Changing weather patterns are becoming more common, and predicting them is becoming even more difficult. This is especially true for electric and gas utilities, which use historical weather data when developing predictions of future weather patterns, which are in turn used to project future demand and ultimately rates. In the past, public utility commissions have accepted the practice of using 30-year historical averages to develop weather normalization curves and forecasts submitted as part of the rate case process.
However, as of late, there has been discussion in the utility industry regarding the usefulness of this 30-year historical data when developing weather and demand projections. Temperature normals are becoming less accurate, with U.S. and global climates experiencing a warming trend over the past 40 years. To address this concern, there has been some movement toward having utilities use shorter-year historical averages, typically 10 or 15 years, to better reflect this warming trend in rate case filings. Though additional data is needed, utilities that use 30-year data may be under-representing future temperatures and, by default, the potential additional costs that are associated with warmer temperatures and greater variability.
SNL: Changing Weather Disrupting Norms in Utility Ratemaking
The Philadelphia Inquirer: Staying Normal
Journal of Applied Meteorology and Climatology: Performance of Alternative ‘Normals’ for Tracking Climate Changes, Using Homogenized and Non-Homogenized Seasonal U.S. Surface Temperatures
Itron Forecasting White Paper: Defining Normal Weather for Energy and Peak Normalization
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Additional Contributing Authors: Matt Pierce, Eric Hanson
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