Avoided Cost Adjustments for Nongenerating Utilities

Nongenerating electric utilities, whether privately, publicly, or cooperatively owned, are increasingly interested in evaluating new power supply sources to avoid higher costs associated with new capacity being added by their current wholesale power supplier. Qualifying Facility power, such as cogeneration and small power production, is one of the alternatives being considered. In addition to the bilateral benefits of contracting for Qualifying Facility power, the interests of the ratepayers are also considered to be of great importance. To protect the utility and its ratepayers from the increased risk of unreliability of power from the Qualifying Facility, a method of partial withholding of payments for firm power pending fulfillment of contractual obligations is described. This withholding includes a reserve established from the withheld payments which will cover higher costs of any replacement power required due to Qualifying Facility nonperformance. An example of determining the amount of the withholding is shown and implementation recommendations are made.