Quote Originally Posted by jpetr48 View Post
Not a commodity still worth a look
http://bit.ly/mlRfVY
KCP&L granted nearly 21% hike
The rate case had been grounded on paying for the costs of building the Iatan II power plant in Platte County. The new rates are scheduled to take effect June 4
This is something that I have highlighted before. Today, we build new plant with borrowed funds; where, in the past, we built new plant with equity capital. The difference is stark! When you fund major plant build costs with borrowed funds, the modern tendency is to expect the present customer to pay for the borrowing costs, "up-front".

In the past, using equity capital from a savings institution, the saver has to wait for the new plant to come on stream before seeing a return on their capital. ..... but, the original costs of the build are much lower, both because of not having to fund the borrowing costs and also, (and perhaps of greater importance), there is much greater incentive to keep the build costs down on the part of the savings institution.

Banks and such that lend funding have every incentive to see the costs escalate, as their income from the project is directly related to the cost of borrowing; whereas the savings institution investing equity capital has the exact opposite incentive to keep the build costs within original limits.

A very good example of the negative effects of borrowed funding for a major construction project was the construction of the Channel Tunnel here in Europe.

Flawed forecasts, management mistakes and bad luck turned the Eurotunnel dream into a financial nightmare for the investors and banks who funded the project entirely from private money.

Heavy losses - 500m last year, 1bn the year before - have meant that Eurotunnel has been unable to meet even its interest bills, much less repay capital.

As a result, Eurotunnel has been burdened with mounting debts, like straws being loaded on a donkey's back.

Inevitably, the company has buckled under the weight of its financial obligations.
With debts now standing at about 6.5bn, Eurotunnel can until the end of this year service interest charges with IOUs. But thereafter the borrowing terms change and it must pay in cash.

http://news.bbc.co.uk/1/hi/business/4088868.stm