Brattle Group Says Stagnant Demand Is Here to Stay

The Brattle Group is an industry consulting firm that knows what it is talking about, most of the time.  Here is a link to a presentation by a Brattle Group engineer, Ahmad Faruqui, at a June 2014 electric industry conference.

Mr. Faruqui starts with something what we have been saying on The Power Line for the last six years, but that a lot of industry people still won’t let themselves admit:

Normal electricity growth has not resumed four years after the Great Recession ended

  • According to Dr. John Caldwell of the Edison Electric Institute, normal growth usually resumes within five months after the recession ends; the longest it has ever taken has been twelve months
  • The EIA’s May 2014 Short-Term Energy Outlook (STEO) projects that electric retail sales will grow by 2.3% in 2014 and 0.0% in 2015; in the residential sector, the corresponding growth rates will be 3.1% and -1.5%
 The graph on the next slide tells the tale clearly –
screenshot-www brattle com 2014-09-01 20-44-08
So all that stuff we heard from PJM back in 2010 and 2011 about how demand would recover when the “recession” ended just hasn’t happened.
And, of course, this is all part of a long term trend that started back in 1950.
screenshot-www brattle com 2014-09-01 20-46-46
Mr. Faruqui was speaking to an industry group, so he tried to point to four solutions that electric utilities could employ to save themselves in this new future of stagnant demand.  After identifying the five forces that have combined to create the industry’s nightmare scenario, he posits four responses that utilities could take:
What are the options for electric utilities?
To deal with the five forces, utilities can pursue one of four strategies
1. Stay the course
2. Push electrification
3. Become a wires company
4. Become an energy services utility
Mr. Faruqui essentially dismisses the first three options as all having failed to save utilities’ bacon in the past.  The rest of his presentation describes what he means by an “energy services utility.”  You can go to the power point slides and see his description for yourself.  I think you will come away, as did I, with the feeling that this really isn’t a practical solution either, for most utilities.
The fact that a very smart engineer from the Brattle Group can’t really come up with any good solutions to utilities’ current problems is a sign that power companies are in real trouble.

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