Jeff Turcotte is assistant vice president, Government Affairs at EPSA.
As electricity demand grows from data centers, manufacturing, and electrification, EPSA supports Congressman Troy Balderson’s legislation to improve load forecasting and help support reliable power and timely, responsible infrastructure development while protecting ratepayers from unnecessary costs
Data Centers, Rising Demand, Rising Uncertainty
Over the last few years, data center developers – along with the federal and state regulators and policymakers overseeing their development – have experienced a public relations and political rollercoaster. For decades, data centers operated largely outside of the public spotlight. More recently, however, they have been celebrated for their economic benefits and their role in supporting emerging technologies such as artificial intelligence. However, public concern surrounding those data centers seems to be growing, casting significant uncertainty over future development.
Data centers are not the only source of uncertainty. Policymakers and regulators are also navigating evolving policies related to domestic manufacturing, digital currency mining, and electrification initiatives, including electric vehicles, home heating, and household appliances. Taken together, these trends make it increasingly difficult to accurately predict future electricity demand—a process known as “load forecasting.” As the power sector plans for the coming decades, ensuring those forecasts are as accurate as possible has become more important than ever.
Why Accurate Load Forecasting Matters
Why is accurate load forecasting important to the competitive power suppliers represented by EPSA, as well as electricity customers throughout the United States? EPSA members invest billions of dollars in power generation and energy storage projects without a guaranteed rate of return, relying instead on competitive markets to recover their costs over time. These investments are often made years before new generation is needed, making long-term demand forecasts a key factor in investment decisions.
If 5-, 10-, or 20-year forecasts for electricity are overzealous in estimating the rate at which demand will grow, and the need for generation is overstated, EPSA members do not have a captive rate base to ensure cost recovery via utility bill increases. That is a risk that competitive power suppliers willingly accept; however, building power plants to meet non-existent electricity demand is an inefficient and unnecessary use of capital. Of course, in a vertically integrated region, a stranded asset becomes a financial albatross around the necks of electricity customers – ratepayers are on the hook to pay back the cost of the plant as well as a guaranteed rate of return even if the asset provides no benefit to the region.
Improving load forecasting practices remains a core EPSA policy priority. Competitive power suppliers have consistently advocated for more rigorous forecasting methodologies in comments submitted to the U.S. Department of Energy and testimony before the U.S. Senate. In both comments, EPSA highlights an example in Ohio, where an investor-owned utility in Ohio reduced an initially projected demand increase of 30 gigawatts by approximately 80 percent after conducting a more rigorous assessment of proposed development projects.
In part, many bloated demand forecasts can be attributed to developers of a single project soliciting interconnection information from multiple utilities to assess various interconnection environments. Those multiple inquiries are all packaged into a larger regional demand assessment even though the developer will only invest in a single asset. Attaching meaningful financial commitments from investors to ensure that future interconnections are included in demand forecasts is an excellent step in separating legitimate inquiries from phantom projects that will only artificially inflate load forecasts. By improving the quality of the data used in forecasting, policymakers, regulators, and market participants can develop more realistic projections of future electricity demand and make better-informed investment decisions.
How The Load Forecasting Enhancement Act Addresses Risks
Fortunately, many Members of Congress recognize the importance of improving demand projections. On June 24, the U.S. House Energy & Commerce Committee’s Energy Subcommittee is scheduled to mark up legislation, authored by U.S. Congressman Troy Balderson (R-OH), that (in part) works to identify best practices in load forecasting and disseminate ideas for more accurate load projections.
The Load Forecasting Enhancement Act (H.R. 9322) would charge the bulk power system’s federal regulator – the Federal Energy Regulatory Commission (FERC) – with creating regional boards to learn about and analyze best practices for forecasting within various regions. The legislation directs “an evaluation of requests for electric service by industrial or commercial facilities with large loads, including whether such facilities have made financial commitments to an electric utility.” The regional analyses would be compiled into a report for Congress, and states would be directed to consider changes to load forecasting processes by their electric utilities. The bill does not single out data centers, rather the boards would take a holistic view of the drivers of demand increases in their region.
Why EPSA Supports the Legislation
EPSA has endorsed Congressman Balderson’s bill and hopes that the support for the bill voiced at the subcommittee’s April 29 hearing results in a strong bipartisan vote at the upcoming markup. Whether policymakers represent a region with competitive electricity markets or are operated by a vertically-integrated utility, improved load forecasting should not be a partisan issue. In no part of the United States do electricity customers benefit unrealistic demand forecasts.
At a time when affordability has become a top priority for Congress, assessing and encouraging the adoption of best practices for load forecasting should be welcomed and encouraged.
