ENVIRONMENTAL EXTERNALITY SURCHARGES IN POWER-SYSTEM PLANNING - A CASE-STUDY OF NEW-ENGLAND

In several states, public utility commissions have adopted surcharges for environmental externalities (adders) to be used in electric utilit y planning. The Massachusetts adder system applies major surcharges to emissions of sulfur dioxide, nitrogen oxides, and carbon dioxide. In this paper we explore the implications in terms of cost and emissions of using the Massachusetts adders as shadow prices in dispatching the pooled electric power system in New England. Our analysis has made use of a probabilistic production cost simulation model to estimate the i mpacts on the present system, and on a resource mix envisioned 15 year s hence. The externality cost adders are used to influence the dispatc h of a fixed configuration of power plants and not used to affect the composition of the future resource mix. Compared to conventional dispa tch, emissions of SO2 and NO(x) drop by 10% to 15%, while carbon emiss ions remain virtually unaffected. The production cost penalty is 3% to 4%. In each year, reductions are accomplished mainly by shifting gene ration away from New England's coal steam power plants.