After a Tough Year, Power Sales Could Be Poised for Recovery

by Peter Marrin, SNL Energy

As companies across the United States close their books and prepare to go public with their latest earnings statements, utility holding companies continue to wade through an economically tumultuous tide as the recession and mild weather weigh on U.S. electricity demand, dragging down power sales for utilities and undercutting profits for their holding companies.

While the more detailed financial data of U.S. utilities remain a few weeks away, even in these inherently uncertain economic times, one thing is widely expected if not foregone: Companies that rely on the sale of electricity to drive their profits likely saw another bumpy quarter.

While the recession may have formally ended, considerable sales growth concerns exist for utilities. The industrial sector was hit particularly hard during the second quarter, according to SNL Energy data. Southern Co. reported that its utility industrial sales fell 18 percent (vs. Q208), while Duke Energy Corp.’s industrial sales declined 19 percent in the same period. TECO Energy Inc. reported that its Tampa Electric Co. subsidiary continued to feel the impacts of a weak housing market, as its second quarter industrial sales declined 10 percent. Alliant Energy Corp. had a 13 percent industrial sales falloff during the second quarter.

Recovery, however, might not be far away. With economic activity possibly showing signs of improvement, all eyes will be on sales results for the fourth quarter that will be released soon. One positive factor was the turnaround in weather as the summer progressed. While mild weather negatively impacted nationwide average cooling degree-days during July, hotter August and September temperatures had favorable impacts, resulting in little differential for the full third quarter vs. the norm for the quarter and 2008’s third quarter.

Light at the End of the Tunnel?

During the first half of the year, the largest declines in residential electricity sales occurred in the western United States, while industrial sales declined most dramatically in the East, according to the U.S. Energy Information Administration’s “Short-Term Energy and Winter Fuels Outlook” released in October.

The rate of decline in electricity consumption, however, is expected to slow during the second half of the year, especially in the Southwest, where warm temperatures increased summer air conditioning usage, the EIA said.

The EIA expects U.S. electricity consumption will decline by 3.3 percent as a total for 2009 and then grow by 1.3 percent in 2010 as the improving economy leads to slowly recovering industrial sector electricity sales.

Moreover, a cold winter could further bolster residential electricity demand into early 2010.

The EIA said that, according to preliminary data through September, retail power sales totaled 10.81 billion kWh a day in the third quarter, down 3.8 percent from the same quarter in 2008. With residential and commercial sales down just 0.2 percent and 2.8 percent on the year respectively, the total decline was attributed primarily to industrial demand, which was still down 11.7 percent on the year at 2.48 billion kWh a day in the third quarter.

Despite the ongoing decline in power demand through September, the utility sector is already showing signs of improvement. OGE Energy Corp., up 5.8 percent, was the top performer in September. The stock is among the top performers year to date, having risen 28 percent through the end of September. Alliant Energy Corp. increased 5.7 percent in September. TECO Energy Inc., up 5.7 percent, outperformed the group for the third time in five months. The stock has been a fairly strong performer in 2009, having risen 14 percent, despite a slow start to the year resulting from a disappointing earnings outlook based on the weak Florida economy. DPL Inc. was up 5.4 percent, possibly in response to second-quarter earnings that had been bolstered by rate increases and lower-interest expenses. NiSource Inc. was up 5.1 percent in September. The stock has been one of the best performers in the group, having risen 27 percent through the end of September, following a particularly challenging 2008 when the shares declined 42 percent. Other outperforming stocks for the month were Dominion Resources Inc., up 4.3 percent; Pepco Holdings Inc., up 3.8 percent; PPL Corp., up, 3.2 percent; and Constellation Energy Group Inc., up 2.3 percent.

EIA projects a recovery through 2010 with a forecast for total retail sales of 9.93 billion kWh a day by the first quarter of 2010, implying a small but still positive 0.8 percent year-on-year uptick, the first move higher in almost 18 months.

Total retail power sales are seen growing by almost 1.3 percent in 2010.

Power Sales Tumble With Broader Economy

U.S. utilities have seen market conditions turn south in the past year as the worldwide recession cut industrial energy demand particularly hard in the U.S., which in turn pressured the bottom line for U.S. utility holding companies.

Based on SNL Energy data, the fiscal second quarter of 2009 marked the third straight quarter in which power sales fell by 5 percent or more, which in turn put pressure on utility holding companies already dealing with a host of issues. SNL data shows that for 48 of the biggest utility holding companies, total power sales in the second quarter dropped 6.22 percent during the same quarter in 2008.

As with much of the economic troubles of 2009, most of the woe for these companies could be traced to the last quarter of 2008, when power sales dropped 7 percent nationwide, coming off a 2 percent drop in power sales in the third quarter of 2008. Large drops in wholesale and industrial sales over the previous-year’s numbers, at about 16.5 percent and 17 percent, respectively, drove most of this loss in total power sales, data shows.

Power sales continued to drop in the first two quarters of this year with total sales down 5.5 percent in the first quarter and down 6.5 percent in the second quarter, driven again by the careening industrial and wholesale sectors.

Residential sales, often at the mercy of regional weather patterns, fared much better, increasing for these 48 companies by 0.38 percent in the first quarter and declining a modest 0.94 percent in the second quarter. Commercial sales were down about 1 percent in the past few quarters compared with prior-year statistics.

A Tough Year for the Utility Sector

The sustained drop in electricity sales during the past year has been a direct result of the broader economic collapse with sharp drops in wholesale and industrial sales underscoring the broader slowdown of U.S. business since the first half of 2008. Wholesale power sales have suffered among the most of any sales class during the past few quarters, reaching the largest decline over previous-year levels at 16.48 percent in the fourth quarter of 2008. The second quarter of 2009 saw wholesale power sales decline for these utilities by 15.76 percent, accelerating from the 12.69 percent drop in the first quarter.

Several companies fared much worse in the second quarter, with wholesale sales dropping by as much as 45 percent. SNL data shows UniSource Energy Corp. led all companies in wholesale power declines, seeing sales drop 45.22 percent in the second quarter of 2009 over 2008 levels. Wisconsin Energy Corp. and FirstEnergy Corp. were close behind, seeing wholesale power sales drop 33.59 percent and 27.61 percent respectively over the same period.

No other class of sales has suffered as much over the past four quarters as industrial power sales, however, with declines over previous-year values reaching as high as 17.01 percent in the fourth quarter of 2008 and 15.5 percent in the second quarter of 2009. In the second quarter of 2009, industrial sales made up roughly 21 percent of total electric sales.

Among utility holding companies with at least 500,000 MWh of industrial sales in the first and second quarters of 2008, ALLETE Inc. saw the largest declines in industrial power sales for the first and second quarters of 2009 over prior-year numbers. These declines amounted to roughly 27 percent in the first quarter of 2009 and topped out at 51.14 percent in the second quarter of 2009, according to SNL data.

Residential sales, which comprised roughly 32 percent of total power sales in the second quarter, fell a modest 0.94 percent compared with the same quarter last year.

Topping the list of companies with the largest declines in residential power sales in the second quarter was DTE Energy Co., with an 8.2 percent drop in the second quarter of 2009 compared with the second quarter of 2008. DTE was followed closely by Public Service Enterprise Group Inc. with a decline of 8.07 percent.

Commercial power sales dropped roughly 1 percent over prior-year levels in each of the past three quarters. The largest decline during the past four quarters came in the third quarter of 2008 at 1.75 percent, compared to a 1.15 percent decline in the second quarter of 2009. Commercial sales comprised roughly 30 percent of total power sales for these companies in the second quarter of 2009.

SNL data shows DTE Energy Co. topped the list of biggest declines in commercial sales as well, with sales dropping 7.67 percent in the second quarter of 2009 over first-quarter levels. Four companies—DTE, DPL Inc., Northeast Utilities and TECO Energy Inc.—made the lists of the largest residential and commercial declines.

Note: Deadline prevented inclusion of Q3 and Q4 data.


Peter Marrin is a senior editor with SNL Energy. He graduated from Fordham University with Bachelor of Arts degrees in English and anthropology and has eight years of experience in energy markets. Reach him at


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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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