Integrated Resource Planning (IRP)
Since the late 1980s almost half of the state regulatory commissions have adopted integrated resource planning (IRP) or least-cost planning (LCP) regulatory policies to promote an adequate, reliable and efficient electric supply at cost-based rates. With planning horizons mostly between 10 to 20 years and usually updated every two to three years, these plans typically include forecasting future loads, identifying potential resource options to meet those future loads and their associated costs, determining the optimal mix of resources (including demand and supply side), receiving and responding to public participation, and creating and implementing a resource plan.
ELCON supports an IRP planning process that minimizes a utility’s long-run revenue requirement necessary for an adequate, reliable and efficient electric supply at rates based on actual costs. The IRP should include cost-effective supply and demand side resources.
ELCON Position and Recommendations
- The efficient use of all resources, including energy, is a prudent and environmentally responsible business practice.
- The maximum use of competition – on both the supply and demand sides – should be encouraged to establish more efficient wholesale and retail electric markets.
- Selected environmental costs such as environmental externalities should not be internalized in least-cost plans. Resources should be compared using actual costs, including the costs to comply with environmental laws.
- A “level playing field” should be established for evaluating cost-effective supply and demand side options by minimizing market barriers and other restrictions on the efficient acquisition and utilization of any supply side or demand side resource.
- Market barriers on the supply side can be mitigated by increasing competition in bulk power markets, i.e., by allowing all buyers and seller of bulk power nondiscriminatory access to transmission.
- Market barriers on the demand side can be mitigated if price signals are correctly set and end-users have adequate access to information on the costs and benefits of their choices. Customers will be able to minimize the total costs of their energy services only when prices are correctly set.
- Utilities should offer a broad menu of embedded cost-of-service electricity rates and service, not highly bundled electricity services that restrict competition and result in inefficient usage of electricity.
- Both supply and demand side resources should be subject to prudence and “used and useful” standards. Costs of these resources should be expensed or rate-based as appropriate. Utilities should not be given financial incentives to implement least-cost planning.
- Utility compliance strategies to address environmental regulations such as carbon policies should be developed as part of their least cost planning effort. The same principles of least-cost planning that govern the acquisition of supply or demand side resources also should apply to pollution abatement costs.
- Costs which are specifically assignable to a supplier, customer, or customer class should be borne by that supplier, customer, or customer class. Costs should be classified based on the actual operating characteristics of the resource. Energy related costs should be allocated to ratepayers in the energy or variable component of rates. Capacity related costs should be allocated in the demand or fixed component of rates.
- The IRP should be an on-going process. Utilities should continuously reevaluate the plan’s forecasts, assumptions, and resource options, and to alter the plan as needed. Utilities always have the burden to justify any changes to their least-cost plans.
- Regulatory oversight should be provided. Regulators should carefully evaluate IRPs, including any subsequent modifications to the plan, with particular emphasis on demonstrated energy or capacity impacts of DSM options. Opportunity should be provided for public comment on the least-cost plan, including assumptions used in life cycle analysis, cost-benefit analysis, and other decision support methodologies. The least cost plan should be a public document.