Integrated Resource Planning: An Opportunity for Wind Advocates

Ed Holt, Energy Smart Consulting

Although the scope varies from state to state, utility regulation generally encompasses review of utility load forecasts, certificates of need for new generation facilities, resource planning and acquisition (including power purchase agreements as well as build to own), transmission and distribution planning, rate cases (cost of service studies and cost allocation to different rate classes), utility rate design, and fuel cost adjustments. Many states that regulate investor-owned utilities are guided by integrated resource planning (IRP) requirements.

Integrated Resource Planning

Although IRP is frequently thought of in the context of long term resource planning, it can also be used as a framework for utility planning and regulation. This planning process can be used to identify the lowest practical cost at which a utility can deliver reliable energy services to its customers, taking into account demand-side and supply-side resources, portfolio diversity and risk management, and environmental costs and benefits.

Analyzing avoided cost provides the common economic framework for comparing disparate resources such as base load plants, peaking plants, intermittent resources like wind, and demand-side resources. Avoided cost analysis provides the means to compare the costs of alternative energy resources and decide which are cost effective and which are not, but it is commonly misunderstood. Avoided cost is what a resource is worth to a utility, or the most a utility should be willing to pay for it. To figure this out, a utility should look at the specific operating characteristics of the resource under consideration and compare it to existing or planned resources that it would displace. A resource that provides electricity at a cost lower than its avoided cost is cost effective and worth acquiring.

Public Participation

From a process standpoint, IRP gives interested parties an opportunity to participate through a regulatory proceeding. By helping to investigate the range of analysis and resources under consideration, wind advocates can ask questions and propose alternatives for consideration. Participating in the regulatory process can be time consuming, but at a minimum, stakeholders can review and comment on draft IRPs.

IRP in Restructured Markets

In theory, competitive markets add energy resources to the electric system in response to price signals. In practice, markets are imperfect and frequently ignore non-traditional alternatives. If capital cost is the primary consideration, for example, generation developers may flock to combined-cycle natural gas plants. Without a broader framework in which energy investment decisions are made, the market will exclude non-monetized values such as environmental costs and benefits, demand-side and renewable energy resources, portfolio diversity, and the value of distributed resources. Portfolio management is a new term being discussed by regulators for restructured states. Like IRP, portfolio management allows the economic comparison of resources with very different characteristics, but the responsibilities for implementation and opportunities for public participation may be different. First, someone with a public interest in the entire market and grid should take responsibility for long-term strategic oversight.

This often falls to a state government agency, but it may be shared with regional transmission organizations. The portfolio architecture established by these actors would broadly include things such as grid interconnection standards, transmission policies affecting access and pricing, and the public interest in environmental values associated with renewable energy and energy efficiency. Second, a provision must be made for customers who don't actively choose a supplier, through what is called default generation supply. The default supply provider may be the distribution utility, or it may be selected through a competitive bid process. In either case, regulators will determine the factors to consider in default supply. Finally, the agency responsible for portfolio management should use the planning process to inform and coordinate the various participants in restructured markets. Periodic review by regulators can provide additional opportunity for public review and comment.

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