Model validation and testing NSPs should validate and test the models they use to produce demand forecasts. Validation and testing includes assessing the statistical significance of explanatory variables, how well the model explains the data, the in-sample forecasting performance of the model against actual data, and out of sample forecast performance. Use of the most recent input information NSPs should use the most recent input information to derive their demand forecast. We may use more up to date input information as it becomes available during the determination process. Spatial (bottom up) forecasts validated by independent system level (top down) forecasts NSPs should prepare their spatial forecasts and system level forecasts independently of each other. Using system level data, a NSP is better able to identify and forecast the impact of macroeconomic, demographic and weather trends. On the other hand, spatial forecasts capture the underlying characteristics of individual areas in the network, including prospects for future load growth. They also have a more direct relationship with expenditure. Generally, spatial forecasts should be constrained to system level forecasts. The reconciliation should consider the relationships between the variables that affect system level and spatial forecasts respectively. For example, NSPs should reconcile the economic growth assumptions in their spatial forecasts (which are more likely to use judgement) with those in their system forecasts (for which data are more readily available). Demand forecasts at different levels of aggregation should be consistent with each other. Inconsistency at the different levels of aggregation affects the overall reasonableness of the forecasts. Accuracy at the total level may, for example, mask errors at lower levels (for example, at zone substations) that cancel each other out. Adjusting for temporary transfers Before determining historical trends, NSPs must correct actual maximum demands at the spatial level to system normal conditions by adjusting for the impact of temporary and permanent network transfers arising from peak load sharing and maintenance.
Model validation and testing NSPs should validate and test the models they use to produce demand forecasts. Validation and testing includes assessing the statistical significance of explanatory variables, how well the model explains the data, the in-sample forecasting performance of the model against actual data, and out of sample forecast performance. Use of the most recent input information NSPs should use the most recent input information to derive their demand forecast. We may use more up to date input information as it becomes available during the determination process. Spatial (bottom up) forecasts validated by independent system level (top down) forecasts NSPs should prepare their spatial forecasts and system level forecasts independently of each other. Using system level data, a NSP is better able to identify and forecast the impact of macroeconomic, demographic and weather trends. On the other hand, spatial forecasts capture the underlying characteristics of individual areas in the network, including prospects for future load growth. They also have a more direct relationship with expenditure. Generally, spatial forecasts should be constrained to system level forecasts. The reconciliation should consider the relationships between the variables that affect system level and spatial forecasts respectively. For example, NSPs should reconcile the economic growth assumptions in their spatial forecasts (which are more likely to use judgement) with those in their system forecasts (for which data are more readily available). Demand forecasts at different levels of aggregation should be consistent with each other. Inconsistency at the different levels of aggregation affects the overall reasonableness of the forecasts. Accuracy at the total level may, for example, mask errors at lower levels (for example, at zone substations) that cancel each other out. Adjusting for temporary transfers Before determining historical trends, NSPs must correct actual maximum demands at the spatial level to system normal conditions by adjusting for the impact of temporary and permanent network transfers arising from peak load sharing and maintenance.
AER%20explanatory%20statement%20-%20expenditure%20forecast%20assessment%20guideline%20-%20November%202013.DOCX