1
An Examination of the Costs and Critical
Characteristics of Electric Utility Distribution
System Capacity Enhancement Projects
Patrick J. Balducci, Lawrence A. Schienbein, Tony B. Nguyen, Member, IEEE, Daryl R. Brown, and
Eihab M. Fathelrahman
AbstractThis paper classifies and analyzes the capital and
total costs for 172 electricity distribution system capacity
enhancement projects undertaken during 1995-2002 or planned
in the 2003-2011 time period by three electric power utilities in
the Western United States. Projects were sorted into eight
categories: capacitors, load transfer, new feeder, new line, new
substation, new transformer, reconductoring, and substation
capacity increase. Capital cost and total cost frequency
distributions were constructed along with descriptive statistics
for each project type. Ordinary Least Squares (OLS) regression
analysis was performed to determine how various project
variables (e.g., project location and primary customer served by
the project) impact the unit costs.
Distribution system capital costs averaged $51/kVA of
additional capacity and varied significantly by project type. New
substations and new transformers were the most costly,
$112/kVA and $87/kVA respectively, while reconductoring and
substation capacity increase were found to be the least expensive
($21/kVA). Using the full costs of delivering electricity over the
30-year life of a project increased the mean project cost to
$100/kVA. The OLS analysis revealed that the primary
determinant of total project cost is project type. Other variables,
such as the geographic location of the project and primary
customer served, did not yield statistically significant results.
Index Terms Distribution system capacity enhancement, cost
deferment, demand-side management, distributed energy
resources, distribution system upgrade.
I. INTRODUCTION
U .S. demand for electricity is forecast to increase by more
than one trillion kilowatt-hour (kWh) by 2020. At the
same time, growth in international demand for electricity
is forecast to increase by almost 9 trillion kWh [1]. In the
absence of significant investment in electricity generation,
transmission, and distribution capacity, the demand for
electricity will quickly strain the capacity of the existing
electrical power grid.
This work was supported by the U.S. Department of Energy. The authors
are with Battelle Memorial Institute and Pacific Northwest National
Laboratory, Richland, WA 99352 USA, operated for the U.S. Department of
Energy by Battelle Memorial Institute under Contract DE-AC06-76RL01830
(e-mail: balduccip@battelle.org; lawrence.schienbein@pnl.gov;
tony.nguyen@pnl.gov; daryl.brown@pnl.gov;.fathelrahmane@battelle.org).
Researchers at Pacific Northwest National Laboratory
(PNNL) estimate that continued growth in domestic demand
for electricity during the next 20 years could result in up to
$19.6 billion per year in additional infrastructure investment
needs, with the estimated cost of transmission and distribution
(T&D) assets, including all equipment required to extend
service to new customers, totaling up to $11.4 billion per year
[2].
Distributed energy resources (DER), operating both as part
of the grid and in the off-grid mode, have been offered as a
means to meet growing demand, while maintaining and even
improving grid reliability and power quality. Distributed
generation (DG) and other forms of DER, such as storage and
targeted deployment of demand-side management, have been
promoted as a low-cost alternative to traditional distribution
system upgrades. However, the nature, magnitude, and
frequency of the avoided cost potential have not been well
characterized except in the form of case studies. Furthermore,
data collected to date have been insufficient to enable
developers of DG and DER products to determine cost
feasibility or to carve out market niches.
To further study the cost and nature of distribution system
projects in the United States, PNNL acquired detailed
historical and prospective distribution system project reports
from three utilities serving customers in the Western United
States. The three utilities providing data for this study
collectively serve a diverse set of geographic areas and
demographic groups. One utility is investor-owned with a
primarily urban customer base. The second is a large multi-
state investor-owned utility serving a mix of rural and urban
customers. The third, and final, data provider is a small rural
cooperative that mainly serves the needs of a local farming
community. Because the information provided by each utility
is proprietary, the names of the participating utilities are not
revealed within this report. Note that because all three utilities
are located in the west and operate in the West, data provided
by the utilities may differ from the conditions present in
utilities located in other regions of the country.
The projects submitted by the participating utilities do not
include all distribution system capital projects undertaken

during the study timeframe. One utility estimated that, from
1995 to 2002, roughly $67.9 million, or 31.2 percent, of its
distribution system capital budget included planned capacity-
enhancement projects, while an additional $149.5 million in
projects involved rehabilitation and improvements to the
existing system (Figure 1). Therefore, conclusions drawn
from this analysis for this utility relate only to the 31.2 percent
of total distribution system capital projects for that utility,
focusing specifically on those that add capacity.
Capacity Enhancement
New Customer Line Extensions, Rehabilitation,
Reliability and Operations Improvement Projects
Fig. 1. Overview of utility capital budget during 1995-2002 timeframe.
The broad categories of projects included in the
participating utilitys T&D capital budget that are not captured
in this analysis include rehabilitation, new customer line
extensions, reliability, and operations projects. The
distinction between the rehabilitation projects highlighted
below and those found in the maintenance budget is that
rehabilitation, as defined here, generally involves replacement
rather than maintenance of existing equipment. Examples of
rehabilitation projects include failed primary cable
replacement, underground inspection, overhead inspection,
substation inspection and repair, road widening facility
relocations, replacing failed equipment, and new poles. New
customer line extensions represent new electrical connections
to recently constructed buildings or homes. Underperforming
circuit improvement projects and improvements to the
transmission and distribution system protection schemes are
examples of reliability jobs. Operations jobs include security
improvements, adding or updating oil containment systems,
replacing old supervisory control and data acquisition
(SCADA) remote terminal units (RTUs), and SCADA
additions.
This paper explores the characteristics of the 172 projects
analyzed for this study and is divided into five sections, with
the first being this introduction. The second section of the
report provides an overview of study methodology. The third
section describes the data used in this study. The fourth
section presents study findings, while the fifth, and final,
section presents study conclusions.
2
II. METHODOLOGY
The methodology is designed to classify distribution
projects across a broad cost distribution and assess each
project in a broader context in order to determine the
correlation between different project characteristics and
project costs. The cost analysis methodology adopted for this
study was applied to a systematic review of all distribution
upgrades from three utilities that provided data from projects
undertaken during the 1995 2002 timeframe or planned
during the 2003 2011 period. Project analysis included four
distinct steps: 1) evaluation of distribution system upgrades 2)
estimation of the enhancement to capacity generated by each
project, 3) construction of capital and total project cost
estimates, and 4) analysis of results.
A. Evaluation of Transmission and Distribution System
Upgrades
As noted previously, the study considered 172 projects
undertaken during the 1995-2002 timeframe or planned during
the 2003-2011 timeframe by three western utilities. The
location of the projects cover multiple territories from remote
rural to densely populated urban areas, and their costs range
from as low as $500 to as high as $7.5 million. From each
project report, PNNL extracted detailed information on annual
cost, capacity increase, line ampacity, and engineering
classification data.
The projects were sorted into eight broadly defined capacity
enhancement categories as follows:
1. Capacitors: Install either fixed or switched
capacitors to improve load power factor and/or
voltage.
2. Load Transfers: Install small tie lines and/or
switches to transfer load to another source. This
source can be in the same substation or a completely
separate substation.
3. New Feeders: Install new feeders to utilize the
capacity of the existing substation.
4. New Line: Install new lines to connect substations or
feeders to improve system reliability and/or transfer
load.
5. New Substation: Build a new substation to serve
load growth and/or increase reliability when other
alternatives cannot meet demand.
6. New Transformer: Install new transformers or
replace existing transformers at an existing
substation.
7. Reconductoring: Replace the existing feeder with a
higher ampacity feeder or replace the aged line with
a new line.
8. Substation Capacity Increase: Increase substation
capacity by installing new or improved existing
devices, such as fans and oil pumps.
Table I shows the number of projects, total capacity, and
total expenditures on projects falling into each category. Most
 3

of the cases fall in the categories of reconductoring, counted when a new feeder is installed to transfer
capacitors, new transformers, and load transfers. load between feeders, and b) when transferring load
from one substation to another, the amount of the
TABLE I load transferred is the capacity increase.
PROJECTS BY CATEGORY
6. When a new line or feeder is installed, it was
assumed that the capacity increase is equal to the full
Project Type Number of Capacity Total Cost capacity of the new line or feeder regardless of the
Projects Increase ($Millions) substation capacity to which the line or feeder is
(MVA) connected.
Capacitors 34 142 8.3 7. When replacing an existing line with one with a
Load Transfers 17 178 9.8 greater capacity, the capacity increase was assumed
New Feeders 10 150 5.3 to be equal to the difference between the thermal
New Lines 4 24 1.3 loading of the new line and the old line regardless of
New the substation capacity from which the line is fed.
11 405 39.0
Substations 8. Load swapping between phases of the same circuit
New was not considered an increase in capacity.
30 505 41.7
Transformers 9. For new substations the capacity increase was
Reconductorin assumed to be the total transformer capacity.
62 536 7.2
g
Substation C. Construct Capital Cost Estimates
Capacity 4 55 1.9 Project summaries were obtained and analyzed to generate
Increase capital cost estimates for each project. Capital cost estimates
Total 172 1,995 114.5 were converted to constant 2002 dollars for analytical
purposes. For comparative purposes, capital cost data were
Note that the study analyzed the distribution system subsequently normalized based on dollars per kVA of
investments as actually planned or carried out. It did not additional capacity.
consider alternative distribution system investment scenarios
for each project. In addition to capital costs, this study also determined the
entire cost imposed on the utility during the 30-year economic
B. Construct Estimates of Capacity Increase life of a project. The Distributed Energy Cost Analysis Model
Because each utility has its own format to describe a project (DECAM) constructed for this study was used to evaluate a
and each project serves its own objective, the degree of the full range of costs incurred by projects, including initial and
capacity increase was not always readily apparent. In many interim capital costs, operations and maintenance costs
cases, engineering knowledge and judgment were used to (O&M), all forms of taxation (e.g., property and income), and
build estimates of capacity growth. The following insurance premiums.
assumptions were used in order to estimate the capacity
increase for each project. The cost analysis framework was adapted from [3]. The
cost model expresses costs in terms of constant 2002 dollars,
1. When a power factor (PF) target was not specified, treats interest and inflation in a systematic manner and
the goal of the PF correction was assumed be an distinguishes between costs that occur annually and those that
increase to .95, which is the minimum requirement occur in a single year. DECAM uses the data described in the
of one of the three utilities providing data for this next section of the report to generate present value cost
study. estimates for each project analyzed in this study.
2. When installing capacitor banks, it was assumed that The first step in the cost analysis was to determine the after-
installation occurs on the secondary side of the tax weighted cost of capital for each utility. Second, the after-
substation transformer and as close to the load as tax weighted cost of capital was used to develop a capital
possible. recovery factor for each utility. The capital recovery factor
3. For PF correction projects it was assumed that the represents the annual dollar amount required to fully amortize
difference in load voltage before and after installing the value of a loan during a specific time period, which in this
capacitor banks was negligible. case is 30 years. The capital recovery factor is a function of
4. Following capacitor bank installation, it was the after tax weighted cost of capital and the system operating
assumed that the current (and hence, the apparent life. The capital recovery factor for the participating utilities
power) flow on the primary side will decrease. The ranged from 5 percent for the small cooperative to 9 percent
difference in kVA generated before and after the for one of the investor owned utilities. The capital recovery
capacitor is installed was assumed to be the level of factor was applied to present value computations of
capacity increase. operations, maintenance, and fuel costs to construct
5. For load transfer projects it was assumed that: a)
annualized system resultant costs for each of the
load transfer between existing feeders in the same
aforementioned cost items. Third, the annualized fixed charge
substation is not counted as capacity increase but is

rate was constructed for each utility. The annualized fixed
charge rate, which captures the utility specific data (e.g.,
property tax, income tax, insurance premiums, depreciation,
and miscellaneous other costs) was applied to capital costs to
determine annualized system-resultant costs for project capital
costs. The fixed charge rates ranged from 10 percent for the
rural cooperative to 14 percent for one of the investor owned
utilities. The annualized system-resultant cost for each project
represents an amount that, if received each year during the
projects economic life, would equal the net present value of
total project costs. Annualized system-resultant costs were
collapsed into a single present value cost using each utilitys
after-tax weighted cost of capital as the discount rate. Note
that the annualized costs falling outside of the study timeframe
were excluded from the present value calculations.
D. Analysis of Results
Data acquired for this study were used to construct capital
cost frequency distributions for the population of projects
analyzed in this study, as expressed in terms of dollars per
kVA of additional capacity. Furthermore, DECAM was used
to determine the full long-term costs associated with each
T&D upgrade, including all O&M, debt financing, insurance,
and tax-related costs. Total cost frequency distributions were
also constructed for the population of projects contained
within the database. The frequency distributions constructed
by DECAM identify how the eight project types (e.g.,
reconductoring, capacitors, and new substations) outlined
previously in this report are distributed across a broad cost
spectrum.
Project identifiers were attached to each investment
considered in the analysis in an attempt to determine their
relationship to project cost. From a statistics standpoint, a
value for each identifier or variable served as an independent
variable to the life-cycle cost dependent variable.
Each variable, along with potential values for each, is shown
below:
1. Geographic Area of Project Urban, rural, or
suburban.
2. Utility Type Investor owned, public, cooperative,
municipal, or other.
3. Reason for Upgrade Existing customer load
growth, decline of existing infrastructure, major
large-step industrial/commercial expansion,
reliability enhancement in the service area, and
residential development of the area served by the
substation.
4. Size of Upgrade Marginal growth in kVA obtained
by project.
5. Capacity Capacity of the substation prior to the
upgrade.
6. Scale Ratio Ratio of the capacity increase obtained
by the project to initial capacity.
7. Primary Customer Served Residential, industrial,
or commercial.
4
8. Excess Scale Ratio Ratio of the capacity of the
substation following the upgrade to current load
placed upon the substation.
9. Project Type The eight project types outlined
previously in this paper.
Project variables were analyzed to determine the mean
project cost for each potential value of the discrete variables
outlined above. For example, within the geographic identifier,
basic descriptive statistics (mean, number of observations, and
standard deviation) were constructed for each potential
geographic area (rural, urban, and suburban).
Ordinary Least Squares (OLS) regression analysis was also
employed to determine the correlation coefficient, t statistic,
standard error, r squared and probability for each variable.
These tests determined the relationship or correlation
coefficient for each variable with respect to the dependent
variable, and tested the statistical significance of each result.
Note that the location of the projects analyzed in this report
all fall within the Western United States. Therefore, the
results of this analysis provide a limited means of
extrapolation to other service territories throughout the nation.
It is also important to note that the number of projects that
were statistically analyzed is actually a subset (51 projects) of
the larger dataset. For the statistical analysis, 121 projects
were removed from the data set due to a lack of information
(e.g., location, primary customer served, reason for upgrade).
Finally, some undefined bias was introduced as a result of the
initial screening process used to reject projects deemed to not
have a capacity-enhancement component.
III. DATA
PNNL, in cooperation with three utilities, has developed a
database of distribution system projects undertaken during the
1995-2002 time period or planned during the 2003-2010 time
period. The database includes brief project descriptions,
capital cost estimates, the stated need for each project, and
other engineering data. Furthermore, the database has been
augmented by additional technical (e.g., line loss, existing
substation capacities, and forecast peak demand for power in
the area served by each project), cost (e.g., operations,
maintenance, and centralized power generation costs), and
financial (e.g., cost of capital, insurance premiums, and
relevant tax rates) data. There are roughly 3,000 projects in
the database but many were rejected for this analysis either
because they did not clearly enhance capacity or PNNL was
unable to secure the additional information (e.g., geographic,
engineering, substation capacity, and load growth forecasts)
needed to adequately conduct the cost analysis. More detailed
information relating to the geographic area of the project, the
reason for the upgrade, the primary customer served, the area
served by each project, and substation capacities were
identified for 51 of the projects. Cost data were presented
within the project reports by expenditure type and year of
 5

outlay. In turn, costs were normalized to 2002 dollars.
IV. FINDINGS
This section of the report presents study findings. The
findings are presented in terms of cost frequency distributions,
analysis of capital and total project costs per kVA for each
project type, and in the form of a regression model designed to
measure the impact of various factors on the total project cost
per kVA of additional capacity.
Figure 2 presents the capital cost frequency distribution for
the 172 projects included in the data set. Capital costs are
presented in terms of $2002 per kVA of project capacity. For
example, if a 28 MVA transformer is installed at a total capital
cost of $4.2 million, the capital cost per kVA would be $150
($4,200,000 / 28,000). The capital cost amounts presented in
Figure 2 exclude all insurance, tax, financing, line loss, and
centralized power generation costs incurred by each project.
However, costs do include the capital costs associated with
preliminary engineering, materials, permitting, and
installation. The capital cost frequency distribution shows
cost on the x-axis in $25 per kVA increments and the number
of projects falling within each cost stratum on the y-axis.
($50.7). The mean price per kVA for capacitors ($58.3/kVA),
load transfer ($49.0/kVA), and new feeder ($43.9/kVA)
projects falls within 20 percent of that measured for the total
population. The data also indicate that reconductoring and
substation capacity increase projects clearly yield the lowest
costs in terms of dollars per kVA of additional capacity, each
having a mean of $20.5.
Figure 3 presents the total cost frequency distribution for
the 172 projects examined in this study. In addition to capital
costs, the total cost estimates presented in Figure 3 include
long-term O&M costs, property and income taxes, capital
financing costs, and insurance premiums measured over a 30-
year economic life of the investment. The inclusion of all
project-related costs over the full economic life of the project
increases the mean project cost by 97.4 percent, to
$100.1/kVA from $50.7/kVA. Note that centralized power
generation costs have not been included. To add centralized
power generation costs, an additional cost of $45.5 per MWh
is recommended for the year 2000, with an average annual
growth of 2.6 percent over the life of the project [4].
TABLE II
CAPITAL COST/KVA BY PROJECT TYPE

Figure 2 demonstrates that the mean capital cost among the Project Type Mean Number Standard
172 projects included in this study is $50.7 per kVA, the Cost of Deviation
median $34.8, and the standard deviation $59.1. The capital ($/kVA) Observa-
cost of the projects span a broad spectrum from a high of tions
nearly $500 per kVA to a low of less than $25 per kVA. The New Substation 112.4 11 52.8
vast majority of the projects fall within the less than New Transformer 86.5 30 39.4
$100/kVA cost stratum. New Lines 72.2 4 73.6
Capacitors 58.3 34 86.6
80
Series: CAPCST_KW Load Transfer 49.0 17 54.5
70 Sample 1 172
Observations 172
New Feeder 43.9 10 26.2
60 Substation
20.5 4 25.2
50
Mean 50.72815 Capacity Increase
Median 34.82272
Maximum 489.2363 Reconductoring 20.5 62 31.4
40
Minimum 0.726968
30 Std. Dev. 59.10709
Skewness 3.201945 All 50.7 172 59.1
20 Kurtosis 20.18831

10 Jarque-Bera
Probability
0
0 100 200 300 400 500
Fig. 2. Capital cost frequency distribution.
Table II presents the mean capital cost per kVA for each of
the eight project types included in the data set (capacitors,
load transfer, new feeder, new line, new substation, new
transformer, reconductoring, and substation capacity
increase). The project types are ordered from highest to least
cost in terms of dollars per kVA. New substations and new
transformers are, on average, the most costly projects in terms
of capital cost per kVA with means of $112.4 and $86.5,
respectively. The mean price for a new substation is more
than twice that measured for the entire population of projects
2411.210
0.000000 Table III presents the total cost per kVA for each project
type, ranked from highest to least cost. By including a
broader range of project-related costs including O&M costs,
insurance premiums, property and income taxes, capital
financing, and depreciation over a 30-year economic life of
a project, the mean project costs grew from a low of 73
percent for new lines to a high of 222 percent for substation
capacity increase projects. The variance in cost growth is
primarily due to the influences of project timing, the influence
of O&M costs on projects with higher or lower capital costs,
and the financial and technical assumptions used for each
project based on input received from participating utilities.
Note, however, that the rank order of project types in terms of
$/kVA in both the capital and total cost analyses are identical.
In the total cost analysis, new substations remain the most
 6

costly at $216/kVA and reconductoring remains the least dollars per kVA than those in suburban ($152.0/kVA) or rural
costly at $52/kVA. areas ($151.8/kVA). The table also shows that projects
undertaken in areas primarily serving industrial customers cost
The total cost analysis is designed to provide a more more per unit of additional capacity ($/kVA) than projects
complete understanding of the full costs incurred as a result of undertaken in commercial and residential areas. Finally,
planning, purchasing, installing, operating, and maintaining projects undertaken to meet a large step function of growth
T&D systems. The total cost analysis also allows for more due to the installation or upgrade of a large industrial facility
comprehensive comparisons to alternative (e.g., combustion were, on average, the most costly at $166/kVA, with projects
turbines or reciprocating engines) investment scenarios. To responding to declining infrastructure being the least costly at
fully conduct a cost comparison to an alternative distributed
$119/kVA. The average costs presented in Table 4 are higher
generation (DG) scenario, however, one must also include
than those shown in Table III because the smaller subset of
centralized power generation costs and line losses on the T&D
projects largely consists of the more costly new substations
side of the ledger and variable O&M and fuel costs on the DG
side. and transformers (36 of 51 projects were new substations or
new transformers).
50
Series: TOTCST_KW
Sample 1 172
While the results presented in Table IV are illuminating,
40 Observations 172 Figure 4 (a) and (b), and the results of the regression analysis
presented later in this section, suggest that they may also be
Mean 100.0785
30 Median 72.38018
misleading. The average total cost of projects falling within
Maximum 769.2997 each geographic location, for example, has much more to do
Minimum 15.52857 with the types of projects that happen to fall within that
20 Std. Dev. 94.12421 location, as opposed to the correlation between location and
Skewness 2.851266
Kurtosis 17.16399 cost.
10
Jarque-Bera 1670.819 TABLE IV
Probability 0.000000 AVERAGE PROJECT COST BY GEOGRAPHIC LOCATION, REASON
0
FOR UPGRADE AND PRIMARY CUSTOMER SERVED
0 100 200 300 400 500 600 700

Fig. 3. Total cost per kVA.

Mean Cost Number of Standard
($/kVA) Observa- Deviation
TABLE III tions
TOTAL COST/KVA BY PROJECT TYPE Geographic
Location
Project Type Mean Number of Standard Urban 133.0 27 73.0
Cost Observa- Deviation Suburban 152.0 14 152.1
($/kVA) tions Rural 151.8 10 151.8
New Substation 215.8 11 76.2
New Transformer 166.1 30 60.7 Reason for
New Lines 124.8 4 113.7 Upgrade
Capacitors 104.0 34 134.3 Load Growth 129.4 5 84.3
89.3 17 84.6 Area
Load Transfer 138.6 35 74.3
Development
New Feeder 84.7 10 34.8
Declining
Substation 119.0 2 15.0
66.1 4 37.7 Infrastructure
Capacity Increase
Large Step
Reconductoring 51.5 62 49.7 166.6 9 84.9
Function

All 100.1 172 94.1 Primary Customer

Served
Table IV presents the average cost per kVA for 51 projects Industrial 162.9 10 79.3
(out of 172) falling within varying geographic locations, Commercial 130.4 15 62.9
serving different customer bases, and performed for varying Residential 140.5 26 80.7
reasons. Projects included in this analysis are those for which
additional identifying information was available. Thus, Total Project
141.9 51 75.1
location, service area, and other information were not Population
available for 121 projects included in the initial analysis. The
data presented in the table show that, on average, projects Figure 4 (a) divides projects into three cost categories
falling within urban areas at $133.0/kVA cost less in terms of high, mid, and low. High cost projects are those with a total
 7

cost per kVA of more than $177, mid-cost projects are those mid-cost category.
with a total cost per kVA of between $102 and $177, while An Ordinary Least Squares (OLS) regression model was
low cost projects are those falling below $102/kVA. The formulated to assess the impact of various continuous and
break points for the three cost strata place exactly 17 projects discrete variables on the total cost of projects expressed in
into each category. Each box, in turn, corresponds to projects terms of $2002 per kVA. The purpose of the model was to
that meet both criteria identified in the matrix. For example, identify the characteristics that add to project costs, and those
reconductoring projects in rural locations or new transformers which are common with projects of lower cost. The OLS
in urban locations. The shading in each box corresponds to a model is specified in the following equation:
cost stratum. Boxes that are crossed out demonstrate that no
projects fell into that category. Equation 1 TOTAL_COST_KVA = C(1) + C(2)*XCS +
C(3)*SUP + C(4)*SCR + C(5)*RESIDENT +
Urban Suburban Rural
C(6)*COMM + C(7)*LGSTEP +
C(8)*AREADEV + C(9)*RECON +
C(10)*SUBINC + C(11)*NEWSUB +
New Feeder C(12)*NEWTRANS + C(13)*SUB +
C(14)*RUR

New Substation Where Total_Cost_kVA = total project cost per kVA

SUP = size of the upgrade in terms of kVA
XCS = excess scale ratio
New Transformer SCR = scale ratio
RESIDENT = residential location of project
Reconductoring
COMM = commercial area as prime customer
served
LGSTEP = large step function growth as the
Sub. Cap. Inc. reason for the upgrade
(a) AREADEV = area development as the reason
Residential Commercial Industrial for the upgrade
DECINFRA = declining infrastructure as the
reason for the upgrade
New Feeder RECON= reconductoring project
NEWTRANS = new transformer project
SUBINC = sub capacity increase project
New Substation NEWSUT = new substation project
SUB = Suburban location of project
New Transformer
RUR = Rural location of project.

Reconductoring
Sub. Cap. Inc.
(b)
High Cost Mid Cost
Low Cost No Project in Category
Fig. 4. (a) Project variable matrix (project type, geographic location of project.
(b) Project variable matrix (project type, primary customer served).
Figure 4 (b) compares the cost of projects disaggregated
based on the type of project and primary customer served.
With the exception of new transformers, the project type
determines which cost stratum each category falls into, with
new substations always falling into the high cost category and
new feeders, reconductoring, and substation capacity increases
falling into the low cost categories. New transformers,
suburban projects, and those completed in residential areas
fall into the high cost category, with all others falling into the
Note that the focus of the OLS analysis was not to predict
the expected outcome of the total cost per kVA dependent
variable, but rather: a) to test the correlation between each
variable and the relative cost of the project per kVA, and b) to
determine the significance of the correlation.
The results of the OLS analysis are shown in Table V.
Column 1 lists each variable included in the model.
Descriptive statistics are presented in column 2 (coefficient), 3
(standard error), 4 (t-statistic), and 5 (probability) for each
variable included in the model. The table also notes the r2 and
the Durbin-Watson statistic for the regression.
The model is designed to measure qualitative relationships
and to determine the extent to which the total cost per kVA of
each project may be influenced by each factor. No theoretical
relationships between the variables and the total cost per kVA
have been assumed.
The results in Table V largely confirm the results of the
previous analysis in that project type is clearly the most
 8

relevant factor in determining the total cost for each project in V. CONCLUSIONS
terms of dollars per kVA. Though the data suggest that new The findings of this study suggest that distribution system
substations and new transformers are positively correlated to capital project costs analyzed average approximately $51/kVA
high project costs, due to the limited number of observations of additional capacity and vary significantly based on project
the new transformer variable failed to achieve statistical type. Of the eight project types analyzed in this report
significance. Note that the new substation variable did yield (capacitors, load transfers, new feeders, new lines, new
significant results. Reconductoring was negatively correlated substations, new transformers, reconductoring, and substation
to project cost and yielded statistically significant results. The capacity increase), new substations are the most costly at
geographic location of the project, as measured in terms of the $112/kVA, followed by new transformers at $87/kVA.
rural (RUR) and suburban (SUB) variables, was not a Reconductoring and substation capacity increase projects are
statistically significant factor, nor was the reason for the the least expensive in terms of dollars per kVA, both
upgrade. The size of the upgrade, measured in terms of the measured at $21/kVA.
capacity generated by the project, was significant and
negatively correlated to total cost per kVA. Thus, the projects An analysis of the full costs associated with delivering
demonstrated slight economies of scale, in terms of declining electricity to customers including O&M, insurance
costs as the size of the upgrade grew. premiums, property and income taxes, depreciation,
centralized power generation and capital financing over the
TABLE V
30-year economic life of a project significantly increases the
OUTPUT OF THE COST ANALYSIS REGRESSION MODEL mean project cost to $100/kVA of additional capacity.
Coeffici Standard t- Proba- Between project types, the ratio of total project costs to capital
Variable -ent Error Statistic bility costs varies from a low of 1.73 for new lines to a high of 2.22
C 110.242 53.292 2.069 0.046 for substation capacity increase projects. The wide range is
primarily due to the influence of project timing, O&M costs
XCS 12.476 16.335 0.764 0.450
on projects with higher or lower capital costs, and the
SUP(b) -0.002 0.001 -2.001 0.053 financial and technical assumptions used for each project
SCR -4.113 6.387 -0.644 0.524 based on input received from participating utilities.
RESIDENT 30.119 35.247 0.855 0.398
COMM 5.794 32.189 0.180 0.858 Ordinary Least Squares regression analysis of the impact of
LGSTEP 52.935 42.121 1.257 0.217 a number of discrete (e.g., geographic location of the project,
the primary customer served by the project, the reason for the
AREADEV 28.281 25.706 1.100 0.278
upgrade, the type of project) and continuous (scale ratios, size
RECON(b) -80.795 41.911 -1.928 0.062 of upgrade, excess scale ratio) variables suggests that the
SUB INC(c) -71.556 47.806 -1.497 0.143 primary determinant of total project cost is project type. Other
NEWSUB(a) 94.820 42.852 2.213 0.033 variables, such as the geographic location of the project, scale
NEWTRANS 36.432 38.463 0.947 0.350 ratio, excess scale ratio, primary customer served, and reason
for the upgrade did not yield statistically significant results.
SUB 9.608 20.681 0.465 0.645
Of those variables not relating to project type, only the size of
RUR -23.788 28.005 -0.849 0.401 the upgrade was measured as a statistically significant
Note: variable, thus demonstrating extremely small economies of
R-squared = .61 scale in terms of declining costs as the size of the upgrade
Durbin-Watson stat = 2.03 grew.
(a) Significant at 95% level
(b) Significant at 90% level The outcomes and conclusions of this study would be
(c) Significant at 80% level enhanced significantly by expanding the dataset. This would
include acquiring and incorporating data from utilities
The statistical significance of variables was also difficult to throughout the country to form a dataset representative of the
obtain due to data limitations. An expanded data set may distribution system enhancement projects nationwide.
yield more significant results. Expanding the dataset would Expanding the dataset would allow for more significant and
allow for a more specific analysis of the impact of various effective analysis of the impact of discrete variables on total
discrete variables (e.g., geographic location, primary customer costs per kVA of specific project types. This form of analysis
served, reason for upgrade) on the cost of projects falling would eliminate the impact of the project type on the output of
within the same project categories. This form of analysis the regression model and would isolate the impact of variables
would eliminate the impact of the project type on the output of on project costs.
the regression model and would isolate the impact of the
discrete variables on project costs.
 9

REFERENCES
[1] United States Department of Energy, Energy Information
Administration, Annual Energy Outlook 2000, Washington D.C.,
1999.
[2] L. D. Kannberg, D. P. Chassin, J. G. DeSteese, S. G. Hauser, M. C.
Kintner-Meyer, R. G. Pratt, L. A. Schienbein, and W. M. Warwick,
GridWiseTM: The Benefits of a Transformed Energy System, PNNL-
14396, Pacific Northwest National Laboratory, Richland, WA, October
2003.
[3] J. Doane, R. OToole, R. Chamberlain, P. Bos, and P. Maycock, The
Cost of Energy from Utility-Owned Solar Electric Systems: A Required
Revenue Methodology for ERDA/EPRI Evaluations, California
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[4] Portland General Electric Company, Delivering New Choices for
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Portland, OR, February 2003.

Patrick J. Balducci received a B.S. degree (honors) in economics from Lewis

and Clark College, Portland, OR in 1995. He is currently a Research
Economist at Battelle Memorial Institute and working toward a M.Sc. in
applied environmental economics from the University of London.

Lawrence A. Schienbein received the B.Sc., M.Sc. and Ph.D. degrees in

mechanical engineering from the University of Alberta, Edmonton, Alberta,
Canada in 1968, 1970 and 1974 respectively. He is currently a Staff Engineer
at Pacific Northwest National Laboratory in Richland, WA specializing in
energy systems technology development. Dr. Schienbein is a senior member
of the American Institute of Aeronautics and Astronautics and a member of
the American Society of Mechanical Engineers.

Tony B. Nguyen received the B.S., M.S. and Ph.D. degrees in electrical
engineering from the University of Illinois at Urbana-Champaign in 1998,
1999 and 2002 respectively. He is currently a Research Scientist at Pacific
Northwest National Laboratory in Richland, WA.