CAPITAL-BUDGETING PROCESS FOR ELECTRIC-POWER UTILITIES - AN ANALYTIC HIERARCHY PROCESS APPROACH

Currently, the electric power industry in U.S.A. is undergoing substan tial regulatory and organizational changes with respect to market econ omics as well as pollution. Under these changing circumstances, in thi s paper, we utilize the concepts of analytic hierarchy process (AHP) a nd integer programming (IP) to model the capital budgeting process und er both finance and pollution considerations. In particular,first we s how how a decision maker can simultaneously incorporate the hard-to-qu antify factors (pollutants) as well as easy-to-quantify factors (finan ce factors) into a hierarchy. Next, we show how priority weights deriv ed from the hierarchy can be used to determine the optimal set of proj ects to be constructed. Also, we show how the entire capital budgeting process can be performed via an illustrative numerical example. It is hoped that the comprehensive, systematic, and consistent approach sho wn in this paper will provide the electric power utilities an addition al decision support tool in their capital budgeting process. (C) 1998 John Wiley & Sons, Ltd.