electricitydistributioncosts.docVIP

Electricity Distribution Costs Comparisons of Urban and Suburban Areas Prepared by Paul Chernick and Patrick Mehr,Lexington Electric Utility Committee(10/28/03) Objective A typical investor-owned utility (“IOU”) serves a large territory that includes urban areas and surrounding suburban (or even rural) areas. Each IOU charges the same rates to customers throughout its service territory, regardless of location. In discussions about the formation of new municipal electric utilities (“munis”), speculations have been advanced about the effect on cities if suburban towns municipalize and cease to be served by the IOU. If distribution costs are lower in suburban areas, and those communities depart, the IOU’s average costs, and hence its rates, will have to increase. If this “suburban flight” scenario were likely, and if distribution costs were lower in suburban areas, it would legitimately be a matter of considerable concern for city governments. Whether municipalities will choose to form their own utilities will depend on many factors, including the municipality’s level of frustration with its IOU and the extent to which other issues preoccupy the municipal government. The critical factor in the suburban-flight scenario is the assumption that most suburban towns are less expensive to serve than most cities. Electricity distribution costs are driven by the type of infrastructure necessary to serve the local customer base. Certain features of the distribution infrastructure may, all other things equal, drive electricity distribution costs up or down. Specifically, compared to the suburbs, urban areas tend to have the following characteristics: A larger portion of the distribution infrastructure is underground, in vaults and conduit under streets and sidewalks, rather than overhead, on poles along streets. Construction and maintenance of the infrastructure is more difficult and expensive due to high building density, lack of room for setting up construction equipment, mor