Average unit cost

Set the average unit cost (AUC) safety net for each commodity on the Average Unit Cost (AUC) Reasonableness form.

Why use the AUC?

Normally, avoided use is valued at today's average unit cost, but sometimes today's average unit cost can be unreasonable because of high service charges combined with low use or other factors. The AUC safety net catches abnormal values to avoid the over or under reporting of cost avoidance.

AUC form 

Details

Cost Avoidance calculates the average unit cost (AUC) of each current bill and uses it in the cost avoidance calculations.

Cost Avoidance = (BATCC Use x Current AUC) – Current Cost. BATCC is baseline adjusted to current conditions

The current AUC is tested before use to make sure it is reasonable.

AUC can sometimes be unreasonably high when use is very low.

Examples

  • In July of the base year, a gas bill contained 100 CCF of use for $120 (fixed monthly service charge of $30 plus 100 CCF x $0.90/CCF) for an AUC of $1.20.
  • In the current month of July, thanks to aggressive and effective energy management, the use was reduced to 5 CCF.
  • Because the fixed monthly service charge of $30 and a unit price of $0.90/CCF, the total cost was $34.50 for a current AUC of $6.90.
  • If you use $6.90 to value the reduction of 95 CCF, the calculated cost avoidance is: Cost Avoidance = (100 x 6.90) – 34.50 = $655.50.

Calculated cost avoidance is too high because of the overstated current AUC resulting from current low use and high fixed service charge.

The AUC reasonableness test sets lower and upper allowable current AUC limits in what is often referred to as the AUC safety net. When the current AUC exceeds the limit, the AUC used in the cost avoidance calculation defaults to the baseline annual average AUC for that meter.

In our example, had the limits been set at multipliers of 0.5 and 3.0, the lower AUC limit would be $0.45/CCF and the upper limit $2.70/CCF. The actual current AUC of $6.90 would fail the upper limit test, causing the AUC to default to the base year value of $1.20 (assuming $1.20 was the baseline annual average for that meter).

The calculated cost avoidance would be reduced from the unreasonable value of $655.50 to a reasonable value of $85.50.

Replace the AUC by special adjustment

Instead of defaulting to the baseline annual average AUC per the AUC safety net rules, you may prefer to use a replacement AUC that you have determined to be appropriate. You can create a Special Adjustment for this meter that forces a stipulated marginal (incremental) unit cost.

A special adjustment for AUC overrides any AUC checks.

When a meter is on a simple flat rate schedule, it’s easy to create a marginal rate special adjustment that is valid for many months.

But when a meter is on a more complex stepped, tiered, TOU and demand rate schedule, you may have to calculate and enter a different marginal rate Special Adjustment every month to appropriately value the savings. Particularly when the financial settlement of a savings contract is dependent on the calculated cost avoidance, it’s important to check the current AUC and ask the question, “Does this appropriately reflect the value of avoided usage, or is the use of a Special Adjustment to override the current AUC necessary for this meter this month?”