On the Use of 'Adders' by Public Utility Commissions

Abstract

State public utility commissions are developing programs to reduce emissions from electric generation facilities. Programs call for minimizing the total cost of meeting future demands for power, where pollution damages are part of the total cost. In the process of choosing new generation sources, dirtier technologies are handicapped relative to cleaner technologies through the use of adders which are meant to measure damages. However, the damage costs are left at the planning stage; they are not included in electricity rates. This practice coupled with standard rate setting procedures may lead to inferior outcomes.