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Letters to the Editor

Fortnightly Magazine - January 2008

as well.

John Bewick Compliance Management Inc.,  Hingham, Mass.


Editor’s Note: In this issue, Dr. Charles Cicchetti analyzes the value of oil-cost premiums in his article, “ Duke’s Fifth Fuel .” – MTB


EIA Defends its Models

Editor’s Note: U.S. Senators James Inhofe (R, Okla.), George Voinovich (R, Ohio) and John Barrasso (R, Wyo.) sent a letter to Guy Caruso, administrator of the Energy Information Administration, on Sept. 17, 2007. In their letter, they asked EIA to reevaluate its National Energy Modeling System (NEMS) in response to a Fortnightly article (“ Gas-Market Forecasts: Betting on Bad Numbers ,” July 2007). The EIA responded in an Oct. 2007 report, “Supplement to Energy Market and Economic Impacts of S. 280, the Climate Stewardship and Innovation Act of 2007”:

“Considine and Clemente’s finding in the July 2007 edition of Public Utilities Fortnightly that EIA’s reference case price projections are ‘biased’ is based on a statistical test that depends entirely upon evaluating a carefully selected group of EIA’s annual projections and then focusing only on the first 4 years of each projection. As a comment by Fischbeck and Rode published in the Sept. 2007 edition of Public Utilities Fortnightly points out, no statistical ‘bias’ is evident when a more complete set of AEO reference case projections is considered, in part because the EIA reference case ‘overprojected’ realized market prices during much of the period immediately preceding that considered by Clemente and Considine. This aspect of the AEO experience suggests that understanding past discrepancies, rather than seeking to mechanically compensate for them, is required.

“EIA reviews all comments concerning our projections and will carefully consider the comments made by Professors Considine and Clemente. EIA does not believe that adjusting each forecast to the new level, perhaps as is done with futures contracts, would be advisable. Several of the issues raised by Considine and Clemente as ‘potential areas for investigation’ are extensively described in the NEMS assumptions report ( Assumptions to the Annual Energy Outlook ) and model documentation. One suggestion made is that projections of natural-gas use for generation may not be including the permit costs for sulfur dioxide (SO 2) emissions. EIA, however, considers the least-cost approach the power sector may take for meeting SO 2, nitrogen oxide (NO x), mercury, and other environmental emission requirements in projecting capital expenditures and annual generation dispatch decisions. This approach is described in the assumptions report and the model documentation.” — MTB