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Introduction and summary

This paper recommends that the Council use a real discount rate of 4 percent for its analysis for the upcoming power plan. This is based on near term forecasts of the cost of capital to the entities or sectors examined. The sections below briefly review the need for a discount rate, the various approaches that have been taken in the literature and relied upon by the Council in the past, and the development of the specific values that are suggested to be used. The paper also notes that, unlike other data in the power plan, which can be used directly by the various regional entities responsible for meeting loads, the discount rate used in the Council's analysis is a composite rate that will not be directly applicable to most of these entities. The approach to calculation of a discount rate can be applicable, however.