Marginal-Cost-of-Service Analysis: A Powerful Marketing Tool for Electric Utilities

摘要

The profitability (difference between marginal revenues and marginal costs) of providing service to different market segments is a critical issue for electric utilities. Marginal cost-of-service analysis is a valuable and straightforward way to examine profitability. Such marginal-cost estimates, coupled with information on customer preferences and electricity-use patterns, can be used to design demand-side programs that improve customer service and lower electricity prices. This report presents results from a marginal-cost study for a hypothetical utility in the Pacific Northwest. The results from this study can be used to assess different types of customer programs aimed at improving energy efficiency, retaining market shares, or increasing sales. The specific examples concern space conditioning an office building, retention of existing residential water-heating loads (which would otherwise be lost through conversion to natural gas), promotion of high-efficiency electric space-heating in new single-family homes, and promotion of area lighting for large commercial buildings. Each example yields different insights about costs and revenues; their changes over time; and their sensitivities to load shapes, rate structures, and assumed lifetimes. (ERA citation 13:018397)