Why all the fuss about PVRR?

PVRR (Present Value of Revenue Requirements) is frequently used to compare resource plans, but when we look more closely at the underlying assumptions, the relatively small differences in PVRR probably don’t add much value to the decision-making process. The future will undoubtedly unfold differently than what was contemplated, and the actual resource decisions are almost certain to change, yet much weight is placed upon a number with a high degree of uncertainty.

Furthermore, the difference between two portfolio’s PVRRs is less than 1% different. In terms of statistical significance, comparing small differences with relatively large margin of errors do not support sound decision making.

So, if PVRRs aren’t that useful for comparison purposes, what good is PVRR for? At its essence, PVRR serves as the primary component of the optimization model’s objective function where the model solves to minimize long term overall cost as measured in the PVRR. A portfolio that minimizes cost is not the final answer but is rather just the beginning of a process that gets to the answer of a robust and well-reasoned portfolio.

Optimized portfolios provide insight on the relative tradeoffs between resources and inflection points in resource planning decisions. For example, if the same resource type is selected in roughly the same time frame when assumptions are changed, then this suggests, for example, that the selection of a CT or battery in 2030 is a robust decision.

Additional analysis is needed to evaluate portfolios with respect to other important portfolio characteristics such as rate impact, risk analysis, environmental and logistical considerations. Summit Energy Advisors helps companies with a step-by-step process to develop a portfolio that addresses the many dimensions that are important to the quality of a utility’s generation planning.

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Why are we planning for a deficient system?