Dominion projects that demand for electricity will increase 1.4% a year over the next 15 years. How accurate is that forecast? Billions of dollars ride on the answer.
The single-most important forecast Dominion Energy Virginia had to make when compiling its 2018 Integrated Resource Plan (IRP), released earlier this week, was to project electricity consumption in its service territory over the next 15 years. All of the company’s calculations regarding the need for new generating capacity spring from that forecast.
Dominion projected that overall electricity demand will increase 0.8% annually on average and that peak demand will increase 1.4%. Based on that forecast, the authors of the plan had to figure out how to increase the peak supply by more than 20%. However, if Dominion is over-estimating load growth and builds a power portfolio to match, it could spend billions of rate payers’ dollars on unneeded capacity.
The company explains its forecast methodology in considerable detail in the IRP. It uses two econometric models, one being a “customer class-level sales model,” and the other a “system-level hourly load model.” These models have been “developed, enhanced, and re-estimated annually for over 20 years,” the IRP says.
The models used this year have been tweaked to represent the findings of the most recent customer appliance survey, which observed a significant increase in the penetration of light-emitting diode (LED) lighting among residential customers. To reflect this trend, Dominion modified its models to reduce forecasts of residential lighting load. Accordingly, residential lighting usage is expected to fall by roughly half between 2018 and 2033.
Another key assumption is the rate of economic growth. Dominion observed that the Virginia economy continue to grow despite federal budget sequestration between 2013 and 2017 by about 1% per year on average (adjusted for inflation). But Virginia has a favorable business climate, in Dominion’s estimate, and growth should pick up. Looking ahead, Moody’s Analytics projects that Virginia’s Gross State Product will expand at a compounded annual growth rate of 1.99%.
(Moody’s growth forecast is extremely close to that of the Congressional Budget Office, which projects a 1.9% compounded annual growth rate nationally over the next 10 years.)
Also, notes the IRP, Virginia should continue attracting more data centers, drawn by access to fiber optic networks as well as “low-cost, reliable power sources.” Data centers are far more energy-intensive than typical commercial or industrial operations.
The Dominion-PJM gap
Dominion acknowledges that its DOM zone forecast is higher than that of PJM Interconnection, the organization that operates wholesale electricity markets in a 14-state region. PJM has no axe to grind either ideologically or in terms of self-interest when it prepares its forecasts, so its estimates are widely regarded as credible. Dominion critics make frequent note of the discrepancy.
The first thing to note, says the IRP, is that the gap difference the two forecasts has shrunk in the past year. Here I’ve laid the forecast for “energy” (total annual electricity consumption) and “peak” (peak one-day consumption) side by side:
Dominion — 0.8% annual increase
PJM — 0.9% annual increase
Dominion — 1.4%
PJM — 0.8%
Thus, if I’m reading the IRP correctly, Dominion’s energy forecast is slightly more conservative than PJM’s — a fact that I’m surprised Dominion didn’t highlight in its IRP.
A big gap still remains between the Dominion and PJM peak forecast. PJM’s forecast, issued Dec. 28, 2017, was rendered out of date almost immediately by 12 consecutive days of bitter cold weather across the northeastern quadrant of the United States in December and January. PJM’s 90/10 projection of peak demand for the DOM zone was 19,512 megawatts. Actual demand exceeded PJM’s forecast by 1,400 megawatts on five different occasions, says the IRP. (To be fair, PJM’s 90/10 projection did allow for a one in ten chance that the actual peak might exceed the forecast.)
States the IRP: “The Company understands that PJM has recognized this issue in its load forecasting and is in the process of revising their load forecasting methods.” Continue reading