Utility planning using least-cost principles and the role of externalities - staff report on a Keystone policy dialogue

For over two years, The Keystone Center facilitated a two-phase dialogue on Utility Planning Using Least-Cost Principles and, in the second phase, on the role of Externalities. The intent of this report is to assist policy-makers faced with decisions about changes to traditional utility regulation and planning. This report is not a consensus document, rather it is staff written summary of two years of discussion on the issues. As a concept, least-cost planning has been discussed since the 1970`s and many states have implemented such programs since the mid-1980`s. Yet, the actual goals and objectives of least-cost planning remain a source of controversy between affected interest groups. Some industry observers believe that least-cost planning can help reconcile the often conflicting demands between increased capacity requirements and concerns about the external costs of power production. In traditional utility regulation practices, capital investments are rewarded and revenue is a direct function of sales. However, a number state public utility commissions have altered their practices to allow for returns on investments in more efficient end-use equipment (also known as ratebasing conservation) and adjusting revenues to account for sales lost due to utility conservation programs. Other states are planning these types of changes. Still others are observing the impacts of the changes before they commit