Margin Squeeze
FirstEnergy Corp. Chief Executive Officer Anthony Alexander said the Midwestern markets where his power company operates have lost "about five years of growth" and that margins were being squeezed by poor demand and an oversupply of electricity generation.
"We would have thought that by now we would have seen a far more robust growth in the industrial, commercial and residential sectors than we're seeing," Alexander said at a Sept. 5 investor conference. "In fact, we are seeing flat to negative residential, flat to very sluggish commercial and spotty industrial."
Utilities are expected to invest $12.4 billion in smart meters and updated electricity grids through 2015, amplifying the trend, Theodore Hesser, an analyst for Bloomberg New Energy Finance, said in a telephone interview.
Slowing Growth
U.S. demand for power is expected to grow by about 1.1 percent through 2030, well below the 1.7 percent annual growth rate that the industry saw from 1990 through 2011, consulting firm Wood Mackenzie said in a July 2012 report.
Angie Storozynski, a New York City-based analyst for Macquarie Capital USA Inc., predicted long-term load growth will be even lower, about 0.6 percent, in a Sept. 11 note to clients.
"Slow load growth should hurt near-term earnings," Storozynski wrote. It may drive utilities to seek rate increases more frequently from regulators or postpone spending on power plants and transmission lines, she said.
Northeast Utilities, Scana Corp. and Teco Energy are among utility owners facing stagnant demand, Storozynski said. State incentives that compensate utilities for efficiency gains should help dull the blow for Hawaiian Electric Industries Inc., UIL Holdings Corp., Edison International, PG&E Corp. and Portland General Electric Co.
"A small change in the growth of power demand can completely change a utility business model," Hesser said in a telephone interview.