Understanding 401(k) distribution rules goes a long way towards helping you make the most appropriate decision for you regarding what you should do with your old 401(k).  While different rules govern contributions into retirement plans such as 401(k)s, 403(b)s, and 457 plans, distribution rules for these plans are virtually the same.  So for the purpose of this article, when reference is made to a 401(k), if you have a 403(b) or 457 plan, pay close attention as it may apply to you as well.

401(k) Options

Let’s begin by reviewing what your options are.  There are three basic options that people who leave their employer have for distribution of their 401(k): 1) leave your money with your former employer, 2) roll your old 401(k) to your new empoyer’s 401(k), or 3) roll your 401(k) into an IRA.

Option 1: Leaving Your Money With Your Former Employer

Many people want to leave their money in their current plan.  Reasons vary, but often people say to me, “I want to leave my money where it’s at because it’s been doing great.”  (During good economic times of course). 

Another reason given is, “I’ll just leave it where it is, I don’t have to pay anything for it, it’s free.” 

 Option 2: Roll Your Old 401(k) to Your New Employer

Similar to leaving it at the old employer, “by transferring it, I don’t have to pay anything for it, it’s free.”

Options 1 and 2

If you select either of these options, your money is not really your money – yet.  By that I mean as long as your money is inside of an employer 401(k), you do not have full control to choose among available options with your money – someone else does.

All money inside of an employer plan is subject to the rules and regulations of the plan and plan sponsor.   The Employee Retirement Income Security Act of 1974 (ERISA) requires that employer retirement plans meet certain requirements in order to qualify for both income tax-deferral and tax-deferred growth of your investments.  Those requirements may be met in a variety of ways allowing each company to tailor their plan in many different ways.  

Some plans are employee friendly, while others are employer friendly.   Regardless of whether or not your plan is employee friendly or employer friendly, most plans, if not all, have limitations that may adversely affect you in times of a financial crisis.   

• Investment options are often few and limited by the company that provides the 401(k) plan to your employer. 
• If your employer decides it wants to change 401(k) providers, plans are often “frozen” during a blackout period where you have no access to your money.  If you should need access to your money, or need to make changes to your allocation during that time period for any reason, or maybe you simply liked the funds you were in, too bad. 

Although it is YOUR money, you have limited control and choices in handling the investments.  It may seem simple now, but can get complicated later.

Regarding the word “free,” there is no such thing.  401(k) plans have fees.  While your firm may pay the administrative fee, often the funds themselves have commissions built in, adding to expense ratios.   

In addition, you often don’t get any personal advice with your 401(k).  People frequently say, ”I can get advice, my company pays for it.”  That may “appear” to be true.  Key word “appear.”  While a company representative may be available to explain the plan in general and encourage participation in the 401(k), and provide general 401(k) allocations based upon general assumptions, very seldom will the person give you actual recommendations specific to your individual situation.  How often have you said to the representative, after hearing their explanations, “which funds should I choose?”  Ultimately you make the decision, not the company representative. 

Option 3: 401(k) Rollover to an IRA

An IRA gives you control over your money.  You’ll have more investment options, not be subject to someone else’s agenda, and receive more holistic advice specific to your situation based upon your goals and objectives. 

What if you were to die prematurely?

Perhaps the most compelling reason to rollover your 401(k) to an IRA is due to retirement plan distribution rules if you were to die prematurely. 

In general, anyone who leaves their 401(k) with their former employer and/or transfers their 401(k) to their new employer risks losing a signficant amount of it to Uncle Sam.  Depending upon your net worth, this could translate into hundreds of thousands, perhaps millions of dollars.  This is a case where you should “plan for the worst and hope for the best.”   

• Spouse  – your spouse can rollover your 401(k) into an IRA.
• Both you and your spouse die – your heirs cannot rollover your 401(k) to an IRA.  In this case, your heirs could get hit with a triple whammy. 
  1. They are forced to take a lump sum distribution and are taxed at ordinary income tax rates – Federal and State (can anyone say 35%?).
  2. In addition, if your estate is over the Estate Tax Exemption limits, they will also get hit with Estate Taxes.  Between Income and Estate Taxes your legacy could literally be cut in half.
  3. Finally, due to the lump sum distribution, not only do your heirs lose big on taxes, they also lose out on the benefit of tax-deferred growth.

Hopefully, this is a situation your heirs will never have to face – but they could.  In that situation, would you want to put them in a position where up to 70% of your estate could vanish into taxes? 

By rolling the money into an IRA, should tragedy strike and both parents die (which eventually happens to everyone) your children and other nonspouse heirs may roll your IRA into a Beneficiary IRA and not pay more in income tax than they need to, to satisfy any required minium distributions, thus preserving the tax-deferred growth of the IRA. 

Rolling your old 401(k) over to an IRA is akin to a free insurance policy.  It passes on your money to your heirs, not Uncle Sam, thus helping to preserve your legacy.

Which Option Should You Choose?

That depends on individual circumstances.  The above are general 401(k) distribution options.  Because everyone is different, a valid case may be made for selecting each option.  Therefore you should consult with your financial advisor as to which option is most appropriate to your situation.

If you have any questions, email me at rsdavis@financialcompass.com

Bring Your Future Into View!

Bob

Reliability of power systems define the utility’s capability to minimize outage frequency and duration. For regulatory purposes, power system reliability indices are evaluated for performance based regulation (PBR). In the Philippines three performance indicators on system reliability are among the indices evaluated to assess transmission and distribution electric systems for regulatory years involved. System Average Interruption Frequency Index (SAIFI), System Average Interruption Duration Index (SAIDI) and Customer Average Interruption Duration Index (CAIDI) are the indices required by Energy Regulatory Commission (ERC) from the utilities and whose formulas are given below. The data presented herein are acquired from the ERC website and from the National Electrification Administration (NEA) website.

The transmission electric system reliability performance are provided below in the following two figures. The first five years show separated indices for the three regions while the next five years show combined transmission performance for the whole nation. It is revealed from the figures that transmission system SAIFI and SAIDI are lower for the last five years which indicate that outage frequency and duration were minimized in the bulk power system.

The next three figures illustrate the reliaiblity performance of four Distribution Utilities (DUs) in Mindanao. The SAIDI presented here are said to be “Planned” SAIDI, which I assume incurred during scheduled maintenance outages of the DUs. For SAIFI and SAIDI, Cotabato Light and Power Company, Inc. (CLPC) performs better than the other DUs. For CAIDI, Mactan Electric Company, Incorporated (MECO) and Cagayan Electric Power and Light Co., Inc. (CEPALCO) provides minimum customer outage duration. What is interesting is that MECO and CEPALCO reported the same CAIDI values for different four year intervals. The CAIDI formula above does not apply to the CAIDI values as the SAIDI are “Planned”. The DU reliability assessment here does not consider the GWh sales and number of customers served of the DU which I believe has an impact to the DU reliability performance. This kind of evaluation is slated in the upcoming articles.

NEA reports a reliability criteria for Electric Cooperatives (ECs). The highest score for this aspect is 5.0 as defined by NEA, which is not reported in their website.  Figure below shows that at least four ECs perform up to the par of the NEA reliability criteria.

Non-technical losses in distribution systems comprised about 2-3%, my estimate, of the total system losses.  Total distribution system losses equals technical losses plus non-technical losses.

In my experience and some readings, I believe that non-technical losses can be minimized or mitigated by utilizing non-technical strategies.

1.    Modeling and benchmarking technical losses thru computer simulations – if a DU can measure the technical losses incurred in operating its distribution system with the variation of supply and demand using a computer program, then the DU is in a position to quantify and identify probable nodes of sources of non-technical losses in the system comparing power/energy output from electricity meters. This approach may take some technical challenges, especially with the database development, but if accomplished the DU will have in its hands a tool that can predict energy efficiency of its distribution system franchise.
2.    Installation of totalizing meters – the measurement of energy output from a certain distribution feeder and laterals thru totalizing meters can be an effective way to guard pilferage along the feeder or lateral. Some DUs even install totalizing meters after the distribution transformer feeding a secondary feeder.  The accuracy of these totalizing meters must be accounted when investigating or assessing energy input and output among electricity consumers.
3.    Statistical analysis of electricity meter readings – ample data from electricity meters can be analyzed statistically over time to estimate significant deviation from usual meter readings. This will help the DU to keep track the energy usage of its consumers and will have a benchmark in case significant meter reading deviation especially at the totalizing meters is observed. Statistical monitoring of energy consumption per sector, per class and geographical set-up must be employed and statistical evaluation of meter readings will be in vain if electricity meters are not up to the standard accuracy. Energy consumption bands must result from the statistical evaluation to confirm anomalous meter readings. Upgrading of electricity meters to meet standard accuracy must be conducted to support reduction of non-technical losses thru statistical analysis.
4.    Technical training of DU personnel must be given plus enhancing employees’ loyalty and political will to eliminate pilferage in the distribution system must be considered. DU personnel who play an important role in mitigating non-technical losses must have deep loyalty to the company and must have ample technical knowledge in combating electricity pilferage.

The Philippine Distribution Code (PDC) has Power Quality (PQ) performance regulation for Distribution Utilities. In Section 3.2 of the PDC, it provides generalities and specific limitations for quality regulation. I have copied section 3.2.1.2 from the PDC for the purpose of this article, see below.

In this section, the PDC points to the identification of a PQ problem in the distribution system by classifying presence of quality parameters. Going beyond this section are specified limits of the parameters stated above which clearly identifies the existence of a PQ problem. It is interesting that this PDC section identifies PQ problems where some of the classifications always exist in operating a distribution system. My rationale are the following:

• Power system frequency is seldom at its nominal value of 60 Hz. The continuous variation of loads impact the maintenance of frequency at 60 HZ. Item (a) of the said section implies that a PQ problem due to frequency deviation always exists.
• Harmonic frequencies always exist in distribution systems.  The issue if these harmonics are acceptable or not is another facet. But voltage harmonics and current harmonics are always present in a power system due to the popular usage of electronic-based devices and equipment. Item (c) of the said section above implies that a PQ problem exist due to the presence of harmonic frequencies, whether tolerable or not.
• Items (c) and (d) of the said section are combined definitions for voltage unbalance. In a practical distribution system, voltage unbalance exist at all nodes due to the two-phase and single-phase laterals in the three-phase distribution feeder and unequal loading of the three-phase distribution lines. If this unbalance in voltage is acceptable of not is about the magnitude of the unbalance. If we follow the thesis of the said items, then a PQ problem exist even at acceptable levels of voltage unbalance.

The PDC definition for the existence of a PQ problem, with respect with the section above, gives us an  understanding that a PQ problem exist not withstanding the magnitude of frequency deviations, harmonic frequencies and voltage unbalance magnitudes.

The Philippine Distribution Code (PDC) requires all User connection points that all Power Quality (PQ) requirements under PDC Section 3.2 be complied with. The PDC section 3.2.3.4 stresses this policy for voltage variations, see below. There are other similar statements for other PQ indices to be complied along section 3.2 of the PDC.

For new distribution system interconnection, the PDC points to the same section 3.2 that new connection points must have PQ within limitations specified in Section 3.2.  In this case, the Distribution Utility (DU) must ensure that these PQ limits are complied with. See section 5.2 and further below.

The Energy Regulatory Commission (ERC) under its Work in Progress provides a seemingly conflicting objective with the PDC, as the Section 4 of the Guideline for Monitoring of PQ standards for DUs allows the DU to have 95% of connection points along a given distribution feeder to comply with section 3.2 of the PDC, see figure below. This means that 5% of the connection point can be accepted not to comply with the said PQ performance requirements. Practically, if the DU feeder has 100 connection points, 5 of those connection points can be operated not following the PQ limits specified in the PDC section 3.2.

The conflicting objective in these regulatory documents is clear. One document, the PDC, specifies that the DUs must comply with PQ limitations per section 3.2 in all connection points.  On the other hand, the Guideline points that only 95% of those connection points must be ensured by the DU to have PQ level in accordance with the PDC section 3.2.

The ERC and DUs must adhere the PDC since this is the “code” of operating, financing and planning distribution systems. The Guideline must be reviewed as this is a Work in Progress. If the Guideline supersedes the PDC, then the PDC states that a PQ problem exists in the distribution system as section 3.2.1.2 below stresses this point.

Wind power supply has further implications on system reliability because of its variability and can impact power quality in its nature of power production since it uses power electronics for power control that can produce harmonics and with its variability which can result to unacceptable voltage variations and voltage flickers. Ilocos Norte Electric Cooperative (INEC) source its power supply at specific times from the NorthWind Power Development Corporation.

INEC sources its power requirement to supply its franchise demand from National Power Corporation (NPC), NorthWind and Wholesale Electricity Spot Market (WESM). This is an economic operations strategy by INEC. INEC is fed by all these power suppliers from the grid via bulk power transformers to its distribution franchise.

National Electrification Administration (NEA) reports Electric Cooperatives (EC) scorecard for the year 2006. From this report, INEC performs very well technically as shown in the figure below. Aside from reliability and project implementation, INEC performed up to the expected par with all the other technical operations performance requirements. The uncoupling of power supply, voltage transformation thru transformers which go together with INEC’s own technical intervention within their distribution franchise, from the wind power to the INEC distribution system aids in delivering power with such a high quality of supply and technical performance. Overall, the analysis shows that an electric distribution system fed by a wind power plant can be operated up to the level of technical criteria required by the NEA or by Energy Regulatory Commission (ERC).

Distribution Utilities (DUs) when planning for their distribution system, are faced with various options and constraints. One of the DUs’ process in system planning is choosing the right size of overhead distribution conductor for a given load, voltage level and expected load growth just to name a few. Most of the time, DUs have a set of standard sizes of conductors in the stock shop ready to be utilized for meeting additional demand or has a set of policies what size of conductor to be used for level of voltage or type of load. These practices do not follow that given the new conductor installation, DUs comply with various performance regulation.

In the performance regulation of DUs, it is important to meet the following:

• Supply the voltage within allowable limits – normally this is between 0.90 to 1.10 per-unit voltage.
• Minimize losses – to select a conductor is to ensure that as the power is being delivered, lesser line losses are produced.
• Minimize cost of conductor – economic regulation addressed in planning that DUs as much as possible to lower cost and at the same time operate within performance criteria.

In addition, the DUs must maximize power delivered, i.e. – the DU sees to it that the demand will be supplied with the power it needs given any time. Maximizing power transfer enables maximum utilization of the asset.

In this blog, consider a load of 200 amperes at 13.8kV level and selection between conductors ACSR sizes of 1/0 to 4/0 is to be determined for a line length of 1000 meters. The cost of conductors are derived from National Electrification Administration (NEA) website. The variations of voltage versus losses, cost of conductors versus losses and power delivered versus losses are plotted below. The conflicting patterns of voltage, cost of conductors and power delivered versus line losses are evident from the figures. The size of the conductor to be selected must be near the intersection point which minimizes the parameters involved. In this example the appropriate conductor size, the nearest conductor size to the intersection of the curves must be chosen, is ACSR 3/0.

Aside from impacting or not impacting electricity rates, system loss reduction has the following benefits:

• Reduction of fuel emissions due to lesser use of fossil-fuel generating plants – this has societal impact as it cover environmental concerns.
• Utility system capacity savings – decrease in losses provides released extra capacity for the distribution lines and transformers.
• Promotion of Energy Efficiency – it will be noted that the Distribution Utility (DU) is an energy-efficient electric company as it tries to decrease its system loss.
• Improvement of system voltage profile – the utility is regulated to supplying a range of voltage level and reduction of losses will produce a marginal system voltage quality that may be acceptable. This will also provide good power quality at the convenience outlets of consumers allowing their electric equipment/appliances to operate without mis-operation or loss of life.
• Increase Utility Commercial Appeal – a DU aiming at system loss reduction gets an added commercial appeal in the restructured power industry. This is important in the changing environment of the power industry, have you seen MERALCO TV commercials?

There is an optimum level of system loss reduction unique for all DUs where further reduction of losses will not result to further reduction of operation cost but more investment expenses. On the other hand, as demand rises in a distribution service franchise, technical losses and non-technical losses (utility own use) will at some point come with the demand increase. The equation of generation equals losses plus demand holds true. This is revealed by Philippine Power Statistics as shown in the figures below (the values include transmission and distribution losses, but this does not negate the point) :

Finding ways to reducing system loss must be a continuing program since it always provide benefits to the DUs and electric consumers.

The Energy Regulatory Commission (ERC) is calling for comments from various stakeholders on a new resolution they are proposing on reduction of distribution system losses incurred by Distribution utilities (DUs) which are Private Utilities (PUs) and Electric Cooperatives (ECs) in their operation of their service areas. Figure below is an extraction from the ERC document on the resolution.

From the illustration, the regulated system loss caps have been long withstanding for about eight years. The 9.5% and 14% loss caps for PUs and ECs respectively, are about to celebrate their ninth birthday until this new resolution on system loss caps reduction which is aimed to be implemented in January 2009 billing. The proposed 8% cap on the PUs might be tight since presently MERALCO operates its vast distribution system following a 9.5% loss policy. There are other PUs but benchmarking with MERALCO is a sure test if the other PUs can comply with the proposed 8% cap. The proposed 11% system loss cap on ECs is a product of National Electrification Administration (NEA) media declaration on system loss saying that by 2009 the national average for system loss for ECs will be 11%. The 2006 NEA scorecard does not report this 11% but points that about 53 out of a total of 84 ( I thought there are total of 98 ECs) ECs comply perfectly with system loss reduction.

Reduction of system loss caps always provide good benefits for both consumers and the electric distributor, there is no doubt on this and the currently applied caps should have been in Grade 3 in the present school year. But giving pressure to the DUs to comply within five months can be challenging. Given the facts for both PUs and ECs, the proposed resolution will be an expected regulatory debate in the ERC hearings. Aside from decreasing system loss, DUs look into improving system reliability and quality of supply in their planning and operations which I believe are of equal weight with system loss. If this resolution is implemented, DUs might get lost with reducing their system loss.

In operating and planning electric distribution business, the expansion and demand growth must be intertwined. Expansion won’t happen if not demand driven. Increasing demand must be met by system expansion. The figure below is a graphical illustration of Philippine Electric Cooperatives (PECs) in year 2006, depicting their distribution line in circuit kilometers versus the annual sales in MWh.

From the figure, EC #91 has the longest ckm but does not have the highest sales. EC #96 has the highest energy sales with operating significant lesser ckm of distribution line compared to EC #96.  It can by thought that EC #96 might have a service area that is very rural thus it has to erect longer lines to reach consumers.  On the other hand, if this is not the case, then EC #96’s investment in distribution lines is not optimized since it has put a longer ckm with a smaller demand.

The regulation of system expansion must meet the rise of demand up to the point that it satisfies reliability and quality performance. However, investment in distribution business must not be overdone because some of these costs are passed on to the consumers.

In 2006, I made significant technical comments on the issues of reliability and quality of electric power supply being delivered by Distribution Utilities in the Philippines. Energy Regulatory Commission (ERC) provides the link Work in Progress for the said issues.

The complete documents of comments from various entities can be accessed here – ERC Reliability and Power Quality Comments.

Abstract
It has been a general practice by distribution utilities to parallel overhead distribution lines/feeders in a common right of way and the same pole as they terminate from a common substation. This paper studies the impact of modeling parallel overhead distribution lines. The modeling of this kind of circuits in the regulated status of electric distribution business is important as the modeling can impact line losses, voltage drop and voltage unbalance in the lines. A sample case was set-up and is simulated in two cases; parallel lines modeling and taking the parallel lines individually. The study utilized load flow calculations for analyzing line losses, voltage drops and voltage unbalance. The results showed that line losses are not affected by the kind of modeling applied to parallel overhead distribution lines but voltage drop and voltage unbalance yielded different results in the two cases simulated.

See full paper – Parallel Distribution Lines

The figure below is a graphic illustration of Philippine Electric Cooperative Data for their circuit kilometer of their distribution power lines and number of interconnected customers in their electric systems.

From the figure, Electric Cooperative (EC) number 2 has the lowest number of customers while EC #86 has the most number of customers being served. For the circuit kilometer (CKM), EC #91 has the longest distribution lines while EC #33 operates the shortest CKM.

It is interesting to note that EC #91 has the longest CKM and yet serve a number of customers which is less than the number of customers of EC #86. The area franchise of EC #91 maybe very large and rural that it takes to build, operate and maintain such length of distribution lines with such medium number of electric consumers. EC #86 has the highest number of customers and yet operate a not so longer distribution circuits. It can be hypothesized that the area served by EC #86 is very electric power dense. Same evaluation can be derived with EC numbers 2 and 33.

In this case, regulatory considerations for project investing for Philippine electric cooperatives must consider how the service area of an EC is electrically dense or not. If the analysis above does not stand with the density of the franchise, then EC #91 has over built distribution lines while EC #86 can be said to have efficiently invested in electric power distribution lines for a greater number of customers.

]]> http://ebcano.wordpress.com/2008/07/22/philippine-electric-cooperative-data/ Tue, 22 Jul 2008 17:53:33 +0000 ebcano http://ebcano.wordpress.com/2008/07/22/philippine-electric-cooperative-data/

It is interesting to study the electric cooperatives’ data publicly posted in websites. The following websites provide these data:

• Energy Regulatory Commission (ERC)
• National Electrification Administration (NEA)

Primarily, the ERC data has the following columns:

1. Distribution line length in circuit-kilometers (ckm) – this item refers to the existing overhead lines owned by each electric cooperative. The data must include single-phase, two-phase and three-phase distribution circuits operated in the cooperative’s franchise area, irregardless of voltage level.

2. Number of customers – the total sum of all electric consumers in each electric cooperative service area. This may be the total of residential plus commercial plus industrial plus barangay electrification. Normally this data is the number of electric meters being maintained by the cooperative.

3. Sales volume – this data is in MWh unit. The total sales of each electric cooperative in year 2006 which was supplied to the total number of customers and which was procured from the transmission operator or other electric power supply entities.

4. Consumption per customer – this data is obtained from dividing data number 3 to data number 4. Though looking at average, this is an indicator of how much energy is utilized by each facility.

5. Structure – is the ratio of the mix of residential sales plus barangay electrification to the total energy sales. This shows on how “rural” is the service area of the electric cooperative. A higher value of structure tells us that that the service area is that the demand comprises much of residential and barangay electrification which is more rural, while a lower structure value gives an indication that the service area has commercial and industrial bulk of energy users.

6. Density – this data is MWh sales divided by the ckm of distribution lines. This reveals how much dense is the service area of the electric cooperative in terms of loading in distribution lines.

7. Distribution Supply Metering (DSM) charge – this data is presented in peso per kwh is reflected in the electric bill.

NEA has many available data but in this article we will focus only on two:

1. Reliability score – ERC has promulgated reliability guidelines for electric distribution companies using standard indices. Reliability is the capability of the electric cooperative to minimize frequency and duration of unforced outage in their service area. In this data, NEA may have summarized the electric cooperative data into one single score.
2. Power Quality (PQ) score – same with reliability, PQ is a performance indicator for electric distribution companies, but in this case ERC has devised their own indices. Also, NEA may have summarized the electric cooperative data into one PQ single score.

In the coming articles, I will try to analyze these data and extract technical and objective evaluation thereof.

]]> http://ebcano.wordpress.com/2008/07/02/fuzzy-optimization-for-distributed-generation-allocation/ Wed, 02 Jul 2008 17:15:45 +0000 ebcano http://ebcano.wordpress.com/2008/07/02/fuzzy-optimization-for-distributed-generation-allocation/

Abstract— Distributed generation (DG) allocation problem is addressed utilizing fuzzy multi-objective optimization in this paper. It is shown that the methodology provides needed consideration for DG allocation and accounts for uncertainty using fuzzy set theory. Voltage drop reduction, short circuit capacity (SCC) augmentation, decrease operation cost and system losses reduction were considered as objectives for formulating fuzzy optimization. The paper discusses in detail the approach adopted and several numerical examples are presented to test the developed methodology.

Full paper -Fuzzy Optimization For Distributed Generation Allocation

Rationale – Since distribution utilities (DUs) are regulated with their operational power quality (PQ) and system reliability, which accounts for System Average Interruption Frequency Index (SAIFI) and System Average Interruption Duration Index (SAIDI), it may be considered to utilize the historical data for DU planning in the context of probabilistic evaluation.

Concept Methodology-

1. Gather PQ and DU system reliability data for a certain time range, maybe five years.
2. Establish level of PQ, SAIFI and SAIDI to be utilized for planning purposes by applying 95% probability acceptance.
2. Identify planning alternatives to solve problems of PQ and system reliability.
3. Compute and simulate levels of PQ, SAIFI and SAIDI per planning alternative.
3.1. This may utilize DU system reliability software/spreadsheet and PQ program simulation.
4. Compute relative system unreliability cost and cost incurred for poor PQ for each planning alternative.
4.1. System Unreliability Cost = SAIDI x Cost of electricity (P/kWH)
4.2. Poor PQ Cost = Energy Losses (due to Poor PQ) x Cost of electricity (P/kWH)
5. Compute total cost of each alternative.
5.1. Total Cost = Invesment Cost + Operational Cost + System Unreliability Cost + Poor PQ Cost
6. Two Methods for Planning Alternatives Comparison
6.1. Compare Total Costs of Planning Alternatives.
6.2. Benefit/Cost (B/C) Method, where [(Base Reliability + Base PQ) - (Alternative Reliability + Alternative PQ)]/ Total Cost of Alternative
7. Choosing appropriate planning alternative.
7.1. Choose planning alternative with Lowest Total Cost.
7.2. Choose planning alternative with Highest B/C.