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003~Q7 CHAPTER 2: THE VALUE OF ELECTRIC POWER IN COLORADO If there were a free market in electric power, as there is in most other commodities, we would determine value by simply observing the price of power in the market place. The market for power is regulated, however, and "price," which is not necessarily determined by market forces, does not necessarily represent what power is worth. Indeed, different consumers of power pay a number of different prices for power. Host of these differences are determined by cost differences across utilities and by regulatory policy, but some can be attributed to the nature of the market. Wholesale power markets tend to be much less regulated thsn retail markets, and they are therefore much closer to the free market. Small power producers, including small hydropower producers. will generally not retail their power, which is the exclusive right of Colorado's electric utility companies, but will either use it themselves or sell it wholesale to local utilities. Thus, the appropriate method for valuing their power will be to value it at wholesale. One way to place a value on electrical power in Colorado, then, is to look at wholesale contracts among Colorado utilities for purchase and sale of electricity. Since the wholesale market is not highly regulated, wholesale prices should represent worth fairly accurately. Also, since utilities can usually buy power from a number of sources, competition in the wholesale market lets the market reflect "value" somewhat as other markets do. A second way to place a value on power is to determine the costs of supplying power if the utilities supply it themselves. Traditionally. regulation permits the utilities to pass on costs plus a reasonable profit, which makes the coats of production one of the main detet'1llinants of "value." Both these methods of determining the value of power are pursued below. 3