The Weather in the Details

Deck: 

Why have utilities lost millions of dollars on weather-normalization plans? Blame deprecated NOAA calculations.

Fortnightly Magazine - November 2006
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The views and findings expressed herein are solely those of the authors and should not necessarily be attributed to PSE.

A hypothetical Northwest utility with a revenue requirement of $50/MWh to $90/MWh and weather sensitivity on the order of 500 MWh to 800 MWh per degree-day would expect revenues to rise by roughly $45,000 for each additional heating degree-day experienced per annum. Reliance on National Oceanic and Atmospheric Administration (NOAA) standard measurements results in approximately 77 additional heating degree-days of weather adjustment as compared with using hourly average heating degree-day measurements.

In other words, NOAA’s measure of heating degree-days between a normal 30-year period and a given test year is consequently too high by 77 degrees when compared with the more accurate hourly estimates for the 30-year period and for the test year. In this case, the hypothetical utility would see a revenue shortfall of between $2 million and $5 million.

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