The Marginal Cost of Base-Load Power: An Application to Alcoa's Portland Smelter

The aim of this paper is to develop and exposit the methodology underlying the computation of the long-run marginal costs of 'base-load' electricity supply by a publicly owned utility. The particular application is to the costing of power to be supplied by the State Electricity Commission of Victoria (SECV) to Alcoa's aluminum smelter at Portland in Victoria. The results suggest a sizeable subsidy element in the tariff which is sensitive to the selection of the real discount rate appropriate for the public provision of electricity.