Picturing utilities in a series of sobering snapshots.
Leonard S. Hyman is a partner in Cousin Capital and managing director of Energy Resource Capital. He was senior advisor at Salomon Smith Barney and head of utility research at Merrill Lynch. He has authored or co-authored several books published by Public Utilities Reports Inc. and others, including America’s Electric Utilities: Past, Present and Future and Energy Risk Management: A Primer for the Utility Industry and he edited The Privatization of Public Utilities.
Prosperity is just around the corner,” Herbert Hoover famously didn’t say. And utility executives looking at today’s dismal sales figures must harbor similar hopes.
Some may believe the present situation a temporary phenomenon, soon to go away, followed by a return to trend. Blame the weather, blame the Great Recession, blame the housing bust, blame the Chinese.
But take a minute and reflect on Figures 1 and 2, which depict long-term sales patterns in the United States and the United Kingdom for electricity and gas, the two products utilities sell at retail and depend on for their bread and butter.
They look like S-curves, don’t they? Industries get old, they top out, they decline. Maybe that’s what’s happened.
In both the USA and the UK, the amount of electricity or gas required to produce a real dollar of gross domestic product (GDP) has been declining for decades. This trend has nothing to do with weather or the Great Recession. It even precedes the exodus of manufacturing to China. Yes, usage per capita continues to grow, but only at an ever declining pace. Perhaps, then, the weak sales we see now result from secular trends already in place. (See Figures 5 through 8.)