NEW YORK/HOUSTON U.S. electricity demand will continue to shrink in 2009 as the economic meltdown hits industrial power consumption, but a rebound could come in 2010.
Bigger houses, a myriad of electric devices and an expanding economy have kept U.S. power use on a nearly uninterrupted climb for 25 years - until the recession put the brakes on industrial demand in 2008.
Electricity sales to industrial customers are expected to shrink 6.4 percent this year, leading to an expected 1.7 percent drop in overall power consumption in 2009, the U.S. Energy Information Administration said in its most recent outlook.
EIA, which provides data and analysis for the U.S. Department of Energy, said in another report industrial consumers bought 11.4 percent less power in January 2009 compared with the same time last year.
"Industrial demand will cycle deeper than residential (use) because industrial demand is even more sensitive to the business cycle," said Lawrence Makovich, vice president of the global power group at Cambridge Energy Research Associates.
EIA expects the downturn to reverse course in 2010, with 1.2 percent growth in electric output as the economy slowly returns to life.
PJM, the biggest power grid in North America, forecast a 1.4 percent drop in peak demand this summer compared with 2008, based on normal weather conditions.
Demand in the 13 mid-Atlantic and Midwest states that PJM serves should rebound in 2010 but not surpass levels seen in 2008 until 2011.
Weather is the dominant factor affecting power demand but has the biggest impact on residential and commercial use, sectors expected to remain relatively flat this year.
Examples of declining industrial demand, which makes up about a quarter of U.S. electric consumption, are easy to find.
Minnesota Power, a unit of Allete Inc of Duluth, Minnesota, expects power demand from taconite miners, its biggest customers, to fall by 40 percent this year.
Taconite miners use electricity to process iron-bearing rock into pellets used to make steel. The demand for steel has plunged in the current economy.
In the petrochemical-dominant Houston area, nonresidential power sales fell 5.5 percent in February, according to CenterPoint Energy Inc, a power delivery company.
February marked the third month that CenterPoint showed nonresidential sales lagging the year-earlier month.
To conserve cash, power companies have deferred spending by about 10 percent, or $7 billion to $8 billion, according to an informal survey by Edison Electric Institute (EEI), an association of shareholder-owned power companies.
On Monday, American Electric Power Co Inc, with customers in 11 states, cut its 2010 capital budget by nearly half, to $1.8 billion from $3.4 billion, and pared its 2009 profit outlook, citing weak industrial demand.
Last fall, AEP's 2009 capital budget was cut by than 20 percent. "Discretionary projects are being deferred until the economic climate warrants the additional investment," the company said in a statement.
The financial crisis is delaying investment in energy infrastructure at the same time new environmental mandates are requiring substantial increases in generation and transmission needed to limit air emissions and boost renewable supplies.
CERA's Makovich expects utilities to pare overall capital spending by as much as 20 percent by the end of the year due to lower revenue and increased bad debt.
"When we get to 20 percent or more, I start to worry about the consequences," said Makovich. "That doesn't hurt you now but can down the road when projects were supposed to be done and demand rebounds."
PJM projected peak demand growth would return to a more normal 1.7 percent per year over the next decade.
"The economic downturn has delayed the need for new infrastructure, but has not eliminated it," PJM spokesman Ray Dotter said.
(Editing by Marguerita Choy)