The Tri-County Generation and Transmission Association is a nonprofit cooperative organization that provides electrical service to rural customers. Based on a faulty long-range demand forecast, Tri-County overbuilt its generation and distribution system. Tri-County now has much more capacity than it needs to serve its customers. Fixed costs, mostly debt service on investment in plant and equipment, are $82.5 million per year. Variable costs, mostly fossil fuel costs, are $25 per megawatt-hour (MWh, or million watts of power used for one hour). The new person in charge of demand forecasting prepared a short-range forecast for use in next year’s budgeting process. That forecast calls for Tri-County customers to consume 1 million MWh of energy next year.a. How much will Tri-County need to charge its customers per MWh to break even next year?b. The Tri-County customers balk at that price and conserve electrical energy. Only 95 percent of forecasted demand materializes. What is the resulting surplus or loss for this nonprofit organization?
The Tri-County Generation and Transmission Association is a nonprofit cooperative organization that provides electrical service to rural customers. Based on a faulty long-range demand forecast, Tri-County overbuilt its generation and distribution system. Tri-County now has much more capacity than it needs to serve its customers. Fixed costs, mostly debt service on investment in plant and equipment, are $82.5 million per year. Variable costs, mostly fossil fuel costs, are $25 per megawatt-hour (MWh, or million watts of power used for one hour). The new person in charge of demand
a. How much will Tri-County need to charge its customers per MWh to break even next year?
b. The Tri-County customers balk at that price and conserve electrical energy. Only 95 percent of forecasted demand materializes. What is the resulting surplus or loss for this nonprofit organization?
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