LEAST-COST PLANNING FOR 21ST CENTURY ELECTRICITY SUPPLY
MEETING THE CHALLENGES OF COMPLEXITY AND AMBIGUITY IN DECISION MAKING
Senior Fellow for Economic Analysis,
Institute for Energy and the Environment, Vermont Law School
Energy policy and regulatory decision making in the American electricity sector have always been a challenge because the U. S. is among the most electricity intensive of all nations and it has an extremely wide set of resources with which to meet its electricity needs. Moreover, in the past quarter of a century a fierce debate about the existence and response to climate change, a roller coaster ride in fossil fuel prices and a fizzled “nuclear renaissance” have made things much more difficult by casting doubt on the three primary fuels on which the U.S. relies for almost 90 percent of its electricity. In spite of this uncertainty, because electricity is an essential building block of modern life decision makers are under constant real-time pressures to ensure electricity supply at affordable prices.
This paper argues that the insights and recommendations from the study of financial portfolio and real option analysis, technology risk assessment, reliability and risk mitigation management, and Black Swan Theory all indicate that the 20th century approach to resource acquisition in the electric utility industry is ill-suited to the 21st century economic environment. Indeed, it can be argued that the approaches taken in a wide range of regulatory proceedings such as integrated resource planning, purchase power agreement reviews and general rate cases may have been rendered obsolete by a dramatic change in the terrain of decision making.