Externalities and Least-Cost Planning: The Threshold of a Revolution

Abstract

Electric utility planning and regulation stand on the brink of a revolution. This revolution involves the adoption of a new regulatory model based on societal benefits and costs. The issue of whether and how to reflect external costs in the planning calculus has crystallized the issues surrounding this fundamental shift. How it is finally resolved will do much to shape regulation and planning in the future. In the U.S. we have been brought to this point through the advent, evolution and adoption of least-cost planning (LCP). In this paper I briefly describe two fundamental changes in regulatory perspective that have occurred as a result of LCP. I suggest that our present efforts to include external costs into planning have functioned as adjuncts to newly-evolved LCP benefit-cost procedures. I argue that we have approached the question of externalities too narrowly, focusing on a single segment of the benefit-cost procedure and improperly limiting the universe of externalities we consider. I examine techniques and results of some recently-developed methods, and conclude that they rely on uncertain and limited data and may have little actual effect on utility-resource acquisition. I conclude by proposing a more-comprehensive program for incorporating externalities in utility planning and acquisition and discussing the prospects and prerequisites for the success of such an approach.

Revolution...2 (b) A fundamental change in political organization...(c) activity designed to effect fundamental change in the socio-economic situation. Webster’s, Ninth New Collegiate Dictionary