INTEGRATED RESOURCE PLANNING (IRP) GUIDELINES
BRITISH COLUMBIA UTILITIES COMMISSION (BCUC)
(Hard copies of the Guidelines are available from the Commission upon
request.)
I PURPOSE OF GUIDELINES
These guidelines relate to the practice of IRP by utilities regulated by
the BCUC. The guidelines are intended to provide general guidance
regarding BCUC expectations of the process and methods utilities follow
in developing an IRP. It is expected that the general rather than
detailed nature of the proposed guidelines will allow utilities to
formulate plans which reflect their specific circumstances.
II DEFINITION
IRP is a utility planning process which requires consideration of all
known resources for meeting the demand for a utility's product, including
those which focus on traditional supply sources and those which focus on
conservation and the management of demand(1). The process results in the
selection of that mix of resources which yields the preferred(2) outcome
of expected impacts and risks for society over the long run. The IRP
process plays a role in defining and assessing costs, as these can be
expected to include not just costs and benefits as they appear in the
market but also other monetizable and non-monetizable social and
environmental effects. The IRP process is associated with efforts to
augment traditional regulatory review of completed utility plans with co-
operative mechanisms of consensus seeking in the preparation and evaluation
of utility plans. The IRP process also provides a framework that helps
to focus public hearings on utility rates and energy project applications.
III RELATIONSHIP OF BCUC and UTILITIES UNDER IRP
IRP does not change the fundamental regulatory relationship between the
utilities and the BCUC. Thus, IRP guidelines issued by the BCUC do not
mandate a specific outcome to the planning process nor do they mandate
specific investment decisions. Each utility's IRP will reflect that
utility's unique circumstances and its management's judgement. Under IRP,
utility management continues to have full responsibility for making
decisions and for accepting the consequences of those decisions. IRP will
be relevant to the question of determining utility revenue requirements
and rate design. Consistency with IRP guidelines and the filed IRP
plan will be an additional factor that the BCUC will consider in judging the
prudency of investments and rate applications, although inconsistency may
be warranted by changed circumstances or new evidence.
IV GENERAL IRP GUIDLINES
An IRP must include certain basic components. These components are
described in the following list of general guidelines that the BCUC will
use in assessing the IRP efforts of the utilities it regulates. Smaller
utilities will not be required to provide the level of detail and
analysis contained in the IRPs of larger utilities and will have the
opportunity to adopt components of those plans.
1. Identification of the objectives of the plan
Objectives include but are not limited to: adequate and reliable
service; economic efficiency; preservation of the financial integrity of
the utility; equal consideration of DSM and supply resources;
minimization of risks; consideration of environmental impacts;
consideration of other social principles of ratemaking(3); coherency with
government regulations and stated policies.
2. Development of a range of gross (pre-DSM) demand forecasts
In making a demand forecast, it is necessary to distinguish
between demographic, social, economic and technological factors
unaffected by utility actions, and those actions the utility can take to
influence demand, (e.g. rates, DSM programs). The latter actions should not be reflected in the utility's gross demand forecasts.(4) More
than one forecast would generally be required in order to reflect uncertainty
about the future: probabilities or qualitative statements may be used to
indicate that one forecast is considered to be more likely than others. The
energy end-use categories used in analysis of DSM programs should be
compatible with those used in demand forecasting, so that at any point a
consistent distinction can be made between demand with and without DSM on an
end-use specific basis. Thus, the gross demand forecast should be structured
in such a way that the savings, load shifting or load building due to each
DSM resource can be allocated to specific end-uses in the demand forecast.
3. Identification of supply and demand resources
All feasible(5) individual supply and demand resources, both
committed and potential, should be listed. Individual resources are
defined as indivisible investments or actions by the utility to modify
energy and/or capacity supply, or modify (decrease, shift, increase)
energy and/or capacity demand.
4. Characterizing supply and demand resources
Each supply and demand resource must be measured against a
consistent set of attributes.(6) These attributes reflect the objectives
established in Guideline 1. They may include utility and customer costs
(life cycle costs, impact on rates) as well as monetizable and
non-monetizable social/environmental impacts, risks and lost
opportunities.(7) This is generally referred to as multi-attribute
analysis, a methodo-logy that allows for comparison of resources not just
in terms of direct costs, but also in terms of all other relevant
attributes. Supply and demand resource cost estimates should represent
the full costs of achieving a given magnitude of the resource. These
cost estimates may be represented as supply curves; i.e. graphs showing
the unit costs associated with different magnitudes of the resource.
5. Development of multiple integrated resource portfolios
For each of the gross demand forecasts, several plausible
resource portfolios should be developed, each consisting of a combination
of supply and demand resources needed to meet the gross demand forecast.
The gross demand forecasts and the resource portfolios should cover the
same period, generally 15 to 20 years into the future.
6. Evaluation and selection of resource portfolios
For each of the gross demand forecasts, the set of alternative
resource portfolios which match the forecast are compared on an attribute
by attribute basis, as defined by the objectives of the IRP. If a
minimal quantity of a resource (e.g. a given amount of DSM) is included
in all resource portfolios attached to a gross demand forecast, then that
quantity can be included in the IRP without further analysis. For those
resources that are not identified as common to all resource portfolios, a
multi-attribute trade-off process, involving the public, should be
undertaken. This process would lead to the selection of a set of
resource portfolios, each portfolio matching one of the gross demand
forecasts. The set of resource portfolios is the utility's IRP.(8)
7. The action plan
The selection process in Guideline 6 provides the components for the
action plan. The action plan consists of the detailed acquisition steps
for those resources (from the selected resource portfolio) which need to be
initiated over the next four years in order to meet the most likely gross
demand forecast. In addition, the action plan should specify how the
utility will respond over time to increased information indicating that the
most likely gross demand forecast was too high or too low.(9) Examples of
flexible actions that the utility could consider acquiring extra-regional
purchase options, acceleration or deceleration of DSM programs, early
retirement or recommissioning of facilities, or sale of surplus at
a discount. The action plan should also show how resources with considerable
uncertainty (e.g. DSM) include experimental design criteria and monitoring
that allow for hindsight evaluation of their market impacts and full
resource costs.
8. Public input
The public is to be involved throughout the IRP process. This
could include a wide range of methods for providing information to the
public and for involving the public in the planning process. Methods
might include stakeholder collaboratives, information meetings,
workshops, and issue papers seeking public response. Utilities are
encouraged to focus resources for public participation on areas of the
IRP where it will prove most useful and to choose methods which best fit
the need of their IRP. Joint processes by two or more utilities are
acceptable provided the requirements of each utility can be met.
9. Regulatory input
The BCUC staff should be given opportunities to review and
comment during the various phases of preparation of the IRP.
10. Government policy input
The IRP should address government policy, as evidenced by
legislation (e.g.
efficiency standards) and stated policies. Emerging policy issues, such
as increased control of air emissions, may be addressed as risk factors.
11. Regulatory review
The IRP and the action plan should be filed biennially with the
BCUC for review. The review may, at the initiative of the BCUC, provide
opportunities for written and/or oral public comment. After review, the
BCUC will provide written commentary on the plans.
FOOTNOTES
1 Referred to as Demand-Side Management ("DSM").
2 The term preferred is chosen to imply that society has used some
process to elicit social preferences in selecting among energy resource
options. Unfortunately, there is rarely agreement on the best process for
eliciting social preferences. Candidate processes in a democracy include public
ownership with direction from cabinet or a ministry, regulation by a public
tribunal, referendum, and various alternate dispute resolution methods
(e.g. consensus seeking stakeholder collaboratives).
3 Bonbright, Danielsen and Kamerschen, (Principles of Public
Utility Rates, 1988, Ch.8, p.165), define social principles of ratemaking
as any policy of rate control designed to make the supply of utility
services responsive to social needs and social costs. The authors point out
that the rates set by utility commissions invariably involve some discretionary
judgementabout the extent to which broader social principles should influence
ratemaking. The most recent concern is with negative environmental
externalities, but this concern should be situated within the broader
issue; hence the inclusion of the generic term social principles of ratemaking.
The general implication is that because of social and environmental
objectives, the rates charged by utilities may be allowed to diverge from those
that would result from a rate determination based exclusively on financial
least cost. The social principles to be addressed may be identified by
the utility, intervenors, or government.
4 In other words, gross forecasts represent an attempt to simulate
markets in which the utility did nothing to influence demand. Of course
this is not entirely possible. Utilities will continue to require rate
increases and existing DSM programs will affect demand as will already
ordered rate design changes. However, the assumptions made with respect
to these factors in estimating future gross demand should be clearly
specified so that the effects of these assumptions may be distinguished
from the effects of future utility actions designed to influence demand.
5 Feasible resource options are defined as those options consistent
with the objectives of the IRP. For example, government policy may rule
out a particular technology or form of energy.
6 Measurement may be quantitative or qualitative depending on the
attribute.
7 Lost opportunities are opportunities which, if not exploited
promptly, are lost irretrievably or rendered much more costly to
achieve. Examples can include cogeneration opportunities that occur when
renovating a pulp and paper mill but are not taken and additional
insulation that is not installed in a new house.
8 Guidelines 4 through 6 may require iteration to account for
interdependencies.
9 For example, the level of population growth and economic activity
over time begins to suggest that a different demand forecast is more likely.
BIBLIOGRAPHY OF STANDARD REFERENCES FOR
INTEGRATED RESOURCE PLANNING ("IRP")
The following list of IRP source documents has been compiled by BCUC
staff for informational purposes only. Although staff believe that these
sources form part of the body of standard works to which reference is
often made in discussions of IRP, inclusion in the list does not imply
that the statements made in the various sources reflect Commission
policy. This list of sources does not form part of the BCUC IRP Guidelines.
1. Spurring Inventiveness by Analyzing Tradeoffs: A Public Look at
New England's Electricity Alternatives, Clinton J. Andrews, Environmental
Impact Assessment Review, 1991
2. Least Cost Planning and Utility Regulation, David Berry, Public
Utilities Fortnightly, March 17, 1988
3. The Structure of Electric Utility Least Cost Planning, David
Berry, Journal of Economic Issues, September 1992
4. Standard Practice Manual - Economic Analysis of Demand-Side
Management Programs, California Public Utilities Commission December 1987
5. Moving toward Integrated Resource Planning: Understanding the
Theory and Practice of Least Cost Planning and Demand Side Management,
Prepared by Electric Power research Institute, Palo Alto, California,
EPRI, EM-5065, February 1987
6. Impact Evaluation of Demand-Side Management Programs, Volume 1 A
Guide to Current Practices, Electric Power Research Institute, February 1991
7. Integrating Demand-Side Management into Utility Planning, Clark
W. Gellings, and William M. Smith, Proceedings of the IEEE, June, 1989
8. Least-cost Planning Regulation for Gas Utilities, Mary Ellen
Fitzpatrick Hopkins, Public Utilities Fortnightly, November 1980
9. Least Cost Utility Planning: A Handbook for Public Utility
Commissioners, Vols. 1 and 2, National Association of Regulatory Utility
Commissioners., 1988
10. Proceedings, Fourth National Conference on Integrated Resource
Planning, National Association of Regulatory Utility Commissioners, 1992
11. Proceedings, Third National Conference on Integrated Resource
Planning, National Association of Regulatory Utility Commissioners, 1991
12. Northwest Power Plan 1991, Vol II. Chapter 3, Northwest Power
Planning Council
13. The Role of Conservation in Least-Cost Planning, Northwest Power
Planning Council, June 10, 1988
14. Discussion Paper of Gas Integrated Resource Planning, Ontario
Energy Board, 1991
15. Submissions to Ontario Energy Board re: EBO 169-III
16. Handbook of Evaluation of Utility DSM Programs, Edited by Eric
Hirst and John Reed, Oak Ridge National Laboratory, December 1991
17. Electric-Utility DSM Programs: Terminology and Reporting Formats,
Eric Hirst and Carol Sabo, Oak Ridge National Laboratory, October 1991
18. Planning for Uncertainty: A Case Study, Systems Planning and
Research, Southern California Edison Company, Technological Forecasting
and Social Change, 1988
INTEGRATED RESOURCE PLANNING
GLOSSARY
This is a working draft of a glossary to support the Integrated Resource
Planning Guidelines issues in February 1993 by the B.C. Utilities
Commission. The glossary will be refined and updated after feedback.
Comments and suggestions are welcome.
____________________________________________________________________________________
Achievable Potential - That portion of the Technical Potential for Energy
Conservation that could be achieved by a given set of DSM programs.
Action Plan - A component of IRP, describing utility actions in the
short-term (about two years) to meet the supply and demand objectives of
the integrated resource plan.
Avoided Cost - The cost of the next utility supply resources for meeting
demand. This concept has been used as a yardstick for testing individual
DSM and non-utility supply options, but it is becoming less important as
the IRP process develops comprehensive packages of DSM and supply resources.
Bidding - A tendering process designed to compare and evaluate
non-utility supply resources. In some cases DSM resources are included
in the process.
Demand-Side Management (DSM) - Deliberate effort to decrease, shift or
increase energy demand. Utilities develop DSM programs to encourage
customers to enact DSM measures. Because of measurement difficulties and
uncertainty about consumer behavior, DSM programs must be carefully
evaluated before and after implementation to determine their full impacts.
Economic Potential - That portion of the Technical Potential for Energy
Conservation that would occur if all energy using technologies were
replaced with market ready substitutes that maximize economic benefits
using a social discount rate and Social Cost.
Energy Conservation - Reduction in energy consumption due to efficiency
improvements in energy using technologies (e.g. more efficient light
bulb). Sometimes this definition is extended to include behavioral
changes in the way technologies are used (e.g. turning off unneeded
lighting).
Energy Conservation Potential - Potential Energy Conservation due to
replacing existing technologies with more efficient market ready
technologies. This concept has sub-categories: Technical Potential,
Economic Potential, Achievable Potential.
Externality - A cost or benefit that is experienced by a third party, as
a consequence of a transaction between two other parties. (e.g. A sells
fuel to B for consumption in B's car, thereby polluting the air breathed by C.)
Free Rider - A party who receives some form of incentive (e.g. grant, low
interest loan) for a DSM action that they would have undertaken without
the incentive.
Free Driver - A party who undertakes DSM actions as a result of the
program but do not participate in the program for fear of administrative
hassle.
Gross Energy Demand Forecast - The amount of energy required from energy
supply resources after accounting for external factors changing energy
demand and assuming that there will be no extra DSM than that which
already exists.
Integrated Resource Planning (IRP) - A planning process, used by
regulated energy utilities, that equally compares options that involve
changes in supply resources and changes in energy demand. The outcome of
the process is an integrated resource plan (usually covering 15 to 25 years)
and an Action Plan (usually two years).
Least-Cost Conservation Supply Curve - A graph showing the energy saving
of individual efficiency measures on the X-axis and the total
cost-per-unit-of-energy-saved on the Y-axis.
Lost Opportunity Resources - Energy DSM or supply resources with
life-cycle cost benefits that, if not exploited promptly, are lost
irretrievably or rendered much more costly to achieve. Examples include
cogeneration opportunities when renovating a pulp and paper mill and
extra insulation when building a new house.
Multi-Attribute Analysis - A method which allows for comparison of
options in terms of all attributes which are of relevance to the decision
maker(s). In IRP, common attributes are financial cost, environmental
impact, social impact and risk.
Net Energy Demand Forecast - The Gross Energy Demand Forecast less the
effect of all DSM.
No-Losers Test - Evaluation of DSM resources in order to identify those
that would not result in an increase in energy prices, thereby ensuring
that Non-Participants are no worse off. See Total Resource Cost Test,
Utility Cost Test.
Non-Participants - Parties that, because they have not participated in
DSM, may be worse off if such measures lead to increased energy prices.
Social Cost - Cost determined from a social perspective as opposed to a
private perspective. All externalities should be included, if their
monetization is feasible.
Stakeholder Collaborative - A public involvement process associated with
IRP. Stakeholders are defined as groups whose interests are affected by
the utility planning process. Representatives of key stakeholder groups
work together with the utility's staff in a collaborative to seek consensus
and compromise in the production of the utility's integrated resource plan.
The commitment is not full-time, but collaborative members may find themselves
involved in a process that involves occasional meetings and background
work over several years.
Technical Potential - Energy Conservation occurring if all technologies
were replaced with the most energy efficient market ready substitutes,
regardless of cost.
Total Resource Cost Test - Evaluation of DSM resources in order to
identify those that have a net benefit to society (see Economic Potential
and Avoided Cost). DSM resources meet this test if their net benefits
are sufficient to compensate all Non-Participants. See No-Losers Test,
Utility Cost Test.
Utility Cost Test - Evaluation of DSM resources in order to identify
those that have a net benefit to the utility. See No-Losers Test, Total
Resource Cost Test.