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Past research on marginal costs for electric utilities has focused primarily on generation systems and has shown that the costs of producing electricity vary by time of use. As local transmission and distribution costs become larger and larger percentages of utilities' construction budgets, however, attention is turning to these expenditures, and several recent studies demonstrate significant variations across areas and over time in the cost of providing T&D capacity. This situation--combined with increased competition, the ever growing need to control rates, and the departure from rate-of-return regulation--has prompted many utilities to begin focusing on previously overlooked local transmission and distribution costs.
EPRI is cofunding many studies to help utilities quantify their local T&D marginal capacity costs. The studies are estimating the marginal costs in each particular planning area by year and are allocating these costs to hours within each year. Because these costs vary by area and time, they are called area- and time-specific marginal capacity costs (ATSMC). As the EPRI studies show, the uses of ATSMC data are wide and varied, ranging from resource planning to pricing and marketing. EPRI is developing a costing model that will enable utilities to calculate ATSMC either at highly disaggregated levels or at less-detailed, screening levels.
The method used to calculate ATSMC is the one adopted by the California Public Utilities Commission for use by Pacific Gas and Electric Company in its 1993 general rate case. Described in detail in EPRI report TR-100487--Targeting Demand-Side Management (DSM) for Transmission and Distribution Benefits--the …