Over the past few months we have discussed the five Cost-Benefit tests:
- Total Resource Cost-TRC
- Participant Test-PT
- Utility Cost Test-UCT (Sometimes called the Administrator Cost Test)
- Ratepayer Impact Test-RIM
- Society Cost Test-SCT
These tests are used in DSM program design, planning, and management to determine if a program or portfolio of programs are beneficial to the group being analyzed. These tests are important as they provide a measure that can be added and/or compared between programs and measures to determine net impacts on cost-effectiveness.
When designing a program or analyzing a measure, I like to start with the PT. The PT tells me whether the measure or program will benefit the participant and what kind and how much of an incentive I need to motivate customers to participate. As I indicated previously, customer economics drive most buying decisions.
Next, I like to use the TRC, or in some jurisdictions the SCT, to determine if the measure or program is cost-effective. The TRC/SCT is the ultimate test to determine whether a measure or program should be included in your portfolio of programs. Of course, many times we include measures and programs that do not pass the TRC/SCT. This is usually for equity reasons. For example, many residential measures do not pass the TRC/SCT but are included in programs because they provide an opportunity for residential customers to benefit from Demand Side Management (DSM), thus receiving some benefit from their contribution to the DSM funds.
My next step is to use the UCT to determine whether a program or portfolio of programs is beneficial to the utility as a resource in meeting customer demand for energy. This is important because a negative UCT means the program or portfolio of programs will increase the revenue requirement for the utility and thus raise rates. The UCT is particularly useful if the portfolio includes fuel switching or renewable energy. The RIM test can also be used to analyze the impact on rates but it does not handle fuel switching or renewable energy well. The RIM test is also useful to assess the impact on non-participants.
The bottom line is that these tests are useful in determining whether programs or measures should be included in the DSM portfolio. Also, they are useful when comparing and combining as they provide the basis for determining the impact of changes in the portfolio-what impact will including a particular measure or program have on the overall portfolio TRC or UCT? However, we must remember that these tests are relative in nature and qualitative. They do not translate easily into quantitative information for other utility uses.
I also use these tests in program management. I track the TRC/SCT over time to ensure my programs are maintaining their cost-effectiveness. I also monitor their performance using these tests over time as programs have a life cycle and these tests provide a useful metric for measuring change options as participation increases or decreases due to customer attractiveness or saturation.