US POWER INDUSTRY FACES MORE DEMANDING RESOURCE PLANNING RULES

In the United States, the rules for how power demand will be met are undergoing significant changes both in states with traditional utility regulation and in states that have restructured their power industry. Power resource planning policies address several dimensions of electricity needs, including ensuring that there is a sufficient supply of power to meet peak demand and that the types and mix of resource used will meet economic, environmental, and political needs. Integrated resource planning is known by a variety of terms such as resource adequacy and capacity planning. The driving forces today for greater interest in integrated resource planning are concerns that range from power price volatility to security of energy supplies and to growing public attention on the environment, especially climate change. All of these factors are pushing state regulators to take a closer look at how their future power needs will be met. The current direction of resource planning policies has several key implications:

*Regional efforts vulnerable to state actions. Some states belonging to regional transmission organizations (RTOs) have substituted reliance on wholesale market mechanisms-energy or managed capacity markets-for their previous regulation of resource planning. Although all stakeholders will share in the implications of shortages or surpluses, the political ramifications of a ratepayer backlash loom large for state governments. This makes RTO or other regional efforts on resource planning particularly challenging and vulnerable to unilateral actions by individual states.

*Looming shortages. It is possible that one or more power markets-such as the Independent System Operator-New England and parts of PJM Interconnection may be short in power supplies in the next several years. Although these RTOS have put tremendous effort into crafting highly managed market mechanisms to encourage investment in new supply or demand-side resources, their results are still untested. The timing of implementing these new market mechanisms just when we are moving into an era of cost escalation in power generation and when new supply is needed makes them vulnerable to being blamed if any problems occur

*Expansion of scope and complexity in policies. For states that have maintained their traditional regulation of utilities, the trend is toward stronger centralized control of the resource planning process. The implications are that investors in both supply- and demand-side resources can expect greater scrutiny of and specificity about what they can build.

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