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THE UTILITY INDUSTRY INTHE UTILITY INDUSTRY IN

(AND OUT OF) RECESSION(AND OUT OF) RECESSION

MIKE POMORSKI

ENERGY ECONOMIST POLICY ANALYSISAMERICAN GAS ASSOCIATION

AGA/EEI DATASOURCE BEST PRACTICES WORKSHOP

OMAHA, NE

NOVEMBER 12, 2009

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Economics is a subject profoundly conducive to clich,resonant with boredom. On few topics is an audienceso practiced in turning off its ears and minds. And none

can say that the response is ill advised.

law.harvard.edu

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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

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What is the current state of the economy?

wreckandcrash.org

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Current Conditions: GDP

Bureau of Economic Analysis; National Bureau of Economic Research

This has not been the longestrecession since 1970, but it is themost severe

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Current Conditions: Unemployment

Bureau of Labor Statistics

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Current Conditions: Underemployment

Bureau of Labor Statistics

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How has the recession impacted the utility industry?

Bob Englehart - The Hartford Courant

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The (Distribution) Utility Industry: Simplified!

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Impacts of Recession: UtilityStock Prices

Yahoo Finance

Consider a $100 investment ineither the S&P 500 or the utilityindustry as measured by theDow Jones Utility Index

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Impacts of Recession: Natural Gas

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

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Impacts of Recession: Natural Gas

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

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Impacts of Recession: Electricity

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

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Impacts of Recession: Electricity

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

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Impacts of Recession: Uncollectible Expenses

Change in Natural Gas Utility Uncollectible Expenses, 2007-2008

All Utilities 23.73%

Combination Utilities 38.83%

Gas Only Utilities 19.79%

Stable retail consumption of natural gas

and electricity is not the same thing asstable payment for that consumption

Utility uncollectible expenses have

increased significantlybetween 2007 and2008

AGA; SNL Financial

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Impacts of Recession: Uncollectible Expenses

EIA

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Impacts of Recession: Customer Growth

U.S. Census Bureau

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Impacts of Recession

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What can we expect as the recession ends?

dragonteacher.com

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Impacts of Emerging Growth: Fundamentals

Economic Consensus Potential Impact on Utilities

Growth will continue but at amore moderate pace than Q3

Market, commodity price, anduncollectible expense effects

Unemployment will continue totick upwards

Continued increase in uncollectibleexpenses (especially in hard-hitareas)

Markets have probably bottomedout but will remain volatile

Flight to relative safety may be atrisk (though maybe not)

Housing starts are increasing(but are shaky)

In regions where new builds dooccur, potential for new customers

Industrial activity is turningaround, but will likely return to itslong term decline path

Commodity prices and availability,increased revenues for someutilities

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Impacts of Emerging Growth: Climate Change

Climate change regulation transforms the structure ofenergy production and consumption (EPA)

In EIAs 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

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Conclusions

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Conclusions

Measured by GDP, the recession that began in December 2007 has beenexceptionally severe

This severity only increases from an employment standpoint

In the utility industry

From a natural gas and electricity consumption perspective, we haveexperienced an industrial recession, not a residential or commercial one

From a natural gas and electricity payment perspective, the recession hasbeen much more broad

Large declines in housing starts has decreased potential new customer base

Despite these difficulties, the utility industry has outperformed the broadermarket

Looking forward

Fundamentals are improving, which should have a positive impact on theutility industry

Climate change regulation is the largest question mark for the industry (andone of the largest for the overall economy as well)

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