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<br />March 1998 <br /> <br />Western Area Power Administration <br /> <br />3-3 . <br /> <br /> <br />Policy Issues and Assumptions <br /> <br />Section 3 <br /> <br />market price of the resource. 1 An example of an external cost is the noxious smoke <br />produced by a fossil-fuel electrical power plant coincident with the generation of electricity. <br />The cost, in terms of reduced human health, air cleanliness, and other effects, is not directly <br />considered by plant operation and is not reflected in the price of electricity. <br /> <br />Electric utilities, and the public utility commissions that regulate them, have a variety of <br />ways to deal with external costs. They may be quantified and added directly to the costs of <br />producing electricity (environmental adders), they may be considered separately, they may <br />remain unquantified but still considered in planning, or they may be ignored. At present, <br />there are no industry-wide standards for the consideration of external costs or even for their <br />identification and description. Moreover, there are compelling arguments for the <br />elimination of external cost considerations.2 Specifically, since Federal and state laws <br />require electrical power plants to meet effluent emissions standards, the residual pollution <br />output may be below the level that has been determined by legislation to be "socially <br />desirable." Under these circumstances, .especially for existing generating resources, it is <br />arguably inappropriate to impose environmental adders or additional weighting <br />considerations. <br /> <br />In light of these arguments, Western will consider enviroomental and social effects <br />qualitatively in evaluating replacement resources. Furthermore, least-cost to SLCNIP <br />customers and their customers will be the primary consideration, subject to Western's <br />Principles ofIRP. <br /> <br />3.2.4 ENERGY EFFICIENCY <br /> <br />Western cannot directly control, verify, or account for indirect energy efficiency measures, <br />such as those on the customer's systems. Energy efficiency measures will therefore be <br />considered within. . the Replacement Resources Process through two separate <br />methodologies. First, Western will consider direct efficiency measures; that is, reduction of <br />loads and transmission losses under direct Western or other Federal control (e.g., <br />Reclamation) as a potential resource. Second, indirect efficiency measures on customer <br />systems will also be considered, but only to the extent that such measures result in <br />measurable savings of capacity, reducing Western's capacity obligation to the customer. <br />All energy efficiency measures will be evaluated on an equal basis with other supply <br />resources. Western's plans in the area of energy efficiency are discussed in more detail in <br />Section 3.3.4. <br /> <br />3.2.5 PLANNING HORIZON <br /> <br />Because of current favorable bulk power supply market conditions, regional capacity <br />surpluses, increased transmission access to power suppliers, and increased competition, <br />short- to mid-term purchases will likely be the lowest-cost and least-risk options currently <br />available. On the other hand, replacement methods should be flexible enough to addr~ss <br />