True cost of electric service: What reliability metrics alone fail to communicate

Abstract

Valuing electric power, particularly its loss within the residential sector, has historically been a great challenge that many researchers have undertaken without reaching a consensus. Electric power can be troublesome to appraise because consumption is not the customer’s main goal, but rather a means to achieve a desired good or service that often has unquantifiable personal value. This paper proposes a market-based household production method that quantifies the customer electric service interruption costs in the residential sector. Because an individual’s personal time is necessary to replace services owing to the lack of electric power, we propose a method that estimates the weighted market cost of a person’s time in accordance with their occupation to better calculate customer outage costs. We also present a macroeconomic production method to estimate losses in the residential sector. Finally, we propose a method for calculating the true costs of electric services by factoring the outage costs with the electrical utility rate to be analyzed using reliability metrics. The proposed approach facilitates a closer estimation of the low-bound true costs of utility-supplied electrical services for consumers who have not taken mitigation measures, serving as a warning for energy regulators to impose corrective actions or appropriate penalties on unreliable utilities and/or as an indicator for customers to invest in alternative energy sources.