Integrated resource planning for local gas distribution companies: A critical review of regulatory policy issues

According to the report, public utility commissions (PUCs) are increasingly adopting, or considering the adoption of integrated resource planning (IRP) for local gas distribution companies (LDCs). The Energy Policy Act of 1992 (EPAct) requires PUCs to consider IRP for gas LDCs. This study has two major objectives: (1) to help PUCs develop appropriate regulatory approaches with regard to IRP for gas LDCs; and (2) to help PUCs respond to the EPAct directive. The study finds that it is appropriate for PUCs to pursue energy efficiency within the traditional regulatory framework of minimizing private costs of energy production and delivery; and PUCs should play a limited role in addressing environmental externalities. The study also finds that in promoting energy efficiency, PUCs should pursue policies that are incentive-based, procompetitive, and sensitive to rate impacts. The study evaluates a number of traditional and nontraditional ratemaking mechanisms on the basis of cost minimization, energy efficiency, competitiveness, and other criteria. The mechanisms evaluated include direct recovery of DSM expenses, lost revenue adjustments for DSM options, revenue decoupling mechanisms, sharing of DSM cost savings, performance-based rate of return for DSM, provision of DSM as a separate service, deregulation of DSM service, price caps, and deregulation of the noncore gas market. The study concludes with general recommendations for regulatory approaches and ratemaking mechanisms that PUCs may wish to consider in advancing IRP objectives.