Climate normals and weather normalization for utility regulation

- The study investigates the bias in normalized energy consumption estimates using the Standard Climate Normal (SCN) temperatures.
- The Ranked Climatological Normal (RCN) is introduced to correct the bias from using the SCN in normalized energy consumption estimates.
- A simulation estimates the economic impact of using the RCN instead of the SCN in electric utility rate design.

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.