Simplified Distribution System Cost Methodologies for Distributed Generation

Discussion Draft

February 2001

Wayne Shirley

Regulatory Assistance Project

The increased availability and decreasing costs of distributed generation technology (DG)

presents new challenges in regulation of distribution utilities. One of the key requirements in

assessing DG is to gain a workable understanding of the cost of DG itself and of the alternative

costs that might be incurred or avoided in the absence or presence of DG. Because the choices to

install DG will be largely decentralized, every effort should be made to reveal these costs to as

many of the stakeholders as possible, including distribution utilities, customers, DG purveyors,

ISOs and system planners. It is equally important to reveal these costs to regulators who are in

the position to see the big picture and develop appropriate policies for encouraging or

discouraging DG, as necessary.

This paper will focus on the actual costs of distribution utilities in the U.S. We have drawn upon

a number of sources for this analysis. The principal source of data for this paper is the FERC

Form 1 database for the years 1994-1999. We have alsodrawn upon individual case studies to

demonstrate the significant deviation between particular distribution expansion costs and average

marginal and average embedded costs.

 EE-RM/STD-00-550 COMMENT 86

Simplified Distribution System Cost Methodologies for Distributed Generation 

Discussion Draft 

February 2001 

Wayne Shirley 

Regulatory Assistance Project 

The increased availability and decreasing costs of distributed generation technology (DG) 

presents new challenges in regulation of distribution utilities. One of the key requirements in 

assessing DG is to gain a workable understanding of the cost of DG itself and of the alternative 

costs that might be incurred or avoided in the absence or presence ofDG. Because the choices to 

install DG will be largely decentralized, every effort should be made to reveal these costs to as 

many of the stakeholders as possible, including distribution utilities, customers, DG purveyors, 

1S0s and system planners. It is equally important to reveal these costs to regulators who are in 

the position to see the big picture and develop appropriate policies for encouraging or 

discouraging DG, as necessary. 

This paper will focus on the actual costs of distribution utilities in the U.S. We have drawn upon 

a number of sources for this analysis. The principal source of data for this paper is the FERC 

Form 1 database for the years 1994-1999. We have alsodrawn upon individual case studies to 

demonstrate the significant deviation between particular distribution expansion costs and average 

marginal and average embedded costs. 

-1-
The Components of Distribution Costs.

As a beginning point, we analyzed the average embedded and average marginal costs for 93 U.S.

utilities for the period 1995-1999.' The first step in this process is to determined what accounts

should be analyzed and group those into useful categories. Table x shows the FERC uniform

distribution plant-in-service accounts, as reported in the FERC Form 1.

FERC Distribution Accounts

(360) Land and Land Rights

(361) Structures and Improvements

(362) Station Equipment

(363) Storage Battery Equipment

(364) Poles, Towers, and Fixtures

(365) Overhead Conductors and Devices

(366) Underground Conduit

(367) Underground Conductors and Devices

(368) Line Transformers

(369) Services

(370) Meters

(371) Installations on Customer Premises

(372) Leased Property on Customer Premises

(373) Street Lighting and Signal Systems

Most distribution system expansion projects fall into one of four categories:

Improvements or expansion of transformers and substations

Improvements or expansion of distribution lines and feeders

Customer specific equipment

Other activities, such as street lighting and signal systems.

With this in mind, the FERC accounts can be grouped as follows:

1 We began with the entire FERC Form 1 database for the years 1994-1999. However, many of the

reporting utilities do not have distribution plant and so were excluded from the group used for this analysis. In

addition, a number of utilities were excluded because they had incomplete data in the available database. Finally,

because a number of the calculations used for this analysis required comparison of investments to growth in system

peak and system sales, utilities who had zero values in any year for those data were also excluded. The resulting data

set includes 93 utilities. The included utilities are listed in Appendix A.

-2-

 EE-RM/STD-00-550 COMMENT 86

The Components of Distribution Costs. 

As a beginning point, we analyzed the average embedded and average marginal costs for 93 U.S. 

utilities for the period 1995-1999. I The first step in this process is to determined what accounts 

should be analyzed and group those into useful categories. Table x shows the FERC uniform 

distribution plant-in-service accounts, as reported in the FERC Form 1. 

FERC Distribution Accounts 

(360) Land and Land Rights 

(361) Structures and Improvements 

(362) Station Equipment 

(363) Storage Battery Equipment 

(364) Poles, Towers, and Fixtures 

(365) Overhead Conductors and Devices 

(366) Underground Conduit 

(367) Underground Conductors and Devices 

(368) Line Transformers 

(369) Services 

(370) Meters 

(371) Installations on Customer Premises 

(372) Leased Property on Customer Premises 

(373) Street Lighting and Signal Systems 

Most distribution system expansion projects fall into one of four categories: 

• Improvements or expansion of transformers and substations 

• Improvements or expansion of distribution lines and feeders 

Customer specific equipment 

• Other activities, such as street lighting and signal systems. 

With this in mind, the FERC accounts can be grouped as follows: 

I We began with the entire FERC Form 1 database for the years 1994-1999. However, many of the 

reporting utilities do not have distribution plant and so were excluded from the group used for this analysis. In 

addition, a number of utilities were excluded because they had incomplete data in the available database. Finally, 

because a number of the calculations used for this analysis required comparison of investments to growth in system 

peak and system sales, utilities who had zero values in any year for those data were also excluded. The resulting data 

set includes 93 utilities. The included utilities are listed in Appendix A. 

-2-
• Transformer & Substation investments (a portion of accounts 360 and 361 plus

account 362)

• Lines and Feeders investments (the balance of accounts 360 and 361 plus

accounts 363, 364, 365, 366, 367 and 368)

• Customer specific investments (accounts 369, 370, 371 and 372) and

• Street lighting and signal systems (account 373).

For purposes of the costs that might be avoided or deferred through the use of DG, only accounts

360 through 368 are of interest. With exception of accounts 360 and 361, most of the accounts

clearly are related to specific types of distribution plant. Accounts 360 and 361 represent costs

incurred for both transformers & substations and for lines and feeders. We assigned 25% of

these accounts to transformers & substation and 75% of these accounts to lines & feeders.

In addition to investments in plant-in-service, we analyzed the associated operations and

maintenance (O&M) expenses for lines & feeders and for transformers & substations. The

distribution O&M accounts are reflected in Table x:

FERC FORM 1 DISTRIBUTION EXPENSES

Operation

(580) Operation Supervision and Engineering

(581) Load Dispatching

(582) Station Expenses

(583) Overhead Line Expenses

(584) Underground Line Expenses

(585) Street Lighting and Signal System Expenses

(586) Meter Expenses

(587) Customer Installations Expenses

(588) Miscellaneous Expenses

(589) Rents

Maintenance

(590) Maintenance Supervision and Engineering

(591) Maintenance of Structures

(592) Maintenance of Station Equipment

(593) Maintenance of Overhead Lines

(594) Maintenance of Underground Lines

(595) Maintenance of Line Transformers

(596) Maintenance of Street Lighting and Signal Systems

(597) Maintenance of Meters

(598) Maintenance of Miscellaneous Distribution Plant

-3-

 EE-RM/STD-00-550 COMMENT 86

Transformer & Substation investments (a portion of accounts 360 and 361 plus 

account 362) 

Lines and Feeders investments (the balance of accounts 360 and 361 plus 

accounts 363, 364, 365, 366, 367 and 368) 

Customer specific investments (accounts 369, 370, 371 and 372) and 

Street lighting and signal systems (account 373). 

For purposes of the costs that might be avoided or deferred through the use ofDG, only accounts 

360 through 368 are of interest. With exception of accounts 360 and 361, most of the accounts 

clearly are related to specific types of distribution plant. Accounts 360 and 361 represent costs 

incurred for both transformers & substations and for lines and feeders. We assigned 25% of 

these accounts to transformers & substation and 75% of these accounts to lines & feeders. 

In addition to investments in plant-in-service, we analyzed the associated operations and 

maintenance (O&M) expenses for lines & feeders and for transformers & substations. The 

distribution O&M accounts are reflected in Table x: 

FERC FORM 1 DISTRIBUTION EXPENSES 

Operation 

(580) Operation Supervision and Engineering 

(581) Load Dispatching 

(582) Station Expenses 

(583) Overhead Line Expenses 

(584) Underground Line Expenses 

(585) Street Lighting and Signal System Expenses 

(586) Meter Expenses 

(587) Customer Installations Expenses 

(588) Miscellaneous Expenses 

(589) Rents 

Maintenance 

(590) Maintenance Supervision and Engineering 

(591) Maintenance of Structures 

(592) Maintenance of Station Equipment 

(593) Maintenance of Overhead Lines 

(594) Maintenance of Underground Lines 

(595) Maintenance of Line Transformers 

(596) Maintenance of Street Lighting and Signal Systems 

(597) Maintenance of Meters 

(598) Maintenance of Miscellaneous Distribution Plant 

-3-
Accounts 582 and 592 were assigned directly to Transformers & Substations. Accounts 583,

584, 593 and 594 were assigned directly to Lines and Feeders. Account 591 was assigned 25%

to Transformers & Substations and 75% to Lines and Feeders, consistent with the allocation of

plant in service. Finally, Account 580 was assigned 25% to Transformers & Substations and

50% to Lines and Additions, with the assumption that the remaining 25% would be associated

with the other distribution expenses categories (meters, customer installations, street lighting,

etc.). While a more detailed study for a particular company might result in different assignments,

these allocations provide a reasonable proxy for purposes of this paper.

1000000000

900000 000

800000000

700000000

600000 000

500000 000

400000 000

300000000

200000000

100000000

4 Transformer/Substation Plant -Linear (Transformer/Substation Plant)

- ---

y = 59217x +4E+0t,

R'07855

-- -

-- - n E

-

4

- - -

0

0 5000 10000 15000 20000 25000

Embedded Costs for U.S. Utilities

A review of the FERC Form 1 data reveals that distribution system investment vary from year to

year for any given utility. As a result, any one year might distort the experience of each utility.

For this analysis, we collected the data for the five years 1995-1999 and computed the average

additions to plant in service for each FERC account.

-4-

 EE-RM/STD-00-550 COMMENT 86

Accounts 582 and 592 were assigned directly to Transformers & Substations. Accounts 583, 

584,593 and 594 were assigned directly to Lines and Feeders. Account 591 was assigned 25% 

to Transformers & Substations and 75% to Lines and Feeders, consistent with the allocation of 

plant in service. Finally, Account 580 was assigned 25% to Transformers & Substations and 

50% to Lines and Additions, with the assumption that the remaining 25% would be associated 

with the other distribution expenses categories (meters, customer installations, street lighting, 

etc.). While a more detailed study for a particular company might result in different assignments, 

these allocations provide a reasonable proxy for purposes of this paper. 

1995-19995 Yr. Average Transformer/Substation Plant In Service as a Function of Average System Peal< 

1000000000 

900000000 

800000000 

700000000 

600000000 

500000000 

400000000 

300000000 

200000000 

100000000 

0 

0 5000 10000 15000 20000 25000 

Embedded Costs for U.S. Utilities 

A review of the FERC Form 1 data reveals that distribution system investment vary from year to 

year for any given utility. As a result, anyone year might distort the experience of each utility. 

For this analysis, we collected the data for the five years 1995-1999 and computed the average 

additions to plant in service for each FERC account. 

-4-
We reviewed the relationship of investment to both system peak and to system sales. Using the

five year average investment, system peak and system sales data, it becomes clear that, as one

would expect, the investment in Transformers and Substations and in Lines and Feeders are

highly correlated with system peak. Chart x shows data for Transformers and Substations against

system peak, along with a trend-line plot.

The R2 for the trendline is .78, indicating a relatively high correlation between investment and

system peak. Similar analysis for Lines and Feeders, also reflects an RZ of .78. When compared

to system sales, the RZ drops slightly to .76 and .75 for Transformers & Substations and for Lines

& Feeders, respectively. This may be somewhat deceptive, however, because system sales are

likely more related to system peak. In addition, the system is generally sized to meet peak needs,

not to meet the volume of energy passing through the system. Accordingly, we will focus on

system peak as the driver for embedded costs.

We also analyzed the relationship of overall system size to investment per MW of system peak.

That is, do costs per MW go up or down as a function of the overall size of the utility? As might

be expected, there was virtually no correlation between cost per MW and overall system size.

Indeed, no economies of scale are apparent from the data. Trend lines for these data show Res of

.04 and .03. High distribution costs can occur in small as well as large utilities.

 EE-RM/STD-00-550 COMMENT 86

We reviewed the relationship of investment to both system peak and to system sales. Using the 

five year average investment, system peak and system sales data, it becomes clear that, as one 

would expect, the investment in Transformers and Substations and in Lines and Feeders are 

highly correlated with system peak. Chart x shows data for Transformers and Substations against 

system peak, along with a trend-line plot. 

The R2 for the trendline is .78, indicating a relatively high correlation between investment and 

system peak. Similar analysis for Lines and Feeders, also reflects an R2 of .78. When compared 

to system sales, the R2 drops slightly to .76 and .75 for Transformers & Substations and for Lines 

& Feeders, respectively. This may be somewhat deceptive, however, because system sales are 

likely more related to system peak. In addition, the system is generally sized to meet peak needs, 

not to meet the volume of energy passing through the system. Accordingly, we will focus on 

system peak as the driver for embedded costs. 

We also analyzed the relationship of overall system size to investment per MW of system peak. 

That is, do costs per MW go up or down as a function of the overall size of the utility? As might 

be expected, there was virtually no correlation between cost per MW and overall system size. 

Indeed, no economies of scale are apparent from the data. Trend lines for these data show R2

s of 

.04 and .03. High distribution costs can occur in small as well as large utilities. 

-5-
Transformers and Substation Embedded Costs

Table x shows the average embedded investment in Transformers and Substations as a function

of average system peak for the twenty-five highest cost utilities:

Table x

25 Highest Cost Utilities Based on

Transformers and

Substations/ Average

Transformer and Substation Investment/ System Peak System Peak

System Peak (S/MW) (MWs)

1 Newport Electric Corporation $ 134,768 102.4

2 Consolidated Edison Company of New York, $ 96,377 9195.4

3 Chugach Electric Association, Inc. $ 82,719 392.2

4 Monongahela Power Company $ 77,301 1813

5 Potomac Electric Power Company $ 75,400 5688.6

6 Fitchburg Gas and Electric Light Company $ 67,880 86.6

7 Pennsylvania Electric Company $ 67,460 2597.6

8 PP&L, Inc. $ 66,983 6490.8

9 Utilicorp United, Inc. $ 66,599 1151.6

10 St. Joseph Light & Power Company $ 65,721 361

11 West Penn Power Company $ 64,808 3239.6

12 Alaska Electric Light and Power Company $ 62,051 62.6

13 Otter Tail Power Company $ 58,060 621.6

14 Baltimore Gas and Electric Company $ 56,847 6062

15 Upper Peninsula Power Company $ 56,708 141

16 Rockland Electric Company $ 56,660 354.8

17 PacifiCorp $ 56,627 7938

18 Niagara Mohawk Power Corporation $ 55,464 6104.2

19 Central Hudson Gas & Electric Corporation $ 55,435 923.4

20 Pacific Gas and Electric Company $ 54,955 16955.2

21 Union Electric Company $ 54,473 7866.6

22 Metropolitan Edison Company $ 54,393 2229.8

23 New Hampshire Electric Cooperative, Inc. $ 53,734 164.6

24 MDU Resources Group, Inc. $ 53,517 407

25 The Potomac Edison Company $ 53,202 2523.4

93 Company Average $ 41,798 3875.4

 EE-RM/STD-00-550 COMMENT 86

Transfonners and Substation Embedded Costs 

Table x shows the average embedded investment in Transfonners and Substations as a function 

of average system peak for the twenty-five highest cost utilities: 

Table x 

Transfonners and 

25 Highest Cost Utilities Based on Substations! Average 

Transfonner and Substation Investment! System Peak System Peak 

Svstem Peak ($IM\Yl (MWs) 

I Newport Electric Corporation $ 134,768 102.4 

2 Consolidated Edison Company of New York, $ 96,377 9195.4 

3 Chugach Electric Association, Inc. $ 82,719 392.2 

4 Monongahela Power Company $ 77,301 1813 

5 Potomac Electric Power Company $ 75,400 5688.6 

6 Fitchburg Gas and Electric Light Company $ 67,880 86.6 

7 Pennsylvania Electric Company $ 67,460 2597.6 

8 PP&L, Inc. $ 66,983 6490.8 

9 Utilicorp United, Inc. $ 66,599 1151.6 

10 St. Joseph Light & Power Company $ 65,721 361 

II West Penn Power Company $ 64,808 3239.6 

12 Alaska Electric Light and Power Company $ 62,051 62.6 

13 Otter Tail Power Company $ 58,060 621.6 

14 Baltimore Gas and Electric Company $ 56,847 6062 

15 Upper Peninsula Power Company $ 56,708 141 

16 Rockland Electric Company $ 56,660 354.8 

17 PacifiCorp $ 56,627 7938 

18 Niagara Mohawk Power Corporation $ 55,464 6104.2 

19 Central Hudson Gas & Electric Corporation $ 55,435 923.4 

20 Pacific Gas and Electric Company $ 54,955 16955.2 

21 Union Electric Company $ 54,473 7866.6 

22 Metropolitan Edison Company $ 54,393 2229.8 

23 New Hampshire Electric Cooperative, Inc. $ 53,734 164.6 

24 MDU Resources Group, Inc. $ 53,517 407 

25 The Potomac Edison Company $ 53,202 2523.4 

93 Comoanv Avera!!e $ 41.798 3875.4 

-6-
Conversely, Table x shows the average embedded investment in Transformers and Substations as

a function of average system peak for the twenty-five least cost utilities:

Table x

Transformers

25 Lowest Cost Utilities Based on Embedded and Average

Transformer and Substation Investment/ Substations/ System

System Peak System Peak Peak

I Madison Gas and Electric Company $ 6,712 603.2

2 Public Service Company of New Hampshire $ 12,216 1359

3 Kingsport Power Company $ 14,780 401.4

4 Indiana Michigan Power Company $ 16,972 4267.4

5 Ohio Power Company $ 17,830 5810.8

6 Holyoke Water Power Company $ 18,717 22.6

7 Central Power and Light Company $ 20,693 4226.2

8 Kansas Gas and Electric Company $ 21,091 2174.8

9 Entergy Gulf States, Inc. $ 21,396 6389.2

10 Kentucky Utilities Company $ 21,501 3513

11 Southwestern Public Service Company $ 21,932 4059.6

12 Northwestern Public Service $ 22,177 694.4

13 Northern States Power Company (Wisconsin) $ 22,209 2795.4

14 Ohio Edison Company $ 22,739 5609.8

15 Pennsylvania Power Company $ 23,394 850.2

16 Exeter & Hampton Electric Company $ 24,461 107.2

17 Duke Energy Corporation $ 24,482 15615.4

18 Entergy Arkansas, Inc. $ 25,593 5838

19 Carolina Power & Light Company $ 26,420 9665.6

20 Cleco Utility Group Inc. $ 26,858 1598.8

21 Kentucky Power Company $ 27,138 1385.8

22 Southwestern Electric Power Company $ 27,563 4188.4

23 Appalachian Power Company $ 28,181 6495.4

24 Wheeling Power Company $ 28,367 289.2

25 Columbus Southern Power Company $ 28,538 3484.4

93 Comnanv Ave gage S 41.798

On an average basis, the deviation from the average for the lowest and highest cost utilities is

fairly dramatic ranging from approximately one-seventh of the average for the lowest cost utility

to over three times the average for the highest cost utility. The standard deviation for the group

is approximately $19,000, meaning that approximately 95% of the utilities are in the range from

-7-

 EE-RM/STD-00-550 COMMENT 86

Conversely, Table x shows the average embedded investment in Transformers and Substations as 

a function of average system peak for the twenty-five least cost utilities: 

Table x 

Transfonners 

25 Lowest Cost Utilities Based on Embedded and Average 

Transfonner and Substation Investment/ Substationsl System 

System Peak System Peak Peak 

1 Madison Gas and Electric Company $ 6,712 603.2 

2 Public Service Company of New Hampshire $ 12,216 1359 

3 Kingsport Power Company $ 14,780 401.4 

4 Indiana Michigan Power Company $ 16,972 4267.4 

5 Ohio Power Company $ 17,830 5810.8 

6 Holyoke Water Power Company $ 18,717 22.6 

7 Central Power and Light Company $ 20,693 4226.2 

8 Kansas Gas and Electric Company $ 21,091 2174.8 

9 Entergy Gulf States, Inc. $ 21,396 6389.2 

10 Kentucky Utilities Company $ 21,501 3513 

11 Southwestern Public Service Company $ 21,932 4059.6 

12 Northwestern Public Service $ 22,177 694.4 

13 Northern States Power Company (Wisconsin) $ 22,209 2795.4 

14 Ohio Edison Company $ 22,739 5609.8 

15 Pennsylvania Power Company $ 23,394 850.2 

16 Exeter & Hampton Electric Company $ 24,461 107.2 

17 Duke Energy Corporation $ 24,482 15615.4 

18 Entergy Arkansas, Inc. $ 25,593 5838 

19 Carolina Power & Light Company $ 26,420 9665.6 

20 Cleco Utility Group Inc. $ 26,858 1598.8 

21 Kentucky Power Company $ 27,138 1385.8 

22 Southwestern Electric Power Company $ 27,563 4188.4 

23 Appalachian Power Company $ 28,181 6495.4 

24 Wheeling Power Company $ 28,367 289.2 

25 Columbus Southern Power Company $ 28,538 3484.4 

en C:omnHnv Av"raf'e 1; 4179R 

On an average basis, the deviation from the average for the lowest and highest cost utilities is 

fairly dramatic ranging from approximately one-seventh of the average for the lowest cost utility 

to over three times the average for the highest cost utility. The standard deviation for the group 

is approximately $19,000, meaning that approximately 95% of the utilities are in the range from 

-7-
approximately one-half the average to 1.5 times the average. This is a relatively large spread,

indicating the need to consider individual utility circumstances carefully.

Lines & Feeders Embedded Costs

The twenty-five highest cost utilities for Lines & Feeders are reflected in Table x:

Table x

25 Highest Cost Companies Based on Lines and Feeders/ Average

Lines and Feeders Investment/ System Peak System Peak System Peak

I New Hampshire Electric Cooperative, Inc. $ 732,359 165

2 Consolidated Edison Company of New York, Inc. $ 561,676 9,195

3 San Diego Gas & Electric Company $ 473,140 3,559

4 Pacific Gas and Electric Company $ 408,353 16,955

5 Utilicorp United, Inc. $ 394,455 1,152

6 Newport Electric Corporation $ 380,109 102

7 Pennsylvania Electric Company $ 373,906 2,598

8 Upper Peninsula Power Company $ 371,541 141

9 Western Massachusetts Electric Company $ 357,637 749

10 Arizona Public Service Company $ 351,932 4,747

11 Sierra Pacific Power Company $ 345,162 1,322

12 Alaska Electric Light and Power Company $ 342,116 63

13 Potomac Electric Power Company $ 333,235 5,689

14 Niagara Mohawk Power Corporation $ 313,868 6,104

15 Maine Public Service Company $ 310,351 102

16 Public Service Company of New Mexico $ 307,406 1,255

17 Metropolitan Edison Company $ 304,107 2,230

18 PP&L, Inc. $ 300,383 6,491

19 Connecticut Light and Power Company, The $ 298,669 4,457

20 Exeter & Hampton Electric Company $ 296,226 107

21 Fitchburg Gas and Electric Light Company $ 295,944 87

22 Puget Sound Energy, Inc. $ 294,115 4,378

23 PacifiCorp $ 288,250 7,938

24 Public Service Company of New Hampshire $ 271,570 1,359

25 Central Hudson Gas & Electric Corporation $ 261,193 923

93 Company Average $ 234.506

 EE-RM/STD-00-550 COMMENT 86

approximately one-half the average to 1.5 times the average. This is a relatively large spread, 

indicating the need to consider individual utility circumstances carefully. 

Lines & Feeders Embedded Costs 

The twenty-five highest cost utilities for Lines & Feeders are reflected in Table x: 

Table x 

25 Highest Cost Companies Based on Lines and Feeders! Average 

Lines and Feeders Investment! Svstem Peak SvstemPeak Svstem Peak 

I New Hampshire Electric Cooperative, Inc. $ 732,359 165 

2 Consolidated Edison Company of New York, Inc. $ 561,676 9,195 

3 San Diego Gas & Electric Company $ 473,140 3,559 

4 Pacific Gas and Electric Company $ 408,353 16,955 

5 Utilicorp United, Inc. $ 394,455 1,152 

6 Newport Electric Corporation $ 380,109 102 

7 Pennsylvania Electric Company $ 373,906 2,598 

8 Upper Peninsula Power Company $ 371,541 141 

9 Western Massachusetts Electric Company $ 357,637 749 

10 Arizona Public Service Company $ 351,932 4,747 

II Sierra Pacific Power Company $ 345,162 1,322 

12 Alaska Electric Light and Power Company $ 342,116 63 

13 Potomac Electric Power Company $ 333,235 5,689 

14 Niagara Mohawk Power Corporation $ 313,868 6,104 

15 Maine Public Service Company $ 310,351 102 

16 Public Service Company of New Mexico $ 307,406 1,255 

17 Metropolitan Edison Company $ 304,107 2,230 

18 PP&L, Inc. $ 300,383 6,491 

1 9 Connecticut Light and Power Company, The $ 298,669 4,457 

20 Exeter & Hampton Electric Company $ 296,226 107 

21 Fitchburg Gas and Electric Light Company $ 295,944 87 

22 Puget Sound Energy, Inc. $ 294,115 4,378 

23 PacifiCorp $ 288,250 7,938 

24 Public Service Company of New Hampshire $ 271,570 1,359 

25 Central Hudson Gas & Electric Corporation $ 261,193 923 

93 Company Average $ 234506 

-8-
Conversely, Table x data for the twenty-five least cost utilities for Lines & Feeders is reflected in

Table x:

Table x

25 Lowest Cost Companies Based on

Lines and

Feeders/ System

Average

System

Lines and Feeders Investment/ System Peak Peak Peak

I Northern States Power Company (Wisconsin) $ 79,787 2795.4

2 Northwestern Public Service $ 88,950 694.4

3 Southwestern Public Service Company $ 91,505 4059.6

4 Ohio Power Company $ 108,150 5810.8

5 Kingsport Power Company $ 111,003 401.4

6 Indiana Michigan Power Company $ 113,119 4267.4

7 Southern Indiana Gas and Electric Company $ 127,916 1053.6

8 Kentucky Utilities Company $ 132,055 3513

9 Western Resources, Inc. $ 143,303 2717.2

10 Entergy Gulf States, Inc. $ 145,449 6389.2

11 Southwestern Electric Power Company $ 147,379 4188.4

12 Wheeling Power Company $ 148,440 289.2

13 Kansas Gas and Electric Company $ 148,880 2174.8

14 Indianapolis Power & Light Company $ 151,250 2799.6

15 The Dayton Power and Light Company $ 151,763 2966.6

16 El Paso Electric Company $ 151,943 1385.8

17 PSI Energy, Inc. $ 152,497 5380.2

18 Carolina Power & Light Company $ 156,623 9665.6

19 Florida Power Corporation $ 157,648 8183.4

20 TXU Electric Company $ 158,486 20485.4

21 Entergy Arkansas, Inc. $ 159,235 5838

22 West Texas Utilities Company $ 160,461 1489.6

23 Ohio Edison Company $ 166,622 5609.8

24 Cleveland Electric Illuminating Company, $ 171,681 4179

25 Appalachian Power Company $ 173,467 6495.4

All Companies Average $ 234,506

For Lines & Feeders, the deviation from the average for the lowest and highest cost utilities is

also fairly dramatic, though not as great as the variability for Transformers & Substations,

ranging from approximately one-third the average for the lowest cost utility to over three times

the average for the highest cost utility. The standard deviation for the group is approximately

$99,000, meaning that approximately 95% of the utilities are in the range from about 60% of the

average to 1.4 times the average. Again, this is a relatively large spread, indicating the need to

consider individual utility circumstances carefully.

-9-

 EE-RM/STD-00-550 COMMENT 86

Conversely, Table x data for the twenty-five least cost utilities for Lines & Feeders is reflected in 

Table x: 

Table x 

Lines and Average 

25 Lowest Cost Companies Based on Feeders! System System 

Lines and Feeders Investment! Svstem Peak Peak Peak 

1 Northern States Power Company (Wisconsin) $ 79,787 2795.4 

2 Northwestern Public Service $ 88,950 694.4 

3 Southwestern Public Service Company $ 91,505 4059.6 

4 Ohio Power Company $ 108,150 5810.8 

5 Kingsport Power Company $ 111,003 401.4 

6 Indiana Michigan Power Company $ 113,119 4267.4 

7 Southern Indiana Gas and Electric Company $ 127,916 1053.6 

8 Kentucky Utilities Company $ 132,055 3513 

9 Western Resources, Inc. $ 143,303 2717.2 

10 Entergy Gulf States, Inc. $ 145,449 6389.2 

1 I Southwestern Electric Power Company $ 147,379 4188.4 

12 Wheeling Power Company $ 148,440 289.2 

13 Kansas Gas and Electric Company $ 148,880 2174.8 

14 Indianapolis Power & Light Company $ 151,250 2799.6 

15 The Dayton Power and Light Company $ 151,763 2966.6 

16 EI Paso Electric Company $ 151,943 1385.8 

17 PSI Energy, Inc. $ 152,497 5380.2 

18 Carolina Power & Light Company $ 156,623 9665.6 

19 Florida Power Corporation $ 157,648 8183.4 

20 TXU Electric Company $ 158,486 20485.4 

21 Entergy Arkansas, Inc. $ 159,235 5838 

22 West Texas Utilities Company $ 160,461 1489.6 

23 Ohio Edison Company $ 166,622 5609.8 

24 Cleveland Electric Illuminating Company, $ 171,681 4179 

25 Appalachian Power Company $ 173,467 6495.4 

All Companies Average $ 234506 

For Lines & Feeders, the deviation from the average for the lowest and highest cost utilities is 

also fairly dramatic, though not as great as the variability for Transformers & Substations, 

ranging from approximately one-third the average for the lowest cost utility to over three times 

the average for the highest cost utility. The standard deviation for the group is approximately 

$99,000, meaning that approximately 95% of the utilities are in the range from about 60% of the 

average to 1.4 times the average. Again, this is a relatively large spread, indicating the need to 

consider individual utility circumstances carefully. 

-9-
Transformer & Substation Embedded O&M Costs

In addition to investments in plant in service, we analyzed the associated O&M costs for the two

categories of distribution plant. Table x shows the Lines & Feeders O&M costs per MW for the

twenty-five highest cost utilities:

Table x

Twenty-five Highest Cost Utilities Lines & Feeders Average

Based on Lines & Feeders O&M O&M System Peak

I Metropolitan Edison Company $ 154,777 102

2 Carolina Power & Light Company $ 41,024 923

3 TXU Electric Company $ 35,135 1890

4 Potomac Electric Power Company $ 30,636 850

5 New Hampshire Electric Cooperative, Inc. $ 25,430 165

6 Upper Peninsula Power Company $ 18,626 141

7 Newport Electric Corporation $ 17,258 102

8 Consolidated Edison Company of New York, $ 17,089 9195

9 The United Illuminating Company $ 16,739 886

10 Niagara Mohawk Power Corporation $ 16,269 6104

11 Western Massachusetts Electric Company $ 15,097 749

12 Connecticut Light and Power Company, The $ 13,657 4457

13 Public Service Company of New Hampshire $ 13,622 1359

14 Pacific Gas and Electric Company $ 12,674 16955

15 PP&L, Inc. $ 12,200 3654

16 Monongahela Power Company $ 12,010 2230

17 Portland General Electric Company $ 11,777 2598

18 Chugach Electric Association, Inc. $ 11,703 392

19 Rockland Electric Company $ 11,528 355

20 Wisconsin Public Service Corporation $ 11,162 1645

21 West Penn Power Company $ 10,616 3240

22 Utilicorp United, Inc. $ 10,441 1152

23 Alaska Electric Light and Power Company $ 10,236 63

24 PacifiCorp $ 9,547 6491

25 Mt. Cannel Public Utility Co $ 9,112 37

93 Company Average $ 9,748

 EE-RM/STD-00-550 COMMENT 86

Transformer & Substation Embedded O&M Costs 

In addition to investments in plant in service, we analyzed the associated O&M costs for the two 

categories of distribution plant. Table x shows the Lines & Feeders O&M costs per MW for the 

twenty-five highest cost utilities: 

Table x 

Twenty-five Highest Cost Utilities Lines & Feeders Average 

Based on Lines & Feeders O&M O&M Svstem Peak 

I Metropolitan Edison Company $ 154,777 102 

2 Carolina Power & Light Company $ 41,024 923 

3 TXU Electric Company $ 35,135 1890 

4 Potomac Electric Power Company $ 30,636 850 

5 New Hampshire Electric Cooperative, Inc. $ 25,430 165 

6 Upper Peninsula Power Company $ 18,626 141 

7 Newport Electric Corporation $ 17,258 102 

8 Consolidated Edison Company of New York, $ 17,089 9195 

9 The United Illuminating Company $ 16,739 886 

10 Niagara Mohawk Power Corporation $ 16,269 6104 

II Western Massachusetts Electric Company $ 15,097 749 

12 Connecticut Light and Power Company, The $ 13,657 4457 

13 Public Service Company of New Hampshire $ 13,622 1359 

14 Pacific Gas and Electric Company $ 12,674 16955 

15 PP&L, Inc. $ 12,200 3654 

16 Monongahela Power Company $ 12,010 2230 

17 Portland General Electric Company $ 11,777 2598 

18 Chugach Electric Association, Inc. $ 11,703 392 

19 Rockland Electric Company $ 11,528 355 

20 Wisconsin Public Service Corporation $ 11,162 1645 

21 West Penn Power Company $ 10,616 3240 

22 Utili corp United, Inc. $ 10,441 1152 

23 Alaska Electric Light and Power Company $ 10,236 63 

24 PacifiCorp $ 9,547 6491 

25 Mt. Carmel Public Utility Co $ 9,112 37 

93 Companv Average $ 9748 

-10-
For comparison, Table x reflects the twenty-five least costly utilities in terms of Lines & Feeders

embedded O&M costs per MW of system peak:

Table x

Twenty-five Lowest Cost Utilities

Lines &

Feeders Average

Based on Lines & Feeders O&M O&M/ MW System Peak

I Maine Public Service Company $ 593 1,813

2 Pennsylvania Power Company $ 882 7,938

3 Central Hudson Gas & Electric Corporation $ 1,375 9,666

4 Southwestern Public Service Company $ 1,676 4,060

5 The Potomac Edison Company $ 1,804 10,483

6 The Empire District Electric Company $ 2,184 2,967

7 Central Power and Light Company $ 2,586 4,226

8 West Texas Utilities Company $ 2,705 1,490

9 Entergy Gulf States, Inc. $ 2,870 6,389

10 Florida Power Corporation $ 3,032 8,183

11 Northwestern Public Service $ 3,150 694

12 Southwestern Electric Power Company $ 3,468 4,188

13 El Paso Electric Company $ 3,697 1,386

14 PSI Energy, Inc. $ 3,784 5,689

15 Entergy Arkansas, Inc. $ 3,889 5 , 838

16 Northern States Power Company $ 4,166 2,795

17 Western Resources, Inc. $ 4,198 2,717

18 IES Utilities Inc. $ 4,219 2,637

19 Arizona Public Service Company $ 4,237 4,747

20 Ohio Power Company $ 4,373 5,811

21 Holyoke Water Power Company $ 4,438 23

22 Indiana Michigan Power Company $ 4,448 4,267

23 Northern Indiana Public Service Company $ 4,588 2,860

24 Virginia Electric and Power Company $ 4,662 14,514

25 Kansas Gas and Electric Company $ 4,713 2,175

93 Company Average $ 9.448

Like plant in service amounts, the data show a high degree of variability. The unadjusted

standard deviation for Lines & Feeders O&M for the 93 companies is approximately $16,500.

However, this value is greatly distorted by the single highest cost utility. If this outlier is ignored,

the standard deviation drops to $6,651. Still, this is approximately two-thirds the value of the

average itself. In other words, the range of the adjusted standard deviation is from approximately

$3,100 to just under $16,400.

-11-

 EE-RM/STD-00-550 COMMENT 86

For comparison, Table x reflects the twenty-five least costly utilities in terms of Lines & Feeders 

embedded O&M costs per MW of system peak: 

Table x 

Lines & 

Twenty-five Lowest Cost Utilities Feeders Average 

Based on Lines & Feeders O&M O&M/MW SvstemPeak 

I Maine Public Service Company $ 593 1,813 

2 Pennsylvania Power Company $ 882 7,938 

3 Central Hudson Gas & Electric Corporation $ 1,375 9,666 

4 Southwestern Public Service Company $ 1,676 4,060 

5 The Potomac Edison Company $ 1,804 10,483 

6 The Empire District Electric Company $ 2,184 2,967 

7 Central Power and Light Company $ 2,586 4,226 

8 West Texas Utilities Company $ 2,705 1,490 

9 Entergy Gulf States, Inc. $ 2,870 6,389 

10 Florida Power Corporation $ 3,032 8,183 

II Northwestern Public Service $ 3,150 694 

12 Southwestern Electric Power Company $ 3,468 4,188 

13 EI Paso Electric Company $ 3,697 1,386 

14 PSI Energy, Inc. $ 3,784 5,689 

15 Entergy Arkansas, Inc. $ 3,889 5,838 

16 Northern States Power Company $ 4,166 2,795 

17 Western Resources, Inc. $ 4,198 2,717 

18 IES Utilities Inc. $ 4,219 2,637 

19 Arizona Public Service Company $ 4,237 4,747 

20 Ohio Power Company $ 4,373 5,811 

21 Holyoke Water Power Company $ 4,438 23 

22 Indiana Michigan Power Company $ 4,448 4,267 

23 Northern Indiana Public Service Company $ 4,588 2,860 

24 Virginia Electric and Power Company $ 4,662 14,514 

25 Kansas Gas and Electric Company $ 4,713 2,175 

93 Comoanv Avera!!e $ 9748 

Like plant in service amounts, the data show a high degree of variability. The unadjusted 

standard deviation for Lines & Feeders O&M for the 93 companies is approximately $16,500. 

However, this value is greatly distorted by the single highest cost utility. If this outlier is ignored, 

the standard deviation drops to $6,651. Still, this is approximately two-thirds the value of the 

average itself. In other words, the range of the adjusted standard deviation is from approximately 

$3,100 to just under $16,400. 

-11-
Finally, Table x reflects embedded O&M costs per MW for Transformers & Substations:

Table x

Twenty-five Highest Cost Utilities Based on

Transformers &

Substations

Average

System

Transformers & Substations O&M O&M/MW Peak

1 Metropolitan Edison Company $ 4,447 102

2 The United Illuminating Company $ 1,748 886

3 Alaska Electric Light and Power Company $ 1,426 63

4 Upper Peninsula Power Company $ 1,200 141

5 Carolina Power & Light Company $ 957 923

6 Public Service Company of New Hampshire $ 925 1,359

7 TXU Electric Company $ 889 1,890

8 Portland General Electric Company $ 886 2,598

9 Atlantic City Electric Company $ 872 2,047

10 Consolidated Edison Company of New York, $ 856 9,195

11 Newport Electric Corporation $ 801 102

12 Western Massachusetts Electric Company $ 782 749

13 Mt. Cannel Public Utility Co $ 780 37

14 PP&L, Inc. $ 771 3,654

15 Delmarva Power & Light Company $ 735 2,887

16 Baltimore Gas and Electric Company $ 624 6,062

17 Columbus Southern Power Company $ 608 3,484

18 Connecticut Light and Power Company, The $ 603 4,457

19 Otter Tail Power Company $ 601 622

20 Wheeling Power Company $ 592 289

21 Idaho Power Company $ 585 1,884

22 Cleveland Electric Illuminating Company, $ 573 4,179

23 Holyoke Water Power Company $ 571 23

24 Chugach Electric Association, Inc. $ 564 392

25 Toledo Edison Company, The $ 563 1,158

93 Company Average 462

 EE-RM/STD-00-550 COMMENT 86

Finally, Table x reflects embedded O&M costs per MW for Transformers & Substations: 

Table x 

Transfonners & Average 

Twenty-five Highest Cost Utilities Based on Substations System 

Transfonners & Substations O&M O&MIMW Peak 

1 Metropolitan Edison Company $ 4,447 102 

2 The United Illuminating Company $ 1,748 886 

3 Alaska Electric Light and Power Company $ 1,426 63 

4 Upper Peninsula Power Company $ 1,200 141 

5 Carolina Power & Light Company $ 957 923 

6 Public Service Company of New Hampshire $ 925 1,359 

7 TXU Electric Company $ 889 1,890 

8 Portland General Electric Company $ 886 2,598 

9 Atlantic City Electric Company $ 872 2,047 

10 Consolidated Edison Company of New York, $ 856 9,195 

II Newport Electric Corporation $ 801 102 

12 Westem Massachusetts Electric Company $ 782 749 

13 Mt. Cannel Public Utility Co $ 780 37 

14 PP&L, Inc. $ 771 3,654 

15 Delmarva Power & Light Company $ 735 2,887 

16 Baltimore Gas and Electric Company $ 624 6,062 

17 Columbus Southem Power Company $ 608 3,484 

18 Connecticut Light and Power Company, The $ 603 4,457 

19 Otter Tail Power Company $ 601 622 

20 Wheeling Power Company $ 592 289 

21 Idaho Power Company $ 585 1,884 

22 Cleveland Electric Illuminating Company, $ 573 4,179 

23 Holyoke Water Power Company $ 571 23 

24 Chugach Electric Association, Inc. $ 564 392 

25 Toledo Edison Company, The $ 563 1,158 

93 Company Avera"e $ 462 

-12-
By comparison, Table x reflects similar data for the twenty-five least costly utilities:

Table x

Transformer

S & Average

Twenty-five Lowestt Cost Utilities Based on Substations System

Transformers & Substations O&M O&M/ MW Peak

1 Maine Public Service Company

2 Pennsylvania Power Company

3 Central Hudson Gas & Electric Corporation

4 Indianapolis Power & Light Company

5 The Empire District Electric Company

6 Duke Energy Corporation

7 Niagara Mohawk Power Corporation

8 Southwestern Public Service Company

9 The Potomac Edison Company

$ 33 1,813

$ 44 7,938

$ 53 9,666

$ 59 2,800

$ 65 2,967

$ 67 15,615

$ 69 6,104

$ 74 4,060

$ 92 10,483

10 Northern States Power Company (Wisconsin) $ 96 2,795

11 Southwestern Electric Power Company $ 4,188

12 Southern Indiana Gas and Electric Company $ 1,054

13 Oklahoma Gas and Electric Company $ 5,088

14 Central Power and Light Company $ 4,226

15 Florida Power Corporation $ 8,183

16 New Hampshire Electric Cooperative, Inc.

17 Pacific Gas and Electric Company

18 Western Resources, Inc.

19 Union Electric Company

20 Puget Sound Energy, Inc.

21 Kansas Gas and Electric Company

22 Kentucky Utilities Company

23 Wisconsin Power and Light Company

24 West Texas Utilities Company

25 Arizona Public Service Company

$ 165

$ 16,955

$ 2,717

$ 7,867

$ 4,378

$ 2,175

$ 3,513

$ 2,278

$ 1,490

$ 4,747

93 Company Average $

Again, the data show a high degree of variability. The unadjusted standard deviation for

Transformers & Substations O&M for the 93 companies is $511. However, as in the case of

Lines & Feeders, this value is greatly distorted by the single highest cost utility. If this outlier is

ignored, the standard deviation drops to $299, approximately two-thirds the value of the average

itself. Thus, the range of the adjusted standard deviation is from $162 to $761. These large

-13-

 EE-RM/STD-00-550 COMMENT 86

By comparison, Table x reflects similar data for the twenty-five least costly utilities: 

Table x 

Transfonner 

s& Average 

Twenty-five Lowestt Cost Utilities Based on Substations System 

Transfonners & Substations O&M O&M/MW Peak 

I Maine Public Service Company $ 33 1,813 

2 Pennsylvania Power Company $ 44 7,938 

3 Central Hudson Gas & Electric Corporation $ 53 9,666 

4 Indianapolis Power & Light Company $ 59 2,800 

5 The Empire District Electric Company $ 65 2,967 

6 Duke Energy Corporation $ 67 15,615 

7 Niagara Mohawk Power Corporation $ 69 6,104 

8 Southwestern Public Service Company $ 74 4,060 

9 The Potomac Edison Company $ 92 10,483 

10 Northern States Power Company (Wisconsin) $ 96 2,795 

11 Southwestern Electric Power Company $ 4,188 

12 Southern Indiana Gas and Electric Company $ 1,054 

13 Oklahoma Gas and Electric Company $ 5,088 

14 Central Power and Light Company $ 4,226 

15 Florida Power Corporation $ 8,183 

16 New Hampshire Electric Cooperative, Inc. $ 165 

17 Pacific Gas and Electric Company $ 16,955 

18 Western Resources, Inc. $ 2,717 

19 Union Electric Company $ 7,867 

20 Puget Sound Energy, Inc. $ 4,378 

21 Kansas Gas and Electric Company $ 2,175 

22 Kentucky Utilities Company $ 3,513 

23 Wisconsin Power and Light Company $ 2,278 

24 West Texas Utilities Company $ 1,490 

25 Arizona Public Service Company $ 4,747 

93 Company Average $ 

Again, the data show a high degree of variability. The unadjusted standard deviation for 

Transformers & Substations O&M for the 93 companies is $511. However, as in the case of 

Lines & Feeders, this value is greatly distorted by the single highest cost utility. If this outlier is 

ignored, the standard deviation drops to $299, approximately two-thirds the value of the average 

itself. Thus, the range of the adjusted standard deviation is from $162 to $761. These large 

-13-
standard deviations means that there are no broad "rules of thumb" that can be drawn from

embedded costs.

One conclusion that can be drawn from the data is that the embedded costs of the distribution

system are much more heavily weighted toward Lines & Feeders than Transformers &

Substations - the former being roughly six times higher than the latter on a per MW peak basis.

This is significant for two reasons. First, the much higher cost per MW increases the likelihood

that any given DR option may be a preferred alternative to a Line & Feeder system upgrade.

Second, Lines & Feeders carry lower loads on an individual basis than do Transformers &

Substations and so may be more amenable to alternatives involving very small DG options. On

the other hand, DG alternatives for Lines & Feeders will generally involve placement at or near

the loads themselves, while DG alternatives to Transformers & Substation improvements

generally involve placement of DG at the substation itself, which is generally simpler. Of course,

many DR alternatives, such as load management and energy efficiency options are, by their

nature, at the site of the load anyway, suggesting that they would be a good fit for consideration

as alternatives to Lines & Feeders improvements.

More importantly, for the most expensive of these utilities, average cost per MW for Lines &

Feeders is as high as the current installed cost many DG options, including wind and

microturbines, strongly suggesting that DG options would have competed well historically, had

these technologies been available. Indeed, because all these data represent average costs, there

are likely many parts of the systems of these utilities that have even higher costs per MW.

Marginal Transformer & Substation Costs

Embedded costs are only the beginning of the story and provide a useful but limited reference

point for understanding distribution costs on a going-forward basis. Of much more importance

are the marginal costs incurred by utilities as they expand and improve their existing systems. To

assess the magnitude of marginal costs for Transformers & Substations and Lines & Feeders, we

applied the same cost classifications outlined above to the additions to plant in service and to the

annual changes in O&M expenses. One anomaly present in this analysis that is not a problem in

the embedded cost analysis is that eleven of the utilities experienced negative load growth during

the analysis period, resulting in a slight, though not significant, reduction in the 93 company

averages. For purposes of the twenty-five least costly groupings, these utilities have been

ignored. It should be noted that these negative growth utilities nonetheless had over $43 million

-14-

 EE-RM/STD-00-550 COMMENT 86

standard deviations means that there are no broad "rules of thumb" that can be drawn from 

embedded costs. 

One conclusion that can be drawn from the data is that the embedded costs of the distribution 

system are much more heavily weighted toward Lines & Feeders than Transformers & 

Substations - the former being roughly six times higher than the latter on a per MW peak basis. 

This is significant for two reasons. First, the much higher cost per MW increases the likelihood 

that any given DR option may be a preferred alternative to a Line & Feeder system upgrade. 

Second, Lines & Feeders carry lower loads on an individual basis than do Transformers & 

Substations and so may be more amenable to alternatives involving very small DG options. On 

the other hand, DG alternatives for Lines & Feeders will generally involve placement at or near 

the loads themselves, while DG alternatives to Transformers & Substation improvements 

generally involve placement of DG at the substation itself, which is generally simpler. Of course, 

many DR alternatives, such as load management and energy efficiency options are, by their 

nature, at the site of the load anyway, suggesting that they would be a good fit for consideration 

as alternatives to Lines & Feeders improvements. 

More importantly, for the most expensive of these utilities, average cost per MW for Lines & 

Feeders is as high as the current installed cost many DG options, including wind and 

microturbines, strongly suggesting that DG options would have competed well historically, had 

these technologies been available. Indeed, because all these data represent average costs, there 

are likely many parts of the systems of these utilities that have even higher costs per MW. 

Marginal Transformer & Substation Costs 

Embedded costs are only the beginning of the story and provide a useful but limited reference· 

point for understanding distribution costs on a going-forward basis. Of much more importance 

are the marginal costs incurred by utilities as they expand and improve their existing systems. To 

assess the magnitude of marginal costs for Transformers & Substations and Lines & Feeders, we 

applied the same cost classifications outlined above to the additions to plant in service and to the 

annual changes in O&M expenses. One anomaly present in this analysis that is not a problem in 

the embedded cost analysis is that eleven of the utilities experienced negative load growth during 

the analysis period, resulting in a slight, though not significant, reduction in the 93 company 

averages. For purposes of the twenty-five least costly groupings, these utilities have been 

ignored. It should be noted that these negative growth utilities nonetheless had over $43 million 

-14-
E

 EE-RM/STD-00-550 COMMENT 86 of new investment in Lines & Feeders and Transformers & Substations, demonstrating the fact that, when disaggregated, any utility can still face growth constraints and other investment demands within its system, even when the overall company demand is not growing. This uncertainty is reflected in the greater variability of investment per MW growth. Chart x reflects the Lines & Feeders marginal investment plotted against growth in system peak. 

1995-1999 5 Yr. Average Unes and Feeders Grawth as a Function of Average System Peak GlDwth 

-Linear (5 Yr. Average Lines and Feeders Additions) 

Here, the R2 for the trendline is only .63, as opposed to .78 for embedded costs. Nonetheless, the 

relationship between load growth and marginal investment in Lines & Feeders is a positive one, 

as can be clearly seen just looking at the spread of data points on the chart. A comparable 

analysis testing for a relationship with growth in system sales yields an R2 of only approximately 

.26, indicating that marginal Lines & Feeders investment cost has little relationship to total 

system sales growth

Similar results were found for Transformers & Substations
Marginal Cost of Transformers & Substations Plant

Table x shows the marginal cost per MW of system peak growth for the twenty-five highest cost

utilities:

Table x

25 Highest Cost Utilities

Transformers

&

Transformers & Substation Growth Substations/ Peak

Per MW Growth Peak Growth Growth

1 The Potomac Edison Company $ 3,579,279 2

2 Chugach Electric Association, Inc. $ 398,062 9

3 Portland General Electric Company $ 374,748 42

4 New Hampshire Electric Cooperative, Inc. $ 338,568 1

5 Potomac Electric Power Company $ 327,996 53

6 Baltimore Gas and Electric Company $ 298,396 69

7 PacifiCorp $ 274,883 98

8 Pennsylvania Electric Company $ 268,644 20

9 Fitchburg Gas and Electric Light Company $ 256,340 3

10 PP&L, Inc. $ 220,950 57

11 Concord Electric Company $ 219,644 2

12 Public Service Company of New Mexico $ 201,792 20

13 Rockland Electric Company $ 183,676 4

14 Upper Peninsula Power Company $ 179,204 1

15 Otter Tail Power Company $ 160,001 10

16 Central Hudson Gas & Electric Corporation $ 151,096 24

17 West Penn Power Company $ 125,653 52

18 Consolidated Edison Company of New York, $ 123,321 241

19 St. Joseph Light & Power Company $ 121,356 14

20 Pacific Gas and Electric Company $ 113,418 668

21 Consumers Energy Company $ 111,143 192

22 San Diego Gas & Electric Company $ 109,924 62

23 IES Utilities Inc. $ 104,823 41

24 The Detroit Edison Company $ 101,318 267

25 Western Massachusetts Electric Company $ 99,468 7

82 Company Average (excludes companies

with negative growth) $135,760

81 Company Average (excludes highest outlier) $93,766

 EE-RM/STD-00-550 COMMENT 86

Marginal Cost of Transformers & Substations Plant 

Table x shows the marginal cost per MW of system peak growth for the twenty-five highest cost 

utilities: 

Table x 

Transfonners 

25 Highest Cost Utilities & 

Transfonners & Substation Growth Substations! Peak 

Per MW Growth Peak Growth Growth 

I The Potomac Edison Company $ 3,579,279 2 

2 Chugach Electric Association, Inc. $ 398,062 9 

3 Portland General Electric Company $ 374,748 42 

4 New Hampshire Electric Cooperative, Inc. $ 338,568 

5 Potomac Electric Power Company $ 327,996 53 

6 Baltimore Gas and Electric Company $ 298,396 69 

7 PacifiCorp $ 274,883 98 

8 Pennsylvania Electric Company $ 268,644 20 

9 Fitchburg Gas and Electric Light Company $ 256,340 3 

10 PP&L, Inc. $ 220,950 57 

II Concord Electric Company $ 219,644 2 

12 Public Service Company of New Mexico $ 201,792 20 

13 Rockland Electric Company $ 183,676 4 

14 Upper Peninsula Power Company $ 179,204 

15 Otter Tail Power Company $ 160,001 10 

16 Central Hudson Gas & Electric Corporation $ 151,096 24 

17 West Penn Power Company $ 125,653 52 

18 Consolidated Edison Company of New York, $ 123,321 241 

19 St. Joseph Light & Power Company $ 121,356 14 

20 Pacific Gas and Electric Company $ 113,418 668 

21 Consumers Energy Company $ 111,143 192 

22 San Diego Gas & Electric Company $ 109,924 62 

23 IES Utilities Inc. $ 104,823 41 

24 The Detroit Edison Company $ 101,318 267 

25 Western Massachusetts Electric Company $ 99,468 7 

82 Company Average (excludes companies 

with negative growth) $135,760 

81 Companv Avera"e (excludes hi"hest outlier) $93766 

-16-
Similarly, Table x reflects the Transformer & Substation marginal costs per MW of system peak

growth for the twenty-five least costly utilities:

Table x

25 Lowest Cost Utilities

Transformers

& Average

Transformers & Substation Growth Substations/ Peak

Per MW Growth Peak Growth Growth

I Madison Gas and Electric Company $ 1,310 17

2 Ohio Edison Company $ 6,050 140

3 Public Service Company of New Hampshire $ 7,885 31

4 Pennsylvania Power Company $ 11,821 32

5 The United Illuminating Company $ 14,367 28

6 Kansas Gas and Electric Company $ 17,565 111

7 Entergy Arkansas, Inc. $ 18,758 453

8 Cleveland Electric Illuminating Company, The $ 21,978 139

9 Commonwealth Edison Company $ 22,789 663

10 Entergy Gulf States, Inc. $ 22,966 228

11 Exeter & Hampton Electric Company $ 24,356 3

12 Western Resources, Inc. $ 24,969 114

13 TXU Electric Company $ 27,628 744

14 Toledo Edison Company, The $ 28,895 93

15 Cleco Utility Group Inc. $ 29,103 91

16 Connecticut Light and Power Company, The $ 30,571 138

17 Utilicorp United, Inc. $ 31,806 67

18 Southwestern Electric Power Company $ 31,881 187

19 Atlantic City Electric Company $ 32,885 87

20 Central Power and Light Company $ 34,293 144

21 Kentucky Utilities Company $ 35,756 127

22 Oklahoma Gas and Electric Company $ 36,601 169

23 Delmarva Power & Light Company $ 38,832 144

24 MDU Resources Group, Inc. $ 40,744 10

25 Wisconsin Electric Power Company $ 42,186 205 ,

82 Company Average (excludes companies

with negative

growth) $135,760

81 Company Average (excludes highest $93,766

Analysis of this information excludes companies with negative growth in system peak to avoid

distorting the marginal cost information. This eliminates eleven utilities. For the remaining 82

utilities, the data exhibit a standard deviation of approximately $390,000, a value which exceeds

the unadjusted average by a factor of about three times. Elimination of the highest cost utility as

-17-

 EE-RM/STD-00-550 COMMENT 86

Similarly, Table x reflects the Transformer & Substation marginal costs per MW of system peak 

growth for the twenty-five least costly utilities: 

Table x 

Transfonners 

25 Lowest Cost Utilities & Average 

Transfonners & Substation Growth Substations/ Peak 

Per MW Growth Peak Growth Growth 

I Madison Gas and Electric Company $ 

2 Ohio Edison Company $ 

3 Public Service Company of New Hampshire $ 

4 Pennsylvania Power Company $ 

5 The United Illuminating Company $ 

6 Kansas Gas and Electric Company $ 

7 Entergy Arkansas, Inc. $ 

8 Cleveland Electric Illuminating Company, The $ 

9 Commonwealth Edison Company $ 

10 Entergy Gulf States, Inc. $ 

II Exeter & Hampton Elechic Company $ 

12 Western Resources, Inc. $ 

13 TXU Electric Company $ 

14 Toledo Edison Company, The $ 

15 Cleco Utility Group Inc. $ 

16 Connecticut Light and Power Company, The $ 

17 Utilicorp United, Inc. $ 

18 Southwestern Electric Power Company $ 

19 Atlantic City Electric Company $ 

20 Central Power and Light Company $ 

21 Kentucky Utilities Company $ 

22 Oklahoma Gas and Electric Company $ 

23 Delmarva Power & Light Company $ 

24 MDU Resources Group, Inc. $ 

25 Wisconsin Electric Power Company $ 

82 Company Average (excludes companies 

with negative 

growth) 

81 Company Average (excludes highest 

1,310 

6,050 

7,885 

11,821 

14,367 

17,565 

18,758 

21,978 

22,789 

22,966 

24,356 

24,969 

27,628 

28,895 

29,103 

30,571 

31,806 

31,881 

32,885 

34,293 

35,756 

36,601 

38,832 

40,744 

42,186 

$135,760 

$93766 

17 

140 

31 

32 

28 

III 

453 

139 

663 

228 

3 

114 

744 

93 

91 

138 

67 

187 

87 

144 

127 

169 

144 

10 

205 

Analysis of this information excludes companies with negative growth in system peak to avoid 

distorting the marginal cost information. This eliminates eleven utilities. For the remaining 82 

utilities, the data exhibit a standard deviation of approximately $390,000, a value which exceeds 

the unadjusted average by a factor of about three times. Elimination of the highest cost utility as 

-17-
an outlier in the data reveals a standard deviation of $88,490 against an average of $93,766. This

indicates a very high spread in the values with little or no clustering around the average,

reinforcing the need for a case by case analysis.

Marginal Lines & Feeders Plant

Table x reflects the Lines & Feeders plant growth per MW of system peak growth for the twentyfive highest cost utilities:

Table x

25 Highest Cost Utilities

Lines and

Feeders/ Peak Peak

Lines and Feeders Growth Per MW Growth Growth Growth

I The Potomac Edison Company $ 19,483,006 2

2 New Hampshire Electric Cooperative, Inc. $ 7,130,319 1

3 Pennsylvania Electric Company $ 2,815,919 20

4 Upper Peninsula Power Company $ 1,902,999 1

5 PP&L, Inc. $ 1,457,472 57

6 Portland General Electric Company $ 1,429,544 42

7 Baltimore Gas and Electric Company $ 1,413,312 69

8 PacifiCorp $ 1,393,458 98

9 Potomac Electric Power Company $ 1,384,774 53

10 San Diego Gas & Electric Company $ 1,383,758 62

11 Western Massachusetts Electric Company $ 1,348,138 7

12 Public Service Company of New Mexico $ 1,192,783 20

13 Concord Electric Company $ 1,088,347 2

14 Consolidated Edison Company of New York, $ 1,071,224 241

15 Arizona Public Service Company $ 942,846 137

16 Newport Electric Corporation $ 915,530 2

17 Public Service Company of New Hampshire $ 853,317 31

18 Carolina Power & Light Company $ 780,526 140

19 IES Utilities Inc. $ 776,525 41

20 Interstate Power Company $ 775,375 17

21 Fitchburg Gas and Electric Light Company $ 762,072 3

22 Duke Energy Corporation $ 731,974 223

23 West Penn Power Company $ 693,374 52

24 Ohio Power Company $ 693,126 54

25 Exeter & Hampton Electric Company $ 691,781 3

82 Company Average (excludes negative $ 894,998

81 Company Adjusted Average (excludes $ 668,315

-18-

 EE-RM/STD-00-550 COMMENT 86

an outlier in the data reveals a standard deviation of $88,490 against an average of$93,766. This 

indicates a very high spread in the values with little or no clustering around the average, 

reinforcing the need for a case by case analysis. 

Marginal Lines & Feeders Plant 

Table x reflects the Lines & Feeders plant growth per MW of system peak growth for the twentyfive highest cost utilities: 

Table x 

Lines and 

25 Highest Cost Utilities Feeders! Peak Peak 

Lines and Feeders Growth Per MW Growth Growth Growth 

I The Potomac Edison Company $ 19,483,006 2 

2 New Hampshire Electric Cooperative, Inc. $ 7,130,319 

3 Pennsylvania Electric Company $ 2,815,919 20 

4 Upper Peninsula Power Company $ 1,902,999 

5 PP&L, Inc. $ 1,457,472 57 

6 Portland General Electric Company $ 1,429,544 42 

7 Baltimore Gas and Electric Company $ 1,413,312 69 

8 PacifiCorp $ 1,393,458 98 

9 Potomac Electric Power Company $ 1,384,774 53 

10 San Diego Gas & Electric Company $ 1,383,758 62 

II Western Massachusetts Electric Company $ 1,348,138 7 

12 Public Service Company of New Mexico $ 1,192,783 20 

13 Concord Electric Company $ 1,088,347 2 

14 Consolidated Edison Company of New York, $ 1,071,224 241 

15 Arizona Public Service Company $ 942,846 137 

16 Newport Electric Corporation $ 915,530 2 

17 Public Service Company of New Hampshire $ 853,317 31 

18 Carolina Power & Light Company $ 780,526 140 

19 lES Utilities Inc. $ 776,525 41 

20 Interstate Power Company $ 775,375 17 

21 Fitchburg Gas and Electric Light Company $ 762,072 3 

22 Duke Energy Corporation $ 731,974 223 

23 West Penn Power Company $ 693,374 52 

24 Ohio Power Company $ 693,126 54 

25 Exeter & Hampton Electric Company $ 691,781 3 

82 Company Average (excludes negative $ 894,998 

81 Companv Adiusted Average (excludes $ 668,315 

-18-
By comparison, Table x reflects the Lines & Feeders plant growth per MW of system peak

growth for the twenty-five lowest cost utilities:

Table x

Lines and

25 Lowest Cost Utilities Feeders/ Peak Peak

Lines and Feeders Growth Per MW Growth Growth Growth

1 Entergy Arkansas, Inc. $ 108,886 453

2 Kansas Gas and Electric Company $ 155,231 111

3 Toledo Edison Company, The $ 163,059 93

4 Western Resources, Inc. $ 184,459 114

5 Cleveland Electric Illuminating Company, The $ 186,553 139

6 Southwestern Public Service Company $ 186,684 122

7 Southwestern Electric Power Company $ 205,062 187

8 Entergy Gulf States, Inc. $ 216,134 228

9 Kentucky Utilities Company $ 221,642 127

10 Delmarva Power & Light Company $ 228,399 144

11 Southern Indiana Gas and Electric Company $ 243,760 30

12 Pennsylvania Power Company $ 244,399 32

13 St. Joseph Light & Power Company $ 259,617 14

14 Oklahoma Gas and Electric Company $ 263,218 169

15 Atlantic City Electric Company $ 264,515 87

16 Black Hills Corporation $ 267,439 16

17 Cleco Utility Group Inc. $ 272,193 91

18 TXU Electric Company $ 283,040 744

19 Indiana Michigan Power Company $ 285,252 106

20 Florida Power Corporation $ 288,134 273

21 West Texas Utilities Company $ 291,647 49

22 Ohio Edison Company $ 313,524 140

23 Northwestern Public Service $ 318,356 13

24 Metropolitan Edison Company $ 322,170 90

25 Kansas City Power & Light Company $ 337,704 107

82 Company Average (excludes negative $ 894,998

81 Company Adjusted Average (excludes $ 668,315

Data for Lines & Feeders marginal costs have a standard deviation of over $2 million per MW on

an unadjusted basis. However, excluding the single highest outlier once again lowers the

standard deviation significantly to approximately $848,000, some 27% higher than the adjusted

average. This still indicates a very wide spread in values for the data, with data spread all along

the range from $108,000 per MW to $7.1 million per MW. Careful consideration of individual

utility circumstances is a must!

-19-

 EE-RM/STD-00-550 COMMENT 86

By comparison, Table x reflects the Lines & Feeders plant growth per MW of system peak 

growth for the twenty-five lowest cost utilities: 

Table x 

Lines and 

25 Lowest Cost Utilities Feedersl Peak Peak 

Lines and Feeders Growth Per MW Growth Growth Growth 

I Entergy Arkansas, Inc. $ 108,886 453 

2 Kansas Gas and Electric Company $ 155,231 III 

3 Toledo Edison Company, The $ 163,059 93 

4 Westem Resources, Inc. $ 184,459 114 

5 Cleveland Electric Illuminating Company, The $ 186,553 139 

6 Southwestem Public Service Company $ 186,684 122 

7 Southwestem Electric Power Company $ 205,062 187 

8 Entergy Gulf States, Inc. $ 216,134 228 

9 Kentucky Utilities Company $ 221,642 127 

10 Delmarva Power & Light Company $ 228,399 144 

II Southem Indiana Gas and Electric Company $ 243,760 30 

12 Pennsylvania Power Company $ 244,399 32 

13 St. Joseph Light & Power Company $ 259,617 14 

14 Oklahoma Gas and Electric Company $ 263,218 169 

15 Atlantic City Electric Company $ 264,515 87 

16 Black Hills Corporation $ 267,439 16 

17 Cleco Utility Group Inc. $ 272,193 91 

18 TXU Electric Company $ 283,040 744 

19 Indiana Michigan Power Company $ 285,252 106 

20 Florida Power Corporation $ 288,134 273 

21 West Texas Utilities Company $ 291,647 49 

22 Ohio Edison Company $ 313,524 140 

23 Northwestem Public Service $ 318,356 13 

24 Metropolitan Edison Company $ 322,170 90 

25 Kansas City Power & Light Company $ 337,704 107 

82 Company Average (excludes negative $ 894,998 

81 Company Adiusted Average (excludes $ 668315 

Data for Lines & Feeders marginal costs have a standard deviation of over $2 million per MW on 

an unadjusted basis. However, excluding the single highest outlier once again lowers the 

standard deviation significantly to approximately $848,000, some 27% higher than the adjusted 

average. This still indicates a very wide spread in values for the data, with data spread all along 

the range from $108,000 per MW to $7.1 million per MW. Careful consideration of individual 

utility circumstances is a must! 

-19-
0

activities. In addition, there is no clear basis from the FERC Form 1 format to tie marginal O&M 

expenses to marginal plant investments. As a result, we have not utilized the marginal O&M 

expenses as part of our analysis. Instead, we have used the embedded O&M cost information 

previously discussed. This probably tends to slightly understate these costs. 

General Discussion of Marginal Cost Data 

Marginal Investment Less Embedded Investment 

2500000 2000000 

1500000 1000000 

500000 

o 

-500000 

-1000000 -1500000 -2000000 

As would be expected, the marginal costs for most utilities (81 out of the 93) exceeded their 

embedded costs. The differentials for the total of Lines & Feeders and Transformers & 

Substations are reflected in Chart x. About one-third of the utilities are spread fairly evenly 

-20-
between about $200,000 per MW and $600,000 per MW. This difference between embedded

cost and marginal cost is the principal source of risk for escalating distribution costs, and higher

rates, looking forward.

Recent experience in California, Chicago and other urban areas suggest that there is increasing

pressure on the distribution infrastructure, especially during peak summer periods. Continued

growth will only stress the system further, requiring further investment in the distribution system

to alleviate these problems. Even in the analysis period used here, 1995-1999, the 93 utilities

reviewed invested over $5.4 billion in their distribution systems. As this number increases over

time, the differential between marginal cost and embedded is only likely to widen. The impact

on the customer will be a sharply steepening cost curve. Luckily, is it the very parts of the

system that are under stress that represent the target opportunities for DG and other DR solutions.

System expansions involving brand new construction, new housing subdivisions for examples,

cannot generally be deferred with DG or DR solutions. Transformers & Substations and Lines &

Feeders that are at or nearing their capacity do represent such opportunities.

The data we have reviewed here exhibit high variability from utility to utility. It should be

pointed out that these data are averages for each utility, both in terms of years and, more

importantly, of all projects for each year for each utility. Within each utility, there are literally

dozens of projects per year involving a wide range of different expenditures. If each utility

experiences the kind of variability in costs from project to project as the we have seen from

utility to utility, it suggest that many projects may have extremely low costs per MW, while

others have extremely large costs per MW. Examination of individual utility data confirms that

this is exactly the case.

A review of the data for Commonwealth Edison shows high variability in the cost of 963 Lines &

Feeders projects considered in 1999. Area specific costs exhibited a standard deviation equal to

94% of the average. Using the standard deviation to establish a range yields a high case equal to

194% of the average and a low case equal to 6% of the average. Similarly, for 214 Transformer

& Substation projects, the data showed a standard deviation equal to 76% of the average,

yielding a range from 176% of average down to 24% of average.

We used these ranges to bound the upper and lower costs for each category for selected utilities

and then computed a levelized cost per MW for each category. For this calculation we assumed a

thirty year investment life, a 10% cost of capital, a 10% discount rate and a 3% O&M escalation

-21-

 EE-RM/STD-00-550 COMMENT 86

between about $200,000 per MW and $600,000 per MW. This difference between embedded 

cost and marginal cost is the principal source of risk for escalating distribution costs, and higher 

rates, looking forward. 

Recent experience in California, Chicago and other urban areas suggest that there is increasing 

pressure on the distribution infrastructure, especially during peak summer periods. Continued 

growth will only stress the system further, requiring further investment in the distribution system 

to alleviate these problems. Even in the analysis period used here, 1995-1999, the 93 utilities 

reviewed invested over $5.4 billion in their distribution systems. As this number increases over 

time, the differential between marginal cost and embedded is only likely to widen. The impact 

on the customer will be a sharply steepening cost curve. Luckily, is it the very parts of the 

system that are under stress that represent the target opportunities for DG and other DR solutions. 

System expansions involving brand new construction, new housing subdivisions for examples, 

cannot generally be deferred with DG or DR solutions. Transformers & Substations and Lines & 

Feeders that are at or nearing their capacity do represent such opportunities. 

The data we have reviewed here exhibit high variability from utility to utility. It should be 

pointed out that these data are averages for each utility, both in terms of years and, more 

importantly, of all projects for each year for each utility. Within each utility, there are literally 

dozens of projects per year involving a wide range of different expenditures. If each utility 

experiences the kind of variability in costs from project to project as the we have seen from 

utility to utility, it suggest that many projects may have extremely low costs per MW, while 

others have extremely large costs per MW. Examination of individual utility data confirms that 

this is exactly the case. 

A review of the data for Commonwealth Edison shows high variability in the cost of 963 Lines & 

Feeders projects considered in 1999. Area specific costs exhibited a standard deviation equal to 

94% of the average. Using the standard deviation to establish a range yields a high case equal to 

194% of the average and a low case equal to 6% of the average. Similarly, for 214 Transformer 

& Substation projects, the data showed a standard deviation equal to 76% of the average, 

yielding a range from 176% of average down to 24% of average. 

We used these ranges to bound the upper and lower costs for each category for selected utilities 

and then computed a levelized cost per MW for each category. For this calculation we assumed a 

thirty year investment life, a 10% cost of capital, a 10% discount rate and a 3% O&M escalation 

-21-
rate. With this information, a revenue requirement stream is calculated and present values for

each year are derived. Finally, a deferral value was calculated which is simply the sum of the

present values for each year for the number of years in question. Using this method, we derived

the value of deferring projects for a number of years ranging from 1 to 30. This method allows

us to bracket the potential costs for any of the utilities within our data set.

For example, Table x is a summary of low and high case values for Baltimore Gas and Electric

Company, which appears on the highest twenty-five cost utilities for both Transformers &

Substations and Lines & Feeders. Not surprisingly, this analysis suggests that Baltimore Gas and

Electric may have significant opportunities for utilizing DG in a cost-effective manner.

Table x

Value of Project Deferring DR ($/k

Baltimore Gas and Electric Comnan

Transformers &

Substations Lines & Feeders

$ $ 525,463 $ 89,007 $ 2,737,616

Case Case

Deferral Years Low Low

$9 $ 64 $16 $ 337

$ 18 $124 $32 $651

$ 25 $177 $46 $929

4 $ 32 $224 $58 $ 1,176

5 $ 38 $265 $70 $ 1,394

6 $ 44 $ 302 $80 $ 1,588

7 $ 48 $335 $89 $ 1,759

8 $ 53 $363 $98 $ 1,910

9 $ 56 $389 $ 105 $ 2,043

10 $ 60 $411 $112 $ 2,160

11 $ 63 $430 $118 $ 2,264

12 $ 65 $448 $124 $ 2,355

13 $ 67 $463 $129 $ 2,435

14 $ 69 $476 $134 $ 2,506

$7 $488 $138 $ 2,568

16 $ 73 $498 $142 $ 2,622

17 $ 74 $507 $145 $ 2,670

18 $ 75 $515 $149 $2,711

19 $ 77 $522 $152 $ 2,747

20 $ 77 $528 $154 $ 2,779

21 $ 78 $533 $157 $ 2,806

$ 79 $537 $159 $ 2,830

23 $ 80 $541 $161 $ 2,851

24 $ 80 $544 $163 $ 2,868

25 $8 $547 $164 $ 2,884

26 $8 $549 $166 $ 2,897

27 $ 82 $552 $167 $ 2,908

28 $ 82 $553 $168 $ 2,918

29 $ 82 $555 $169 $ 2,926

30 $ 82 $556 $170 $ 2,933

-22-

 EE-RM/STD-00-550 COMMENT 86

rate. With this information, a revenue requirement stream is calculated and present values for 

each year are derived. Finally, a deferral value was calculated which is simply the sum of the 

present values for each year for the number of years in question. Using this method, we derived 

the value of deferring projects for a number of years ranging from 1 to 30. This method allows 

us to bracket the potential costs for any of the utilities within our data set. 

For example, Table x is a summary oflow and high case values for Baltimore Gas and Electric 

Company, which appears on the highest twenty-five cost utilities for both Transformers & 

Substations and Lines & Feeders. Not surprisingly, this analysis suggests that Baltimore Gas and 

Electric may have significant opportunities for utilizing DG in a cost-effective manner. 

Table x 

Value ofProiect Defen-ing DR ($/kW) 

Company Ba[timore Gas and Electric Company 

Transfonners & 

Substations Lines & Feeders 

Margina[ Cost ($IMW) $1 $ 525 463 $ 89 007 I $ 2 737 616 

Case Case 

Deferra[ Years Low High Low High 

1 $9 $ 64 $[6 $ 337 

2 $ 18 $124 $32 $65[ 

3 $ 25 $177 $46 $929 

4 $ 32 $224 $58 $ [ 176 

5 $ 38 $265 $70 $ [ 394 

6 $ 44 $ 302 $80 $ [ 588 

7 $ 48 $335 $89 $ 1 759 

8 $ 53 $363 $98 $ 1 910 

9 $ 56 $389 $ 105 $ 2 043 

10 $ 60 $4[1 $112 $ 2.160 

11 $ 63 $430 $118 $ 2 264 

12 $ 65 $448 $124 $ 2 355 

13 $ 67 $463 $129 $ 2 435 

14 $ 69 $476 $134 $ 2 506 

15 $ 71 $488 $138 $ 2 568 

16 $ 73 $498 $[42 $ 2.622 

17 $ 74 $507 $145 $ 2 670 

[8 $ 75 $515 $149 $ 2 711 

19 $77 $522 $152 $ 2 747 

20 $77 $528 $154 $ 2 779 

21 $ 78 $533 $157 $ 2 806 

22 $ 79 $537 $159 $ 2 830 

23 $ 80 $541 $[61 $ 2,851 

24 $ 80 $544 $163 $ 2 868 

25 $ 81 $547 $164 $ 2,884 

26 $ 81 $549 $166 $ 2,897 

27 $ 82 $552 $167 $ 2 908 

28 $ 82 $553 $[68 $ 2 918 

29 $ 82 $555 $169 $ 2 926 

30 $ 82 $556 $170 $ 2 933 

-22-
The values reflected here represent the maximum amount the utility should be willing to pay, on

a per-KW basis, to invest in a DR alternative to a given "wires and transformers" project. These

values represent possibilities within a very reasonable range of costs . Individual projects may

exhibit values that exceed those shown here, depending upon the circumstances.

Because of the high variation from average cost that each utility might see on its own system, it

is not just the high cost utilities that might effectively utilize DR. Table x reflects the same

summary information for Southwestern Electric Power Company, a company appearing on both

of the lowest cost tables for Transformers & Substations and Lines & Feeders.

Table x

$99

$142

$180

$213

$243

$269

$293

$314

$332

$348

$363

13

14

15

16

17

18

19

20

21

23

24

26

27

28

$9 $57 $52

$9 $58 $53

$9 $58 $53

$9 $59 $54

$9 $59 $55

$9 $59 $56

$9 $60 $56

$9 $60 $57

-23-

$376

$387

$397

$406

$413

$420

$426

$431

$436

$440

$444

$447

$450

$452

$454

$456

 EE-RM/STD-00-550 COMMENT 86

The values reflected here represent the maximum amount the utility should be willing to pay, on 

a per-KW basis, to invest in a DR alternative to a given "wires and transformers" project. These 

values represent possibilities within a very reasonable range of costs. Individual projects may 

exhibit values that exceed those shown here, depending upon the circumstances. 

Because of the high variation from average cost that each utility might see on its own system, it 

is not just the high cost utilities that might effectively utilize DR. Table x reflects the same 

summary information for Southwestern Electric Power Company, a company appearing on both 

of the lowest cost tables for Transformers & Substations and Lines & Feeders. 

Table x 

Value of Project Deferring DR ($/kW) 

ompany Southwestern Electric Power Company 

Transformers & Lines & Feeders 

Substations 

rvtarginal Cost ($IMW) $7,621 $397,210 

$56,142 $12,914 

Case Case 

Deferral Years Low High Low High 

1 $1 $7 $5 $51 

2 $2 $13 $9 $99 

3 $3 $19 $13 $142 

4 $4 $24 $17 $180 

5 $4 $29 $21 $213 

6 $5 $33 $24 $243 

7 $5 $36 $27 $269 

8 $6 $39 $30 $293 

9 $6 $42 $33 $314 

10 $7 $44 $35 $332 

11 $7 $46 $37 $348 

12 $7 $48 $39 $363 

13 $8 $50 $41 $376 

14 $8 $51 $43 $387 

15 $8 $53 $44 $397 

16 $8 $54 $46 $406 

17 $8 $55 $47 $413 

18 $9 $55 $48 $420 

19 $9 $56 $50 $426 

20 $9 $57 $51 $431 

21 $9 $57 $52 $436 

22 $9 $58 $53 $440 

23 $9 $58 $53 $444 

24 $9 $59 $54 $447 

25 $9 $59 $55 $450 

26 $9 $59 $56 $452 

27 $9 $60 $56 $454 

28 $9 $60 $57 $456 

-23-
H30 ^

E $47

$60 $58 $4559

These values show that DR alternatives have significant values even for "low cost" utilities. In

addition, it should be noted that these values represent capacity values only. Economic dispatch

of DG would yield additional energy value to the system. These values have not been analyzed

in this paper because they are outside the scope of our review.

 EE-RM/STD-00-550 COMMENT 86

$4571 

$459 

These values show that DR alternatives have significant values even for "low cost" utilities. In 

addition, it should be noted that these values represent capacity values only. Economic dispatch 

of DG would yield additional energy value to the system. These values have not been analyzed 

in this paper because they are outside the scope of our review. 

-24-
Conclusion

Distribution system costs have not historically received a high level of analysis and review by

regulators. However, there is every reason to believe that the growth in investment in the

distribution system is likely to accelerate over the next several years. Principal causes for this

include the deterioration of embedded facilities that are at or near the end of their useful lives,

expansion and upgrade of facilities that operate at or near their capacity, and continued growth,

both geographically and in terms of intensity, of consumer demand.

While generating costs may experience a decline through technological gains in efficiency, costs

of the distribution system will probably continue to increase. Average aggregate annual

investments of over $5.4 billion per year were made by the 93 utilities in our study. This

translates into an annual revenue requirement increase per year on the order of $1 billion. This is

not an insignificant cost and deserves the attention of regulators and the application of

appropriate least-cost strategies.

While the analysis here cannot provide the basis for making individual choices for specific

projects, it does clearly demonstrate that there are many opportunities to implement distributed

resources in lieu of traditional wires and transformers solutions. This study should provide the

regulator with some guidelines about the important aspects of distribution costs and a framework

for assessing the avoided costs of the distribution system.

 EE-RM/STD-00-550 COMMENT 86

Conclusion 

Distribution system costs have not historically received a high level of analysis and review by 

regulators. However, there is every reason to believe that the growth in investment in the 

distribution system is likely to accelerate over the next several years. Principal causes for this 

include the deterioration of embedded facilities that are at or near the end of their useful lives, 

expansion and upgrade of facilities that operate at or near their capacity, and continued growth, 

both geographically and in terms of intensity, of consumer demand. 

While generating costs may experience a decline through technological gains in efficiency, costs 

of the distribution system will probably continue to increase. Average aggregate annual 

investments of over $5.4 billion per year were made by the 93 utilities in our study. This 

translates into an annual revenue requirement increase per year on the order of $1 billion. This is 

not an insignificant cost and deserves the attention of regulators and the application of 

appropriate least-cost strategies. 

While the analysis here cannot provide the basis for making individual choices for specific 

projects, it does clearly demonstrate that there are many opportunities to implement distributed 

resources in lieu of traditional wires and transformers solutions. This study should provide the 

regulator with some guidelines about the important aspects of distribution costs and a framework 

for assessing the avoided costs of the distribution system. 

-25-
Appendix A

List of Companies Used for Analysis

Alaska Electric Light and Power Company

Appalachian Power Company

Arizona Public Service Company

Atlantic City Electric Company

Baltimore Gas and Electric Company

Black Hills Corporation

Carolina Power & Light Company

Central Hudson Gas & Electric Corporation

Central Illinois Public Service Company

Central Power and Light Company

Chugach Electric Association, Inc.

Cleco Utility Group Inc.

Cleveland Electric Illuminating Company, The

Columbus Southern Power Company

Commonwealth Edison Company

Concord Electric Company

Connecticut Light and Power Company, The

Consolidated Edison Company of New York, Inc.

Consumers Energy Company

Delmarva Power & Light Company

Duke Energy Corporation

El Paso Electric Company

Entergy Arkansas, Inc.

Entergy Gulf States, Inc.

Exeter & Hampton Electric Company

Fitchburg Gas and Electric Light Company

Florida Power & Light Company

Florida Power Corporation

Holyoke Water Power Company

Idaho Power Company

IES Utilities Inc.

Indiana Michigan Power Company

Indianapolis Power & Light Company

Interstate Power Company

Kansas City Power & Light Company

Kansas Gas and Electric Company

Kentucky Power Company

Kentucky Utilities Company

Kingsport Power Company

Madison Gas and Electric Company

Maine Public Service Company

MDU Resources Group, Inc.

Metropolitan Edison Company

Monongahela Power Company

Mt. Carmel Public Utility Co

New Hampshire Electric Cooperative, Inc.

Newport Electric Corporation

Niagara Mohawk Power Corporation

-26-

 EE-RM/STD-00-550 COMMENT 86

Appendix A 

List of Companies Used for Analysis 

Alaska Electric Light and Power Company 

Appalachian Power Company 

Arizona Public Service Company 

Atlantic City Electric Company 

Baltimore Gas and Electric Company 

Black Hills Corporation 

Carolina Power & Light Company 

Central Hudson Gas & Electric Corporation 

Central Illinois Public Service Company 

Central Power and Light Company 

Chugach Electric Association, Inc. 

Cleco Utility Group Inc. 

Cleveland Electric Illuminating Company, The 

Columbus Southern Power Company 

Commonwealth Edison Company 

Concord Electric Company 

Connecticut Light and Power Company, The 

Consolidated Edison Company of New York, Inc. 

Consumers Energy Company 

Delmarva Power & Light Company 

Duke Energy Corporation 

El Paso Electric Company 

Entergy Arkansas, Inc. 

Entergy Gulf States, Inc. 

Exeter & Hampton Electric Company 

Fitchburg Gas and Electric Light Company 

Florida Power & Light Company 

Florida Power Corporation 

Holyoke Water Power Company 

Idaho Power Company 

IES Utilities Inc. 

Indiana Michigan Power Company 

Indianapolis Power & Light Company 

Interstate Power Company 

Kansas City Power & Light Company 

Kansas Gas and Electric Company 

Kentucky Power Company 

Kentucky Utilities Company 

Kingsport Power Company 

Madison Gas and Electric Company 

Maine Public Service Company 

MDU Resources Group, Inc. 

Metropolitan Edison Company 

Monongahela Power Company 

Mt. Carmel Public Utility Co 

New Hampshire Electric Cooperative, Inc. 

Newport Electric Corporation 

Niagara Mohawk Power Corporation 

-26-
Northern Indiana Public Service Company

Northern States Power Company (Wisconsin)

Northwestern Public Service

Ohio Edison Company

Ohio Power Company

Oklahoma Gas and Electric Company

Otter Tail Power Company

Pacific Gas and Electric Company

PacifiCorp

Pennsylvania Electric Company

Pennsylvania Power Company

Portland General Electric Company

Potomac Electric Power Company

PP&L, Inc.

PSI Energy, Inc.

Public Service Company of Colorado

Public Service Company of New Hampshire

Public Service Company of New Mexico

Puget Sound Energy, Inc.

Rockland Electric Company

San Diego Gas & Electric Company

Sierra Pacific Power Company

Southern Indiana Gas and Electric Company

Southwestern Electric Power Company

Southwestern Public Service Company

St. Joseph Light & Power Company

The Dayton Power and Light Company

The Detroit Edison Company

The Empire District Electric Company

The Potomac Edison Company

The United Illuminating Company

Toledo Edison Company, The

TXU Electric Company

Union Electric Company

Upper Peninsula Power Company

Utilicorp United, Inc.

Virginia Electric and Power Company

West Penn Power Company

West Texas Utilities Company

Western Massachusetts Electric Company

Western Resources, Inc.

Wheeling Power Company

Wisconsin Electric Power Company

Wisconsin Power and Light Company

Wisconsin Public Service Corporation

 EE-RM/STD-00-550 COMMENT 86

Northern Indiana Public Service Company 

Northern States Power Company (Wisconsin) 

Northwestern Public Service 

Ohio Edison Company 

Ohio Power Company 

Oklahoma Gas and Electric Company 

Otter Tail Power Company 

Pacific Gas and Electric Company 

PacifiCorp 

Pennsylvania Electric Company 

Pennsylvania Power Company 

Portland General Electric Company 

Potomac Electric Power Company 

PP&L, Inc. 

PSI Energy, Inc. 

Public Service Company of Colorado 

Public Service Company of New Hampshire 

Public Service Company of New Mexico 

Puget Sound Energy, Inc. 

Rockland Electric Company 

San Diego Gas & Electric Company 

Sierra Pacific Power Company 

Southern Indiana Gas and Electric Company 

Southwestern Electric Power Company 

Southwestern Public Service Company 

St. Joseph Light & Power Company 

The Dayton Power and Light Company 

The Detroit Edison Company 

The Empire District Electric Company 

The Potomac Edison Company 

The United Illuminating Company 

Toledo Edison Company, The 

TXU Electric Company 

Union Electric Company 

Upper Peninsula Power Company 

Utilicorp United, Inc. 

Virginia Electric and Power Company 

West Penn Power Company 

West Texas Utilities Company 

Western Massachusetts Electric Company 

Western Resources, Inc. 

Wheeling Power Company 

Wisconsin Electric Power Company 

Wisconsin Power and Light Company 

Wisconsin Public Service Corporation 

-27-