State regulators have begun to move forcefully into the forecasting of electricity demand and the planning of power plants -- and in the process are entering areas that have long been the province of electric utility managers. Since the early 1970s, when electricity prices rose sharply after years of decline, public service commissions (PSCs) around the United States have become increasingly sophisticated in their ability to understand and control how electricity demand is estimated and how it should be met.
State commissions at first relied on after-the-fact sanctions, such as rate disallowances, to penalize electric company shareholders if forecasting electricity demand or planning power plants was judged to have been poorly done by utilities.
But now commissions are actually dictating how electric companies should conduct their energy analyses and what utilities should do in response to these.
Last month, the Wisconsin Public Service Commission announced it had completed an order requiring electric utilities in the state to do ``least cost'' planning over the next 20 years to reduce electricity costs.
Although the term ``least cost'' varies in its precise definition from state to state, in Wisconsin and elsewhere it generally goes beyond the efforts of utility executives merely to build new power plants in the least expensive way. It places a new emphasis on integrating conventional supply-side energy options, such as power plants or transmission lines, with demand-side options, such as energy conservation and the improved efficiency of customers' equipment.
Low-interest loans for conservation or cash rebates for the purchase of energy-efficient appliances are viewed as new electricity ``sources'' equivalent to the construction of new coal or nuclear plants.
The Wisconsin PSC order notes that an option for obtaining electricity which is clearly least-cost is an advantage to ratepayers. But the PSC says it will approve only those that have survived a rigorous least-cost, integrated-planning test.
Electric utility managers are often charged with leaning toward building new power plants. But the Wisconsin order describes savings from conservation as being ``so extensive that the utilities could double their current efforts to capture conservation potential and still be reasonably certain that they are progressing on a least cost integrated planning path.''
Least-cost in Wisconsin also embraces the evaluation of such non-economic elements as safety, reliability, environmental aspects, and the social and political costs. PSC staff members concede that balancing economic and social costs in particular rate cases is going to be a challenge. Thus, utility plans to build a new coal-fired generator, even if this is the most economical option, could be rejected by the PSC on environmental grounds.
``Just how these [non-economic elements] will be measured we don't know yet, but we are working on this,'' notes Jerry Mendl, head of the PSC's planning review division.
Wisconsin is one of the few states that has developed a comprehensive least-cost strategy, according to a study last year by Public Citizens' Critical Mass Energy Project in Washington, D.C.
The study, called ``Least Cost Electrical Planning: Is There Really a State Movement?'' notes that almost every state has some resource planning that goes by the name of least cost. But only California, Illinois, Maine, Nevada, Oregon, Texas, Vermont, and Wisconsin have programs that require utilities to file long-term resource plans that integrate all supply and demand options -- and which require all utility investments to be consistent with the company's most recently approved resource plans.
These states insist that a utility's proposed plan be a least-cost one before commission approval is given and a construction certificate granted.
Public Citizens' Joseph Kriesberg says that an earlier study by his group calculated savings of $26 billion from the use of energy-efficiency improvements, compared with continuing to generate electricity from existing coal-fired power plants equipped with pollution control devices.
Nevada and Wisconsin are leaders in incorporating least-cost into state statutes and regulatory rules.
The Nevada ``Least Cost Planning Act'' became law in 1983. Like the Wisconsin order, it requires electric utilities to examine supply and demand options to devise a strategy, and to have it approved by the Nevada PSC before construction authorization is granted.
In Nevada, the least-cost evaluation focuses on economics and does not formally cover more qualitative concerns for the environment and society at large.
``I think that when you get into environmental and social issues you get into very muddy waters,'' says Jon Wellinghoff, author of Nevada's least-cost act. He asserts that the subjective nature of environmental and societal issues allows utilities to string out the resource planning debate, thereby gaining the edge for traditional supply options if new energy sources are needed quickly.
Environmental and social costs are real, Mr. Wellinghoff concedes. But he emphasizes that energy efficiencies and conventional power plants must be made to compete on purely economic bases.