost of its power plants. Although there are minor differences in execution, the technique employed here is essentially identical in approach and result to the methodology reported in Footnote 3. 14. 5 COST ESTIMATES Table 14-1 and Figure 14-3 show the estimated average unit life cycle cost for one SPS. Costs were estimated at the lowest practicable level, and a breakdown of the major SPS WBS elements with their respective costs are shown in the table. The costs are further subdivided into four program cost divisions, which were described in subsection 14.2.
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