Elements of the current U.S. controversy over monetization of externalities

Sabrina Birner, Paul Chernik, and Emily Caverhill, Resource Insight Inc., USA

Keywords

Abstract

Utility regulators in the United States have been expanding the range of costs utilities must include in evaluating new resource options, which iuclude utility-built supply, non-utility generation, and energy conservation programs. In addition to direct costs, regulators are requiring utilities to quantify, or monetize, environmental externalities. Considerable controversy has arisen regarding monetization.

This paper begins with a brief introduction to enviromnental externalities, and methods for monetizing them.
The paper then presents the controversy over monetization by examining utility regulatory commissionsÉ findings on three questions central to the externality debate.

(1) Is the commission the appropriate body to address externalities?

(2) Will monetization result in a least-cost resource decision?

(3) How will monetization affect rates?

The paper presents findings from commissions both in favor of and opposed to monetization. Counter-arguments to positions against monetization are also given.