Page 219 - Sustainable Cities and Communities Design Handbook

Life Cycle Analysis Chapter j 10 193

The Societal Test is structurally similar to the TRC Test. It goes beyond the
TRC Test in that it attempts to quantify the change in the TRCs to society as a
whole rather than to only the service territory (the utility and its ratepayers). In
taking society’s perspective, the Societal Test utilizes essentially the same
input variables as the TRC Test, but they are defined with a broader societal
point of view. More specifically, the Societal Test differs from the TRC Test in
at least one of five ways. First, the Societal Test may use higher marginal costs
than the TRC Test if a utility faces marginal costs that are lower than other
utilities in the state or than its out-of-state suppliers. Marginal costs used in the
Societal Test would reflect the cost to society of the more expensive alternative
resources. Second, tax credits are treated as a transfer payment in the Societal
Test and thus are left out. Third, in the case of capital expenditures, interest
payments are considered a transfer payment since society actually expends the
resources in the first year. Therefore capital costs enter the calculations in the
year in which they occur. Fourth, a societal discount rate should be used (refer
to point 7 in Notes). Finally, marginal costs used in the Societal Test would
also contain externality costs of power generation not captured by the market
system. An illustrative and by no means exhaustive list of “externalities and
their components” is given below (refer to the Limitations section for elabo-
ration). These values are also referred to as “adders” designed to capture or
internalize such externalities. The list of potential adders would include, for
example:

1. The benefit of avoided environmental damage: the CPUC policy specifies
two “adders” to internalize environmental externalities, one for electricity
use and one for natural gas use. Both are statewide average values. These
adders are intended to help distinguish between cost-effective and non-
cost-effective energy efficiency programs. They apply to an average sup-
ply mix and would not be useful in distinguishing among competing supply
options. The CPUC electricity environmental adder is intended to account
for the environmental damage from air pollutant emissions from power
plants. The CPUC-adopted adder is intended to cover the human and
material damage from sulfur oxides, nitrogen oxides, volatile organic
compounds (sometimes called reactive organic gases), particulate matter at
or below 10 micron diameter, and carbon. The adder for natural gas is
intended to account for air pollutant emissions from the direct combustion
of the gas. In the CPUC policy guidance, the adders are included in the
tabulation of the benefits of energy efficiency programs. They represent
reduced environmental damage from displaced electricity generation and
avoided gas combustion. The environmental damage is the result of the net
change in pollutant emissions in the air basins, or regions, in which there is
an impact. This change is the result of direct changes in power plant or
natural gas combustion emission resulting from the efficiency measures,