Monday Study – New Utility Planning Needed For New Energy

Reimagining Resource Planning

Lauren Shwisberg, Katerina Stephan, Mark Dyson, January 2023 (RMI)

Preface

Planning the electricity system has never been more important — or more complex.

Utilities are simultaneously facing unprecedented weather events, retiring aging resources, and considering a wider array of resource and grid improvement options to ensure electricity is reliable and affordable. On top of these factors, utilities and regulators are implementing changes to existing processes to achieve new policy objectives, such as prioritizing energy equity and reducing emissions.

Resource planning is a crucial opportunity for utilities, regulators, and stakeholders to shape the future electricity system. Integrated resource plans (IRPs) typically indicate the direction of the generation mix and help utilities and regulators define strategies to respond to future opportunities and risks.

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In this report, we identify three core qualities IRPs must maintain to help utilities and regulators evaluate resource decisions even in the context of significant change: they must be trusted, comprehensive, and aligned.

To accomplish this, utilities and regulators can look to approaches that have already been tested in IRPs across the country, explored with detailed examples in the report.

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Before making piecemeal changes, regulators and state policymakers have an opportunity to revisit the fundamentals of resource planning. By intentionally and proactively considering the purpose, scope, roles, and tools of planning, utilities and regulators can prioritize the most important changes and even identify new enhancements. In the report, we explore each of the fundamentals in more detail:

Purpose: What are the goals for the electricity system and how should plans be structured and evaluated with respect to those goals?

Scope: What should be included in IRPs, and what should be included in separate, yet coordinated, processes?

Roles: Who should be involved in developing IRPs? Tools: How can we use analytical tools and engagement processes to best support the outcomes of planning?

Ultimately, we hope that utilities and regulators will use this opportunity — when their resource planning processes are being stretched and challenged — to consider how resource planning may need to be adapted, refined, and even reimagined.

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Study at a Glance

Chapter 1 Integrated Resource Planning Purpose and Overview

Resource planning is a crucial opportunity for utilities, regulators, and stakeholders to shape the future electricity system.

Chapter 2 Understanding How States Define Resource Planning Today

The rules and guidelines that define resource planning vary across states and can be updated by regulators and legislators. We review examples of how 12 states address three major questions: which utilities are required to do resource planning, whether and how the plans are reviewed, and how plans affect procurement.

Chapter 3 How to Reimagine Resource Planning

IRPs must maintain three core qualities to be effective tools for utilities and regulators to evaluate resource decisions:

• Trusted — The integrated resource plan (IRP) is transparent and well vetted, with stakeholder input.

• Comprehensive — The IRP can accurately represent the costs, capabilities, system impacts, and values of the resources that might be available within the planning time horizon, and can consider actions across the transmission and distribution systems as portfolio options.

• Aligned — It is clear how the plan evaluates options to meet traditional planning requirements such as reliability, affordability, and safety as well as state and federal policies and customer priorities such as reducing emissions and advancing environmental justice.

To holistically address the challenges facing planning today, regulators have an opportunity to proactively refine the purpose, scope, roles, and tools that support planning.

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Chapters 4, 5, 6 Trusted, Comprehensive, Aligned

Utilities and regulators can look to examples of enhancements across the country that utilities and regulators have tested in IRPs to make sure plans are trusted, comprehensive, and aligned.

Chapter 7 Conclusion

Utilities and regulators should use this opportunity to consider how resource planning may need to be “reimagined.”

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Executive Summary

Opportunity to Improve Resource Planning

In this period of rapid change in the electricity sector, resource planning has never been more important — or more complex.

Planning represents an opportunity to shape a significant fraction of the future electricity system. Between now (2022) and the end of 2025, utilities serving at least 40% of US total electricity sales and over 90 million customers will file integrated resource plans. Current utility resource plans show that utilities plan to invest over $300 billion in new resources over the next 15 years.

Utility integrated resource plans (IRPs) have historically been tools for utilities and regulators to determine the portfolio of generation and demand-side resources that can meet projected peak and energy demand over the next 10 to 30 years at least cost, while mitigating risk and meeting policy objectives. The outputs of the plan are intended to inform a utility’s resource procurement, power purchasing, and program decisions — driving accountability toward a portfolio that results in affordable rates and maintains a safe and reliable grid.

Yet much of the value in resource planning is not in definitively determining the utility’s portfolio 30 years out, but in the exercise of planning. Resource planning presents a crucial opportunity for utilities, regulators, and stakeholders to:

• Understand the energy needs of the households, communities, and businesses a utility serves, as well as how they will change over time, and translate them into system needs

• Establish a common set of assumptions and evidence that can be used to assess which near- and long-term options can meet system needs and achieve desired utility performance across multiple objectives

• Identify longer-term risks and opportunities and strategies to navigate

them

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Challenges of Planning for an Uncertain Future during a Period of Rapid Change

We observe that IRPs must maintain three core qualities to be effective tools for utilities and regulators to evaluate resource decisions, as outlined in Exhibit 1 (next page).

Today, a few major trends are adding urgency and complexity to the IRP process, including but not limited to:

• Rapid technology change and shifting resource costs

• A range of new state and federal policies that expand planning objectives beyond affordability, reliability, and safety to include emissions reductions, advancement of environmental justice, economic development, and support of electrification of transportation, buildings, and industry

• Increasing recognition that decisions made on distribution and transmission systems affect generation resource planning and vice versa

• Increasing stakeholder awareness that resource planning can have an impact on local air quality, health, jobs, energy bills, and climate change

If an IRP does not achieve these three qualities, its credibility, accuracy, and effectiveness may be eroded. The risks of unanticipated costs for ratepayers, disallowed future investments, dissatisfied customers, and failure to meet public policy objectives will increase.

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Expanding Scope for Resource Planning

Updating the IRP process to ensure that it remains trusted, comprehensive, and aligned can make IRPs more complex. As such, making changes around the edges or adding new IRP requirements may no longer be what best serves a utility or regulator — especially with staff time and capacity constraints. To use a metaphor to guide our thinking, the goal is to avoid amassing incremental IRP expectations in a way that is like the straw that breaks the camel’s back (Exhibit 2, next page).

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Overview of Planning Enhancements

After aligning on a set of priority changes, utilities and regulators can look to approaches that have been tested in IRPs across the country that can “enhance” plans to be more trusted, comprehensive, and aligned. These enhancements are summarized in Exhibit 3.

To build trust in resource plans, regulators and utilities are:

• Prioritizing transparency, by updating rules that assess what information may be held as confidential or proprietary — and applying those rules to ensure that stakeholders have the information they need to engage effectively in the IRP process

• Meaningfully engaging stakeholders, with an inclusive and substantive process for input before and during the plan’s development

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To make plans more comprehensive, regulators and utilities are:

• Integrating resource, transmission, and distribution system planning, to better understand how decisions at one level of the grid might affect others

• Using all-source solicitations in the planning process, to bring in timely market data as a basis for making procurement decisions

• Updating assumptions and modeling tools for distributed energy resources (DER) adoption and value, to more accurately forecast DER growth patterns and impacts and assess DER costs and benefits

• Accurately representing emerging resources and their value, by including all options that may be commercially available in the planning horizon and using models with a level of spatial and temporal granularity needed to reveal values

To align resource plans with evolving objectives and understand the impacts of plans on people, regulators and utilities are:

• Updating approaches to planning for reliability, to better understand the risks, vulnerabilities, and types of solutions that can contribute to reliability, including resource adequacy and resilience

• Accounting for carbon emissions and decarbonization targets, to assess progress and alignment toward climate goals or better understand the risk of future climate policy

• Analyzing health and air quality impacts across resource options and portfolios

• Including affordability, jobs, and environmental justice, to make the human impacts of planning clearer

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Reimagining Resource Planning

Ultimately, we hope that utilities and regulators will use this opportunity — when their resource planning processes are being stretched and challenged — to consider how resource planning may need to be more radically reimagined…

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