Vertically integrated utilities have an obligation to serve. In order to meet this obligation, utilities engage in long-term resource planning to ensure they have adequate capacity resources to serve their customers’ peak demand and required reserves throughout the planning period. The result is an Integrated Resource Plan (IRP) that guides the utility as it makes future resource decisions to provide reliable service at a reasonable cost.
The plan provides a snapshot of the future at the current point in time, based on today’s assumptions. It is not a commitment to a specific course of action, as the future is highly uncertain. Rather, the plan is a roadmap that shows the amount, timing, cost and type of potential future resource additions that meet the customers’ future resource needs at a reasonable cost. To develop the plan, the utility systematically evaluates and balances multiple issues, including the increasingly complex existing and pending environmental regulations, technology advancements, changing pricing fundamentals, load growth forecasts, energy efficiency advancements, growth in customer-adopted distributed resources and other complexities.
The output from the process is the integrated resource plan. Typically, IRPs are filed with the state regulatory commission for approval. Commission approval usually means that the plan is reasonable and in the public interest for its intended purpose. Commission approval of an IRP does not approve any particular action regarding new or existing resources, or modifying a utility’s rates. Those actions are completed though separate regulatory filings.
The future is highly uncertain, particularly in light of increasing use of renewable generation, changing environmental laws and regulations and other emergent issues. As a result, the IRP process is becoming increasingly complex and the resulting plans must be flexible and adaptable to changing conditions over time.
One way of dealing with uncertainty is to maintain optionality. Adding diversity to the generating portfolio reduces the risk of the overall portfolio. That may not be the least expensive option in a “base” (or most probable) case, but it minimizes exposure to adverse future events and could reduce the ultimate cost of compliance.