electricity distribution as well as, in some cases, generation and transmission. The transaction costs are high, because cities must borrow to pay the IOUs for the power lines, they must develop the expertise and ability to manage a LTS, and they often face years of battles in courts and in elections due to challenges from the IOU. A study done by the Bay Area Economic Forum found that the key cost components that determine The key cost components that will determine whether a new MU's rates will be higher or lower than the incumbent IOU's rates are: 1) "the combination of the income tax exemption and debt-only capital structure, both of which lower MU rates relative to IOU rates;" 2) "the premium over book paid for the distribution assets, which will increase MU rates relative to IOU rates;" and 3) "the MU's cost of generating or purchasing power, which is a wild card that could increase or decrease relative MU/IOU rates." Potential benefits There are, however, benefits to this process as discussed in the motivation section above. Municipal bonds "typically have lower interest rates than investor‐owned utility bonds, resulting in lower costs." Municipal utilities also do not pay dividends to investors which can help reduce costs. Additionally, "municipal utilities are exempt from federal taxes." There is also potential for Economic development benefits to occur when municipalized utilities "promote economic development in their community by offering special rates or discounted connection fees for large customers or new businesses." There are also flexibility options in complementary policies such as offer" rebates, feed-in tariffs, and other programs to support increased" distributed solar energy programs. Since "Electricity rates not only recover costs, but also provide customers with price signals that influence how customers use electricity and whether to make investments in distributed energy resources, electric vehicles, or other technologies," there are potential sustainability benefits to having increased control over electricity pricing. One example of such pricing is the introduction of time varying rates which are designed to reduce peak demand they are a type of demand response policy. Time‐varying rates can have considerable impact by "encouraging many customers to make small adjustments to the timing of their energy consumption, resulting in a flatter load curve for the entire system." Potential downfalls According to a report on municipalization prepared for the District of Columbia:On the other hand, municipal utilities face challenges that can result in