Get Cogeneration & small power production manual PDF

By Scott A. Spiewak, Larry Weiss

ISBN-10: 0881732702

ISBN-13: 9780881732702

Publication via Scott Spiewak and Larry Weiss

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It is a long-standing principle of regulation that such expenses will be disallowed if imprudently incurred. When an expenditure is disallowed, it, in effect, is charged to a utility's stockholders rather than its customers. In regulatory terminology, expenditures allowed for ratemaking purposes are charged "above-the-line;" expenditures disallowed in determining new operating income are charged "below-the-line". Regulators may control operating expenses in two broad ways: (1) by disallowing improper charges already incurred and (2) by prohibiting the charges before they are incurred.

Cogeneration has been a profitable business opportunity since the passage of the Public Utility Regulatory Policies Act in 1978. During the last fifteen years, developers have used this legislation as a wedge to open up the generation sector to market forces. The Energy Policy Act of 1992 reaffirmed the nation's commitment to a competitive electric generation market. Just as significantly, ratepayers have suddenly become consumers which their local utilities can no longer take for granted. Those who feel they are being gouged by their local utility now have the option of putting up their own on-site generating unit or buying their electric needs from a third party developer who is willing to make the capital investment.

The reason for this is as follows: if marginal costs are declining, then charging rates reflecting marginal costs will not provide the utility with sufficient revenue to support its older, less efficient plants. The shortfall would have to be made up in subsidies. If marginal costs are rising, then charging rates reflecting marginal costs will provide the utility with more revenue than is required for a reasonable rate of return. In a rising marginal cost situation, changing over from fully distributed cost principles to marginal cost principles would also require a large rate hike, which is politically unpalatable.

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Cogeneration & small power production manual by Scott A. Spiewak, Larry Weiss


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