J.Pollock Blog

Dilemma of a Make-or-Buy Decision

A client asked J.Pollock to determine whether it should consider expanding its on-site generation to offset rate increases due to rising fuel prices and large capital costs for environmental improvements and new gas/nuclear capacity to meet projected demand. The dilemma is that this client is already buying power from the local utility at the best possible rates and at the time, the utility’s rates were below the national average. J.Pollock conducted a long-term forecast of the utility’s costs taking into account the projected capital expenditures and a wide range of scenarios considering future coal and natural gas prices (obtained from public sources and the client’s own forecasts) and potential carbon impacts. The forecast revealed that rates would gradually increase to a level where additional self-generation would become economic. Despite the scope and complexity of the forecast and the many different scenarios considered, the client received valuable insights and was charged less than 0.5% of the client’s annual electricity costs.