(1) Prudent default supply resource planning and procurement includes evaluating, managing and mitigating risks associated with the inherent uncertainty of electricity supply markets and default supply load characteristics. A DSU should identify and analyze sources of risk using its own techniques, market intelligence, risk management policies and judgment. The DSU should apply industry accepted instruments and strategies, document decisions to use various instruments and strategies and monitor the ongoing appropriateness of such instruments and strategies. Sources of risk that should be evaluated may include, but are not limited to

 

Underlying                                                                                  Price                             Load

Risk                                                                                       Uncertainty                    Uncertainty

Factor                                                                                          Risk                              Risk

 

(a) Fuel prices and price volatility                                              X                                   X

(b) Environmental regulations & taxes                                      X                                    X

(c) Default supply rates                                                               X

(d) Competitive suppliers' prices                                               X

(e) Transmission constraints                                                      X

(f) Weather                                                                                   X                                    X

(g) Supplier capabilities                                                             X                                    X

(h) Supplier creditworthiness                                                     X

(i) Contract terms and condition                                                X                                    X

 

(2) A DSU's strategy for managing and mitigating risks associated with the identified risk factors should be developed in the context of the goals and objectives of these guidelines and include an evaluation of relevant opportunity costs.

(3) A DSU should manage and mitigate risk through adequate utility staffing and technical resources (e.g., computer modeling) , diversity (fuels, technology, contract terms) , and contingency planning.

(4) A DSU should use an independent advisory committee of respected technical and public policy experts as a source of upfront, substantive input to mitigate risk and optimize resource procurement outcomes in a manner consistent with these guidelines.

(5) A DSU should use cost-effective resource planning and acquisition techniques to manage and mitigate risks associated with the above identified risk factors, including, but not limited to:

(a) modeling and analyzing the relative risks of alternative resources, individually and integrated with all portfolio resources;

(b) acquiring resources which enhance scheduling flexibility;

(c) acquiring an optimal mix of small, short lead-time resources that better match load requirements;

(d) diversifying the resource portfolio to accommodate a broad range of future outcomes; and

(e) maintaining a transparent planning and procurement process (i.e., one which produces resource plans that can be reasonably understood by the public and the commission.)