Nov 23 - Virginian - Pilot

An unexpected drop in U.S. electricity consumption has utility companies worried that the trend isn't a byproduct of the economic downturn and could reflect a permanent shift in consumption that will require sweeping change in their industry.

Numbers are trickling in from several large utilities that show shrinking power use by households and businesses across the country. Utilities have long counted on sales growth of 1 to 2 percent annually in the United States, and they created complex operating and expansion plans to meet the needs of a growing population.

"We're in a period where growth is going to be challenged," said Jim Rogers, chief executive of Duke Energy Corp. in Charlotte, N.C.

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. If electricity demand is flat or even declining, however, utilities must 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.

Electricity use fluctuates with the economy and population trends. But what has executives stumped is that recent shifts appear larger than others seen previously, and they can't easily be explained by weather fluctuations.

Dick Kelly, chief executive officer of Xcel Energy Inc., Minneapolis, said his company, which has utilities in Colorado and Minnesota, saw home-energy use drop 3 percent in the period from August through September, "the first time in 40 years I've seen a decline in sales" to homes. He doesn't think foreclosures are responsible for the trend.

Duke Energy Corp.'s third-quarter electricity sales were down 5.9 percent in the Midwest from the year earlier, including a 9 percent drop among residential customers. At its utilities operating in the Carolinas, sales were down 4.3 percent for the three-month period ending Sept. 30 from a year earlier.

American Electric Power Co., which owns utilities operating in 11 states, saw total electricity consumption drop 3.3 percent in the same period from the prior year. Among residential customers, the drop was 7.2 percent. Milder weather played a role, however.

Utility executives question whether the recent declines are primarily a function of the broader economic downturn. If that's the case, said Kelly, then utilities should continue to build power plants "because when we come out of the recession, demand could pick up sharply" as consumers begin to splurge again on items like big- screen televisions and other gadgets.

Michael Morris, the chief executive of AEP, one of the country's largest utilities, said he thinks the industry should be wary about breaking ground on expensive new projects. "The message is: Be cautious about what you build, because you may not have the demand" to justify the expense, he said.

Utilities are taking steps to get a better understanding of the cause. Some are asking customers who reduced usage to explain what influenced them. Xcel and other utilities, for example, have been running environmentally focused campaigns to urge consumers to use less energy recently, a message that might be taking hold.

Power companies also are questioning the reliability of the weather-adjustment models they use to harmonize fluctuating sales from quarter to quarter. "It's more art than science," said Bill Johnson, chief executive of Progress Energy Inc., Raleigh, N.C.

Originally published by BY REBECCA SMITH.

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