Estimating base temperatures in econometric models that include degree days

- The base parameter in HDD and CDD either causes an errors-in-variables problem or is an unestimated parameter.
- We show that the error is not ignorable and give a simple non-linear formulation for estimating the parameter.
- Results between status quo method and the non-linear method are compared.
- A rule of thumb correction is offered to quickly re-evaluate past results.

Heating and cooling degree days are in common use in conditional demand models, billing analysis, and large-scale energy forecasts. The implications of either choosing an ex-ante base temperature, or scanning over the base temperatures, as suggested in Fels (1986) and recommended by some evaluation protocols, are infrequently considered. These procedures result in biased estimates of weather-driven loads because of correlated errors-in-variables, and impart a downward bias to the variance of those estimates by a factor of two. A non-linear estimation procedure that corrects for these biases and an ex-ante correction factor for evaluating prior evaluations are offered.