Managing carbon regulatory risk in utility resource planning: Current practices in the Western United States

Abstract

Concerns about global climate change have substantially increased the likelihood that future policy will seek to minimize carbon dioxide emissions. As such, even today, electric utilities are making resource planning and investment decisions that consider the possible implications of these future carbon regulations. In this article, we examine the manner in which utilities assess the financial risks associated with future carbon regulations within their long-term resource plans. We base our analysis on a review of the most recent resource plans filed by 15 electric utilities in the Western United States. Virtually all of these utilities made some effort to quantitatively evaluate the potential cost of future carbon regulations when analyzing alternate supply- and demand-side resource options for meeting customer load. Even without federal climate regulation in the US, the prospect of that regulation is already having an impact on utility decision-making and resource choices. That said, the methods and assumptions used by utilities to analyze carbon regulatory risk, and the impact of that analysis on their choice of a particular resource strategy, vary considerably, revealing a number of opportunities for analytic improvement. Though our review focuses on a subset of US electric utilities, this work holds implications for all electric utilities and energy policymakers who are seeking to minimize the compliance costs associated with future carbon regulations.