Total Resource Cost Test

The Total Resource Cost Test

The total resource cost (TRC) test is one of many ways used to measure the  cost-effectiveness  of a Demand Side Management (DSM) or energy conservation program as a resource option.  As its name implies, the total resource cost test is based on the total costs of the energy resources saved. Utility costs are considered in the utility cost (UC) test of cost-effectiveness, which measures the net impact of acquiring a DSM resource, based on the utility costs of the program.

For both the TRC and UC tests, the benefit side of the equation reflects the value of the energy and capacity saved (i.e., avoided costs). The results of these tests can be expressed as benefit-cost ratios (benefits divided by costs, in net present value), or as net benefits (benefits minus costs, in net present value). Net benefits from a TRC perspective are referred to as "total resource net benefits" and those from a UC perspective as "utility net benefits."

DSM programs are funded by ratepayers as a whole, through utility revenue requirements (which are reflected in utility rates), and in many cases through out-of-pocket contributions by participating customers (customer contribution). Direct assistance, information and energy audit programs are funded entirely by revenue requirement authorizations. Many DSM "resource" programs, on the other hand, require customer contributions. DSM resource programs are designed to defer or avoid the cost of more expensive supply options.  In other words, energy conservation is less expensive than building new generation plants.   For these types of programs, individual participating customers are motivated to contribute a portion of the resource cost because they realize a direct return from that investment, in the form of bill savings.

Moreover, since individual customers that participate in DSM resource programs realize direct bill savings, they are generally willing to fund a greater percentage of the investment than non-participating customers. This is not the case for supply-side resources, where all customers are assumed to benefit from the investment equally and, within the same rate class, pay an equal price for the supply-side resource.

The societal test considers all the resources considered in the TRCT, and also considers additional societal and environmental benefits of energy conservation, such as job creation, additional tax revenue, lower greenhouse gas emissions and other related benefits.