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The Old Drawing Board
Portfolio planning in the age of gas.
One of the hardest jobs in the world is the state utility commissioner’s.
In one of my first Frontlines columns as Fortnightly’s editor, I focused on the regulator’s job (“Creating the Perfect Regulator ,” November 2007) . I proposed that the defining characteristics of the perfect regulator included omniscience, Solomonic wisdom, clairvoyance, and absolute righteousness.
Of course no mortal possesses those characteristics. No regulator can fully comprehend every single nuance shaping the future of electric and gas utility services, much less plan for every eventuality. But in some sense, PUCs in many states are expected to do just that—not alone, of course, but in collaboration with utilities, legislators, and stakeholder groups.
To bring greater clarity to utility planning and development, many states embarked on integrated resource planning (IRP) back in the 1980s. More than half of U.S. states pursued some form of IRP, most in response to two momentous events. First, the energy crisis of the 1970s turned the spotlight on oil as a risky fuel source. And second, the Three Mile Island accident raised safety concerns, and brought the decline of nuclear construction—plus billions of dollars in ratepayer-funded cost overruns. Both events highlighted the risks of over-reliance on any given energy resource, and drove regulators to intervene more directly in utility planning.
Many of these same forces are prompting states to consider whether today’s planning processes are up to the task. Except this time it’s not nuclear and oil raising worries; it’s coal and gas, along with a host of other uncertainties. The industry is, without question, more complicated today than it was in the 1980s—with organized regional markets creating a virtual third layer of grid regulation, sandwiched between FERC’s oversight and the states’ review; and with the crazy quilt of regulation even further complicated by demand-side initiatives and constantly shifting incentives and environmental rules. State regulators understandably might react to federal folderol by updating, refining, and strengthening the planning processes within their domain.
Back to the Future
As a regulatory phenomenon, IRP had its heyday in the 1980s and 1990s. Since then, the states that wanted to intervene in top-level planning either made it part of their general regulatory structure, or they tried it and gave it up for one reason or another.
In Missouri, for example, the Public Service Commission first enacted IRP rules in 1993, but later suspended them, in part because competitive wholesale markets seemed to obviate the need for top-down planning. Instead the commission conferred with utilities to ensure near-term resource adequacy, and left market forces to take care of the rest. In 2009, however, the commission picked up the IRP baton again, when it saw major changes in terms of customer load, demand-side resource capabilities, and environmental mandates. The PSC adopted new IRP rules in 2011 to set minimum standards for utilities’ resource planning processes. (See Missouri code, 4 CSR 240-22 , May 31, 2011) .
Arizona, similarly, put its IRP rules on