Here Is Why State Regulators Are Rejecting Utility Resource Plans

, Senior Energy Analyst | September 17, 2019, 4:48 pm EDT
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Utility resource plans, which often take the form of “Integrated Resource Plans” (IRP), are a business plan, of sorts, for utilities. It lays out what utilities plan on doing to meet customer’s demands. In California, the process tends to look like this. Outside California, the primary questions being looked at are how much coal will be retired, how quickly it will be retired, and what resources will replace that coal.

Recently, many of those plans have been rebuked or flat out rejected by state regulators. That could be a good thing for customers; after all, when bad utility decisions go unchecked, it is their customers, people like you and me, that end up paying the bill.

Here are (nearly) six examples of when a state utility regulator has rejected a utility resource plan.

# 1: Hawaii

In 2014, the commission rejected the Hawaiian Electric Companies’ IRP for several reasons including:

  • Failure to produce reasonable or meaningful analysis that supports the resources HECO was proposing
  • The use of a model (Strategist) that didn’t produce accurate or credible results
  • The company’s opaque decision-making process
  • Ignoring and dismissing stakeholder comment and
  • Failure to calculate “principle issues,” including the rate and bill impacts of customers

The company’s following two resource plans would go on to fail to get approval (with one being rejected and the other being recognized but not approved.) But elements from the commission order can be found in modern-day IRP rejections.

#2 Virginia

In 2018, Virginia’s utility regulators rejected the IRP of the state’s largest utility, Dominion, pointing out that the company had failed to:

  • Include requirements with recently-passed state law (including offshore wind, a battery storage pilot, and increased spending on efficiency programs)
  • Properly account for a reasonable expectation of load growth

These graphs (which I call “porcupine charts” ) aren’t an uncommon sight in the world of utility resource planning. On the right, Dominion projection for load growth which has remained remarkably similar, with just new starting points. An unidentified western utility on the right, from an LBNL study, follows a similar pattern.

Now, in 2019, the commission acknowledged the re-summited IRP as being “legally sufficient” but pointed out that the approval of the IRP doesn’t translate into approval of future spending plans.

#3 Puerto Rico

PREPA is the state-run utility in Puerto Rico who answers to a commission that rejected the utility plan in 2018. It took the commission 22 pages to enumerate the failures of the PREPA IRP that ranged from material shortcomings to outright errors. Most could be categorized as falling into one of two buckets:

  1. Failure to provide enough numeric support for the plan
  2. Failure to support a transparent and stakeholder-driven process

#4 Arizona

The commission in 2018 pointed to failures by the company to adhere to at least four of the directives set out at the start of the IRP process. Specifically, the companies failed to account for

  • Factors that affect demand include accounting for efficiency
  • Uncertainty and so produce sufficiently flexible plans
  • The best interest of its customers when selecting new resources
  • Opportunities to coordinate with other local utilities.

# 5 Indiana

The commission in Indiana doesn’t accept or reject utility IRPs, which is not unique to Indiana. The Indiana Commission can, however, ‘pre-approve’ utility plans to build specific power plants. This is typically done in a process known as a “certificate of need.” Often the arguments made in those cases are the same as those made in IRPs. Some state commissions have developed a bad reputation for rubber-stamping such requests, but the commission in Indiana rejected a utility’s request to build a gas plant in 2019.

# 6 North Carolina (sorta)

The commission in North Carolina didn’t technically reject Duke’s IRP in 2019 but it did reject some of the underlying assumptions of the IRP, ordering the utilities to improve future IRPs that are expected to be filed every two years. The commission stated that it “does not accept some of the underlying assumptions upon which [Duke’s] IRPs are based, the sufficiency or adequacy of the models employed, or the resource needs identified and scheduled in the IRPs beyond 2020.”

Repercussions

It is worth noting that not all commissions accept/reject utility IRPs. For some, it little more than a pro forma process, while for others it just seems that way. But the rejections listed above indicate changing winds for the utilities.

So, what happens when a commission rejects an IRP?

Well, for one, usually the utility comes back with an improved plan. In every one of the above instances where a utility had its IRP rejected, it came back to the commission with considerably improved analysis. Generally, the utilities were able to find opportunities that translate into consumer savings.

But what about the utility’s financial results? Does a rejected IRP translate into a negative outlook on stock price or credit rating?

Well, to answer this let’s look at HECO’s struggle to get approval for a resource plan…

Forcing the company back to the drawing board made the company think critically about what kind of business they wanted to be running. It pushed the company to focus less on building generation and more on the transmission and distribution system to handle a high renewable grid. It forced HECO to initiate one of the first stakeholder-driven integrated distribution planning processes in the United States and would precipitate discussions of the feasibility of a 100 percent renewable energy and new utility business models.

Oh, and investors responded very favorably. NextEra even tried to buy HECO!

At the end of the day, there is no indication that rejecting an IRP has any material downside for customers or for the utility. Which is not to say that commissions should go around summarily rejecting IRPs. But, when the conditions are right, it can be the smart move. There are tremendous upside potential and little downside risk.

Who’s next?

Union of Concerned Scientists, along with a slew of other groups, recently testified that the Michigan Commission should follow this trend and reject DTE’s IRP, I was even quoted by the media as pointing out that I’ve “seen commissions reject resources plans for less.” It’s true. Let’s compare the complaints leveled at DTE to the reasons why other state commissions have rejected IRPs.

The table shows the reasons state officials cited in rejecting these utilities’ plans.

It is worth noting that most of these shortcomings biased the utilities to develop plans that would force customers to be over-reliant on old coal and/or new gas. Fixing for those errors often produces results that would have these utilities accelerate coal retirements, bypass natural gas, go straight to renewables, efficiency, and storage.

I stand by what I’ve said in my testimony and in the press. The DTE IRP was a doozy and I wouldn’t be surprised at all if it turned out to be the next IRP to get a stamp of rejection. If so, the consumers in Michigan should see lower bills, cleaner air, and a healthier utility company.

 

"Rejected (Trending Twitter Topics from 07.08.2019)" by trendingtopics is licensed under CC BY 2.0
John Wilson (left) and LBNL (right)

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