Salt River Electric 2006 Load Forecast

1. Salt River Electric2006 Load Forecast Prepared by: East Kentucky Power Cooperative, Inc. Forecasting and Market Analysis Department July 2006

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3. Table of Contents Page Number • Introduction and Executive Summary 5 • Narrative 16 • Key Assumptions 28 • Methodology and Results 36 • Residential Forecast 41 • Small Commercial 46 • Large Commercial 48 • Other Forecast 50 • Peak Day Weather Scenarios 53 • RUS Form 341 56

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5. IntroductionExecutive Summary Salt River Electric(Salt River) located in Bardstown, Kentucky, is an electric distribution cooperative that serves members in 10 counties. This load forecast report contains Salt River’s long-range forecast of energy and peak demand. Salt River and its power supplier, East Kentucky Power Cooperative (EKPC), worked jointly to prepare the load forecast. Factors considered in preparing the forecast include the national and local economy, population and housing trends, service area industrial development, electric price, household income, weather, and appliance efficiency changes. EKPC prepared a preliminary load forecast, which was reviewed by Salt River for reasonability. Final projections reflect a rigorous analysis of historical data combined with the experience and judgment of the manager and staff of Salt River. Key assumptions are reported beginning on page 28.

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7. Executive Summary (continued) The load forecast is prepared biannually as part of the overall planning cycle at EKPC and Salt River. Cooperation helps to ensure that the forecast meets both parties’ needs. Salt River uses the forecast in developing two-year work plans, long-range work plans, and financial forecasts. EKPC uses the forecast in areas of marketing analysis, transmission planning, generation planning, demand-side planning, and financial forecasting. The complete load forecast for Salt River is reported in Table 1-1. Residential and commercial sales, total purchases, winter and summer peak demands, and load factor are presented for the years 1990 through 2025.

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11. Executive Summary (continued)Overall Results • Total sales are projected to grow by 2.9 percent a year for the period 2005-2025, compared to 3.7 percent which was projected in the 2004 load forecast for the period 2004-2024. Results shown in Table 1-2 and Figure 1-1. • Winter and summer peak demands for the same period indicate annual growth of 3.3 and 2.5 percent, respectively. Annual peaks shown in Figure 1-2. • Load factor remains steady at approximately 50% for the forecast period. See Figure 1-3.

12. Executive SummaryOverall Results (continued)

13. Figure 1-1 Average Annual Growth in Sales 2005-2025

14. Figure 1-2Peak Demand Forecast Winter and Summer

15. Figure 1-3Annual System Load Factor

16. NarrativeTerritory Salt River ECC headquarters is located in Bardstown, Kentucky. The cooperative furnishes electric service to Anderson, Bullitt, Jefferson, LaRue, Marion, Mercer, Nelson, Shelby, Spencer and Washington Counties. Because Kentucky has certified service boundaries, there is little possibility of a change in service territory. There are no plans for merger, consolidation or reorganization.

17. Narrative (continued)Counties Served Salt River provides service to members in 10 counties. Figure 1-4

18. Narrative (continued) Interstate 65 has six lanes through Bullitt County, providing a major transportation route through the service area. A total of five interchanges exist in or near our service area. Associated growth activity is expected in these areas. Additional load related to travel and tourism, such as hotels/motels, convenience stores and restaurants will continue to come on line during the upcoming year at the Brooks I-65 interchange in northern Bullitt County. US 61 is currently being upgraded from two to four lanes from the Jefferson County line into Shepherdsville in Bullitt County. This has opened up residential development in northern Bullitt County along Zoneton and Bells Mill Road.

19. Narrative (continued) Future improvements will extend from the Bullitt/Jefferson County line to a point south of the Mt. Washington City at the Spencer County line during the next three to four years. This will accelerate growth in western Spencer County and northeastern Nelson County. Plans are underway to four lane US 31E from south of Mt. Washington in Bullitt County to Bardstown in Nelson County. The completed acquisition by Louisville Water Company of the facilities in Bullitt County allowed for the extension of water service in central and southern Bullitt County, opening the way for new residential growth and future commercial development south of Shepherdsville.

20. Narrative (continued) An existing rail connector connects Bardstown in Nelson County with the southern line in central Bullitt County. The Southern Rail Line from Nashville penetrates Bullitt County for twenty-plus miles and serves several businesses in and near Shepherdsville and Lebanon Junction. Other than several rock and sand quarries, no mining exists in our service area. No substantial irrigation occurs in our service area.

21. Narrative (continued) The bourbon distillery industry which serves as the region’s industrial base is a mature industry and its rate will probably continue to grow due to the export trade in Europe and the Far East. Several gas transmission pipelines exist in Bullitt County but no new ones are anticipated. Natural gas service continues to expand in Bullitt County. More extensions are expected in the Mt. Washington and Shepherdsville communities as well as the Bardstown area of Nelson County. Dozens of residential subdivisions exist in Bullitt County and with a favorable economic climate dozens more are expected within the next five years.

22. Narrative (continued) Several automobile parts manufacturing plants have located on the municipal electrical system in Nelson County. Several residential subdivisions are slated for continued growth in our service areas as a result of this development. Several new industrial parks are now operating: (1) Brooks interchange (Bullitt County); (2) Cedar Grove (Bullitt County); (3) Mt. Washington (Bullitt County); (4) Springfield (Washington County); and a new one is planned near the Blue Grass Parkway in northeastern Nelson County.

23. Narrative (continued) Taylorsville Lake, a Corps of Engineers flood control impoundment, was completed in 1984. This 3,000-acre lake has 10,000 acres of associated lakeside public land devoted to wildlife preservation and recreational uses. A small resort, including condominiums and a golf course, was opened in 1984. A new private development for lodging is presently underway at Taylorsville Lake in Spencer County. A new state highway system from Jefferson County into Spencer County has created a new corridor of mixed development. This corridor connects a major population center with a major recreation area, Taylorsville Lake. More mixed development is anticipated here. This road is being extended to the interchange at the Blue Grass Parkway in Washington County. Development is expected in this area upon completion. The major remaining land areas are devoted to farming, mainly tobacco and soybean crops, and dairies; and woodland areas.

24. Narrative (continued) Schools continue to be a steady source of new loads. There are four new schools currently under construction: two in Bullitt County, one in Spencer County and one in Nelson County. Recent development at local boards of education indicated that air-conditioning will be added to schools without it over a period of one to three years. The Hwy. 245 bypass/US 150 area of the City of Bardstown is experiencing a surge in growth. Several potential development sites still exist around these sites which are in our service area. The increasing importance of tourism in Bardstown continues to fuel development within our service territory.

25. Narrative (continued) Three new residential developments, each of which has over 500 single-family residential lots, have been built since 1994. All three have increased the overall residential community of Nelson County during the last ten (10) years. Two of these developments have 18-hole golf courses with a central clubhouse facility. These same two golf course communities (Maywood and Woodlawn Springs) also have over 200 units of multi-family housing such as condominiums and apartments. These three developments are within the Salt River service area. Other new residential communities currently in development are (1) Cedar Grove Road in Bullitt County, with over 1,200 lots; (2) Highway 245/Deatsville area in Nelson County, over 600 lots; and (3) over 600 lots in Mt. Washington in Bullitt County near Bullitt East High School.

26. Narrative (continued) Highway 555 is being extended from the Willisburg/Springfield exit of the Bluegrass Parkway to the Taylorsville Lake area southern Spencer County. This route follows the easterly boundary of the Salt River ECC territory and opens up a corridor (over fifteen miles) of new area for residential, commercial and seasonal development relative to the recreational nature of the region. This project is slated for completion within a period of eight to 15 years. Construction of a bypass around Springfield in Washington County will result in development. The US highway from Perryville to Springfield has been upgraded and straightened providing potential for growth.

27. Narrative (continued)Salt River MembersDemographic Information • There is an average of 2.50 people per household. • 43% of all homes are headed by someone age 55 or greater. • 16% of homes have farm operations, with beef cattle most prevalent. • 36% of all homes served are less than 10 years old.

28. Key AssumptionsPower Cost and Rates • EKPC’s wholesale power cost forecast used in this load forecast comes from the following report: “Twenty-Year Financial Forecast, Equity Development Plan, 2006-2025”, dated January 2006.

29. Key Assumptions(continued)Economic EKPC’s source for economic forecasts is DRI-WEFA.

30. Key Assumptions(continued)Share of Regional Homes Served Salt River’s market share will increase for the forecast period. Figure 1-5

31. Key Assumptions (continued)Household IncomeMembers’ Greatest Sources Figure 1-6

32. Key Assumptions (continued)Appliance Saturations • Room air conditioner saturation is declining due to customers choosing central air conditioning systems. • Appliance efficiency trends are accounted for in the model. The data is collected from Energy Information Administration, (EIA). See Figure 1-7.

33. Key Assumptions (continued)Saturation Rates Non HVAC Appliances • Microwave Oven 97% • Electric Range 92% • Dishwasher 70% • Freezer 58% • Clothes Dryer 97% • Personal Computer 66%

34. Key Assumptions(continued) Figure 1-7 All of the projections are very similar to what was used in the 2004 Load Forecast. However, the 2004 Load Forecast assumption was just below 8 by 2024 whereas this update shows the trend continuing above 8. Source: Energy Information Administration (EIA) Efficiency Trend Update, 2005

35. Key Assumptions (continued)Weather • Weather data is from the Louisville weather station. • Normal weather, a 30-year average of historical temperatures, is assumed for the forecast years.

36. Methodology and ResultsIntroduction This section briefly describes the methodology used to develop the load forecast and presents results in tabular and graphical form for residential and commercial classifications. Table 1-3 through Table 1-5 shows historical data for Salt River as reported on RUS Form 736 and RUS Form 5. A preliminary forecast is prepared during the first quarter depending on when Salt River experiences its winter peak. The first step is modeling the regional economy. Population, income, and employment are among the areas analyzed. The regional model results are used in combination with the historical billing information, appliance saturation data, appliance efficiency data, and weather data to develop the long range forecast.

37. Table 1-3

38. Table 1-4

39. Table 1-5

40. Methodology and Results (continued) The preliminary forecast was presented to Salt River staff, and reviewed by the Rural Utilities Services (RUS) Field Representative. Changes were made to the forecast as needed based on new information, such as new large loads or subdivisions. In some instances, other assumptions were changed based on insights from Salt River staff. Input from EKPC and Salt River results in the best possible forecast.

41. Methodology and Results (continued)Residential Forecast Residential customers are analyzed by means of regression analysis with resulting coefficients used to prepare customer projections. Regressions for residential customers are typically a function of regional economic and demographic variables. Two variables that are very significant are the numbers of households by county in each member system's economic region and the percent of total households served by the member system. Table 1-6 and Figure 1-8 report Salt River’s customer forecast. The residential energy sales were projected using a statistically adjusted end-use (SAE) approach. This method of modeling incorporates end-use forecasts and can be used to allocate the monthly and annual forecasts into end-use components. This method, like end-use modeling, requires detailed information about appliance saturation, appliance use, appliance efficiencies, household characteristics, weather characteristics, and demographic and economic information. The SAE approach segments the average household use into heating, cooling, and water heating end-use components. See Figure 1-9. This model accounts for appliance efficiency improvements. Table 1-6 reports Salt River’s energy forecast.

42. Table 1-6

43. Figure 1-8Annual Change in Residential Customers

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45. Figure 1-9

46. Methodology and Results (continued)Small Commercial Forecast Small commercial sales are projected using two equations, a customer equation and a small commercial sales equation. Both are determined through regression analysis and utilize inputs relating to the economy, electric price, and the residential customer forecast. Small commercial projections are reported in Table 1-7.

47. Table 1-7

48. Methodology and Results (continued)Large Commercial Forecast Large commercial customers are those with loads 1 MW or greater. Salt River currently has 9 customers in this class and is projected to increase to 26 customers by 2025. Large commercial results are reported in Table 1-8.

49. Table 1-8

50. Methodology and Results (continued)Other Forecast Salt River serves street light accounts which are classified in the ‘Other’ category. This class is modeled separately. Results are reported in Table 1-9.