Must Indiana Learn to Live with No Growth in Electric Demand?

By Bill Malcolm, guest author

For the first time in the state’s history, Indiana electricity demand for the next 20 years is expected to be flat. This is the finding of a recent forecast of Indiana electricity supply and demand prepared by Purdue’s State Utility Forecasting Group for the Indiana Utility Regulatory Commission (IURC).

“Indiana Electricity Projections: The 2013 Forecast” was prepared for the IURC per a 1985 law that requires Purdue’s State Utility Forecasting Group (SUFG) to assemble a state-wide electricity demand and supply forecast every two years[1]. The recent study finds that electricity demand is projected to grow at an annual average rate of 0.74 percent over the next 20 years. By contrast, the forecast two years ago predicted a 1.3% annual growth rate.

Why is this happening?
“This growth rate is considerably lower than Indiana has historically experienced and lower than the 2011 SUFG projections,” Douglas Gotham, SUFG director, said in a recent press release. “The lower growth in electricity usage is primarily due to increasing efficiency; that is, using less electrical energy to operate homes and businesses.”

According to Gotham, efficiency gains are projected to occur from three sources:

  • utility-sponsored conservation efforts
  • higher projected electricity prices making investments in higher efficiency equipment more cost-effective
  • and stricter federal energy efficiency standards.

“This is something we’ve never seen before: essentially no growth in electricity for the rest of the decade,” noted Gotham.

About those electric rates…
The Purdue study also looked at rate impacts. Adjusting for inflation, electricity rates are expected to rise 32% by 2023. Three factors are attributed to the projected increase:

  • new EPA rules
  • the impact of higher rates on usage (elasticity of demand)
  • and the increase in energy efficiency.

Essentially, increased costs of operation for the utility must be paid for by less use. Thus rates have to go up. The 2013 forecast predicts Indiana electricity prices will continue to rise in real (inflation-adjusted) terms through 2023 and then level off through the remainder of the forecast period.

A recent story in the Indianapolis Business Journal noted Indiana has lost its low-cost electric rate advantage with industrial rates, and those rates are now higher than neighboring Illinois, Ohio, and Kentucky. Ten years ago, the rates were lower than neighboring states except Kentucky. The story notes that the Indiana Energy Association cites Federal pollution control mandates as the culprit since the state gets 80% of its electricity from coal. The new $3.5 billion Duke Edwardsport coal gasification plant is also a factor for Duke’s customers[2].

Read about more key findings of the Purdue Study plus Indiana’s legislative response to the issues at hand in the full version of this article originally published in Enerdynamics’ Q1 2014 Energy Insider.

References

 1. A copy of the report is available on the State Utility Forecasting Group’s website athttp://www.purdue.edu/dp/energy/SUFG/

 2. Indianapolis Business Journal, Feb 17-23, 2014, page 27A

  About the Author: Bill Malcolm is an energy economist based in Indianapolis. He has worked for PG&E, MISO, and ANR Pipeline. He can be reached at billmalcolm@gmail.com.

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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