There is a surprise in energy consumption data. The Energy Information Administration (EIA) publishes electricity consumption data for each month. Summer figures are in, and national consumption was down from 2011 levels. The impact on utilities, particularly generating utilities, will be reflected in their quarterly earnings.
Summer is the critical period for most North American generating utilities. It is when residential, commercial and industrial consumers consume the most energy to run millions of air conditioning units. It is also when utilities expect the highest rates. Generating utilities look forward to booking their highest margins in the summertime. That is, unless demand for energy drops.
Last summer, the demand for electricity dropped, by 2%. In June, demand was down by about 1.8%. In July, it was down 2.2%. In August, demand was down almost 3%. And in September, demand was down by almost 2.6%.
Four states saw the most losses. Georgia saw a 7.57% decline for June, 4.33% for July, 7.68% for August and 4.23% for September. South Carolina saw an 8.11% decline for June, 4.12% for July, 6.58% for August and a 3.86% decline for September. North Carolina was next, followed by Florida.
Neighboring states also struggled. Arkansas Louisiana, Oklahoma and Texas averaged a 4% decline. Alabama, Kentucky, Mississippi and Tennessee saw an average decline of almost 3%.
The utilities most affected are Southern Co. (SO), SCANA (SCG), Duke Energy (DUK), NextEra Energy (NEE), TECO Energy (TE) and Entergy (ETR). However, because most of these companies assets located in affected states are protected by regulators, the companies' downside risks are limited.
The mid-Atlantic states of New York, New Jersey and Pennsylvania also saw declines of almost 1%. These states restructured, so their generating utilities, such as Exelon (EXC), Calpine (CPN), NRG Energy (NRG) and Public Service Enterprise Group (PEG) operate in this region, and their assets are unprotected against market risk.
Three regions remained flat or saw limited growth. The central states of Illinois, Indiana, Michigan, Ohio, Wisconsin, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota and North Dakota averaged small growth. The Pacific states of California, Oregon and Washington averaged 0.15% growth. The New England states averaged 0.17% growth.
Dominion Resources (D), Entergy, and NextEra Energy own low-cost generating units in New England. Those assets should be performing better than they did last year.
Bucking the trend were the mountain states of Arizona, Colorado, Idaho, Montana, Nevada and New Mexico. They averaged a 2.66% growth.
The EIA's consumption results may explain why some utilities have become more outspoken about their financial prospects. For example, Exelon has been warning about its margins. Exelon's management is concerned that the company may not be able to continue paying dividends at current rates. Exelon's primary argument has been focused on excessive supplies. However, its challenge is compounded by declining demand.
It would be a mistake to assume that the decline in consumption is directly related to regional economies. Energy efficiency and self-generation play a growing role. Weather also affects consumption.
Grids are beginning to reward consumers who install energy-efficiency equipment. Large power users, such as large office buildings, data farms and manufacturing facilities, can achieve solid returns when they take advantage of demand-response programs or invest in new energy-saving equipment.
Companies such as Apple (AAPL) and Google (GOOG) are also investing in solar power to self-generate energy for their power-hungry data farms. Like energy efficiency programs, these self-generation figures are not necessarily included in these EIA's retail sales reports.
Also not included are the thousands of kilowatt-hours of power generated by solar panels in New Jersey, Ohio and California. Many solar panels are net metered and are configured to produce power "behind the meter." This allows businesses and homeowners to pay only the net amount of electricity delivered, not the total amount consumed. The power generated from these configurations is also not included in EIA's retail figures.
Obviously, an important driver is the nation's economy. Consumption disparities suggest potential differences in regional economies. However, the EIA's consumption data do not offer enough information to form firm conclusions.
Independent power producers will likely experience continuing challenges, particularly if the economy remains constrained. Adding to those challenges are new regional and state policies that encourage consumers to seek alternatives to the typical sources of electric power.