THE UTILITY INDUSTRY IN (AND OUT OF) RECESSION

MIKE POMORSKI ENERGY ECONOMIST – POLICY ANALYSIS AMERICAN GAS ASSOCIATION AGA/EEI DATASOURCE BEST PRACTICES WORKSHOP OMAHA, NE NOVEMBER 12, 2009

“Economics is a subject profoundly conducive to cliché, resonant with boredom. On few topics is an … audience so practiced in turning off its ears and minds. And none can say that the response is ill advised.”

law.harvard.edu

Key Questions • What is the current state of the economy? – GDP – Unemployment and Underemployment • How has the recession impacted the utility industry? – – – – Stock market prices Electricity and natural gas consumption Delivered prices Customer growth • What can we expect as the recession ends? – Industrial consumption – New customers – Climate regulation .

org .What is the current state of the economy? wreckandcrash.

but it is the most severe Bureau of Economic Analysis.Current Conditions: GDP This has not been the longest recession since 1970. National Bureau of Economic Research .

Current Conditions: Unemployment Bureau of Labor Statistics .

Current Conditions: Underemployment Bureau of Labor Statistics .

How has the recession impacted the utility industry? Bob Englehart .The Hartford Courant .

The (Distribution) Utility Industry: Simplified! .

Impacts of Recession: Utility Stock Prices Consider a $100 investment in either the S&P 500 or the “utility industry” as measured by the Dow Jones Utility Index Yahoo Finance .

October 2009 . Short Term Energy Outlook. EIA.Impacts of Recession: Natural Gas *Projections.

Short Term Energy Outlook. October 2009 .Impacts of Recession: Natural Gas *Projections. EIA.

Impacts of Recession: Electricity *Projections. Short Term Energy Outlook. October 2009 . EIA.

October 2009 . Short Term Energy Outlook.Impacts of Recession: Electricity *Projections. EIA.

2007-2008 All Utilities Combination Utilities Gas Only Utilities 23.79% AGA.83% 19. SNL Financial .Impacts of Recession: Uncollectible Expenses •Stable retail consumption of natural gas and electricity is not the same thing as stable payment for that consumption •Utility uncollectible expenses have increased significantly between 2007 and 2008 Change in Natural Gas Utility Uncollectible Expenses.73% 38.

Impacts of Recession: Uncollectible Expenses EIA .

S. Census Bureau .Impacts of Recession: Customer Growth U.

Impacts of Recession .

What can we expect as the recession ends? dragonteacher.com .

commodity price. around. and uncollectible expense effects Continued increase in uncollectible expenses (especially in hard-hit areas) Markets have probably bottomed “Flight to relative safety” may be at out but will remain volatile risk (though maybe not) Housing starts are increasing (but are shaky) In regions where new builds do occur.Impacts of Emerging Growth: Fundamentals Economic “Consensus” Growth will continue but at a more moderate pace than Q3 Unemployment will continue to tick upwards Potential Impact on Utilities Market. potential for new customers Industrial activity is turning Commodity prices and availability. but will likely return to its increased revenues for some long term decline path utilities .

by 2030: – 30% variation in total gas consumption across cases – 75% variation in delivered residential gas prices – 65% variation in delivered residential electricity prices .R. 2454.Impacts of Emerging Growth: Climate Change • Climate change regulation “transforms the structure of energy production and consumption” (EPA) • In EIA’s analysis of H.

Conclusions .

the recession that began in December 2007 has been exceptionally severe • This severity only increases from an employment standpoint • In the utility industry – From a natural gas and electricity consumption perspective. the utility industry has outperformed the broader market • Looking forward – Fundamentals are improving. we have experienced an industrial recession. not a residential or commercial one – From a natural gas and electricity payment perspective. which should have a positive impact on the utility industry – Climate change regulation is the largest question mark for the industry (and one of the largest for the overall economy as well) . the recession has been much more broad – Large declines in housing starts has decreased potential new customer base – Despite these difficulties.Conclusions • Measured by GDP.

Policy Analysis American Gas Association 202.824.org .7134 mpomorski@aga.THANK YOU! Mike Pomorski Energy Economist.aga.org Visit us at www.

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