Economic evaluation of electricity load management

An economic model for evaluating electricity load management programs using marginal cost data is presented in this thesis. The net economic benefit to the electric utility and customer is derived. This benefit is then converted to an amount the utility can reduce a customer's energy rate for implementing the load management measure. Rate reductions are becoming a common marketing strategy for retaining large customers who have the ability to either join a municipal utility or self-generate. With increasing competition in the electric industry, rate reductions may also be used for attracting new customers. The model is tested with demand data from two load management installations in the Northeastern United States and with marginal cost data from the New England Electric Power Pool (NEPOOL). The results are consistent with decisions to implement these programs, however a problem with using the reported marginal cost arises in the analysis of an efficient lighting installation. NEPOOL's reported marginal cost does not include the marginal transmission and distribution costs of delivering power from the utility to the customer. As a result, the benefits calculated using the reported data are smaller than in reality. This is taken into consideration in the study, and an analysis is performed using twice the reported marginal cost data for comparison. The method developed in this thesis for finding the net economic benefit of a load management installation was found to be both useful and easy to use. The rate reduction benefit may also prove to be a useful marketing tool, particularly as rate negotiations become more common.