Marginal Cost Analysis in Evolving Power Markets: The Foundation of Innovative Pricing, Energy Efficiency Programs, and Net Metering Rates

The utility industry is undergoing its greatest transformation since Samuel Insull began creating an integrated electricity infrastructure throughout the United States in the early 1900s. The rapid changes taking place within the industry are a result of:

• The emergence of regional transmission organizations (RTOs) to operate and maintain multi-state transmission systems
• The potential impact of greenhouse gas legislation and other environmental regulations
• The unbundling of the integrated utility
• The growing impact of renewable generation and energy efficiency
• The development of the smart grid
• The emerging wave of electric vehicles

In this evolving environment, new information is needed to guide the decisions that utilities make. These decisions could include the cost-effective level of demand-side management, the value of particular renewable resource, the cost-effectiveness of various rate designs, or the design of net metering rates for distributed generation.

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