Emission‐Cost Trade‐offs and Rate Feedback for Electric Utilities

Abstract

Actions taken to decrease utility emissions will generally increase electric rates and, thus, dampen demand for power. In the present paper, the following questions are addressed: What is the effect of this rate feedback on the conclusions of emission‐cost trade‐off studies? In particular, what reductions in emissions and generation costs could result from those rate increases? How might those rate increases affect consumer fuel choices, and how important could the environmental consequences of those end‐user fuel‐mix changes be? A comprehensive planning model is used to address these questions for one utility, Seattle City Light. Programs to decrease the greenhouse gas CO2 are evaluated. The conclusion is that rate increases due to implementation of environmental policies will dampen demands, resulting in lower utility costs and environmental effects, even though residential customers would use somewhat more oil, natural gas, and wood as a result of rate increases. However, rate feedback also results in losses of “customer value”—the benefit consumers receive from consuming electricity. This value loss can partially or entirely offset the benefits of rate increases.