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
What is the current state of the economy?

wreckandcrash.org
Current Conditions: GDP

This has not been the longest

recession since 1970, but it is the
most severe

Bureau of Economic Analysis; 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
Impacts of Recession: Natural Gas

*Projections. EIA, Short Term Energy Outlook, October 2009

Impacts of Recession: Natural Gas

*Projections. EIA, Short Term Energy Outlook, October 2009

Impacts of Recession: Electricity

*Projections. EIA, Short Term Energy Outlook, October 2009

Impacts of Recession: Electricity

*Projections. EIA, Short Term Energy Outlook, October 2009

 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, 2007-2008

All Utilities 23.73%

Combination Utilities 38.83%

Gas Only Utilities 19.79%

AGA; SNL Financial

Impacts of Recession: Uncollectible Expenses

EIA
Impacts of Recession: Customer Growth

U.S. Census Bureau

Impacts of Recession
What can we expect as the recession ends?

dragonteacher.com
Impacts of Emerging Growth: Fundamentals

Economic “Consensus” Potential Impact on Utilities

Growth will continue but at a Market, commodity price, and

more moderate pace than Q3 uncollectible expense effects

Unemployment will continue to Continued increase in uncollectible

tick upwards 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 In regions where new builds do

(but are shaky) occur, potential for new customers

Industrial activity is turning Commodity prices and availability,

around, but will likely return to its increased revenues for some
long term decline path utilities
Impacts of Emerging Growth: Climate Change

• Climate change regulation “transforms the structure of

energy production and consumption” (EPA)
• In EIA’s analysis of H.R. 2454, by 2030:
– 30% variation in total gas consumption across cases
– 75% variation in delivered residential gas prices
– 65% variation in delivered residential electricity prices
Conclusions
Conclusions

• Measured by GDP, 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, we have
experienced an industrial recession, not a residential or commercial one
– From a natural gas and electricity payment perspective, the recession has
been much more broad
– Large declines in housing starts has decreased potential new customer base
– Despite these difficulties, the utility industry has outperformed the broader
market
• Looking forward
– Fundamentals are improving, 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)
THANK YOU!

Mike Pomorski
Energy Economist, Policy Analysis
American Gas Association
202.824.7134
mpomorski@aga.org

Visit us at www.aga.org