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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-Co

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?

 

Aug 26 2020 View more View Less

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