The PSC periodically gets questions from consumers about concepts and terminology related to utility regulation. We answer these questions in blogs posts on the SC Utility Consumer website and sometimes feature these responses to frequently asked questions in these newsletters. Here, for your review and to share with your contacts, are the FAQs for avoided cost dockets.
AVOIDED COST FAQ’s
What is an “avoided cost?”
Per the PURPA definition, avoided cost is “the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility (QF) or qualifying facilities, such utility would generate itself or purchase from another source.”
That’s pretty technical, so we’ll break it down. Think of avoided cost as what a utility who purchases power from a third party would otherwise have to invest in or pay money for to generate electricity (one kilowatt). So, if a utility provider purchases power from a third party, the avoided cost is the lost payment the utility provider would otherwise have to pay to generate the power themselves.
Utility providers may find it easier or more cost-effective to purchase a portion of their power from these qualifying facilities (QF), who generate the power themselves.
Let’s say that you’re baking a pie and the recipe calls for six apples—unfortunately, you just have five on hand. Now, you could plant, fertilize, and water an apple tree and wait for that sixth apple, or you can just walk into any grocery store and purchase an apple for a fee. The cost of planting that tree and harvesting that apple, in this scenario, would be the avoided cost.
Will this affect my bill?
Avoided costs payments are shared by all consumers as a portion of your bill, as they reflect the cost to generate the power that you use. When a company calculates its avoided cost payments and presents them to the PSC, the PSC may choose to accept or deny the costs as presented by the utility company. These changes may be reflected in your bill—not as a direct result of recent hearings, but as an element of the bill you pay each month.
