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The principle of cost avoidance, and the metric of avoided costs, are central features of least-cost or integrated resource planning (IRP). The benefits of avoiding unnecessary costs seem obvious, sensible, and straightforward; it might be easy to presume that cost avoidance always has played a universally accepted role in utility planning. In the realm of utility planning, however, the concept still is relatively new and insufficient consensus about its relevance and use has emerged. Comparing resource options requires a methodology for measuring costs (or savings). When conservation or demand-management strategies enter the mix of options, as leastcost planning dictates, the concept of avoided cost gains substantial relevance. Demand-management strategies range from efficiency-oriented pricing, to customer education programs, to rebates and retrofits. Avoided-cost analyses have played a role in promoting conservation options in several communities. Avoided-cost analysis has played a central role in establishing demand management as a legitimate resource option for water utilities. The applicability of the avoided-cost principle extends well beyond designing and justifying demand management. Avoided costs can be used to evaluate the benefits of resource alternatives on the supply side, including leak-detection and repair programs, water purchases from alternative suppliers, and source-of-supply or treatment options for complying with drinking water standards. Avoided costs also can be used to evaluate complex management issues, such as the potential benefits of regionalization through interconnection, partnerships, and mergers with other utilities. Such evaluations are well within the spirit of comprehensive and integrated resource planning. This paper explicates the concept and application of avoided cost, and documents controversies and policy issues. Practicing water resource professionals need to address these issues in order to produce useful, defensible, and enlightening avoided cost analyses. Includes 17 references.

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Edition: Vol. - No. Published: 01/01/2002 Number of Pages: 7File Size: 1 file , 170 KB