1. Session 2: What Load Growth for PJM? James F. Wilson Principal, Wilson Energy Economics Organization of PJM States Annual Meeting Baltimore, Maryland October 12, 2015

2. Forecasting Future PJM Load Growth ●Important –Underpins all resource adequacy assessments –Drives generation acquisition and transmission expansion ($$ billions) –1%  $17/MW-day increase in RPM price  $1 billion in capacity cost ●Difficult especially for longer term outlooks –Uncertainty about economic and demographic growth –Changing relationship between economic growth and electric loads –Changing ways we use electricity (appliances, buildings, industries, etc.) –Increasingly price-sensitive peaks (shortage pricing, smart devices) 2

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6. PJM Load Forecasting (current method, simplified) 1.Select historical period (in example: 1998-2014) 2.Calculate historical peak load growth (1.5%/year) 3.Calculate historical economic variable growth (2.5%/year) 4.Calculate elasticity of peak to economic growth (1.5/2.5=0.6) 5.Get forecast of economic growth (Moody’s; 1.8%/yr) 6.Calculate peak load forecast = economic growth x elasticity (1.8%/yr x 0.6 = 1.1%/year) 6

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8. Forecast Accuracy, Past Several Years: Chronic Over-Forecasting ●Not just longer-term forecasts; 1-year forecasts also too high ●Not just during recession; post-recession forecasts also too high ●Not just due to inaccurate economic forecasts; forecasts too high over short-term, in zones with stable economics, and post- recession 8

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14. 14 Solution: Recognize Trends in Energy Intensity/Efficiency?

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20. 20 47¢ As additional post-recession experience accumulates, and if trends are stable, will an approach focused on the recent period be simpler and more accurate?

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22. Speaker Information James F. Wilson Principal, Wilson Energy Economics 4800 Hampden Lane Suite 200 Bethesda, MD 20814 240-482-3737 office 301-535-6571 cell jwilson@wilsonenec.com www.wilsonenec.com 22 James Wilson is an economist with 30 years of consulting experience in the electric power and natural gas industries. His work has pertained to the economic and policy issues arising from the interplay of competition and regulation in these industries, including restructuring policies, market design, market analysis and market power. Recent engagements have involved resource adequacy and capacity markets, contract litigation, rate cases, modeling of utility planning problems, and many other economic issues arising in these industries. Mr. Wilson has been involved in electricity restructuring and wholesale market design for over twenty years in PJM, New England, California, Russia, and other regions. He also spent five years in Russia in the early 1990s advising on the reform, restructuring, and development of the Russian electricity and natural gas industries for the World Bank and other clients. Prior to founding Wilson Energy Economics, Mr. Wilson was a Principal at LECG, LLC. He holds a B.A. in Mathematics from Oberlin College and an M.S. in Engineering-Economic Systems from Stanford University.

23. Appendix: Zonal Forecast Graphs ●The following graphs show, for RTO and zones: –Actual and weather-normalized historical peaks –PJM peak load forecast with new specification as of September 2015 –Combined economic and intensity index (combines the six-part economic variable from Moody’s with the Other Equipment variable based on EIA data) ●Question to ponder: How well does the combined economic and intensity index track and explain the pattern of the historical weather-normalized peaks? –Over the entire period (1998-2014)? –Over the recent, post-recession period (2009-2014)? 23

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