Sluggish electric demand plagues U.S. utilities

Fri May 11, 2012 3:39pm EDT

* Mild weather depresses power use in first quarter

* Flat demand may be "new normal" - consultant

* Information technology may expand power demand

By Eileen O'Grady

HOUSTON, May 11 (Reuters) - Sluggish U.S. electricity consumption has yet to return to the level seen in 2007 as effects of the 2008 recession linger for utilities and power producers, according to industry data.

Warmer-than-normal winter weather again depressed power use in the first quarter compared to 2011, paring utility earnings in many cases and leaving executives to search for other signs of future recovery, like employment trends, the number of vacant homes and data-center development.

"There was literally no winter weather anywhere in our geographic footprint at any time," said David Crane, chairman of NRG Energy, an independent power producer with nearly 25,000 megawatts of generation located in the U.S. Northeast, Texas, Louisiana and California.

U.S. electric demand in 2011 slipped to 4,065 gigawatt-hours, down 0.6 percent from 2010 and nearly 0.9 percent from the 2007 peak demand of 4,100 GWh, according to Edison Electric Institute data.

Weather is always a major factor influencing power consumption, but ongoing economic weakness that eliminated some industrial power load, increased spending on energy efficiency in two dozen states and rising power prices are serving to keep a lid on demand, said Michael Britt, a partner at Oliver Wyman, an international consulting firm.

Government forecasts project consumption of electricity will grow by 23 percent over the next three decades, but the annual rate of growth will decline as it has for a number of years, from a 4.7-percent annual pace in the 70s; to 2.4 percent in the 90s; 1 percent in the early 2000s; and 0.8 percent from 2010 to 2035, according to the Energy Information Administration.

The recession of 2008 was the most significant downturn in the recent past "and its impact on every aspect of the economy has been more pronounced and slower to bounce back," said Britt of Oliver Wyman.

Flat electric demand may be the "new normal," Britt said, pushing some utilities into a financial squeeze as their revenue falls even as requirements for capital spending rise to address stricter environmental standards and to upgrade aging transmission assets.

"Without significant growth in the economy - which is not projected, we are likely to have flat demand and rising capital needs which will mean the unit cost of electricity will rise," Britt said. "That's a difficult environment for regulators and utilities and they are going to have to work closely together to moderate the rate impact."

Some states, like Texas, saw only limited impact from the recession, while Virginia and a few other areas are seeing a slow rebound in demand with improving local economic conditions.

A survey of energy experts by The Brattle Group said energy efficiency programs may pare U.S. power consumption by 5 percent to 15 percent by 2020 from current forecasts for growth.

Over the past three decades, average energy use in the average U.S. household fell 31 percent due to fewer occupants, better construction methods and energy-saving appliances, according to the U.S. Energy Information Administration.

Since that 2005 survey, however, the number of energy-consuming devices, especially electronics, jumped significantly. The share of electricity used by appliances and electronics nearly doubled to 31 percent in 2009, from 17 percent in the late 70s.

Predictions for mostly lackluster growth in power demand has reduced the urgency for some utilities to build new power plants, especially dozens of coal-fired plants in development a few years ago.

Xcel's Minnesota utility dropped a plan to build a large new natural gas plant in Minnesota, saying it had enough generating capacity to serve its customers through 2018 and Florida's severe economic downturn forced Progress Energy's Florida utility to push back its plan for a costly new nuclear reactor by three years to 2024.

One contrarian to the flat-growth theory is Mark P. Mills, founder of Digital Power Group, who said a trio of technological transformations related to data processing and storage, wireless connectivity and smart manufacturing present a "very bright future" for companies that produce electricity.

"The share of our economy devoted to moving bits is bigger than the share devoted to moving people and stuff," Mills told the Gulf Coast Power Association conference in Houston last month.

The information segment of the U.S. economy, including everything from server farms to I-phones to Netflix, "is where all the growth is," Mills said.

"The bits-moving industry is all about electricity" and consumes more power than all the commercial office space in America, Mills said. "When everyone thinks there is no growth, that's when it happens."

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Comments (1)
fw1421 wrote:
Maybe I’m uneducated in the economics of the energy business but I thought less demand was good for the electric industry. Here in Texas where deregulation was supposed to lead to a better electric grid. It has turned out not to be the truth. Our power bills are some of the highest and the grid hasn’t had the investment we were promised. We suffer from rolling blackouts during the summer due to too much demand.

There are some things that should not be for the almighty profit motive and should be not for profit and the electric industry is one of them. Energy should be for the benefit of all Americans and should be adequate and affordable to all. That way industry and the public use it economically and all benefit equally. The continuing deregulation of our economy will turn everything over to Wall Street to where greed rules the day and the American worker gets pounded into the ground so that hedge funds continue to make huge profits and their managers get richer.

May 13, 2012 3:27am EDT  --  Report as abuse
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