Why We Plan for Uncertainty

The Council’s power plans begin with the premise that the future is uncertain and we can’t really predict what will happen. Managing that risk is central to the Council’s approach to resource planning. Prior to the Council’s formation, this wasn’t always the case. 

Until the Council’s first plan, utility resource planning was based on a single forecast of the region’s most likely energy demand. Resources that took 10 to 15 years to build were planned and constructed to that best guess. If the future turned out differently, the region faced the problem of either having underbuilt or overbuilt resources, and the cost of error on either side was enormous. 

The Northwest has experienced both situations. The most serious case of over-building occurred in the 1970s and 1980s when the region embarked on a path to build several new thermal plants, including five nuclear power plants in the state of Washington. The economic backlash from this disastrous planning failure resulted in unprecedented increases in Bonneville Power Administration electricity rates totaling 418 percent between 1978 and 1984. 

The opposite situation arose in the mid-1990s when exceptionally low market prices, coupled with a series of above average water years, led Northwest utilities to depend too much on the spot market to meet loads. When California’s ill-fated deregulation effort coincided with a severe Northwest drought in 2000-2001, West Coast electricity market prices spiked to stratospheric heights that averaged more than $700 per megawatt hour over an entire month, compared to around $30 per megawatt hour in the prior years. Again, electricity ratepayers paid the price with significantly higher rates. 

There are many unknowns when it comes to energy planning, and 30 years later, a lot has changed. Growing renewable generation, technological advances, and initiatives to lower carbon emissions all add to this complex planning exercise: How much will loads grow or decline over the next 20 years? What mix of new low-cost resources will best meet the region’s needs?  What is the cost and risk of constructing those resources? How much cost-effective energy efficiency is available to meet a portion of the region’s load growth? What will happen with wholesale electricity prices in the future? 

To manage these uncertainties, the Council’s plan strives to identify a resource strategy that will ensure a reliable and economical power supply. The plan also includes flexible resources like low-cost energy efficiency, which plays a critical role in protecting the region from the danger of overbuilding or underbuilding the power supply. 

As Power Division Director Tom Eckman put it recently, “We have a Goldilocks problem: We don’t want too many resources and we don’t want too few resources; we want just the right amount.”

The Council uses a planning model to evaluate how well a resource would perform under various conditions. The regional portfolio model analyzes different portfolios to understand their cost and risk tradeoffs across a large number of potential futures. It may also be used to test various policy propositions, such as strategies for reducing carbon emissions from the power system. 

Throughout the planning process, the Council relies on participation from a wide variety of stakeholders—utilities, public interest groups, and state agencies and commissions—to give their perspectives and to vet the analyses. 

It’s a rigorous process. In the end, it’s a journey of discovery the region takes to develop a plan that offers the best insurance, not just for a prosperous future, but for a secure future, too.