Session 2: What Load Growth for PJM? James F. Wilson Principal, Wilson Energy Economics Organization...

Session 2:

What Load Growth for PJM?

James F. WilsonPrincipal, Wilson Energy Economics

Organization of PJM States Annual MeetingBaltimore, Maryland

October 12, 2015

2

Forecasting Future PJM Load Growth

● Important

– Underpins all resource adequacy assessments

– Drives generation acquisition and transmission expansion ($$ billions)

– 1% $17/MW-day increase in RPM price $1 billion in capacity cost

● Difficult especially for longer term outlooks

– Uncertainty about economic and demographic growth

– Changing relationship between economic growth and electric loads

– Changing ways we use electricity (appliances, buildings, industries, etc.)

– Increasingly price-sensitive peaks (shortage pricing, smart devices)

3

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Actual Peaks

PJM_RTO

4

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Actual Peaks

Weather Normalized Peaks

PJM_RTO

5

130,000

135,000

140,000

145,000

150,000

155,000

160,000

165,000

170,000

1 2 3 4 5 6 7 8 9 10

PJM RTO Top Ten Daily Peak Loads by Year, 2005-2015

2005 2006 2007 2008

2009 2010 2011 2012

2013 2014 2015

'06'11

'07

'14'15

'13'12'10'05

'08

'09

Source: PJM hourly unrestricted load data. Data reflects current RTO footprint for all years. 2015 data is estimated values through October 6.

6

PJM Load Forecasting (current method, simplified)

1. Select historical period (in example: 1998-2014)

2. Calculate historical peak load growth (1.5%/year)

3. Calculate historical economic variable growth (2.5%/year)

4. Calculate elasticity of peak to economic growth (1.5/2.5=0.6)

5. Get forecast of economic growth (Moody’s; 1.8%/yr)

6. Calculate peak load forecast = economic growth x elasticity (1.8%/yr x 0.6 = 1.1%/year)

7

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Weather Normalized Peaks

Economic Index

PJM_RTO

8

Forecast Accuracy, Past Several Years:Chronic Over-Forecasting

● Not just longer-term forecasts; 1-year forecasts also too high

● Not just during recession; post-recession forecasts also too high

● Not just due to inaccurate economic forecasts; forecasts too high over short-term, in zones with stable economics, and post-recession

9

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013 2014 2015Delivery Year

PJM Forecast 4-Year Load Growth for RPM, RTO Region

[1] Forecast growth as used in RPM compares the three year forward forecast for a delivery year to the weather-normalized actual peak load for the year prior to the forecast (for example, for the 2011 delivery year, the growth from the 2007 weather -normalized peak to 2011 based on the Jan. 2008 forecast); for 2007 through 2010 delivery years, the 2007 forecast and 2006 weather -normalized actuals were used.

For 2007 to 2010, the2007 forecast was used.

10

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013 2014 2015Delivery Year

PJM Forecast v Actual Peak Load Growth for RPM RTO Region

4-year forecast growth as used in RPM [1] Actual four-year growth [2]

[1] Forecast growth as used in RPM compares the three year forward forecast for a delivery year to the weather-normalized actual peak load for the year prior to the forecast (for example, for the 2011 delivery year, the growth from the 2007 weather-normalized peak to 2011 based on the Jan. 2008 forecast); for 2007 through 2010 delivery years, the 2007 forecast and 2006 weather-normalized actuals were used.[2] Actual/updated growth compares the actual weather-normalized peak (or updated forecast, for 2015) to the same weather-normalized peak load (for the 2011 delivery year, growth from the 2007 weather-normalized peak to the 2011 weather-normalized peak).All values adjusted to consistent delivery year RTO geographic footprint.

For 2007 to 2010, the2007 forecast was used.

11-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

2007 2008 2009 2010 2011 2012 2013 2014

MW

PJM Forecast One Year Peak Load Growth: RTO Region

Source: PJM. Graphic compares forecast and actual one-year peak load growth to the year indicated from weather-normalized peakfor the prior year. Values adjusted for consistent RTO footprint in each year.

12

8661,633

648 670

2,390

1,376367

1,141

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

2007 2008 2009 2010 2011 2012 2013 2014

MW

PJM Forecast v Actual One Year Peak Load Growth: RTO Region

Forecast change Actual change

Source: PJM. Graphic compares forecast and actual one-year peak load growth to the year indicated from weather-normalized peakfor the prior year. Values adjusted for consistent RTO footprint in each year.

Average 6-month forward over-forecast, 2007-2014: 1,136 MW.

866 = over-forecast amount

13

14

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Weather Normalized Peaks

Economic Index

Equipment Intensity Index

PJM_RTO

Solution: Recognize Trends in Energy Intensity/Efficiency?

15

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Weather Normalized Peaks

Economic & Intensity Index

Economic Index

PJM_RTO

16

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Historical Peak Load, Zone:

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Economic&Intensity Index

PJM_RTO

17

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Economic Index Values (1998=1.0)

AE AEP APS ATSI BGE

COMED DAYTON DPL DQE DUKE

EKPC JCPL METED PECO PENLC

PEPCO PJM_MA PJM_RTO PL PS

RECO UGI VEPCO

18

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Equipment Intensity Index Values (1998=1.0)

AE AEP APS ATSI BGECOMED DAYTON DPL DQE DUKEEKPC JCPL METED PECO PENLCPEPCO PJM_MA PJM_RTO PL PSRECO UGI VEPCO

19

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Equipment Intensity Index Values (1998=1.0)

AE AEP APS ATSI BGECOMED DAYTON DPL DQE DUKEEKPC JCPL METED PECO PENLCPEPCO PJM_MA PJM_RTO PL PSRECO UGI VEPCO

(Same data as previous slide, Stretched vertical scale)

20

0.55

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

1.45

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

2007 2009 2011 2013 2015 2017 2019 2021 2023

Peak Load Forecast, Zone:

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Linear (Weather Normalized Peaks)

PJM_RTO

47¢

As additional post-recession experience accumulates, and if trends are stable, will an approach focused on the recent period be simpler and more accurate?

21

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Elasticities of Peak Load to Forecast Variable, Recent PJM Load Forecasts

2013 Forecast, Elasticity to Economic Variable2014 Forecast, Elasticity to Economic VariableElasticity, 2015 forecast no binary variableSept. 2015 Forecast w/New Spec, Elasticity to Econ/Intensity Variable

load adjustments: none in 2013 forecast, excluded from this analysis of 2014 forecast, DOM adjustment is reflected in 2015 forecast values.

22

Speaker Information

James F. Wilson Principal, Wilson Energy Economics4800 Hampden Lane Suite 200Bethesda, MD 20814240-482-3737 office301-535-6571 celljwilson@wilsonenec.comwww.wilsonenec.com James Wilson is an economist with 30 years of consulting experience in the electric power and natural gas industries. His work has pertained to the economic and policy issues arising from the interplay of competition and regulation in these industries, including restructuring policies, market design, market analysis and market power. Recent engagements have involved resource adequacy and capacity markets, contract litigation, rate cases, modeling of utility planning problems, and many other economic issues arising in these industries.

Mr. Wilson has been involved in electricity restructuring and wholesale market design for over twenty years in PJM, New England, California, Russia, and other regions. He also spent five years in Russia in the early 1990s advising on the reform, restructuring, and development of the Russian electricity and natural gas industries for the World Bank and other clients.

Prior to founding Wilson Energy Economics, Mr. Wilson was a Principal at LECG, LLC. He holds a B.A. in Mathematics from Oberlin College and an M.S. in Engineering-Economic Systems from Stanford University.

23

Appendix: Zonal Forecast Graphs

● The following graphs show, for RTO and zones:– Actual and weather-normalized historical peaks

– PJM peak load forecast with new specification as of September 2015

– Combined economic and intensity index (combines the six-part economic variable from Moody’s with the Other Equipment variable based on EIA data)

● Question to ponder: How well does the combined economic and intensity index track and explain the pattern of the historical weather-normalized peaks? – Over the entire period (1998-2014)?

– Over the recent, post-recession period (2009-2014)?

24

0.7

0.8

0.9

1.0

1.1

1.2

1.3

100,000

120,000

140,000

160,000

180,000

200,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PJM_RTO

25

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1,800

2,000

2,200

2,400

2,600

2,800

3,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

AE

26

0.7

0.8

0.9

1.0

1.1

1.2

1.3

16,000

18,000

20,000

22,000

24,000

26,000

28,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

AEP

27

0.7

0.8

0.9

1.0

1.1

1.2

1.3

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

APS

28

0.7

0.8

0.9

1.0

1.1

1.2

1.3

9,000

10,000

11,000

12,000

13,000

14,000

15,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

ATSI

29

0.7

0.8

0.9

1.0

1.1

1.2

1.3

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

BGE

30

0.7

0.8

0.9

1.0

1.1

1.2

1.3

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

COMED

31

0.7

0.8

0.9

1.0

1.1

1.2

1.3

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

DAYTON

32

0.7

0.8

0.9

1.0

1.1

1.2

1.3

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

DPL

33

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

DQE

34

0.7

0.8

0.9

1.0

1.1

1.2

1.3

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

DUKE

35

0.7

0.8

0.9

1.0

1.1

1.2

1.3

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

EKPC

36

0.7

0.8

0.9

1.0

1.1

1.2

1.3

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

JCPL

37

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

METED

38

0.7

0.8

0.9

1.0

1.1

1.2

1.3

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PECO

39

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1,800

2,000

2,200

2,400

2,600

2,800

3,000

3,200

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PENLC

40

0.7

0.8

0.9

1.0

1.1

1.2

1.3

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PEPCO

41

0.7

0.8

0.9

1.0

1.1

1.2

1.3

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PL

42

0.7

0.8

0.9

1.0

1.1

1.2

1.3

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

PS

43

0.7

0.8

0.9

1.0

1.1

1.2

1.3

280

300

320

340

360

380

400

420

440

460

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

RECO

44

0.7

0.8

0.9

1.0

1.1

1.2

1.3

120

140

160

180

200

220

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

UGI

45

0.7

0.8

0.9

1.0

1.1

1.2

1.3

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Summer NCP Forecast, Zone:

Actual Peaks

Weather Normalized Peaks

Forecast w/New Spec. (Sept. 2015)

Econ & Intensity Index

VEPCO