Power shifts as customers pass on electricity
Sep 7th 2009 11:00AM
Updated Dec 4th 2009 3:14PM
Relief from utility bills seems to be self-made these days. Electricity consumption is falling, resulting in lower monthly tabs, and the driver is the economy. Reductions in production and spending discipline, triggered by an uncertain job market have led many to be a bit more cautious before turning on the air conditioner or leaving the lights on when exiting a room.
The fall in demand is the largest seen in several decades. Last year, the consumption of electricity fell 1.6 percent, and it's expected to drop another 2.7 percent in 2009, according to U.S. government predictions. If this year's forecast is realized, we'll have witnessed the first consecutive fall in electricity demand since 1949.
This trend suggests the depth of the current recession. Cutting frivolous spending is obvious when money is tight, and we're clearly past that stage. Now, any expense that can be curtailed is fair game. Also, the weather has helped. A mild summer has kept the A/C from humming, as many people were able to throw open their windows instead. I'm usually brutalized by the oppressive New York City summers but turned on my air conditioner later than ever and have already cut down on it (saving several months of use and expense).
And, the reductions are not occurring just at the household level. Businesses are pulling back, too.
Industrial and manufacturing companies have cut their consumption fastest. This year alone, their use of electricity has fallen by around 10 percent, according to government estimates. Industrial companies doubled that rate in parts of the Midwest and South in the second quarter of 2009. The scale of this change will certainly have an impact on consumers, who will enjoy lower prices in the near future.
Prices are down around 40 percent year-over-year in the PJM wholesale market, which coordinates power prices (in part or total) for 13 states in the eastern portion of the United States. The depth of discount that customers will receive, however, depends largely on region. In the Northeast and West -- or in Texas, where rates are driven by spot market prices -- a price decline is more likely. Regulated markets and those governed by long-term contracts, on the other hand, won't see as much change.
While you may delight in the smaller utility bill every month, keep in mind that it won't last forever. Economic recovery will push prices back up, and the need to replace components of an aging infrastructure will entail costs that will be passed on to consumers. Wholesale power prices are probably going to fall for the rest of the year, the Energy Information Agency says, but they could start to creep higher next year.