COMMERCIAL GETTING IT RIGHT

Transcription

1 COMMERCIAL SALES FORECASTING: GETTING IT RIGHT An Itron Brown Bag Presentation June 19, 2012

2 PLEASE REMEMBER» Phones are Muted: In order to help this session run smoothly, your phones are muted.» Full Screen Mode: To make the presentation portion of the screen larger, press the expand button on the toolbar. Press it again to return to regular window.» Feedback: If you need to give feedback to the presenter during the meeting, such as, slow down or need to get the presenters attention for some other reason, use the pull down menu in the seating chart and we will address it right away.» Questions: If you have questions, please type your question in the Q&A box in the bottom, right corner. We will try to answer as many questions as we can.

3 2012 BROWN BAG SEMINARS» Using Conditional Heteroskedastic Variance Models in Load Research Sample Design - March 6, 2012» Commercial Sales Modeling and Forecasting June 19, 2012» Forecast Accuracy vs. Forecast Stability September 18, 2012» Smart Grid Forecasting December 11, 2012 All at noon, Pacific Time All are recorded and available for review after the session.

4 COMMERCIAL SALES FORECASTING: GETTING IT RIGHT» Since 2007, there has been a significant downward trend in commercial sales, largely resulting from The Great Recession.» While the economy is improving, commercial sales in many regions in the country have not. Most of us have been over-forecasting commercial sales. Why? How do we get it right?

5 2012 FORECAST SURVEY Distribution of 2011 Commercial Sales Forecast Error

6 U.S. COMMERCIAL ELECTRIC SALES VS. GDP Sales (2005 = 1.0) GDP (2005 = 1.0) There has been a strong historical link between GDP and commercial electric sales. Given GDP, we should be able to forecast commercial sales easily.

7 WESTERN UTILITY COMMERCIAL SALES: % Annual Growth 0.7% Annual Decline MWh

8 WESTERN UTILITY REAL GROSS REGIONAL PRODUCT (GRP): Millions) 5.9% Annual Growth Dollars ( 3.2% Annual Decline

9 WESTERN UTILITY EMPLOYMENT: % Annual Growth ousands Tho 3.5% Annual Decline

10 SOUTHERN UTILITY COMMERCIAL SALES: % Annual Growth 1.3% Annual Decline MWh

11 SOUTHERN UTILITY REAL GROSS REGIONAL PRODUCT: % Annual Growth Dollars (Millions s) 1.0% Annual Decline

12 SOUTHERN UTILITY EMPLOYMENT: % Annual Growth sands Thou 2.6% Annual Decline

13 WHAT DOES THIS TELL US?» There is a strong link between economic activity and commercial sales Particularly strong link with GDP» We have seen a downward trend in commercial sales beginning in 2008 The four-year sales slide ( ) has coincided with the Great Recession» With the improving economy and strong GDP growth projections, we should see relatively strong commercial sales gains. Unfortunately, this is not happening.

14 WHAT VARIABLES DO YOU USE IN YOUR COMMERCIAL SALES FORECAST MODEL? 77 respondents reported using a total of 130 variables

15 2012 BUDGET YEAR FORECAST FACTORS THAT IMPACTED OUR THINKING 1. It looked like the 2010 sales and into the first quarter of 2011 were bottoming-out out and we started seeing positive commercial customer growth again 2. The economic vendors were forecasting strong secondhalf 2011 and first-half 2012 economic growth 3. We assumed strong GDP growth would again translate into strong commercial sales growth 2012 Budget-Year forecast based on actual data through the 1st quarter, 2011

16 ECONOMIC FORECAST MISSED REALITY BIG TIME March 2012 Forecast March 2011 Forecast Forecasted growth Forecasted growth 2 nd half of 2011 through 1 st half of Fcst: 5.2% vs Fcst:1.7%

17 MOODY ANALYTICS VERMONT GSP FORECAST BY VINTAGE 2012 Budget Year forecast based on March 2011 economic forecast

18 ELECTRICITY SALES ARE MOVING OFF THE LONG-TERM TREND LINE Structural changes are moving us off the long-term trend line

19 STRUCTURAL CHANGES» 3.0% GDP growth no longer means 2.0% - 2.5% sales growth More likely 1.0% - 1.5% sales growth» Why? Changes in the way we shop and work Increasing end-use efficiency - New end-use and building standards coupled with utility and state t efficiency i programs translate t into strong end-use efficiency gains

20 HOW WE SHOP AND WORK» Shopping Big box retail is no longer so big - Lots of empty Borders, Circuit City, and Linen n Things stores Best Buy announced the closure of 50 big-box stores and the opening of 100 mobile small format stand alone stores While Borders went bankrupt, Amazon.com s revenues rose from $14.2 Billion in 2007 to $48.1 Billion in 2011 At the same time, data centers now account for approximately 2.0% of all U.S. electricity use» Working You no longer have a desk. You now get a free address and a locker. - American Express - Glaxo-SmithKline - PricewaterhouseCoopers

21 SHARE OF WORKFORCE THAT WORKS AT HOME BLS Sharp jump in the percentage of people that work at home between 2004 and 2010

22 FACTORS DRIVING COMMERCIAL ENERGY INTENSITY DOWNWARDS» New Standards Federal efficiency standards enacted under EISA 2007, ARRA 2009 and new standards issued by the Department of Energy through recent rule-making. Refrigeration Lighting Water Heating» Market driven efficiency gains. New equipment and construction is more efficient than what is being replaced Efficiency gains are greater than end-use saturation growth» Utility and state efficiency programs have a growing focus on the commercial sector» Commercial customer mix - adding new customers, but they tend to be smaller and less energy intensive

23 COMMERCIAL END-USE INTENSITY PROJECTIONS are Foot kwh per Squ Heat Cool Vent EWHeat Cooking Refrig OLight ILight Office Misc » Miscellaneous is the only end-use showing positive growth: Non-PC office equipment (servers, mainframe computers) Other equipment (elevators, medical imaging equipment, etc.)

24 COMMERCIAL U.S. ENERGY INTENSITY (2012 ANNUAL ENERGY OUTLOOK) kwh per Square Foo ot : 0.1% Average Annual Change Federal efficiency standards enacted under EISA 2007, ARRA 2009 and recent DOE rule-making result in downward pressure on energy intensity.

25 HOW HAS OUR OUTLOOK CHANGED? AEO COMMERCIAL INTENSITY FORECAST kwh per Square Fo oot US08 Forecast : 0.7% US Forecast : 0.1%

26 HOW HAS OUR OUTLOOK CHANGED? AEO COMMERCIAL SALES FORECAST 2,400, US08 Forecast US : 1.9% 2,000,000 1,600,000 GWh 1,200, , Forecast : 1.1% 400,

27 THE COMMERCIAL END-USE MODEL A framework for thinking about the factors that drive sales. 1. Sales et EI et SqFt et Utilization et EI kwh SqFt Saturation EUI 2. et et et et 3. SqFt t f ( Employmentt, Outputt )

28 COMMERCIAL SECTOR Building Types End-Uses Assembly Heating Education Cooling Food Sales Ventilation Food Services Water Heating Health Care Cooking Lodging Refrigeration Small Office Outdoor Lighting Large Office Indoor Lighting Merchant/Services Office Equipment (PCs) Warehouses Miscellaneous Other

29 COMMERCIAL END-USE ENERGY MIX Misc 20% Heat 5% Cool 13% Office 4% Vent 12% EWHeat ILight Cooking 3% Refrig 28% 11% 1% OLight 3%

30 COMMERCIAL SAE MODEL - XCOOL Sales m b 0 b 1 XCool m b 2 XHeat m b 3 XOther m XCool m CoolIndex y CoolUse m CoolUse m CDD Pr m EconVarm icem Pr CDD EconVar ice CoolIndex y CoolkWh 04 CoolEI CoolEI y 04

31 COMMERCIAL SAE MODEL - XOTHER Sales m b 0 b 1 XCool m b 2 XHeat m b 3 XOther m XOther m OtherIndex y OtherUse m OtherUse m BDays m CDD m EconVar 30.5 CDD 04 EconVar 04 m OtherIndex y OtherkWh OtherEI ( month _ fraction y 04 m OtherEI04 )

32 MIDWEST UTILITY MEDIUM COMMERCIAL REVENUE CLASS Sales (MWh) Customers

33 COMMERCIAL SAE VARIABLES (KWH PER SQFT) XOther XCool XHeat

34 COMMERCIAL SALES MODEL Actual Predicted

35 VARIABLE CONTRIBUTIONS Weather Normal Forecast Other Use Cooling Heating

36 FINDING THE RIGHT ECONOMIC DRIVER What to use for EconVar? Price Index Indexed economic drivers July 2005 = 1.0 GDP Index Non-Manufacturing Employment Index

37 BLENDING ECONOMIC DRIVERS Sales Index GDP Index Weighted Econ Variable = GDP^0.5 x Employ^0.5 Employment Index Weighted economic driver explained sales variation better than GDP or Employment alone

38 FORECAST COMPARISON (MWH) The choice of economic driver matters

39 HOW TO GET A BETTER FORECAST» Need to understand that the relationship between commercial sales and GDP is changing 3.0% GDP growth no longer means 2.0% sales growth. It more likely means 1.0% to 1.5% sales growth.» Consider using a commercial SAE model. The SAE framework allows you to incorporate more information than just aggregate economic activity into the forecast. The SAE framework is particularly l useful for long-term forecasting and for integrating the impact of future efficiency programs.» Explore alternative ti commercial economic drivers Look at integrating employment, output, and households or population. GDP alone may not be such a great variable to use.

40 QUESTIONS? Press *6 to ask a question Remaining 2012 Hands-on Workshops & Meetings» Fundamentals of Sales & Demand Forecasting September 20-21, Boston» Fundamentals of Short-Term and Hourly Forecasting October 11-12, San Diego» Forecasting 101 November 7-9, San Diego» Itron Users' Conference October 21-23, San Antonio For more information and registration: For more information and registration: Contact us at: , or forecasting@itron.com