U.S. electricity consumption unexpectedly dropped in Q2 and Q3, on a year-over-year basis, The Wall Street Journal reported Friday (subscription required), although The Journal cautioned that the data is early and incomplete.
Major electric power suppliers Xcel Energy (NYSE: XEL), Duke Energy (NYSE: DUK) and American Electric Power (NYSE: AEP) all reported declines in residential electricity use in recent quarters, compared to the previous year, The Journal reported.
An electric puzzle
Economist David H. Wang told BloggingStocks Friday electricity demand is a function of more factors than one might assume. The economic cycle, seasons, weather extremes, demographics, household formation, increased efficiency, technological change, and even popular culture trends are among the major factors affecting electricity demand.
Wang believes the major factor in the recent dip is the current U.S. recession. "I will defer to more-comprehensive U.S. Energy Department and power association data later, but I think without question the economic downturn is a major factor. When people lose jobs, many tend to give up housing and live with roommates or relatives. This decreases electricity use. Also, home foreclosures result in empty homes, which obviously use less energy than occupied homes."
Still, if the trend persists after the U.S. economy starts to recover, Wang said two other factors at work -- efficiency and demographics -- may suggest fundamental shifts in U.S. electric power use.
"Consumers and households are becoming more efficient. Again, in any recession, there is a natural tendency to use less power -- use less air conditioning, keep the room a little cooler in winter if you heat by electricity, shut off unnecessary lights, appliances, close down unused rooms etc. but technology also is playing a role." Wang said. "More homes are replacing incandescent light bulbs with fluorescent bulbs, which use about 60-70% less energy."
The other factor -- demographics -- involves the aging U.S. population. "The U.S. population is aging, with the Baby Boom generation is starting to retire, and we know that retired senior citizens use less energy per person than workforce adults."
Utilities Sector Analysis: It's too soon to tell if the electric use dip is cyclical or structural. Still, if electric use does not ramp-up when the economy recovers, that may be a sign of tech-driven efficiency and belt-tightening by a more-cost-conscious public. If the latter is the case, that would have revenue / earnings implications for utilities stocks. Stay tuned.