A new model for power pricing in Colorado was presented to the Colorado Public Utilities Commission today. Catherine Keske, assistant professor of Agricultural and Resource Economics in the Department of Soil and Crop Sciences at Colorado State University, in conjunction with the Governor’s Energy Office, conducted an overview of the new model for pricing that includes using estimated values for environmental and performance costs.
The purpose of this project is to develop a “benefit-pricing” model that reflects the full social costs of electricity generation. The full technical report illustrates how benefit-pricing could be used either as an alternative to, or in conjunction with, existing legislative policies and how the proposal would be applied to the regulatory environment. The benefit-pricing approach is technology neutral – it would link sourcing decisions to true social costs without favoring one technology platform over another. It is different from traditional, least-cost pricing structure.
“We believe that this is the first step toward implementing a total cost energy model to account for environmental costs as well as production costs,” Keske said. “We believe that this pricing model has jump-started conversations about the true cost of energy in Colorado.”
Under the proposed plan, power generating companies would be financially rewarded for lowering environmental costs that they pass on to customers or for lowering integration costs that they pass on to a bulk-power provider. This would be in addition to existing incentives to lower their own private generation costs. The mechanism would provide incentives for electricity generators to modify existing operations and to innovate so that social benefits from electricity generation are maximized for Colorado citizens.
“One goal of our model is to financially reward technological innovation in the energy industry,” Keske said.
Generators with low operating costs are financially rewarded, but financial incentives are extended for generators to also achieve environmental and performance targets. Environmental targets could include, for instance, low nitrous oxide emissions. Performance targets could include consistently available power. These targeted environmental and performance thresholds provide electricity generators incentives to innovate and achieve these targets, thus reducing total social costs to the citizens of Colorado.
Keske presented technical findings and details of a power pricing tool at the Colorado Public Utilities Commission Information Meeting in Denver. Keske outlined the background and assumptions of the benefit-pricing approach. A live demonstration of an Excel tool implementing the suggested approach using estimated values for environmental costs and performance costs also was presented.
The project was fully funded through a grant from the Governor’s Energy Office. It was launched through a seed grant from the Colorado State University Clean Energy Supercluster.
For more information, go to http://soilcrop.colostate.edu/keske/index.html.