The purpose of Integrated Resources Planning (IRP) is to ensure that an energy company evaluates all of its available options to meet the expected customer demand at the lowest, reasonable cost.
An IRP plan can be created for electricity or gas utility companies. Generally, a company's available options can be classified as supply side (where the company constructs additional production facilities or purchases power or energy resources from an independent producer) or demand side (where the company attempts to modify or curb the customers' demands). An example of a supply side option might be the construction of an additional production unit to enable the utility company to meet the total projected demand in the next three years. An example of a demand side option is the installation of residential solar powered water heaters to reduce the demand for electricity over the next three years to defer or delay the construction of the small production unit identified above. The Consumer Advocate works with other interested or affected parties before the Public Utilities Commission to implement energy utility programs that should balance supply side and demand side options to determine how to best serve customers.
In theory, it should be less expensive to implement effective Demand Side Management (DSM) programs to defer or delay generation additions (as opposed to supply side options) and the Division is working to ensure that only effective programs are allowed. An actual example of a DSM program offered by Hawaiian Electric Company (HECO) is the rebates offered to encourage the installation of solar water heating by residential customers. By reducing the customers' consumption of electricity generated by the electric utility company, the need for the next generating unit will be deferred. The projected benefits of an effective DSM program is that customers' bills should be lower because they are consuming less energy and because the need for additional generation sources of electricity do not need to be built immediately. When the construction of additional generation sources is delayed, the delayed installation of another generation source will also have a positive effect on our environment, too.
Recently, HECO had filed applications seeking Commission approval to extend their existing residential and commercial DSM programs along with certain modifications. In Docket Nos. 00-0169 (for commercial DSM customers) and 00-0209 (for residential DSM customers), the Consumer Advocate submitted a statement of position indicating that the Consumer Advocate believed in the continuation of these programs. However, the Consumer Advocate believed that the Commission should not allow HECO the continued recovery of lost margins and shareholders' incentives. Lost margins is where a utility company is able to recover from ratepayers the estimated amount of revenues lost by the utility due to the implementation of DSM measures. DSM shareholders' incentives represents the utility company's ability to recover from ratepayers money based on the estimated effectiveness of the programs.
It is the Consumer Advocate's position that, while lost margins and shareholders' incentives may have been once required to encourage the implementation of DSM programs, market and industry conditions have evolved such that those incentives are no longer necessary. The Consumer Advocate believes that energy companies should decide to implement effective DSM programs in order to protect the best interests of their shareholders, as well as their ratepayers, without "sweeteners" such as the lost margins and shareholder incentives. As a result of this statement of position, HECO (and its subsidiaries) and the Consumer Advocate entered into an agreement that will allow the continuation of lost margins and the shareholders' incentive mechanisms until the next rate case for HECO.
During HECO's next rate case, it will be determined how DSM programs will be continued, but the collection of shareholders' incentives and lost margins will effectively cease on a prospective basis. The Commission approved this agreement in Order Nos. 19019 and 19020.