Subject: Electric Power Demand
Power Demand Dims Outlook a.. Article b.. Comments (1) more in Business »
By REBECCA SMITH
Electricity sales remained weak in the third quarter, prompting speculation that the sluggishness could persist even after the U.S. economy rebounds. Some utilities don't expect power sales to recover to pre-recession levels until 2012 -- if at all -- because so many factories have closed. Getting a read on future demand is crucial for utilities because they require long lead times to build power plants and make other upgrades. Declining sales put pressure on utilities to raise prices, cut costs or make other adjustments to bolster profits. The sector began to feel the recession, which started in late 2007, later than many others. Sales held up well in the first half of 2008 but then declined and have continued falling this year, though some regions are reporting an uptick. The federal Energy Information Administration expects overall electricity sales to decline 3.3% this year and grow modestly next year, but many utilities anticipate far larger declines for the year. Duke Energy Corp. said its energy sales to the textile industry based in the Carolinas fell 20% in the third quarter, versus a drop of 13.7% for sales to all industrial users. For the first nine months of 2009, electricity sales to the textile industry were down 23.5%, from the prior year, and overall industrial sales were down 15.8%.
American Electric Power Co. of Columbus, Ohio, which owns utilities in 11 states, saw industrial electricity sales plunge 17% for the third quarter versus the year-ago period. Chief Executive Mike Morris said his company is counting on industrial demand recovering about a third of the lost ground in 2010. Beyond that, he is wary of making predictions. "I don't know if we'll ever get all of it back," he said, acknowledging that factory closings in the auto sector will have a lasting effect. Larry Makovich of consultancy Cambridge Energy Research Associates is among the few who believe electricity sales will experience a "strong rebound" next year. "It is dangerous to misinterpret a short-run phenomenon as a structural change," he said. Atlanta's Southern Co., which owns utilities in four Southeastern states, has seen year-to-date industrial demand drop 15%, including a 9.6% drop in the past quarter. Chief Executive David Ratcliffe said he sees signs of recovery, but added that it feels "fragile." Bill Johnson, chief executive of Progress Energy, which has utilities in Florida and the Carolinas, said he thinks homes mostly have cut use voluntarily, unlike businesses. Total sales fell 10.9% in the first nine months of the year across all customer categories, led by industrial sales that dropped 11.4% in the Carolinas and 12.9% in Florida. "I think there's still a high level of concern and a great deal of unease" about the economy, Mr. Johnson said, adding that he doesn't expect a sharp recovery. Bob Shepard, chief executive of Oncor in Dallas, said he thinks the drop in energy use in 2008 "was so quick that it wasn't structural but was probably cyclical." Nevertheless, he said he doesn't expect a full recovery in total sales volumes until 2012. Portland General Electric in Oregon saw residential sales rise 4.6% for the quarter, but the gain was offset by a 5.3% drop in industrial sales. Utility analyst Chris Ellinghaus at Shields & Company in New York said he isn't hopeful the sector will recover next year but thinks "2011 will look more normal." Write to Rebecca Smith at rebecca.smith@wsj.com
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