Utility Planning: Pitch-Perfect Description

A general description of the prudent resource planning process for vertically-integrated electric utilities.

by Nancy Brockway, Principal, NBrockway & Associates

Electric utilities have an obligation to serve the public.  This obligation is generally understood to include the obligation to forecast the electricity needs of the customers in their service area, and plan to obtain sufficient resources to meet those needs.

The first step in the resource planning process is the determination of need.  The first step in determining electricity needs is the preparation of a forecast of the utility’s probable loads and energy requirements, assuming no incremental utility intervention on the demand side.  Next the utility reviews its current portfolio of resources, to determine which existing resources will be available at which times over the planning horizon. 

Once the utility has prepared its initial forecast of loads and resources, it determines the amount and timing of any shortfalls between currently forecast resources and forecast energy and demand requirements.  The utility then develops an array of all reasonable alternatives to meet any shortfalls so identified.  This array includes central station generation using various fuels and technologies (base-load, intermediate and peaking), as well as a variety of forms of dispersed and customer-side generation, and all potential incremental demand-side management impacts.  To be reasonable, the alternatives must enable the utility to meet all its lawful obligations, including environmental and siting constraints, for example.  Alternative scenarios should include consideration of early retirement or replacement of existing generation, capital additions and operations and maintenance improvements to increase efficiency or output of existing generation, as well as investments and expenditures to improve the efficiency of transmission and distribution of power.

Once the need is forecast and reasonable alternatives are identified, the utility prepares a number of alternative scenarios, matching different groupings of potential resources to the forecast needs.  The utility prepares estimates of the net present value of costs of the various scenarios, performs sensitivity analyses of the cost of the scenarios based on reasonable possibilities of changes in any major component of the estimate (such as load forecast or construction cost forecast, e.g.), performs iterations as the analysis suggests might lead to a superior plan, and identifies the package that will meet the resource needs of the service area at the lowest estimated net present value over the planning horizon, at a reasonable level of risk in light of possible contingencies. 

A utility should also engage the public and key stakeholders at all stages of the planning process.  Particularly where a planning process is drawn out and takes place in several stages over several months or even years, it is prudent to obtain input from the public and stakeholders on the various processes and results of different stages.  Such involvement as the process unfolds averts the situation in which the Company completes an extensive planning process and commits to a certain course of action, only to receive input from the public and stakeholders that, if considered earlier in the process, could have led the Company to a superior course of action.