Chapter 5 Resource Planning: The Utility Perspective
| Jurisdiction | United States |
Chapter 5 Resource Planning: The Utility Perspective
DANA S. HARDY is an attorney with Hinkle Shanor LLP in Santa Fe, New Mexico, where she is a partner and member of the firm's executive committee. Ms. Hardy's experience includes the representation of investor-owned utilities, energy companies, and multi-national corporations. She has extensive experience representing clients in public utility commission proceedings (rate cases, regulatory approvals, location approvals, rulemaking), district court litigation, appeals, and administrative proceedings. Over her two-decade legal career, Ms. Hardy has successfully practiced before the New Mexico Public Regulation Commission, United States District Court, New Mexico Oil Conservation Division, and all levels of the Courts of New Mexico, including the New Mexico Supreme Court and Court of Appeals. Ms. Hardy has represented clients such as Southwestern Public Service Company and Xcel Energy in both regulatory proceedings and appeals, and in 2017 participated in the successful approval of the largest wind generation facility in the State of New Mexico. Ms. Hardy's peers have recognized her as an AV Preeminent rated attorney via Martindale-Hubbell. She has served as a board member of the Appellate Practice Section of the State Bar of New Mexico and was selected to lead the group as chair in 2018. She is a member of the Rocky Mountain Mineral Law Foundation, State Law Resources, the New Mexico State Bar, and the First Judicial District Bar Association. Ms. Hardy also serves as a mentor for new attorneys through the New Mexico State Bar Association's Bridge the Gap mentoring program. Ms. Hardy obtained her Juris Doctorate, magna cum laude, from the University of New Mexico and while in law school was Editor in Chief of the New Mexico Law Review. Ms. Hardy is a native New Mexican and second-generation Santa Fean. When she isn't in the office, she enjoys hiking and skiing with her family.
ZOE E. LEES Zoë is an in-house attorney for Xcel Energy and is located in Santa Fe, NM. Her practice is focused on utility regulatory law, including resource planning matters. Zoë currently sits on the Program Committee for the Foundation, is a past member of the Foundation's Renewable Energy Task Force, and past Chair of the Foundation's Young Professional Committee.
I. Introduction to Public Utilities
The term "public utility" refers to "a diverse group of businesses that have been subjected over several decades to detailed local, state, and federal regulation of rates and service." Public utilities are regulated monopolies that are governed by a regulatory compact: they are required to provide service and are entitled to earn a fair return on their investment.2
Public utilities can be divided into two major classes: "(1) those enterprises which supply, directly or indirectly, continuous or repeated services through more or less permanent physical connections between the plant of the supplier and the premises of the consumer; and (2) the public transportation agencies."3 This paper discusses resource planning from the public electric utility perspective and when it uses the term "public utility" it refers to public electric utilities.
An integrated public utility generates electricity or buys electricity from others, carries the electricity over its own transmission system (or it may share reliability supervision as a member of a regional transmission organization ("RTO")4 ), and distributes the electricity over its own low-voltage wires to customers.5 This integrated arrangement is founded on the assumption that one business entity can perform each function—generation or purchase of generation, transmission, and distribution—for a lower cost than could many competing companies; in other words, each function is a natural monopoly.6
Utilities are regulated by state public utility commissions ("PUC"), which are delegated that authority by the state's constitution and legislature.7 Utilities are also regulated by the Federal
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Energy Regulatory Commission (FERC) which, among other things, has exclusive authority over wholesale rates, including the allocation of wholesale power.8
The electrical grid is comprised of a network of transmission and distribution infrastructure—i.e., power lines, transformers, etc. The electrical grid provides power to a region and electrical grids that cover large areas are called interconnections. The United States has three major interconnections: the Western Interconnection, the Eastern Interconnection, and Electric Reliability Council of Texas (ERCOT). These interconnections do not share electricity among each other.9
Electricity travels through multiple steps within the electrical grid to reach consumers. First, generators produce electricity through various methods by converting energy such as heat, water, solar, wind or other sources to electricity. Next, transformers step up the voltage of the electricity for long distance transmission, using high voltage transmission lines to lessen the loss of energy. Transmission lines carry the high voltage electricity to substations at a location nearby to consumers. After that, neighborhood transformers step down the voltage of the electrical current levels to required levels for use by homes and businesses. Distribution lines then carry electricity to homes and businesses. Electricity in the grid comes from various types of electricity manufacturers including utility owned power plants, other electrical utilities, power markets, independent power producers, or from the wholesale electricity market.10
II. Resource Planning
When this paper refers to resource planning, it is referring to the process a public utility undergoes to identify generation resources to meet electricity reliability requirements and state and federal requirements at a reasonable cost.11 In executing this process, a utility conducts forecasts of customer electric demand and energy use, and determines the appropriate, diverse generation mix to meet customer requirements reliably and cost-effectively. Generation sources could include thermal generation, renewable resources (including wind and solar), energy storage, demand-side management ("DSM") and load management ("LM"). Developing generation projects—engineering, permitting, obtaining regulatory approvals, and construction—is significantly time intensive; therefore, utility resource planning must be conducted with enough time to develop or purchase new generation resources to meet increasing customer energy requirements.
Most utility-scale resource planning is highly dependent on computer modeling. The authors do not claim to be experts in forecasting, resource modeling, or the computer modeling
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that is necessary for both. On a high level, computer models are used to develop forecasts, load and resource (L&R) tables, and load duration curves for the system. Next, computer modeling is used by a resource planner to study how different resource technologies will integrate with a utility's existing resource fleet to meet the system needs. A range of assumptions are included in the modeling, such as fuel costs, forecasted capacity and energy needs, and existing generation resources. The model will simulate operation of the various combinations of resources with existing generation resources, while tracking all associated and fixed variable costs of the entire system. Modeling is necessary to keep track of calculations on costs, emissions, operational data, and the numerous other metrics for each possible resource portfolio.12
a. Utility Considerations for Resource Planning
Resource planning generally takes the following objectives into consideration:
1. to provide electricity to all customers at all times (within applicable electrical voltage limits);13
2. to keep electric rates low;14 and
3. to comply with state and federal laws.
The first point—to provide electricity to all customers at all times—relates to the safety and reliability of a utility's electrical system. This begins with the utility's analysis of the amount of generation it needs on its system to meet demand—present and future. Keeping the lights on is extremely important, as it impacts the safety and health of customers.15 It is also important for economic reasons, as almost every sector of the modern economy depends on electricity, including food projection, banking, health care, and critical infrastructure.16 In performing this analysis, utilities consider how new generation contributes to the safety and reliability of the electric grid, which includes aging resources that will eventually need to be replaced. Utilities also analyze the cost of bringing new resources onto the system and the ability to recover those costs, and state resource requirements. Lastly, utilities are increasingly analyzing how emergent technologies, such as electric vehicles ("EV") need to be considered when planning for the future.
i. Reliability, Safety, Resilience
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Regulated utilities are responsible for reliable and safe delivery of electric service. Today, regulated electric utilities face numerous challenges to maintaining system integrity: climate change, natural hazards, physical attacks, and cyber threats, among others. Responsible resource planning seriously considers grid reliability,17 security,18 and resilience.19 The utility manages reliability to ensure the electrical grid operates within its limits in order to avoid instability.
There are two typical reliability analyses that a utility may utilize to ensure that it has a comprehensive view of the utility's future resource needs.20 Again, the authors do not claim to be experts in conducting such analysis; however, we will provide a general explanation of the two analyses typically used.
The first analysis focuses on the hour of the one summer day and the one winter day in which the...
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