281 



Cost of serving existing load is 23 mills/kWh. 



CONSIDER CONSERVATION APPROACH: Acquire 1000 kWh of conservation at 30 mills/ 

 kWh, or $30. Existing load drops to 9000 kWh. It continues to be served at 23 mills/kWh, or at 

 cost of $207. Part of existing generation (power supply) re-directed to serve 1000 kWh new 

 load at 23 mills/kWh or at cost of $23. Total cost of serving new load is $30 + $23 - $53. 



CONSIDER GENERATION APPROACH: Acquire 1000 kWh from new generation at 40 

 mills/kWh, or cost of $40. (Assume it includes cost of transmission.) 



Choose generation approach because it is less cost. 



RATE IMPACTS 



Alternative 1 causes overall cost of 26 mills/kWh or rate increase of 13%. 



Alternative 2 total cost is $230 + $40 or $270. Load served is 10.000 kWh + 1000 kWh or 

 11,000 kWh. Unit cost is 270/1 1,000, or 24.5 mills/kWh. Rate increase required is : 



24.5 - 23 X 100 - 6.5% (or in this case, one half of Alternative 1) 

 23 



CONCLUSION 



We still should push hard for cost effective conservation. The acquisition decision, however, 

 would include the cost of producing the energy, causing the cost effectiveness level of conserva- 

 tion to be lower. 



This method is consistent with the Billing Credits and Rate Impact Test described in Section 6 of 

 the Act. It is consistent with the way resources were chosen before conservation was defined 

 and included as "resource." It would help keep Pacific Northwest competitive with other 

 regions. It is equitable to existing customers. 



The rate impact must be noted! With our example, which showed that pursuing the 30 mill/kWh 

 conservation option would actually cost $53 to serve the new load, lets assume that generation is 

 available which costs 53 mills/kWh. 



We have shown that the current approach, of minimizing dollar outlay, results in an energy cost 

 of 26 mills/kWh or 13% increase. 



If we pursue the generation option at 53 mills/kWh, we end up with total costs being $230 + $53 

 or $283. Load served would be 10,000 kWh + 1000 kWh, or 1 1,000 kWh. Unit cost would be 

 283/1 1,(X)0 - 25.7 mills/kWh, yielding essentially the same percent increase (13%). 



For this example case, the rate impact of 30 mill conservation is the same as 53 mill generation. 



If generation is available at 40 mills, then we can justify conservation costing 40-23-17 mills/ 

 kWh to give the same rate impact With the 10% adjustment, we could justify (40 X 1.1) - 23 - 

 2 1 mills/kWh for conservation. 



Western Montana G&T 

 01/05/93 



c:V)iTi4Vx)nsvgen 



