Falling Demand Spooks Utilities

The Wall Street Journal's Rebecca Smith is becoming required reading. Today she has a great piece on the effect declining electric consumption is having on utilities.

A trend is developing in pockets of the country where household and business consumption of electricity is falling. Experts concede that this shift is not necessarily a knee-jerk reaction to the worsening economy, but is perhaps a new reality that presents a serious problem for utilities.

Smith writes:

"The data are early and incomplete, but if the trend persists, it could ripple through companies' earnings and compel major changes in the way utilities run their businesses. Utilities are expected to invest $1.5 trillion to $2 trillion by 2030 to modernize their electric systems and meet future needs, according to an industry-funded study by the Brattle Group. However, if electricity demand is flat or even declining, utilities must either make significant adjustments to their investment plans or run the risk of building too much capacity. That could end up burdening customers and shareholders with needless expenses."

In response, many utilities are considering changing the way they set rates, embracing "decoupling" which ties rates to the actual cost of delivery and counts sales in excess of that hard cost as pure profit. This has been met with some resistance, however, as it would almost surely mean higher rates for consumers who use less energy.

Surprise Drop in Power Use Delivers Jolt to Utilities [Wall Street Journal]