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.