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Climate normals and weather normalization for utility regulation

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  • Won, Seoung Joun
  • Wang, X. Henry
  • Warren, Henry E.

Abstract

In the regulation of natural gas and electric utilities, the determination of rate revenues commonly involves a sales adjustment to reflect the difference between actual weather and normal weather. This adjustment process, commonly known as weather normalization, is required to properly determine a set of rates which yields the revenue requirement under the assumption of normal weather. Normal weather values that characterize long-term weather patterns are critical component of weather normalization. Conventionally, normal weather values are calculated using the Standard Climate Normal (SCN). The SCN for any given calendar day is the 30-year average of the associated weather observations for that calendar day. In the regulatory process the SCN can inadvertently introduce biases in the weather normalization adjustment. This study investigates the sources and mitigation of these biases.

Suggested Citation

  • Won, Seoung Joun & Wang, X. Henry & Warren, Henry E., 2016. "Climate normals and weather normalization for utility regulation," Energy Economics, Elsevier, vol. 54(C), pages 405-416.
    • Handle: RePEc:eee:eneeco:v:54:y:2016:i:c:p:405-416
    DOI: 10.1016/j.eneco.2015.12.016
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    References listed on IDEAS

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    Cited by:

    1. Smith, L. Vanessa & Tarui, Nori & Yamagata, Takashi, 2021. "Assessing the impact of COVID-19 on global fossil fuel consumption and CO2 emissions," Energy Economics, Elsevier, vol. 97(C).
    2. L. Vanessa Smith & Nori Tarui & Takashi Yamagata, 2020. "Global fossil fuel consumption and carbon pricing: Forecasting and counterfactual analysis under alternative GDP scenarios," RIEEM Discussion Paper Series 2004, Research Institute for Environmental Economics and Management, Waseda University.

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    More about this item

    Keywords

    Climate normals; Weather normalization; Rate cases; Utility regulation;
    All these keywords.

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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