Using Marginal Costs in Electricity Embedded Ratemaking
17 August 2004
By Amparo Nieto
NERA Senior Consultant Amparo Nieto delivered this presentation on marginal costs to electricity, gas, and water municipal utilities and to members of the California Energy Commission at the California Municipal Rates Group summer conference on 17 August 2004. Utility representatives who attended the meeting were concerned about customer retention and meeting their economic development goals.
Ms. Nieto explained how utilities can adopt marginal cost principles in their embedded cost of service studies and electricity rate design process in order to preserve the ratemaking objectives of efficiency, equity, and cost recovery. She indicated that using marginal cost information is particularly important in the presence of retail access, and also in the context of vertically-integrated utilities facing the threat of customer relocation and distributed generation. Ms. Nieto presented a number of case studies demonstrating that utilities are moving in the right direction by attempting to use marginal cost allocations in their cost studies, but noted that further work needs to be done.
To learn more about using marginal costs in electricity embedded ratemaking, please contact Ms. Nieto via the link below.
