B.C. Hydro Reconsideration Decision Phase II October 17, 1995 1.0 BACKGROUND
On November 24, 1994, the British Columbia Utilities Commission ("Commission", "BCUC") issued its Decision and Order No. G-89-94 on the 1994/1995 Revenue Requirements Application filed by the British Columbia Hydro and Power Authority ("B.C. Hydro", "Utility") on February 11, 1994.
Pursuant to Section 114 of the Utilities Commission Act ("Act"), B.C. Hydro made an application ("Reconsideration Application") dated February 8, 1995 asking the Commission to reconsider certain aspects of its November 24, 1994 Decision. Specifically, B.C. Hydro sought reconsideration of directions in the Decision and in the attached Order related to B.C. Hydro's Integrated Resource Planning ("IRP") processes and filings. In particular, the Utility disagreed with the Commission's interpretation of its jurisdiction with respect to mandating various IRP related requirements from the utilities it regulates. B.C. Hydro also sought reconsideration of directions in the Decision with regard to B.C. Hydro's policy for allocating line and wire work. Finally, the Utility asked that the Commission reconsider the parts of the Decision relating to the calculation of forecast net export revenues and the rate of return on equity.
The Commission elected to follow a two phase reconsideration process. In the first phase, a public hearing was held to determine if any or all of the individual issues in the Reconsideration Application could pass a prima facie test of merit. Issues that passed such a test would then proceed to a second phase for full argument on their merits.
Oral argument on the first phase of the B.C. Hydro Reconsideration Application was heard on April 12, 1995. The Commission then issued its Reconsideration Phase I Decision on May 8, 1995 which concluded that the Commission should review its jurisdiction with respect to IRP (Order No. G-39-95). All other issues in the Reconsideration Application were denied. Oral argument on the merits of the jurisdictional issue were heard on July 27, 1995. This Decision is the Reconsideration Phase II Decision.
2.0 THE EVOLUTION OF INTEGRATED RESOURCE PLANNING WITHIN ENERGY UTILITY REGULATION
The BCUC IRP Guidelines (Appendix C), issued to all regulated utilities in 1993, define IRP as:
"... a utility planning process which requires consideration of all known resources for meeting the demand for a utility's product, including those which focus on traditional supply sources and those which focus on conservation and the management of demand." (BCUC IRP Guidelines, p. 1).
2 IRP first developed in the United States in the early 1980s, where it was originally referred to as least-cost planning. It was motivated by customer and public concerns with rate and public risk impacts associated with utility investments in electricity generation (notably nuclear power) and with the failure of utilities to adequately explore lower cost alternatives, especially those alternatives which encourage energy efficiency investment and behaviour by customers (this latter is referred to as Demand-Side Management or DSM). In this sense, IRP was mainly focused on electricity generation planning in its earlier applications. However, the principles of IRP can be applied to many aspects of utility expenditures. For example, since the early 1990s, IRP methods have been increasingly used for assessing utility choices between expenditures to upgrade the distribution system in a certain area and location-specific energy efficiency measures.
In Canada, IRP was first applied in the early 1990s and its principles are now applied in Europe and elsewhere. Currently, 37 state utilities commissions in the United States and three provincial utilities commissions in Canada (Ontario, Nova Scotia, and British Columbia) require utilities they regulate to conduct IRP in some form.
One possible approach to utility regulation could be to await a utility's application for recovery of expenditures in rates before making any determination, even preliminary, of prudency. The utility management might make a capital investment decision (e.g., a nuclear plant or large hydroelectric dam) and then commence expenditures without input from its utilities commission. Upon completion of the project, the utilities commission would then be asked to adjust rates to ensure that sufficient revenue is collected from customers to cover the full expenditure including accumulated interest charges. If the utilities commission deemed such an expenditure to have been imprudent, it could refuse the recovery through rates.
This approach has been widely rejected by utilities commissions in North America in the exercise of their general supervisory and ratemaking responsibilities. First, with large expenditures, disallowance after the fact may be disastrous for shareholders and customers alike. Hindsight disallowance could bankrupt the utility while customers would still need to get their electricity from somewhere, alternative investments not having been made. Second, utilities commissions cannot fairly judge the prudency of an expenditure decision without knowledge of the information available to utility management at the time it took the decision. Hindsight disallowance could be unfair to the utility's shareholders if the decision was the best possible at the time, even if it proved to be sub-optimal after-the-fact.
Therefore, utilities commissions generally develop various mechanisms to provide guidance in advance to utility management of the kinds of planning and decision-making methods that seem to be most sound. IRP guidelines are such a mechanism. The IRP Guidelines do not usurp the utility management decision-
3 making responsibility, but they do provide an advance indication of the approach that the utilities commission is likely to apply when assessing the prudency of utility expenditures.
This link between IRP and determining the prudency of utility rates is emphasized in the Commission's B.C. Hydro Decision of November 24, 1994:
"Capital expenditures by B.C. Hydro on new generation, transmission and distribution plant are recovered in the rates of customers over many years, following the completion of the capital projects. Other capital initiatives, such as new facilities and durable investments like new information technology, are capitalized and recovered in rates over the expected useful life of the investment. So, also, the investments in Demand-Side Management initiatives are recovered over varying time frames reflecting the useful life of the investment. New capital projects underway in the year of a particular revenue requirement review will typically not show their impact on customer rates until project completion in a subsequent year. However, the carrying charges on investments make up a large portion of the costs that customers must pay for. The 1994/95 Plan shows the Finance, Depreciation and Amortization expense is $977 million, 45 percent of the existing revenue (Exhibit 1, p. I-7-D4). The Commission must, therefore, pay special attention to the investment plans of the Utility. Integrated Resource Plans which recognize the total cost of alternative investments in new energy supply and conservation alternatives are the critical components which will translate into investments on behalf of customers. The IRP is the driving force behind the establishment of a utility action plan approved by senior management. The capital spending budgets flow out of that action plan and show themselves in customer rates following completion of the project, as depicted in Figure 3.6.1.
IRP Action Capital Plan Plan Rates Figure 3.6.1 Relationship of IRP to Customer Rates" (November 24, 1994 Decision, p. 21).
In the IRP process, many utilities commissions have examined not just direct customer impacts of utility expenditure decisions, but also broader social impacts that may affect all members of the public including those who are not direct customers of the utility. In the case of a specific electric utility, non-customers may include members of the public who do not use electricity, who generate their own electricity, or who are customers of another electric utility. To assess these broader impacts, utilities commissions have generally required public input at some point in the utility IRP development process or in a public hearing or in both.
4 Consideration of the broader public impacts of utility expenditures is an everyday component of utility regulation.1 There are many examples, five of which are presented here. (1) Utilities fund research and development by non-utility agencies and institutions. Some of the ultimate beneficiaries of this research may not be customers of the utility, although the costs are recovered from the rates paid by utility customers. (2) Utilities make charitable donations which utilities commissions are asked to allow them to recover in the rates paid by utility customers. These charitable donations may benefit non-customer individuals and groups. (3) Utilities regularly make environmental mitigation expenditures that exceed those required by environmental regulators. Again, these are generally paid for by all customers even though the mitigation measures may benefit or reduce costs to customers and non-customers alike. (4) Utilities modify the operation of their facilities (e.g., voluntary adjustments to reservoir levels for recreational use) in order to reduce social impacts on both customers and non-customers. These modifications can have rate implications for customers. (5) Utilities provide electric line under-grounding subsidies for aesthetic purposes. The aesthetic benefit is realized by any passing viewers including non-customers.
The authority for the utility regulator to allow expenditures that benefit or reduce impacts (or risk of impacts) to non-utility customers is found in the language of most utilities commission acts. However, it is important to recognize that a utilities commission's consideration of the broader public impacts of utility expenditures and actions should be done with restraint so as not to overlap significantly with the responsibilities of other regulatory entities. For example, in requiring a utility to incur extra costs to mitigate environmental impacts, the utility regulator must be confident that such costs are consistent with the policy objectives of environmental regulators.
3.0 B.C. HYDRO'S RECONSIDERATION APPLICATION In its February 8, 1995 Reconsideration Application, B.C. Hydro initially alleged the following three errors by the Commission relating to the Commission's jurisdiction with respect to requiring IRP by all utilities under its regulatory authority:
• taken as a whole, the November 24, 1994 Decision represents an extension of Commission regulation into areas over which the Commission has been given no jurisdiction by the legislature; ______________________________ 1. 'Public impacts' here refers to impacts of a social or environmental nature on the public at large, regardless of whether or not the members of the public are customers or non-customers. The term 'social costs' is frequently used as a synonym.
5 • the associated Order and directions in the Decision made by the Commission were made in the absence of any express or implied statutory authority; and
• the Commission exceeded its jurisdiction by having reference to irrelevant or legally improper considerations (namely the Environmental Assessment Act which was not proclaimed until June 30, 1995).1
In his July 27, 1995 oral argument, B.C. Hydro's counsel chose not to add to the earlier written submission in B.C. Hydro's Reconsideration Application with respect to the third allegation. B.C. Hydro's counsel also chose to merge the first two allegations and treat them as one "... because the overall objectives of the Utilities Commission Act are key to both aspects of the argument." (T. 10).2 Thus, B.C. Hydro's oral argument on July 27, 1995 focused essentially on one issue, the Commission's jurisdiction over all regulated utilities with respect to IRP.3
In reviewing the submissions and transcripts, the Commission identifies three major points advanced by B.C. Hydro in support of its position.
Point 1. IRP is resource planning, which is under the government's jurisdiction for project approval in Part 2 of the Act, not under the Commission's ratemaking jurisdiction in Part 3 of the Act.
Point 2. IRP includes consideration of non-customer impacts of utility actions and this is not part of the Commission's jurisdiction under the Act.
Point 3. B.C. Hydro acknowledges the Commission's right to issue IRP Guidelines but not to treat them as mandatory regulations with sanctions for failure to comply.
These three major points are presented sequentially below and again in Chapter 4 (Intervenors' Positions) and Chapter 5 (Commission Assessment).
______________________________ 1. The proclamation of the Environmental Assessment Act, and the repeal of Sections 17 to 21 and 51(7) and 51(8) of the Utilities Commission Act, occurred prior to the writing of this Reconsideration Phase II Decision but after the presentation of evidence and argument. In this Decision, for consistency with the arguments, the Commission generally refers to these now repealed sections of the Act in the present tense, as if they still existed. Appendix D details the legislative amendments to the Act. 2. In this Decision, all references to transcript pages (T.) are to the transcript of the oral hearing of July 27, 1995. 3. B.C. Hydro did not allege that the Commission's jurisdiction with respect to B.C. Hydro, in this particular regard, was different than its jurisdiction with respect to other regulated utilities, so the Reconsideration Application refers universally to the Commission's jurisdiction with respect to this issue.
6 1. IRP is resource planning, which is under the government's jurisdiction for project approval in Part 2 of the Act, not under the Commission's ratemaking jurisdiction in Part 3 of the Act.
Counsel for B.C. Hydro argued that, because the Commission's jurisdiction to require IRP is not expressly stated in the Utilities Commission Act, any Commission mandate with respect to IRP, if it exists, can only be inferred from the general powers given to the Commission by the Act. After reviewing some of these powers, B.C. Hydro's counsel stated:
"... I think it is fair to say that the absence of express language relating to IRP or indeed the resource planning function more generally, where express language has been used to confer jurisdiction over other aspects of the utility's business, makes an inferred authority less plausible than it might be in an act which was general in all respects." (T. 12).
According to B.C. Hydro, the distinction between the project approval responsibilities of government under Part 2 of the Act and the ratemaking responsibilities of the Commission under Part 3 of the Act is evidence of the legislature's intent with respect to resource planning. Sections 17 to 21 of Part 2 of the Act provide the government with the authority to award Energy Project Certificates for regulated projects as determined by the government in the Energy Project Review Process. B.C. Hydro concludes from this that the intent of the Act is that the Commission does not have jurisdiction with respect to resource planning.
"... the Commission has the responsibility for traditional rate regulation, including responsibility over [B.C. Hydro's] rate design. On the other hand, the energy planning function is removed from the Commission and vested in the Minister of Energy." (B.C. Hydro Reconsideration Application, p. 5).
Sections 51(7) and 51(8) of Part 3 of the Act state that, when the government awards an Energy Project Certificate or an Energy Operation Certificate, the BCUC is deemed to have awarded a Certificate of Public Convenience and Necessity. According to B.C. Hydro, these sub-sections of the Act make it clear that any Commission authority contained elsewhere in Part 3 (i.e., Section 51), over the construction and operation of public utility plant or system, is superseded by the project approval authority of the Minister and Cabinet in Part 2 of the Act.
"... the issue ... is resolved expressly in the Act, and it's resolved in favour of the scheme in Part 2, saying no, whether or not the Commission considers it appropriate to exercise its jurisdiction to issue a Certificate of Public Convenience and Necessity will not be brought into play when the Minister has determined that an Energy Project Certificate ought to be issued. Thus the only jurisdiction the Commission has over the construction or operation of regulated projects is by specific delegation to it from the Minister." (T. 18).
In the Energy Project Review Process under Part 2 of the Act, the government may consider or require information on anything, including a resource planning review of alternatives to a given project.
7 According to B.C. Hydro, this potential authority in the Energy Project Review Process confirms an interpretation of the Act in which jurisdiction over resource planning resides with government and not the Commission. As further evidence, B.C. Hydro referred to the Guide to Energy Project Review Process which:
"... contains specific guidance on the public consultation aspect of the resource planning process. ... They [the Ministry of Energy, Mines and Petroleum Resources] have authority; they've exercised it; the field is occupied; and whatever the Commission is doing it's doing it in a field where there exists a separate regulatory scheme under Part 2." (T. 28).
Under Part 2 of the Act, the government can also deem anything to be a regulated project, not just projects that satisfy the 'regulated project' definition in the Energy Project Review Process. According to B.C. Hydro, this could include Demand-Side Management and virtually any other resources not satisfying the regulated project definition under the Act. As evidence, Counsel for B.C. Hydro noted two government Orders in Council, issued under Section 16(2) of the Act, which deemed very different entities as regulated projects. These are the Power Exchange Operation and the Non-Treaty Storage Agreement with Bonneville Power Administration (T. 29).
Finally, B.C. Hydro's counsel argued that the distinction between Part 2 and Part 3 in the Act is especially important because the Commission's concerns in the November 1994 Decision were focused on resource planning, a Part 2 issue, not with ratemaking, a Part 3 issue. B.C. Hydro contended that, if the BCUC does not have express authority for resource planning in the Act, it cannot use its ratemaking authority as a way of extending its jurisdiction into the resource planning domain. Here, B.C. Hydro relied upon the decision of the Manitoba Court of Appeal, Public Utilities Board (Manitoba) v. Manitoba Hydro et al. (1989), 61 Man.R (2d) 164 (Man. C.A.), with respect to the jurisdiction of the Manitoba Public Utilities Board over resource planning by Manitoba Hydro (T. 43).
"... it was argued before that court that because capital plans can't be ignored in any workable system of rate review, it was necessary to infer that power to the Board. That contention was soundly rejected by the Court of Appeal, ... Now I hasten to say here that ... here [in B.C.] the legislation isn't silent. It confers many of these powers on another body [the government], so the situation in B.C. is perhaps more extreme than it was in Manitoba." (T. 55).
2. IRP includes consideration of non-customer impacts of utility actions and this is not part of the Commission's jurisdiction under the Act.
According to B.C. Hydro, the BCUC's definition of IRP includes a consideration of impacts of utility actions on the public at large (which may include non-customers of B.C. Hydro) and, as a consequence,
8 calls for an assessment of public impacts and a degree of public involvement in utility planning which exceeds the Commission's ratemaking authority under the Act.
"... if you read Part 3 as a whole you can find and explain all of its provisions in the context of that general thrust, that is, the thrust to control what I call the interface between customer and utility. It's designed to ensure that customers get the services that they need and that they want, and done in a safe and proper way with acceptable quality of service as determined by the Commission, and at a rate which is fair to both the customer and to the public utility. You cannot read into the general regulatory powers of the Commission an authority unrelated to that basic thrust or purpose, ..." (T. 36).
"... [the Commission's Decision] wasn't limited to the impact on ratepayers. It was clearly focused on: Are we minimizing the impacts of these projects on society generally; are these the ones that have the least cost; and all the kinds of things that go into integrated resource planning, which by definition is to consider all of these diverse interests, interests much broader than simply the narrow interests of the ratepayer. ... The clear focus of that order was to, one, ensure that Hydro's planning process properly accounted for social costs and other things which might not be considered too important to Hydro management but might be considered important to others, put bluntly; and second, that the public was fully involved in that process, properly consulted, and that the review or the planning process was informed in a way the Commission thought proper, with public views. And it's those aspects of what the Commission's order did which I say make it clear that it wasn't really ratemaking which was the focus of that decision." (T. 163).
B.C. Hydro's counsel acknowledged that Section 51 gives the Commission some role in determining public convenience and necessity but in his view this extends only to the limited role of protecting the utility's customers, not to the broader context of protecting the interests of all members of the public. In stating this position, he relied on comments made about the interpretation of the Commission's authority and the term 'public convenience and necessity', as found in the British Columbia Court of Appeal decision on British Columbia Hydro and Power Authority v. BC Gas Utility Ltd. et al. (unreported) May 31, 1995 Vancouver Registry No. CA017981 (B.C.C.A.); in the Supreme Court of Canada decision in Memorial Gardens Association (Canada) Limited v. Colwood Cemetery Company et al., (1958) S.C.R. 353; and in the British Columbia Court of Appeal decision in Crestbrook Pulp and Paper Ltd. v. Columbia Natural Gas Limited, (1978) 5 W.W.R. 1 (B.C.C.A.); 87 D.L.R. (3d) 248 (B.C.C.A.) (T. 33-40).
"What I say that Crestbrook stands for is the proposition ... that you have to look at the Act as a whole, and you have to find in there general authority over the subject matter in which you intend to make orders, and that if you do that in the context of resource planning as a whole, specific projects in particular, public consultation with respect to resource planning, you'll not find that general regulatory grant of jurisdiction that the court in Crestbrook says is necessary to [serve as] the basis for proper orders." (T. 40).
9 3. B.C. Hydro acknowledges the Commission's right to issue IRP Guidelines but not to treat them as mandatory regulations with sanctions for failure to comply.
Finally, B.C. Hydro claimed that none of its argument about the Commission's lack of IRP jurisdiction negated the right of the Commission to issue IRP Guidelines, but that the Commission erred when in the B.C. Hydro Decision it imposed sanctions and threatened further sanctions for failure to comply with the Guidelines. For this, B.C. Hydro counsel relied on the decisions of the Ontario Court of Appeal in Ainsley Financial Corporation v. Ontario Securities Commission (1994), 21 O.R. (3d) 104 (C.A.) and the Supreme Court of Canada in Pezim v. British Columbia (Superintendent of Brokers), (1994) 2 S.C.R. 557, 114 D.L.R. (4th) 385.
"Now, in my respectful submission [these two court decisions are] exactly analogous to what happened in the context of the IRP pronouncements of this Commission. The IRP Guidelines, so long as they are simply guidelines not backed by sanction and not attempting to be imposed mandatorily, didn't offend the principle laid down by the Ontario Court of Appeal. But when the line was crossed to make those mandatory and compulsive, as was achieved with the November 24th decision and the Order attached to it, then those guidelines effectively became laws and they cannot be made except with express statutory authority, which I have sought to demonstrate earlier this morning is lacking in this case." (T. 63).
4.0 INTERVENORS' POSITIONS Interventions in the oral hearing of July 27, 1995 were presented by counsel for (listed in order of appearance) the British Columbia Energy Coalition ("BCEC"), the Consumers Association of Canada, B.C. Branch et al. ("CAC(B.C.) et al."), and a broad coalition of B.C. forestry, mining and chemical industry customers ("Industrial Customers"). The major arguments of these intervenors are presented below, following the same three major points identified from B.C. Hydro's Reconsideration Application and oral argument.
1. B.C. Hydro erred in claiming that, because Part 2 of the Act provides the government with authority in utility energy project approval, the Commission has no jurisdiction with respect to utility resource planning in general and IRP in particular.
Counsel for the BCEC argued that the IRP requirement is a mechanism for the Commission to obtain information about how the utility plans its expenditures, especially its major capital expenditures, and the authority for this comes from both the general supervision and the ratemaking sections of the Act.
"... B.C. Hydro has argued that the IRP Guidelines have no basis in the Utilities Commission Act because the Commission has no planning authority under the former
10 Part 2 of the Act dealing with project reviews. ... this preoccupation with the Commission's planning powers under Part 2 is irrelevant to the Commission's jurisdiction over IRP. The B.C. Hydro argument assumes that the Commission is making decisions, decisions about what the utility can or cannot build, when it approves an IRP, and this assumption is completely wrong. The utility can go ahead and build whatever it wants. ... The use that the Commission makes of an IRP is not determinative of whether that project can be built or not, or whether the utility can proceed with that project or not. Now, B.C. Hydro concedes that the Commission has the authority to disallow a project from rate base after it is built, and I submit that it is ludicrous to suggest that, as a matter of sound administrative practice, the Commission is not able to establish guidelines for gathering information for the purpose of providing the parties with advance notice of the questions that may arise later with respect to various courses of action open to it." (T. 76).
"... the statutory basis for the Commission's IRP Guidelines, and specifically as they relate to the November 24, 1994 decision, may be found in its powers of general supervision under Section 28 and 29, and the ratemaking power provisions, roughly Section 64 to 67." (T. 77). "So you don't have to simply wait until a hearing is upon you to start asking for very complex information that you know you're going to need. You can ask for it in advance in the interests of administrative efficiency and as a way of letting the utilities know in advance what is expected of them." (T. 79). "... the B.C. Hydro argument seems to assume that the IRP process is an end in itself when in fact it is a means to an end. The utility is not bound to execute the action plan in its IRP. The IRP is a tool that provides the Commission with the information it needs to ask the right questions about the decisions that the utility makes." (T. 80). Counsel for the Industrial Customers concurred with this position, arguing that B.C. Hydro is incorrect in claiming that the Commission's application of IRP implies taking over B.C. Hydro's resource planning responsibility. "I just want to make clear that by reviewing the resource planning, the Commission is not managing B.C. Hydro, which I take to be the underlying objection here. You're giving guidance to B.C. Hydro on how you will exercise your powers over resource additions. B.C. Hydro is still free to choose the path it wishes to follow. You are simply telling them, when you're making your decision on choosing the path, these are the elements we would like you to include. The management and the choice is still theirs." (T. 138). Counsel for the CAC(B.C.) et al. also concurred with this position, focusing especially on the general supervision responsibilities of Section 28 of the Act. "I would suggest that in order to fulfill the responsibility for the general supervision of utilities it's quite reasonable for the Commission to require that they prepare IRPs. The contrary view as put forward [by B.C. Hydro], it seems to me, suggests that general supervision must not mean certain things. It must not mean thinking about how the utility will meet future demand, ... In fact, if B.C. Hydro was planning to meet its entire future demand by something as speculative as say cold fusion or microwave transmission from satellites, I suppose that according to B.C. Hydro's argument in this case the Commission should just close its eyes and say, 'Fine, we're not going to look at that. We're not going to be concerned about what B.C. Hydro will be doing tomorrow or next year or the year
11 after or five years from now, we're just going to be concerned with what B.C. Hydro did yesterday and last year.' Well, I would suggest that would not be the Commission discharging this duty of general supervision of utilities set out in Section 28(1), ..." (T. 103).
"... in sum then, Section 28, I would submit, provides lots of authority for the Commission to be doing exactly what it's doing [with] integrated resource planning. Just on those plain words of Section 28, one doesn't really have to look much further to see that the Commission can order what it has been ordering in this case. ... But there are other provisions of the Utilities Commission Act that are also relevant, I would suggest. Section 31(a): ... [gives the Commission the authority to fix] standards, rules, practices that the Commission wants B.C. Hydro to use in integrated resource planning. Section 29 of the Utilities Commission Act imposes a positive duty upon you, upon the Commission, to inform itself about the operations of public utilities, including B.C. Hydro. ... The means by which the Commission can fulfill its obligation to inform itself about this topic is by integrated resource planning. Asking [B.C. Hydro] to give you information in a certain manner, it seems, is entirely consistent with this." (T. 109).
Counsel for the Industrial Customers added that the absence of a specific reference to IRP in the Act is not important given the general powers of the Commission and the fact that the Commission must have some discretion to determine the means by which it carries out its powers.
"There's lots of instances in the Act where there is general authority given to the Commission, then there's broad discretion left with the Commission to interpret that authority in a way that allows the carrying out of the Act to be done appropriately." (T. 131).
"We also have to keep in mind, I would suggest, that resource addition and planning associated with it is fundamental to an electric utility's operation. If the Commission is to have general supervision over an electrical utility, it would seem to follow that some sort of supervision over that aspect of the utility's operations and activities would necessarily follow." (T. 133).
Counsel for the CAC(B.C.) et al. also argued, and provided supporting evidence, that the Commission's IRP requirement of all utilities it regulates is not unique but rather an increasingly accepted practice for North American utilities commissions in conducting their general supervision and ratemaking responsibilities. This was supported with an affidavit showing that three Canadian jurisdictions and 37 United States jurisdictions currently require IRP (Exhibit 1).
"The majority of jurisdictions in Canada and the United States require integrated resource planning. I would suggest that that does mean that it is in accord with established principles of utility regulation." (T. 114).
12 Counsel for the CAC(B.C.) et al. rejected B.C. Hydro's interpretation of the Part 2 versus Part 3 distinction in the Act, arguing that the courts generally prefer to focus on the plain words in the statutes if they are unambiguous, as is the case with respect to the Commission's powers under Part 3 of the Act.
"So my point here is that since the wording of Section 28 and the other provisions of the Utilities Commission Act is not unclear, it would be wrong to enter into the type of analysis suggested by B.C. Hydro, that analysis about what Part 2 means and what Part 3 means. Instead, the Commission should rely upon the plain words of the statutes. But here is something I've wrestled with a bit. It seems to me that even if the Commission did undertake such an analysis as suggested by B.C. Hydro, it's simply impossible to arrive at the conclusions that B.C. Hydro has put forth, because Part 2 of the Act contemplates an approval process for the construction and operation of certain kinds of individual projects, if one were building a hydroelectric dam or a big new gas generating plant. Whereas integrated resource planning, on the other hand, if it considers such projects at all, considers them merely as possible elements within the utility's overall system. And in fact I pointed out that the possibility of [Demand-Side Management] projects and small generation units could theoretically, although probably not in practice, actually exclude the sort of projects considered by Part 2 altogether. There is no conflict between the different parts of the Act here. There is division of responsibilities which is entirely consistent with Commission authority for integrated resource planning. ... It's just completely illogical to think that because the Commission does not have the authority to do a detailed assessment of the proposed construction of an energy project that it cannot consider how different resource options would fit into the overall operation of the utility." (T. 118).
Counsel for the Industrial Customers concurred with this assessment. "Under Part 2 the Minister has very broad power, but that is in the context of a specific application for a regulated project. In fact, the Minister's authority is only triggered by the filing of an application. It says 'upon receipt of an application'. So the Minister, in looking at a specific regulated project, then would have authority to dispose of it in a number of ways which are set out in the legislation. And that's quite broad. The Minister can [exempt] it from the rest of the application of the Act; it can approve the project; or it can refer to the Commission with specific terms of reference. When you look at resource planning, however, the issues associated with resource planning and IRP can be quite broad and would go beyond the scope of a specific energy project. I'm thinking in particular of resource acquisitions by way of a rate design proposal or by way of demand-side management. Those types of issues are not applications for a specific project. Rather they are other plans and strategies that the utility can put in place to acquire resources or forgo or forestall the need to build a specific project. The Minister, acting under Part 2, would not be looking at those types of projects. Nor would they be looking at the integrated resource planning process itself." (T. 134).
13 2. IRP includes consideration of non-customer impacts from utility actions, which is part of the Commission's mandate.
Counsel for the Industrial Customers submitted that the responsibility of the Commission is not limited to the interface between the utility and its customers, but also to the relationship of the utility to the public at large.
"[B.C. Hydro's counsel] then went on to sum up that the jurisdiction of the Commission is limited to the control of the interface between the utilities and its customers. As I considered the implications of that, I was flipping through various sections of the Act, and it seemed to me that the Commission often gets into situations where it is considering the effect that the utilities would have on other than its customers first of all, and more than just its potential customers as well. Under Section 28, matters of public safety, for instance, would clearly go beyond the customers and its utility. Section 37, 38 talks about the use of public ways, and the Commission can specify terms of the use. ... Again, that would affect more than just the utility's customers. Similarly, under Section 86 the right to complain is not limited to the customers. ... Finally, under Section 51(5) and (6), the legislature has chosen very broad words here as well. In deciding under (5) whether the Commission should approve a privilege, concession, or franchise, you have to take into account matters that are necessary for the public convenience and properly conserves the public interest. A public interest is very broad there, and it would have been quite easy for the legislature to limit that to customers by the use of the word 'customers'." (T. 139).
Counsel for the CAC(B.C.) et al. again emphasized that the Commission should look no further than the language of Section 28(2) in assessing B.C. Hydro's argument that the Commission only has the authority to consider B.C. Hydro's relationship to customers and not its impact on the public at large. He noted that the section requires the Commission to ensure that the utility 'conducts its operations in a way that does not interfere with or cause unnecessary damage or inconvenience to the public'.
"... many of the choices that are made by a utility can cause damage or inconvenience to the public, and sadly the history of electrical generation in British Columbia has involved many such situations, some of which, if we were making the decisions now, perhaps we would make them differently; people displaced from their homes, valuable resources lost. The Commission has to think about these things. It's the Commission's responsibility under the Act." (T. 108).
Counsel for the BCEC argued that B.C. Hydro's challenge to the directions in the November 24, 1994 Decision respecting public involvement is without foundation because the Commission has clear authority to require public involvement in order to determine social and environmental impacts as well as the authority to involve the public generally in its regulatory process.
"I will note that the Commission does have jurisdiction to require public consultation under IRP in two respects; first, public consultation provides information regarding public acceptability of projects, regulatory risk, and appropriate social trade-offs, especially those related to social and environmental externalities, that would not be provided if the utility merely provided its own opinion on these issues itself in an IRP; so that public consultation
14 is relevant to the exercise of the Commission's powers under Section 28. Secondly, the requirement to consult through a consultative committee may also be seen as an exercise of the Commission's authority to determine its own hearing procedures. Now, it is stated in the IRP Guidelines that one purpose of IRP is to develop consensus and reduce the level of conflict so that hearings are made more efficient and cost-effective. And in this sense the consultative committee component of IRP is a part of the hearing process, in the same manner that so many other tribunals are instituting alternative dispute resolution mechanisms to assist the efficiency of its hearing processes." (T. 84).
3. The Commission has the authority to issue both guidelines and regulations and has the power to ensure compliance with either, and this power is also applicable to IRP.
Counsel for the BCEC argued that it is immaterial whether the Commission's IRP Guidelines are interpreted as a policy statement or guidelines or regulations because the Commission has the authority to issue all of these.
"... I refer you to Section 28(2) of the Utilities Commission Act, which gives the Commission the authority to make regulations in relation to its general supervision of public utilities. And in my opinion the Commission satisfied any requirements that could have been implied for the issuance of a regulation under Section 28(2) when it issued a draft guideline to all of the public utilities giving them notice of its intention to issue IRP guidelines by soliciting comments, by holding a public workshop, and then by giving the public utilities an opportunity to file written briefs, in that sense holding a hearing by way of written argument." (T. 70).
Counsel for the BCEC argued further that, even if the IRP Guidelines are only interpreted as a guideline or policy statement and not as a regulation, the Commission must have some implied authority to motivate the utilities it regulates to take its guidelines into account.
"... the implication of [B.C. Hydro's] argument is that a commission can issue guidelines, but then it's completely helpless to do anything to encourage compliance with them and I don't think that that is what the court is saying in Ainsley Financial Corporation, ... " (T. 74).
"The IRP Guidelines are intentionally general in nature for the purpose of allowing the utilities flexibility in deciding how they are going to achieve the spirit of the guidelines in terms of the information that the Commission needs, ... And the Commission's approach has been consistent with this notion of flexibility. In my experience before the Commission dealing with these IRPs, the Commission provides guidance and direction to the utilities on the way that they have prepared their IRPs and offers guidance and direction of how they might be improved in the future. It doesn't make final decisions about the plans themselves. The situation that arose with B.C. Hydro is that it simply refused to recognize the guidelines at all, and I think it would be ludicrous to suggest that a Commission has no authority to compel compliance with guidelines at all in the face of that kind of non-compliance. Otherwise the guidelines would be completely useless as a regulatory tool. What would be the purpose? Everybody would just completely ignore them." (T. 90).
15 "In this case, in the December 7th [1993] Decision, the Commission had given advice to B.C. Hydro about what it purported to be an IRP, and it just completely ignored everything that the Commission said. Now, if B.C. Hydro had come in and explained what it did and why it did it, Hydro probably would have gotten a different reaction. If they had said, 'We didn't do a MATA process, we did this instead and we think it achieves the same purpose and here is why,' or 'We didn't establish a collaborative committee but we did this and we think --'. I mean it's that kind of interaction that the guidelines are intended to institute. But Hydro did nothing, and I think in that instance that the Commission does have the authority to take action." (T. 91).
Counsel for the CAC(B.C.) et al. concurred, stating that, because the Act gives the Commission the authority to issue regulations, there is no issue with respect to the Commission's authority to require compliance with its IRP Guidelines.
"The Commission may make regulations: And again, just pointing out that in another statute in this case, the Interpretation Act, which is tab 10 of my book of authorities, the orders of the Commission are regulations as defined in the Interpretation Act." (T. 107).
Counsel for the CAC(B.C.) et al. also argued that there is a significant difference between the Ainsley Financial Corporation supra case and this case.
"The Ainsley case, I submit, is quite different to the situation in this case, ... the interpretation I would put forward is that in that case the [Ontario Securities] Commission seemed to be telling the sellers of the penny stocks how very specifically they should conduct themselves in the wider world, how they should go about their business, their dealings with the public and so on. I would suggest that in this case, with integrated resource planning, the [B.C. Utilities] Commission is dealing with something different. It's dealing with the nexus between itself and the utility. It's dealing with the information that the utility has to bring back to the Commission in order for the Commission to be able to regulate the utility. That seems very different from the Ainsley case." (T. 125).
The Industrial Customers argued in their written submission that the directions from the Commission to B.C. Hydro were exceptional but were required because B.C. Hydro had deliberately ignored the Commission.
"The guidelines are just that, 'guidelines', intended to assist the utilities in their planning process, not to micromanage them. The specific orders complained of by B.C. Hydro in this matter, the particulars of which will be discussed later, do not amount to micromanagement but were necessary steps which had to be taken by the Commission due to serious deficiencies in B.C. Hydro's planning process and willful disregard of previous Commission directions and orders. If B.C. Hydro feels it is being criticized and told what to do in ways that are too specific to be comfortable, it has no one to blame but itself." (Phase I Submission, p. 3).
16 As a reminder of the situation facing the Commission in the 1994 hearing, the Industrial Customers, in their written submission, quoted from their final argument at the original hearing leading up to the November 24, 1994 Decision.
"It is in public participation that B.C. Hydro's ignoring of the Commission and stalling on the implementation of an IRP is most readily apparent. The Commission was very clear and, in spite of arguments to the contrary, unambiguous. B.C. Hydro was to achieve the Commission's goal of public participation and to report on what it had done ... so far by June 30, 1994. B.C. Hydro did not even come close. Some time after August 31, 1994, B.C. Hydro filed a document entitled 'B.C. Hydro's Integrated Resource Planning - Public Participation Program (IRP 4) Scoping Document'. This document, which consists of 15 pages including two appendices, is an insult to the Commission and to the participants. This document, we submit, could have been drafted by anybody knowledgeable in public participation processes in a matter of days and B.C. Hydro has a large number of such individuals on the payroll. Attached to the IRP 4 document is a program schedule which would not have public consultation commencing until April of 1995, more than two years after the Commission issued its directive with respect to IRPs and fifteen months after the Commission issued its order requiring stakeholder input have been achieved, not commenced. If this schedule is adhered to, the results of the public consultations will not be available until the Spring of 1996, at which time it will be too late to incorporate them in the 1996 IRP. This leaves us waiting until 1997, or possibly even later, to see B.C. Hydro's first IRP with public participation impact. B.C. Hydro suggested the development of the IRP 4 document involved 2100 hours work, the equivalent of one person year of work with overtime. ... If this is true, something is very wrong at B.C. Hydro. If this is representative of B.C. Hydro productivity, then we suggest the Commission should have little fear of making very severe cuts to B.C. Hydro's budget. We suggest the reality is that B.C. Hydro did not take the Commission's order seriously originally and in IRP 4 is still not taking it seriously. That is not satisfactory to the industrial customers and we hope it is not satisfactory to the Commission." (Phase I Submission, p. 8).
5.0 COMMISSION ASSESSMENT This section is organized to respond to the same three major points identified earlier from the submissions and arguments of B.C. Hydro and the intervenors. A fourth point responds to the original B.C. Hydro argument that the Commission's Decision was based on the Environmental Assessment Act, which was not proclaimed at the time of the November 24, 1994 Decision.
1. The Commission's jurisdiction with respect to requiring IRP from the utilities it regulates.
In Chapter 2 of this Decision the Commission defined briefly its understanding of IRP. The arguments of B.C. Hydro and the counter arguments of the intervenors suggest that there is disagreement on the relationship
17 between several critical terms. The Commission presents here its views on the relationship between the terms 'project review and approval', 'resource planning', 'integrated resource planning', and 'regulating utility expenditures for recovery in rates'.1 According to B.C. Hydro, authority over individual project review and approval implies authority over utility resource planning. If the government has the former authority, by implication it also has the latter. If it has the latter authority, then the field is occupied and the Commission must not have authority over resource planning (or integrated resource planning), even though it admittedly does have authority over regulating utility expenditures for recovery in rates. According to the intervenors, the Commission's authority for regulating utility expenditures for recovery in rates includes authority over resource planning (or integrated resource planning) because it is this latter utility function that plays the most important role in determining those utility expenditures. Authority over resource planning, and the determination of the most prudent mix of resources (including acquiring no resources if that is most prudent), does not imply that the Commission also has authority over a separate government process of project approval that applies to both utility and non-utility energy projects. Thus, by requiring IRP in order to obtain the information necessary to evaluate the prudency of utility expenditures for recovery in rates, the Commission is not usurping the government's authority for individual energy project approval. Having considered all of the evidence and arguments, the Commission disagrees with B.C. Hydro's position and agrees with the position taken in common by the intervenors. The Commission believes that its authority to require IRP by regulated utilities is derived both from its authority for general supervision of utilities and from its authority for determining the prudency of utility expenditures in order to allow their recovery from customers in rates. Furthermore, the Commission believes that both of these authorities are inextricably linked, as will be explained below. Numerous sections of the Act provide the Commission with jurisdiction in this regard. Utilities do resource planning and on outcome of that planning process is justification for major expenditure decisions, be these to purchase energy, to develop energy resources, to encourage energy conservation, to extend or expand transmission access to energy resources, or something else. These expenditures must ultimately be deemed prudent and be approved by the Commission if they are to be ________________________________ 1. The term 'project review and approval' is basically self-defining. It refers to various processes established by the appropriate decision making authority to determine if a particular proposed project may proceed to a construction phase. The term 'resource planning' in the context of energy utilities may have historically connoted a focus on energy supply provision, but increasingly it is used synonymously with 'integrated resource planning'. IRP is defined in Chapter 2 of this Decision. 'Regulating utility expenditures for recovery in rates' is also a term that is basically self-defining. It is the method by which a utilities commission informs itself of, and then determines the prudency of, those expenditures that a utility seeks to recover from the rates paid by its customers. The determination of prudency depends upon the judgment of the utilities commission, based on the evidence before it.
18 recovered in rates. The Commission must have information on a utility's resource planning process in order to determine if this process meets the Commission's standards for prudency in resource planning, for trading-off between alternatives and for executing major expenditures, all of which are intimately tied to the rates faced by utility customers. The Decision of November 24, 1994 emphasized this linkage between IRP, utility expenditures and customer rates. This linkage was explained in detail on page 21 of the Decision (quoted in Chapter 2 above), and it was re-emphasized throughout the Decision as the following two quotes indicate:
"... the Action Plan should be used to generate the Utility's necessary capital budget which contributes to the determination of the Utility's rates. This is the most effective means for the Commission to assess the prudency of the capital component of future rates." (p. 34);
"... the Commission has developed the IRP process to ensure, through the associated Action Plan, that capital budgets and consequent rates are fully justified." (p. 64).
Indeed, it is the Commission's understanding that IRP has been implemented by utilities commissions throughout North America primarily to meet the objective of determining in advance the prudency of utility expenditures in order to avoid after-the-fact rate disallowances that could be catastrophic for utility shareholders and customers alike. As noted, IRP was originally referred to as least-cost planning. The fundamental rationale of IRP is tightly linked with the regulatory responsibilities of utilities commissions for determining the prudency of utilities' expenditures.
In contrast, counsel for B.C. Hydro seemed to suggest that, in writing the November 24, 1994 Decision, the Commission saw no link between resource planning and ratemaking.
"I think that reading that decision of the Commission simply doesn't allow an objective reader to conclude that the fundamental objective of this panel of the Commission had to do with ratemaking. It didn't have to do with ratemaking. It had to do with direct control of resource planning, and it's simply not available to say anything else about it." (T. 42).
This argument is both surprising and perplexing to the Commission. As noted above, the November 24, 1994 Decision clearly states in several places the fundamental link between resource planning and ratemaking. As the Commission noted in the Decision, the annual costs of B.C. Hydro's invested capital (annual capital expenditures, financing charges, return to shareholder equity) dwarf its annual operations and maintenance budget. Capital expenditure decisions are thus the major determinant of rates. IRP is first and foremost a means of evaluating the prudency of capital expenditures. Utilities commissions have a duty to examine and evaluate the prudency of these capital expenditures, regardless of whether that process of examination and evaluation is referred to as IRP, resource planning, capital planning, or something else.
19 When questioned by the Commission panel, B.C. Hydro's counsel seemed to acknowledge this link in spite of his earlier comments to the contrary.
"There's no question that the Commission has considerable power to, certainly as part of its ratemaking function if nothing else, require of the utility provision of information and also to undertake actively certain steps and do certain things. And I'm sure without having gone through each provision relating to the rate side of your jurisdiction in the context of the questions you've just asked that there exists sufficient authority for the Commission to require the filing of capital budgets, probably capital plans that go with it, because the nexus there with ratemaking is so clean and clear that one can see the need for it." (T. 161).
"Ultimately it [the Commission] needs to be satisfied with respect to the prudency of the investment, and one can build a case, I'm sure, in some instances that one needs to have looked at, when you come to review it in the end, the complete context, whether there were cheaper alternatives, those kinds of things." (T. 163).
"I suspect that there are circumstances where an ex ante review of certain programs or certain anticipated programs is entirely necessary." (T. 165).
These comments suggest that, if the Commission were to rename IRP as capital planning or, even more properly, resource expenditure planning (thereby including not only energy supply and conservation investments but also energy purchases and other resource-related expenditures), then B.C. Hydro would agree that the Commission has the jurisdiction to require all of the utilities it regulates to carry out this planning activity and to provide particular information to the Commission on this process.
As noted, B.C. Hydro's counsel argued that, in the Decision of November 24, 1994, the Commission's IRP focus was not motivated by its concerns and authority for ratemaking. Furthermore, B.C. Hydro's counsel argued that, even if this had been the case, the Manitoba Court of Appeal decision demonstrates that ratemaking authority does not imply an authority over resource planning.
"If, though I say it clearly wasn't, the Commission's decision was really rooted in a concern about rates, then I say based on Manitoba Hydro that the Commission exercised power that could only be inferred to it, and inferences of that breadth and nature are not available to it on the strength of the reasoning in the Manitoba case." (T. 57).
In considering this submission, the Commission notes that there are some critical differences between the current situation in British Columbia and the issue before the Manitoba Court of Appeal and that these differences were referenced by many of the intervenors.
20 In particular, the stated case put before the Manitoba Court of Appeal was with respect to the Manitoba Public Utilities Board's ("PUB") jurisdiction over the capital projects of Manitoba Hydro. After reviewing the Manitoba Crown Corporations Public Review and Accountability Act, and other relevant material, the Court determined that:
"On the basis of the legislation as it stands, the Board has no jurisdiction to approve, reject or vary Manitoba Hydro's major capital projects such as construction of new generating power stations or transmission lines." (Public Utilities Board (Manitoba) supra, p. 165).
In contrast to the stated case in Manitoba, the BCUC does not suggest that via IRP it has authority to approve, reject or vary major capital projects of B.C. Hydro. The BCUC's requirement that all utilities it regulates shall produce an IRP is primarily designed to provide the information necessary to determine the prudency of utility expenditures in order to determine if such expenditures should be recovered in rates. The BCUC IRP Guidelines state:
"IRP does not change the fundamental regulatory relationship between the utilities and the BCUC. Thus, IRP guidelines issued by the BCUC do not mandate a specific outcome to the planning process nor do they mandate specific investment decisions. Each utility's IRP will reflect that utility's unique circumstances and its management's judgment. Under IRP, utility management continues to have full responsibility for making decisions and for accepting the consequences of those decisions. IRP will be relevant to the question of determining utility revenue requirements and rate design. Consistency with IRP Guidelines and the filed IRP plan will be an additional factor that the BCUC will consider in judging the prudency of investments and rate applications, although inconsistency may be warranted by changed circumstances or new evidence." (BCUC IRP Guidelines, p. 2).
In addition, it should be noted that, while the Commission believes the major justification for IRP to be its role in providing the Commission with critical information for judging the prudency of utility resource expenditures, the Commission also agrees with the intervenors that the Commission has, in any event, the authority to require IRP because of its general supervisory authority in Section 28 and Section 29 (and reinforced throughout the Act). Here there is little to add to the submissions and oral arguments of the intervenors. The Manitoba Court of Appeal did not pronounce on the jurisdiction of the Manitoba PUB to require Manitoba Hydro to produce an IRP and, specifically, the Court did not pronounce on whether such a requirement was justifiable on the basis of the PUB's general supervisory powers.
In the view of this Commission, and a growing majority of utilities commissions throughout North America, IRP is a valuable tool in exercising this general supervisory function. Only through an IRP-like approach are utilities commissions able to establish the basis for evaluating utilities managements' trade-offs between many difficult and complex issues. However, even at this general level, one does not stray far from the prudency of expenditure issue. Almost every utility decision has at least some expenditure
21 implications, meaning that the general supervisory responsibility and the prudency of expenditure responsibility cannot be separated in practice, notwithstanding the arguments of B.C. Hydro.
For these reasons, the Commission does not accept B.C. Hydro's primary jurisdictional argument. The Commission believes that its authority to require IRP by regulated utilities is derived both from its authority for the general supervision of utilities and its authority for evaluating utility expenditures for prudency in order to allow their recovery from customers in rates. Furthermore, the Commission believes that both of these authorities are inextricably linked.
2. The inclusion of non-customer impacts and public involvement in IRP. B.C. Hydro argues that, while the Commission regulates the interface between utilities and their customers, it has no jurisdiction at the interface between utilities and the public at large (customers and non-customers alike). This argument is rejected by the intervenors, who have cited various sections of the Act which require the Commission, when regulating utilities, to consider the 'convenience and necessity of the public' and to 'minimize unnecessary damage and inconvenience to the public'.
The Commission agrees with the intervenors that its regulatory jurisdiction includes the relationship between utilities and the public at large (customers and non-customers alike). In support of this, the Commission notes the various sections of the Act that refer to 'the public' and the effect upon it of utilities' actions. Counsel for the BCEC, the CAC(B.C.) et al. and the Industrial Customers referred, in particular, to Sections 28, 37, 38, 51, and 86.
It is also the view of this Commission that much of current utility regulatory practice involves regulating the interface between the utility and the public at large, and that there are inevitable rate implications from this interface. In Chapter 2 above, the Commission provided five examples of how utilities take actions and incur costs based on a consideration of the convenience and necessity of the public at large. All of these examples are directly applicable to B.C. Hydro and each of them involves expenditures with ratemaking implications. This Commission, like every utilities commission, is continually judging the prudency of expenditures that utilities are incurring for the convenience and necessity of the public, and the specific reference here is to expenditures which have not been mandated by some other regulatory authority. If this Commission were to rule that it did not have the jurisdiction to permit such ongoing expenditures, rate hearings would be immediately required for B.C. Hydro and all other utilities regulated by this Commission. The flexibility for utility managers in how they use revenue from customers would be severely restrained relative to current practice. However, in the view of this Commission, the Act is
22 clear in providing the Commission with jurisdiction over this interface between the utility and the public at large, and the authority to permit or disallow expenditures related to this interface to be recovered in rates.
Counsel for the BCEC pointed out an additional reason for public involvement in IRP that is important in the view of the Commission. The Utilities Commission Act requires the Commission to hold public hearings in exercising various regulatory functions. As stated throughout this Decision, utility resource planning is intimately connected to utility rates. The Act does not specify that intervenors at public hearings (be these revenue requirement hearings or other hearings) must be customers of the utility; traditionally, the Commission has allowed members of the public to participate in these hearings if they could demonstrate an interest in the utility's actions. The Commission is in the process of reforming its public hearing processes in order to improve regulatory efficiency and encourage more effective public involvement. Therefore, if the Commission were to accept B.C. Hydro's argument that it did not have jurisdiction to require a public information and consultation process with respect to utility resource planning (the current IRP framework), the Commission is of the view that it would need to develop alternative mechanisms to fulfill its mandate for effectively involving the public in the regulatory process.
Finally, as a point of clarification, the Commission notes that the definition of IRP applied by B.C. Hydro is not the only possible definition and that the option is available for this or any other utilities commission to include or exclude public impacts and public involvement from the definition of IRP. Indeed, while this Commission has generally treated public impacts and public involvement as integral elements of IRP, it has also been relatively cautious in practice in this regard. The Commission's IRP Guidelines are especially flexible with respect to public involvement and environmental and social impacts. The point is that one can decide that utilities commissions have limited or no authority to require consideration of broader public impacts of utilities' actions and yet maintain that such utilities commissions do have the authority to require a utility resource plan (produced following a specified process) in order to judge the prudency of utility expenditures. Such a plan would be very close to what is referred to as IRP, absent the consideration of broader public impacts and public involvement.
The Commission does not accept B.C. Hydro's arguments respecting the interface between the utility and the public. The Commission has authority from the Utilities Commission Act to consider the interface of the utility and the public, whether in IRP or in its other regulatory responsibilities, and consequently to require various kinds of information from the utility (in a form deemed necessary by the Commission) on public impacts with respect to its resource options. Furthermore, in virtually all situations involving the interface between the utility and the public there are ratemaking implications and the Commission's jurisdiction over ratemaking has not been challenged.
23 3. The Commission's authority to issue IRP guidelines and to issue orders and sanctions in cases of non-compliance.
B.C. Hydro argues that the Commission has the authority to issue IRP Guidelines so long as these are not mandated, with threat of sanction for non-compliance. According to B.C. Hydro, while the Commission may have the authority to issue regulations and impose sanctions for non-compliance in areas where it has regulatory authority, where it lacks such regulatory authority the Commission can only issue guidelines without sanctions. Intervenors responded by submitting that, because the Commission does have the authority to issue guidelines and regulations and because the Commission also has the authority to require IRP, it has the authority to issue the Order and sanctions associated with the November 24, 1994 Decision.
The debate therefore hinges on the Commission's determination on the first two major points in B.C. Hydro's Reconsideration Application, as detailed in Point 1 and Point 2 above. Thus, because the Commission agrees with the intervenors with respect to its jurisdiction over IRP, including its jurisdiction over the interface between the utility and the public at large, it follows that the Commission also agrees with the intervenors with respect to its authority to issue orders and sanctions in the case of non-compliance.
The Commission wishes to note, however, that it imposed sanctions in this case with reluctance. Based on the evidence before it at the 1994 hearing, the Commission became convinced that B.C. Hydro was ignoring the intent of the directions of the Commission, both with respect to the IRP Guidelines in general and with respect to providing the necessary resource planning information for the purpose of judging the prudency of specific expenditures. Counsel for B.C. Hydro argued during oral argument that this was not the case.
"... the first comment I wanted to make was in respect of the suggestion that B.C. Hydro had refused to acknowledge or blatantly rejected the Commission's IRP Guidelines. Of course that's nonsense. That isn't what the Commission said in its decision. ... at no time has it been suggested that there was any deliberate or absolute refusal to comply in some way, and it's quite inappropriate now I think to say that there was." (T. 145).
The Commission does not agree with this view of B.C. Hydro. In its Decision of November 24, 1994, the Commission quoted at length the commentary of intervenors stating that the most likely interpretation of the evidence was that B.C. Hydro was deliberately ignoring the intent of the general directions in the Commission's previous (1993) Decision. Moreover, the evidence suggested that without immediate action the Commission might not have the information it needed before 1997 or later, even though many critical
24 resource expenditure decisions were likely to be necessary between 1993 and 1997. This was an extremely different response than the Commission had received from any other utility. The following quote of the counsel for the CAC(B.C.) et al. gives a flavour of the intervenor quotes that the Commission included in its November 24, 1994 Decision. "In judging whether it was reasonable for B.C. Hydro to interpret the Commission's 1993 Decision as not requiring full public involvement by June 30, 1994 and whether B.C. Hydro did, in fact, interpret it that way, there are two alternatives. The first is to accept that the only possible interpretation of the 1993 Decision was that B.C. Hydro was to achieve full public involvement and then report to the Commission before June 30, 1994 on how it had done that. If this is accepted, then it follows that B.C. Hydro either unreasonably failed to understand and act on the Decision or that it deliberately chose to ignore the Commission's Decision. The alternative is to conclude that there really was ambiguity in the Commission's Decision. That is to conclude that although the Commission wanted a report on public involvement by June 30, 1994, it did not necessarily intend that there would have been any progress upon which to report and it had not set any deadline whatsoever for actually achieving public involvement, i.e., that as long as the report was submitted by June 30, 1994, it would have been satisfactory if public involvement did not take place for another year, or five years, or ten years or more. This also requires concluding that the supposed ambiguity did not oblige B.C. Hydro to take any steps to resolve the ambiguity, such as telephoning the Commission. A further requirement of accepting this interpretation is to conclude that B.C. Hydro managed to remain completely unaware of what other utilities in British Columbia were being required to do at this time and were, in fact doing. In addition it requires accepting that B.C. Hydro had forgotten the Commission's requirement that all utilities submit an IRP with public involvement by the end of 1993. In sum, this alternative requires accepting a lot that seems unlikely." (November 24, 1994 Decision, p. 56). In its November 24, 1994 Decision, the Commission stated clearly that B.C. Hydro had not complied with its directions in the 1993 Decision. "B.C. Hydro has not followed the spirit of the Commission's Guidelines with respect to public involvement, has not followed the specific directions given to it in the last Decision with respect to public involvement, and has not made the obvious responsible effort to seek clarification from the Commission as to what was required by a direction which B.C. Hydro alone suggests was ambiguous. ... This failure to understand or, if understood, failure to comply with, the Commission's Guidelines and directives with respect to public participation forces the Commission to issue new directions with respect to this issue that are unprecedented in their detail. The Commission regrets that such action is necessary since it is wary about entering areas that have traditionally been the prerogative of management; however, B.C. Hydro's failure to respond to the Commission's December 7, 1993 directions leaves it no choice." (November 24, 1994 Decision, p. 57). Given the Commission's original view, reconfirmed herein, that it has the jurisdiction to require IRP, including IRP that considers the interface between the utility and the public (which therefore requires public involvement of some form) and, given that the Commission has the authority to issue guidelines and regulations, the Commission
25 therefore has the authority to issue orders and sanctions in cases of non-compliance, as occurred with B.C. Hydro in the November 24, 1994 Decision. The Commission notes that in this particular case it believed that B.C. Hydro had ignored the Commission's 1993 Decision without having applied for a reconsideration of that Decision or without having launched an appeal of the Commission's jurisdiction. This belief played a key role in convincing the Commission that it was dealing with an exceptional case requiring exceptional actions.
4. The Commission's Decision of November 24, 1994 was based upon an unproclaimed act.
In its original Reconsideration Application, B.C. Hydro also argued that the Commission's Decision and Order of November 24, 1994 was in error because it was based in part on legislation that had not yet been proclaimed, in particular the Environmental Assessment Act.1
The Commission rejects the B.C. Hydro argument that it relied upon the unproclaimed Environmental Assessment Act, and is confident that an objective reading of the November 24, 1994 Decision would lead to the same conclusion. The reference in the November 24, 1994 Decision to the new Act is as an additional commentary, which notes the potential future implications of the Commission's Decision, after the fundamental basis for reaching the conclusions therein had already been clearly presented.
___________________________ 1. The Commission notes, however, that the Environmental Assessment Act was proclaimed June 30, 1995 and its passage has coincided with the repeal of the sections of the Utilities Commission Act upon which B.C. Hydro has based its argument in this Reconsideration Application (Sections 17 to 21 in Part 2 and Sections 51(7) and 51(8) in Part 3). Thus, even if this Commission agreed with B.C. Hydro's Part 2 versus Part 3 argument in this Reconsideration Application, and herein reversed its November 24, 1994 Decision with respect to the Order and sanctions related to IRP, the Commission would not have before it sufficient evidence or argument to suggest that it does not currently (given the new Environmental Assessment Act and the revised Utilities Commission Act) have regulatory jurisdiction to require utility IRP.
26 6.0 COMMISSION DECISION For the reasons given in Chapter 5, the B.C. Hydro Reconsideration Application is denied.
Dated at the City of Vancouver, in the Province of British Columbia this day of October, 1995.
Dr. M.K. Jaccard Chairperson
F.C. Leighton, P. Eng. Commissioner
K.L. Hall, P. Eng. Commissioner
27 IN THE MATTER OF the Utilities Commission G-86-95 Act, S.B.C. 1980, c. 60, as amended
and IN THE MATTER OF an Application by British Columbia Hydro and Power Authority for Reconsideration of the Commission's November 24, 1994 Revenue Requirement Decision and Commission Order No. G-89-94
BEFORE: M.K. Jaccard, Chairperson; ) K.L. Hall, Commissioner; and ) October 17, 1995 F.C. Leighton, Commissioner )
O R D E R WHEREAS: A. On February 8, 1995 British Columbia Hydro and Power Authority ("B.C. Hydro") applied to the Commission, pursuant to Section 114 of the Utilities Commission Act ("the Act"), for a reconsideration ("the Reconsideration Application") of certain aspects of the November 24, 1994 Decision upon the Applicant's February 11, 1994 Rate Application and Integrated Resource Plan ("IRP") and, pursuant to Section 119(2) of the Act, for a stay of certain aspects of the Decision pending determination of the Reconsideration Application; and
B. The Commission reviewed written submissions and heard oral argument on April 12, 1995 on the Reconsideration Application and issued its Phase 1 Reconsideration Decision and Order No. G-39-95 on May 8, 1995 denying the Application except with respect to the issue of the Commission's jurisdiction as it relates to IRP; and
C. The Commission reviewed written submissions and heard oral argument on July 27, 1995 on the Commission 's jurisdiction as it relates to IRP; and
D. The Commission has considered the Reconsideration Application and arguments, all as set forth in the Decision issued concurrently with this Order.
NOW THEREFORE the Commission orders that B.C. Hydro’s request for reconsideration of the Commission's November 24, 1994 Decision is denied for the reasons set out in the Decision issued concurrently with this Order.
DATED at the City of Vancouver, in the Province of British Columbia this day of October, 1995.
BY ORDER Dr. Mark K. Jaccard Chairperson
28 TABLE OF CONTENTS 1.0 BACKGROUND 2.0 THE EVOLUTION OF INTEGRATED RESOURCE PLANNING WITHIN ENERGY UTILITY REGULATION 3.0 B.C. HYDRO'S RECONSIDERATION APPLICATION 4.0 INTERVENORS' POSITIONS 5.0 COMMISSION ASSESSMENT 6.0 COMMISSION DECISION COMMISSION ORDER NO. G-86-95 APPEARANCES EXHIBITS BCUC IRP GUIDELINES CONSEQUENTIAL LEGISLATIVE AMENDMENTS APPENDIX D
Page No. 1 1 4 9 16 26 APPENDIX A APPENDIX B APPENDIX C
29 APPEARANCES M. MOSELEY Commission Counsel C.W. SANDERSON British Columbia Hydro and Power Authority J. CHRISTIAN
D. BURSEY Council of Forest Industries of British Columbia Mining Association of B.C. Electro-Chemical Producers
M.P. DOHERTY The Consumers' Association of Canada (B.C. Branch) A. NADER British Columbia Old Age Pensioners' Organization Council of Senior Citizens' Organizations of B.C. Federated Anti-Poverty Groups of B.C. Senior Citizens' Association of B.C. West End Seniors' Network
C. REARDON British Columbia Energy Coalition
30 EXHIBITS Exhibit No. Affidavit of Mr. Aymen Nader, 1 Canadian and United States public utility commissions that require IRPs of their utilities
31 INTEGRATED RESOURCE PLANNING ("IRP") GUIDELINES BRITISH COLUMBIA UTILITIES COMMISSION ("BCUC")
I PURPOSE OF GUIDELINES These guidelines relate to the practice of IRP by utilities regulated by the BCUC. The guidelines are intended to provide general guidance regarding BCUC expectations of the process and methods utilities follow in developing an IRP. It is expected that the general rather than detailed nature of the proposed guidelines will allow utilities to formulate plans which reflect their specific circumstances.
II DEFINITION IRP is a utility planning process which requires consideration of all known resources for meeting the demand for a utility's product, including those which focus on traditional supply sources and those which focus on conservation and the management of demand1. The process results in the selection of that mix of resources which yields the preferred2 outcome of expected impacts and risks for society over the long run. The IRP process plays a role in defining and assessing costs, as these can be expected to include not just costs and benefits as they appear in the market but also other monetizable and non-monetizable social and environmental effects. The IRP process is associated with efforts to augment traditional regulatory review of completed utility plans with cooperative mechanisms of consensus seeking in the preparation and evaluation of utility plans. The IRP process also provides a framework that helps to focus public hearings on utility rates and energy project applications.
_______________________________ 1. Referred to as Demand-Side Management (DSM) 2. The term "preferred" is chosen to imply that society has used some process to elicit social preferences in selecting among energy resource options. Unfortunately, there is rarely agreement on the best process for eliciting social preferences. Candidate processes in a democracy include public ownership with direction from cabinet or a ministry, regulation by a public tribunal, referendum, and various alternate dispute resolution methods (e.g. consensus seeking stakeholder collaboratives).
32 2 III RELATIONSHIP OF BCUC AND UTILITIES UNDER IRP IRP does not change the fundamental regulatory relationship between the utilities and the BCUC. Thus, IRP guidelines issued by the BCUC do not mandate a specific outcome to the planning process nor do they mandate specific investment decisions. Each utility's IRP will reflect that utility's unique circumstances and its management's judgement. Under IRP, utility management continues to have full responsibility for making decisions and for accepting the consequences of those decisions. IRP will be relevant to the question of determining utility revenue requirements and rate design. Consistency with IRP guidelines and the filed IRP plan will be an additional factor that the BCUC will consider in judging the prudency of investments and rate applications, although inconsistency may be warranted by changed circumstances or new evidence.
IV GENERAL IRP GUIDELINES An IRP must include certain basic components. These components are described in the following list of general guidelines that the BCUC will use in assessing the IRP efforts of the utilities it regulates. Smaller utilities will not be required to provide the level of detail and analysis contained in the IRPs of larger utilities and will have the opportunity to adopt components of those plans.
1. Identification of the objectives of the plan Objectives include but are not limited to: adequate and reliable service; economic efficiency; preservation of the financial integrity of the utility; equal consideration of DSM and supply resources; minimization of risks; consideration of environmental impacts; consideration of other social principles of ratemaking3; coherency with government regulations and stated policies.
_______________________________ 3. Bonbright, Danielsen and Kamerschen, (Principles of Public Utility Rates, 1988, Ch.8, p.165), define social principles of ratemaking as "any policy of rate control designed to make the supply of utility services responsive to social needs and social costs". The authors point out that the rates set by utility commissions invariably involve some discretionary judgement about the extent to which broader social principles should influence ratemaking. The most recent concern is with negative environmental externalities, but this concern should be situated within the broader issue; hence the inclusion of the generic term social principles of ratemaking. The general implication is that because of social and environmental objectives, the rates charged by utilities may be allowed to diverge from those that would result from a rate determination based exclusively on financial least cost. The social principles to be addressed may be identified by the utility, intervenors, or government.
33 3 2. Development of a range of gross (pre-DSM) demand forecasts In making a demand forecast, it is necessary to distinguish between demographic, social, economic and technological factors unaffected by utility actions, and those actions the utility can take to influence demand, (e.g. rates, DSM programs). The latter actions should not be reflected in the utility's gross demand forecasts4. More than one forecast would generally be required in order to reflect uncertainty about the future: probabilities or qualitative statements may be used to indicate that one forecast is considered to be more likely than others. The energy end-use categories used in analysis of DSM programs should be compatible with those used in demand forecasting, so that at any point a consistent distinction can be made between demand with and without DSM on an end-use specific basis. Thus, the gross demand forecast should be structured in such a way that the savings, load shifting or load building due to each DSM resource can be allocated to specific end-uses in the demand forecast.
3. Identification of supply and demand resources All feasible 5 individual supply and demand resources, both committed and potential, should be listed. Individual resources are defined as indivisible investments or actions by the utility to modify energy and/or capacity supply, or modify (decrease, shift, increase) energy and/or capacity demand. _______________________________
4. In other words, gross forecasts represent an attempt to simulate markets in which the utility did nothing to influence demand. Of course this is not entirely possible. Utilities will continue to require rate increases and existing DSM programs will affect demand as will already ordered rate design changes. However, the assumptions made with respect to these factors in estimating future gross demand should be clearly specified so that the effects of these assumptions may be distinguished from the effects of future utility actions designed to influence demand.
5. Feasible resource options are defined as those options consistent with the objectives of the IRP. For example, government policy may rule out a particular technology or form of energy.
34 4 4. Characterizing supply and demand resources Each supply and demand resource must be measured against a consistent set of attributes.6 These attributes reflect the objectives established in Guideline 1. They may include utility and customer costs (life cycle costs, impact on rates) as well as monetizable and non-monetizable social/environmental impacts, risks and lost opportunities.7 This is generally referred to as multi-attribute analysis, a methodology that allows for comparison of resources not just in terms of direct costs, but also in terms of all other relevant attributes. Supply and demand resource cost estimates should represent the full costs of achieving a given magnitude of the resource. These cost estimates may be represented as supply curves; i.e. graphs showing the unit costs associated with different magnitudes of the resource.
5. Development of multiple integrated resource For each of the gross demand forecasts, several plausible resource portfolios should be developed, each consisting of a combination of supply and demand resources needed to meet the gross demand forecast. The gross demand forecasts and the resource portfolios should cover the same period, generally 15 to 20 years into the future.
6. Evaluation and selection of resource For each of the gross demand forecasts, the set of alternative resource portfolios which match the forecast are compared on an attribute by attribute basis, as defined by the objectives of the IRP. If a minimal quantity of a resource (e.g. a given amount of DSM) is included in all resource portfolios attached to a gross demand forecast, then that quantity can be included in the IRP without further analysis. For those resources that are not _______________________________
6. Measurement may be quantitative or qualitative depending on the attribute. 7. Lost opportunities are opportunities which, if not exploited promptly, are lost irretrievably or rendered much more costly to achieve. Examples can include cogeneration opportunities that occur when renovating a pulp and paper mill but are not taken and additional insulation that is not installed in a new house.
35 5 identified as common to all resource portfolios, a multi-attribute trade-off process, involving the public, should be undertaken. This process would lead to the selection of a set of resource portfolios, each portfolio matching one of the gross demand forecasts. The set of resource portfolios is the utility's IRP.8
7. The action plan The selection process in Guideline 6 provides the components for the action plan. The action plan consists of the detailed acquisition steps for those resources (from the selected resource portfolio) which need to be initiated over the next four years in order to meet the most likely gross demand forecast. In addition, the action plan should specify how the utility will respond over time to increased information indicating that the most likely gross demand forecast was too high or too low.9 Examples of flexible actions that the utility could consider include the optioning of specific resources (i.e. moving them to shelf-ready status), acquiring extra-regional purchase options, acceleration or deceleration of DSM programs, early retirement or recommissioning of facilities, or sale of surplus at a discount. The action plan should also show how resources with considerable uncertainty (e.g. DSM) include experimental design criteria and monitoring that allow for hindsight evaluation of their market impacts and full resource costs.
8. Public input The public is to be involved throughout the IRP process. This could include a wide range of methods for providing information to the public and for involving the public in the planning process. Methods might include stakeholder collaboratives, information meetings, workshops, and issue papers seeking public response. Utilities are encouraged to focus resources for public participation on areas of the IRP where it will prove most useful and to choose methods which best fit the need of their IRP. Joint processes by two or more utilities are acceptable provided the requirements of each utility can be met. _______________________________
8. Guidelines 4 through 6 may require iteration to account for interdependencies. 9. For example, the level of population growth and economic activity over time begins to suggest that a different demand forecast is more likely.
36 6 9. Regulatory input The BCUC staff should be given opportunities to review and comment during the various phases of preparation of the IRP.
10. Government policy input The IRP should address government policy, as evidenced by legislation (e.g. efficiency standards) and stated policies. Emerging policy issues, such as increased control of air emissions, may be addressed as risk factors.
11. Regulatory review The IRP and the action plan should be filed biannually with the BCUC for review. The review may, at the initiative of the BCUC, provide opportunities for written and/or oral public comment. After review, the BCUC will provide written commentary on the plans.
37 BIBLIOGRAPHY OF STANDARD REFERENCES FOR INTEGRATED RESOURCE PLANNING ("IRP") The following list of IRP source documents has been compiled by BCUC staff for informational purposes only. Although staff believe that these sources form part of the body of standard works to which reference is often made in discussions of IRP, inclusion in the list does not imply that the statements made in the various sources reflect Commission policy. This list of sources does not form part of the BCUC IRP Guidelines.
1. Spurring Inventiveness by Analyzing Tradeoffs: A Public Look at New England's Electricity Alternatives, Clinton J. Andrews, Environmental Impact Assessment Review, 1991
2. Least Cost Planning and Utility Regulation, David Berry, Public Utilities Fortnightly, March 17, 1988
3. The Structure of Electric Utility Least Cost Planning, David Berry, Journal of Economic Issues, September 1992
4. Standard Practice Manual - Economic Analysis of Demand-Side Management Programs, California Public Utilities Commission December 1987
5. Moving toward Integrated Resource Planning: Understanding the Theory and Practice of Least Cost Planning and Demand Side Management, Prepared by Electric Power research Institute, Palo Alto, California, EPRI, EM-5065, February 1987
6. Impact Evaluation of Demand-Side Management Programs, Volume 1 A Guide to Current Practices, Electric Power Research Institute, February 1991
7. Integrating Demand-Side Management into Utility Planning, Clark W. Gellings, and William M. Smith, Proceedings of the IEEE, June, 1989
8. Least-cost Planning Regulation for Gas Utilities, Mary Ellen Fitzpatrick Hopkins, Public Utilities Fortnightly, November 1980
9. Least Cost Utility Planning: A Handbook for Public Utility Commissioners, Vol 1 and 2, National Association of Regulatory Utility Commissioners., 1988
10. Proceedings, Fourth National Conference on Integrated Resource Planning, National Association of Regulatory Utility Commissioners, 1992
38 11. Proceedings, Third National Conference on Integrated Resource Planning, National Association of Regulatory Utility Commissioners, 1991
12. Northwest Power Plan 1991, Vol II. Chapter 3, Northwest Power Planning Council
13. The Role of Conservation in Least-Cost Planning, Northwest Power Planning Council, June 10, 1988
14. Discussion Paper of Gas Integrated Resource Planning, Ontario Energy Board, 1991
15. Submissions to Ontario Energy Board re: EBO 169-III 16. Handbook of Evaluation of Utility DSM Programs, Edited by Eric Hirst and John Reed, Oak Ridge National Laboratory, December 1991
17. Electric-Utility DSM Programs: Terminology and Reporting Formats, Eric Hirst and Carol Sabo, Oak Ridge National Laboratory, October 1991
18. Planning for Uncertainty: A Case Study, Systems Planning and Research, Southern California Edison Company, Technological Forecasting and Social Change, 1988
39 INTEGRATED RESOURCE PLANNING GLOSSARY This is a working draft of a glossary to support the Integrated Resource Planning Guidelines issues in February 1993 by the B.C. Utilities Commission. The glossary will be refined and updated after feedback. Comments and suggestions are welcome. ___________________________________________________________________________ Achievable Potential - That portion of the Technical Potential for Energy Conservation that could be achieved by a given set of DSM programs. Action Plan - A component of IRP, describing utility actions in the short-term (about two years) to meet the supply and demand objectives of the integrated resource plan. Avoided Cost - The cost of the next utility supply resources for meeting demand. This concept has been used as a yardstick for testing individual DSM and non-utility supply options, but it is becoming less important as the IRP process develops comprehensive packages of DSM and supply resources. Bidding - A tendering process designed to compare and evaluate non-utility supply resources. In some cases DSM resources are included in the process. Demand-Side Management (DSM) - Deliberate effort to decrease, shift or increase energy demand. Utilities develop DSM “programs” to encourage customers to enact DSM “measures”. Because of measurement difficulties and uncertainty about consumer behavior, DSM programs must be carefully “evaluated” before and after implementation to determine their full impacts. Economic Potential - That portion of the Technical Potential for Energy Conservation that would occur if all energy using technologies were replaced with market ready substitutes that maximize economic benefits using a “social discount rate” and Social Cost. Energy Conservation - Reduction in energy consumption due to efficiency improvements in energy using technologies (e.g. more efficient light bulb). Sometimes this definition is extended to include behavioral changes in the way technologies are used (e.g. turning off unneeded lighting). Energy Conservation Potential - Potential Energy Conservation due to replacing existing technologies with more efficient market ready technologies. This concept has sub-categories: Technical Potential, Economic Potential, Achievable Potential. Externality - A cost or benefit that is experienced by a third party, as a consequence of a transaction between two other parties. (e.g. A sells fuel to B for consumption in B’s car, thereby polluting the air breathed by C.) Free Rider - A party who receives some form of incentive (e.g. grant, low interest loan) for a DSM action that they would have undertaken without the incentive.Free Driver - A party who undertakes DSM actions as a result of the program but do not participate in the program for fear of administrative hassle.
40 2 Gross Energy Demand Forecast - The amount of energy required from energy supply resources after accounting for external factors changing energy demand and assuming that there will be no extra DSM than that which already exists.Integrated Resource Planning (IRP) - A planning process, used by regulated energy utilities, that equally compares options that involve changes in supply resources and changes in energy demand. The outcome of the process is an “integrated resource plan” (usually covering 15 to 25 years) and an Action Plan (usually two years).Least-Cost Conservation Supply Curve - A graph showing the energy saving of individual efficiency measures on the X-axis and the total cost-per-unit-of-energy-saved on the Y-axis.Lost Opportunity Resources - Energy DSM or supply resources with “life-cycle cost” benefits that, if not exploited promptly, are lost irretrievably or rendered much more costly to achieve. Examples include cogeneration opportunities when renovating a pulp and paper mill and extra insulation when building a new house.Multi-Attribute Analysis - A method which allows for comparison of options in terms of all attributes which are of relevance to the decision maker(s). In IRP, common attributes are financial cost, environmental impact, social impact and risk.Net Energy Demand Forecast -The Gross Energy Demand Forecast less the effect of all DSM.No-Losers Test - Evaluation of DSM resources in order to identify those that would not result in an increase in energy prices, thereby ensuring that Non-Participants are no worse off. See Total Resource Cost Test, Utility Cost Test.Non-Participants - Parties that, because they have not participated in DSM, may be worse off if such measures lead to increased energy prices.Social Cost - Cost determined from a social perspective as opposed to a private perspective. All externalities should be included, if their monetization is feasible.Stakeholder Collaborative - A public involvement process associated with IRP. Stakeholders are defined as groups whose interests are affected by the utility planning process. Representatives of key stakeholder groups work together with the utility’s staff in a collaborative to seek consensus and compromise in the production of the utility’s integrated resource plan. The commitment is not full-time, but collaborative members may find themselves involved in a process that involves occasional meetings and background work over several years.Technical Potential - Energy Conservation occurring if all technologies were replaced with the most energy efficient market ready substitutes, regardless of cost.Total Resource Cost Test - Evaluation of DSM resources in order to identify those that have a net benefit to society (see Economic Potential and Avoided Cost). DSM resources meet this test if their net benefits are sufficient to compensate all Non-Participants. See No-Losers Test, Utility Cost Test.Utility Cost Test - Evaluation of DSM resources in order to identify those that have a net benefit to the utility. See No-Losers Test, Total Resource Cost Test.
41 APPENDICES 1. BIBLIOGRAPHY OF STANDARD REFERENCES FOR INTEGRATED RESOURCE PLANNING ("IRP") 2. Glossary of Terms
42 Appendix D - Queens Printer List, Consequential Legislative Amendments for reading see Decision copy