When [open quote]least-cost[close quote] is wrong

Journal Article · Sat Jan 01 04:00:00 EST 1994 · Fortnightly; (United States)

OSTI ID:5451250

Borlich, R L ^[1]

---

1. RCG/Hagler, Bailly Inc., Arlington, VA (United States)

Utility resource planning has evolved from minimizing the delivered prices of electricity and natural gas to minimizing the cost of delivering energy services to customers. But even this broader objective falls short of the mark, because it continues to focus solely on costs rather than on benefits. There is however, a new test that accounts for all of the costs and benefits associated with integrated utility resource plans. The cost-benefit test proposed here is based on maximizing the collective consumer surplus of the utility's customers, net of external costs, such as those associated with adverse environmental impacts. The test assumes the utility will be allowed to exactly recovery its costs, and thus will only play a catalytic role. However, the test can be expanded to include the effects of such regulatory incentive schemes as shared savings, and indeed, has the potential to serve as a tool for determining the optimal level of such financial incentives. Furthermore, the test is capable of explicitly quantifying the individual effects of the three basic elements that comprise every integrated resource plan (IRP): supply-side resources, demand-side resources, and rate designs. A utility's rate designs are key ingredients of any IRP and deserve the same consideration given supply- and demand-side resources. Unfortunately, this is often not appreciated by utilities or their regulators. Rates are typically designed or modified on the basis of equity considerations and/or political acceptability. Economic efficiency is considered as an afterthought -- if at all. This practice can be wasteful and costly for the utilities and the nation's economy.

• OSTI ID: 5451250
• Journal Information: Fortnightly; (United States), Journal Name: Fortnightly; (United States) Vol. 132:1; ISSN FRTNE8
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
294003* -- Energy Planning & Policy-- Natural Gas
296000 -- Energy Planning & Policy-- Electric Power
COST BENEFIT ANALYSIS
ECONOMIC ANALYSIS
ECONOMICS
ELECTRIC UTILITIES
GAS UTILITIES
MANAGEMENT
PLANNING
PRICING REGULATIONS
PUBLIC UTILITIES
REGULATIONS
RESOURCE MANAGEMENT