Definition
The incremental cost to an electric utility of generating electricity itself or purchasing it from another source, which under PURPA sets the minimum rate a utility must pay a Qualifying Facility (QF) for its output. Avoided cost reflects what the utility would have spent to serve the same load without the QF — typically based on the utility's marginal fuel and operating costs or long-run resource planning values. In organized wholesale markets with locational marginal pricing (LMP), QF payments are often tied to market prices rather than traditional utility avoided-cost calculations, but the PURPA framework remains the statutory basis for mandatory QF purchase obligations.
Topic Deck
Wholesale Statutes & QFs
Source
FERC Pro Forma OATT / LGIP
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