Forecast of Future Demand for Electricity by TVA

GAO was asked to discuss its recent work at the Tennessee Valley Authority (TVA) concerning the latest demand forecast and current analysis of alternatives for responding to the latest demand forecast. Specifically, GAO was asked about: (1) the history of demand forecasting by TVA; (2) the improvements made in demand forecasting by TVA; (3) additional improvements that TVA should make; (4) the magnitude of the TVA surplus capacity based on its most recent demand forecast; (5) the expected longevity of the surplus; (6) the effect of the surplus capacity to date on the costs of TVA operations; (7) the effect of the surplus capacity on future electric rates; and (8) the effect of the surplus capacity on the economic benefits of conservation programs administered by TVA. GAO responded that: (1) TVA historically prepared an annual forecast of future demand and that each successive forecast predicted lower demand growth; (2) TVA now collects detailed data and prepares several demand forecasts each year; (3) TVA should base its forecasts on national consumption rather than regional consumption since the two can vary widely; (4) surplus capacity during the period from 1981 to 2000 would range from about 4 to 34 percent in the summer and from about 9 to 54 percent in the winter; (5) surplus capacity under the current construction schedule would tend to increase; (6) TVA ratepayers continue to bear the financing costs associated with construction of the surplus capacity; (7) if the construction schedule were advanced to sell power earlier, rates could rise faster because financing costs would rise more rapidly; and (8) even if expenditures on conservation programs during the next decade cannot be shown to be cost effective based on today's data, expenditures on these programs possibly could prove to be in a position to take advantage of technological breakthroughs.