THE VALUE OF NON-UTILITY-GENERATED ELECTRICITY (COGENERATION, GENERATION PLANNING, PRODUCTION SIMULATION)

The Public Utilities Regulatory Policies Act (PURPA) of 1978 and the associated rulings of the Federal Energy Regulatory Commission (FERC) obligates the electric utilities to purchase electricity generated by qualifying facilities at the utility's avoided cost of alternative energy. No further indication of how this cost should be calculated is given and the actual implementation of the regulations is left to the states' regulatory authorities. Although there is general agreement that the utility's marginal cost of electricity production is a good surrogate for the cost it avoids by buying electricity from non-utility facilities, the calculation of these costs involves substantial conceptual and analytical differences.;The short-run value of non-utility-generated electricity was found to increase with increased penetrations up to a maximum level before it starts decreasing as a result of the displacement of intermediate and baseload capacity. Moreover, neither of the utility's marginal fuel costs calculated before and after the inclusion of the non-utility resources in the utility generation mix proved to capture the short-run value of the non-utility-generated electricty.;The long-run energy value of non-utility generated electricity showed significant variations with the level of the penetration, with the mode of operation of the non-utility systems and with the utility expectations of their penetration. The impact of utility over-expectations is more significant than that of the utility under-expectations.;Two computer simulation models were developed to study the short-run and the long-run values of the electricity generated by private entities and offered for sale to the electric utilities. Both the energy and capacity components of the total value are calculated based on the "Ratepayers Indifference" principle with the return on the utility's stock held constant.