742 ECONOMICAL ASPECTS 



COST OF POWER l 



The cost of hydro-electric power can be considered as made 

 up of two parts: The fixed charges and the operating expenses. 

 These, in turn are made up as follows: 



Fixed Charges: 



Interest on investment. 



Taxes and insurance. 



Depreciation. 

 Operating Expenses: 



General administration. 



Labor. 



Supplies. 



Maintenance and repairs. 



In estimating the cost of power a thorough distinction must, as 

 previously stated, be made between the cost of the same at the 

 generating station bus-bars and the cost when delivered to the 

 customer. In the former case the cost should be based on only 

 such portions of the charges and expenses which are applicable 

 to the generating station, while in order to obtain the cost of power 

 delivered, the total expenses must, of course, be considered. 



The rate of interest on the investment varies and depends on the 

 risk involved. In risky undertakings the rates of interest are 

 higher than where greater safety obtains, and if money put into 

 new enterprises involving risk of loss were not allowed to earn any 

 more than a normal rate of interest, it would be poor policy for 

 the inventor to put his money in such undertakings. Bonds, 

 therefore, should draw the lowest rate of interest because, as a 

 rule, they are safe, being secured by a mortgage on the property. 

 So, for example, many government bonds draw only an interest of 

 3 per cent because there is no risk involved. The rate on public 

 service bonds, on the other hand, is higher, averaging about 5 per 

 cent, but, of course, when they are sold at a discount the actual 

 interest earned by the investor is greater. The interest on the stock, 

 however, which cannot be declared until the bond interest has 

 been paid, should be enough higher than the normal interest to com- 

 pensate for the lesser security. A rate at least 2 per cent higher 

 than prevailing bank rates seems justifiable and commissions are 

 frequently approving rates of return of 7 per cent and 8 per cent. 

 1 See previous section for actual and estimated costs. 



