Marginal costs of electricity vary by time and location. In the past, researchers attributed the variations to factors related to electricity generation and transmission. These authors, however, have not analyzed possible variations in marginal distribution capacity costs (MDCC). The objectives of this paper are:
1. (i) to show that large MDCC variations are due to the dispersion in distribution capital expenditures by time and space,
2. (ii) to propose a method for quantifying the area- and time-specific MDCC in the presence of lumpy investments, and
3. (iii) to compare our MDCC estimates to those commonly used in the electric utility industry.
Our proposed method and its results were adopted by the California Public Utilities Commission (CPUC) in 1992 for Pacific Gas and Electric Company (PG&E), the largest privately owned electric utility in the U.S. Copyright © 1994 Published by Elsevier Ltd.