Electric utility regulators are paying closer attention than ever before to individual distribution system investment decisions, in part because of the rapid growth in distributed energy resources and the need for new grid modernization investments.

To achieve the best outcomes for ratepayers and society, regulators need robust and comprehensive tools for evaluating utility investments. Benefit-cost analysis is, in many cases, a superior analytical tool to traditional least cost/best fit methods. It can recognize and maximize a wider range of benefits and consider a broader range of impacts. It also allows for a more detailed analysis.

This reference report compares the two analytical approaches and describes the many opportunities to use benefit-cost analysis (BCA) in new and better ways.

Author John Shenot and contributors Elaine Prause and Jessica Shipley also explore five crucial questions that regulators must answer as they shape benefit-cost analysis policies for their jurisdictions:

  • In what proceedings will we use BCA methods?
  • Who will conduct BCAs?
  • How will we engage stakeholders?
  • Which cost-effectiveness test(s) will we use?
  • How will we use BCA results to make decisions?

The reference report includes many examples of BCA use from state regulatory proceedings.

A companion issue brief offers a condensed treatment of the topic for those seeking a summary.