The increase of low-cost renewables has increased uncertainty for utilities when calculating avoided or marginal costs.  Avoided cost analysis must now capture future states in ways that cannot be accommodated with traditional approaches. A proper marginal cost study provides pertinent information on a utility’s avoided cost of energy and capacity due to reduced demand in different time periods and locations. Marginal cost estimates can be used to evaluate and design energy efficiency and demand response programs, as well as renewable resources. Marginal generation capacity costs have been set according to the least-cost means by which capacity can be provided. An avoided-cost analysis provides the utility manager with a broader spectrum of possibilities as avoided costs can be used to compare demand options to demand options, supply options to supply options, and demand options to supply option.

Register now to explore the changing landscape for determining marginal/avoided costs, get conceptual and institutional background information, review technical underpinnings and receive recommendations that your company can contemplate.

Learning Outcomes

• Discuss the concepts and definitions of marginal cost
• Review the various electricity services including generation, transmission, distribution, and customer as well as output metrics
• Explore the estimation methods including contemporary estimation issues
• Review the elements of generation services including short and long run marginal costs
• Review the elements of transmission services including locational marginal pricing
• Review the elements of distribution services including load- and customer-related incremental costs
• Discuss the elements customer service as they pertain to the incremental costs of providing services, by service type
• Examine examples of marginal costs in support of electric vehicle tariffs, avoided costs of conservation and DSM programs, and incremental value of power supply contracts with solar facilities

WEDNESDAY, FEBRUARY 15, 2023

9:00 – 9:15 a.m. :: Welcome and Introductions

Short breaks will be taken in the morning and afternoon.

Cost Concepts and Definitions

• Financial, accounting and economic costs
• Average and marginal costs
  • Incremental costs
  • Avoided costs
• Short- and long-run marginal costs
• Internal marginal costs and opportunity costs
• Costs differentiated by time and location (LMP)

Electricity Services, Output and Cost Metrics

• Generation services
  • Energy supply
  • Operating reserves
  • Capacity
• Transmission services
  • Transport and interconnection services
• Distribution services
  • Delivery services
• Customer services
  • Specialized and tailored services

Estimation Methods

• Specific to timeframe and service
• Historically observed costs
• Forward simulation of demand and supply
  • Accounting for uncertainty
  • Dimensions of uncertainty
• Contemporary estimation issues:
  • Incorporation of renewables and storage in supply portfolio
  • Electric vehicle market penetration

Generation Services

• Technology choices
  • Old-world choice set
  • Modern technologies and choices
    • Renewables, storage
• Energy services
• Environmental costs including CO2 and other emissions
• Short-run marginal costs
  • Energy costs
  • Internal production costs; market-based opportunity costs
  • Reliability costs as scarcity rent proxies
    • Operating reserve demand curves
  • Opportunity costs
    • Optimization of energy and reserve costs
  • Start-up and no-load costs
    • Commitment problems
• Long-run marginal costs
  • Energy costs
  • Capacity costs

Transmission Services

• Marginal costs differentiated by location (Locational Marginal Prices)
  • Short-run marginal costs
    • Energy line losses
• Technical methodology
  • Congestion rents
  • Reliability costs
• Long-run marginal costs
  • Capacity costs
  • Problem of capital indivisibility

THURSDAY, FEBRUARY 16, 2023

Distribution Services

• Marginal costs by type of service and area
  • Load- and customer-related incremental costs
  • Short-run marginal costs
    • Load-related costs
• Long-run marginal costs
  • Load-related capacity costs
  • Customer-related delivery costs

Customer Services

• Incremental costs of providing services

Example Applications

• Marginal costs in support of electric vehicle tariffs
• Avoided costs of conservation and DSM programs
• Incremental value of power supply contracts with solar facilities

Robert Camfield, Senior Regulatory Consultant, Christensen Associates

Robert Camfield is Senior Regulatory Consultant at Christensen Associates.  He has extensive experience in the energy industry and the economics of regulation, including resource decisions, regulatory governance and incentive plans, market restructuring, cost allocation, energy contracts, cost of capital, and performance benchmarking. Mr. Camfield has managed numerous projects involving wholesale and retail markets, including market restructuring in Central Europe.  He served as the program director for EEI’s Transmission and Wholesale Markets summer program from 1999 – 2008 and is credited with innovations related to web-based energy services, cost analysis, and two-part tariffs for transmission. Prior to joining Christensen Associates, he served as system economist for Southern Company and chief economist for New Hampshire Public Utilities Commission.

Nick Crowley, Economist, Christensen Associates

Nicholas Crowley, MS (University of Wisconsin–Madison) is an Economist at Christensen Associates.  His professional work is primarily with natural gas pipeline and electricity regulation, including wholesale and retail markets. For electricity, he has participated in numerous costing and pricing projects, which involve computational analytics and econometrics, performance-based ratemaking, marginal cost estimation, total factor productivity estimates, and load response with respect to efficient time-of-use tariff options within retail markets. Mr. Crowley’s analyses and study results have been summarized in major reports and formal studies filed with regulatory authorities in Canada and the U.S. Prior to joining CA Energy Consulting, he served as an economist with the Federal Energy Regulatory Commission, where his work experience was concentrated in natural gas pipeline regulation and assessment of electricity markets. Mr. Crowley was also involved in FERC’s performance-based regulation of oil pipeline rates.