A back of the envelope estimate of the average non-residential outage cost in the US

Using the Envelope Theorem, this paper derives a simple formula for market-based estimation of an average non-residential outage cost. Its key finding is that the 2019 estimate for the US is about US$10 per kWh unserved, below the regional estimates of approximately US$20 to US$40 per kWh unserved previously found by a large national study that uses contingent valuation (CV) survey data. This finding’s policy implication is reductions in marginal-cost-based electricity prices, an electric grid’s need for transmission and generation capacity and demand response resources, a local distribution company’s reliability-related investment, an independent system operator’s cap for wholesale prices, and a regulator’s penalty for reliability deterioration under performance-based regulation. Copyright © 2021 Elsevier Inc.