Public Utility Finance and Pricing: A Reply

The issues that Bernard and Cairns raise in their paper deal primarily with the importance of using marginal cost pricing to improve efficiency in the consumption of electricity and ultimately in its production. While their policy recommendations have had a long and noble tradition in the economics literature, marginal cost pricing cannot be separated from the question of what is, the appropriate cost of capital for public electric utilities to use to determine the correct mix of generation and transmission investments that will minimize their long run marginal cost. (This abstract was borrowed from another version of this item.)