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:
Energy forecast
Dominion — 0.8% annual increase
PJM — 0.9% annual increase
Peak forecast
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.”
The critics respond
Dominion critics don’t find the utility’s analysis persuasive. “For at least a decade Dominion has predicted steady robust load growth, and has been wrong every year,” said Southern Environmental Law Center attorney Will Cleveland in a press release yesterday. “It’s time for Dominion to change its model and assumptions to reflect reality—there is less load growth than predicted, and what load is coming to the Commonwealth comes from companies demanding renewable energy options.”
“These misleading projections used as the justification for spending customer money on the Atlantic Coast Pipeline will come back to haunt us,” Greg Buppert, also an SELC attorney. “If Virginia fails to force Dominion to plan around true projections we can expect this modeling to lead to more unneeded projects that will cost Virginians money, their water, land, and air quality.”
Two or three days before Dominion published the IRP, I communicated with William Shobe, director of the Center for Economic Policy studies at the University of Virginia for a related article I was working on. He was in India at the time, and we exchanged emails.
“Actual electricity demand growth over the next several years will not come close to Dominion’s inflated 1.3% growth” as forecast in its 2017 IRP, wrote Shobe. “Something like 0.5% to 0.7% is much more likely. And this is with data center demand.”
Residential demand has been declining the past few years due to improvements in the building stock, he says. Industrial demand is declining as companies pursue energy-efficiency measures. Commercial demand is rising, but only because of the data centers. “Without a growth in demand,” he says, “Dominion’s fossil capacity is over-built.”
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