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Temperature Modification and Costs of Electric Power Generation

S. R. JohnsonUniversity of Missouri, Columbia, Dept. of Economics and Agricultural Economics

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James D. McQuiggUniversity of Missouri, Columbia, ESSA, Weather Bureau, Columbia, and Dept. of Atmospheric Science

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Thomas P. RothrockUniversity of Missouri, Columbia, Dept. of Economics

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Abstract

The electric power industry has long been known to be sensitive to weather events. In particular, daily temperatures in distribution areas are known to affect electric power consumption. In this paper the relationship between power consumption and daily temperatures is estimated using simple regression techniques. The resulting relationships permit an investigation of the consequences of temperature modification for 14 midwestern electric power production companies. Comparisons between power production costs for observed and modified historical and experimentally generated temperature series suggest that changes of 3–5F in average daily temperature can reduce costs substantially. Exact differentials in production cost which can be attributed to temperature modification are presented so as to be useful in firm, industry and public policy decisions.

Abstract

The electric power industry has long been known to be sensitive to weather events. In particular, daily temperatures in distribution areas are known to affect electric power consumption. In this paper the relationship between power consumption and daily temperatures is estimated using simple regression techniques. The resulting relationships permit an investigation of the consequences of temperature modification for 14 midwestern electric power production companies. Comparisons between power production costs for observed and modified historical and experimentally generated temperature series suggest that changes of 3–5F in average daily temperature can reduce costs substantially. Exact differentials in production cost which can be attributed to temperature modification are presented so as to be useful in firm, industry and public policy decisions.

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