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Getting IRP Right

Quantifying uncertainty in the planning process.
Fortnightly Magazine - April 2006

gained, which may not be obvious a priori, nor easily quantified. A very common example of this type of result is that the utility management may have a bias in favor of (or opposed to) a particular technology or fuel type. But the IRP result will demonstrate that within a range of reasonable possible outcomes, the choice of such a technology may entail unexpected added costs or risks, compelling management to re-think its position.

Don’t Call It IRP

With its origin shrouded in a regulatory past, and resurrected due to recent market malfunctions, IRP carries a lot of old baggage. It conjures images of bureaucratic, protracted paper exercises that drag on and produce little of value to the participants, other than meeting a regulatory mandate.

This is unfortunate. Perhaps a new name and fresh image are needed. Let’s call IRP “resource acquisition and risk mitigation,” or RARM. With the increased complexities of electricity markets, multiplicity of players with divergent interests and short-term focus, rising fuel prices, and concerns about resource adequacy and adequacy of investments in generation and transmission, it would be foolish to avoid this essential process due to the legacy associated with a name.

Another strong feature of the RARM process is that it need not necessarily focus on a single utility, state, region, or even a country. With interconnected networks spanning multiple states, provinces, and countries, RARM is suitable for analyzing regional and continental issues. Nor is the process limited to looking at traditional supply and demand resources. RARM can be applied to looking at regional and global policy issues including:

• Incentives or tax credits for renewable energy;

• Phase-out of nuclear or coal;

• Revitalization of nuclear or clean coal; and

• Various strategies to combat global climate change including CO 2 caps and limits, carbon taxes, carbon trading, and sequestration.

Finally, the strength of this process, regardless of what it is called, is that it provides an analytical framework for enterprise-wide decision-making. Using the same tools and data employed for IRP/RARM, a utility can analyze a wide range of decisions for issues varying from environmental compliance strategies to fuel and power hedging. In short, RARM is not your father’s IRP.

Endnotes:

1. Or depending on the state jurisdiction and one’s level of cynicism, IRP was an attempt to micro-manage utilities.

2. In many states, regulatory agencies operate on very limited budgets and typically are thinly spread over many regulated industries, including natural gas, telephone service, and water utilities. Allowing IRP activities to lapse was considered prudent.

3. Among the first to do so were Oregon regulators, who required PacifiCorp to conduct an IRP.

4. In the U.S. context, most IRP studies are mandated by the regulatory agency, to be conducted by the local regulated utility(ies) under a prescribed set of rules and conditions in the public domain. But IRP exercises may be conducted by consultants under the direction of a regulatory or oversight agency. IRP-type studies may also be performed by a group of states or countries.

5. For example, see What’s Driving the Demand for