Marginal and Avoided Costs in Practice: A Survey

Sat Feb 01 15:24:38 EST 1992
By Dr. Hethie Parmesano with William Bridgman

In 1987, NERA Economic Consulting conducted a nationwide survey to determine how marginal and avoided costs were being estimated by electric utilities and the extent to which the estimated costs were being used in rate design. In the summer of 1990 we repeated the survey. "Marginal and Avoided Costs in Practice: A Survey" summarizes our findings in the 1990 survey and compares them to the 1987 results. The comparisons of 1987 and 1990 results should not be taken as strict evidence of changes in policy because the responding utilities are not identical in the two surveys. However, they enabled some general conclusions to be drawn about industry trends. In a key finding, the survey revealed a solid and growing core of utilities and commissions that rely upon marginal cost information in setting and approving electric rates. This and other conclusions are summarized in this report.