Powering Down
With each passing day, it becomes clearer this is no ordinary economic downturn.
Data show Americans aren’t just cutting back in traditional ways: Paring non-essential purchases and getting by with fewer luxuries. Rather, there are fundamental shifts going on in the way we live.
These emerging trends evidence a shift not just in purchasing habits, but in lifestyle.
According to the Wall Street Journal, businesses and households alike are using less energy. Specifically, large utility companies like Minneapolis-based Xcel Energy (XEL), Charlotte’s Duke Energy (DUK) and American Electric Power (AEP) in Ohio are seeing steeper drops in electricity consumption than in previous downturns.
To be sure, energy demand weakens as the economy slows. Consumers buy fewer electronic gadgets, drive less and generally use less stuff that needs to be turned on.
This time, however, executives are worried fundamental behaviors are changing. Jim Rogers, CEO of Duke Energy, told the Journal consumption is falling even in places where prices are stagnant. “Something fundamental is going on.”
Xcel CEO Dick Kelly said for “the first time in 40 years [he’s] seen a decline in sales” to homes.
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If the pattern persists, it could cause utilities to drastically change their business model. Typically, purveyors of power count on small, but consistent growth in energy demand. They build this assumption into their business models, which plays an integral role in expansion plans and breaking ground on new plants. Coupled with the rising cost of capital resulting from the credit crisis, this means Americans are likely to see higher energy prices in the future.
And while the data is far from conclusive, it could be an early sign that we are (begrudgingly) embracing the concept that less is, actually, more.
Minyanville’s Kevin Depew and others have been cataloguing this shift in consumer behavior, as broad deflation grips society. More than just lower prices, deflation is taking hold in all aspects of our lives. It’s a slow process, to be sure, but one that is undeniably gaining momentum as social mood darkens and the public rejects consumerism.
Despite lower gas prices, Americans are still driving less. Ever hungry for bigger offerings from McDonald's (MCD) and Burger King (BKC), restaurants are increasingly being forced to inform their customers just how bad an idea it is to eat a Triple Whopper with cheese. Someday, the lesson may actually stick.
Confucius once said a journey of a 1000 miles begins with a single step. Turning off the lights when you leave a room may be that first step. Watching less television may be the second. Maybe, just maybe, spending less time on Facebook could be that third step that sets the whole thing running down hill.
Hey, a guy can dream right?
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Second, energy-saving tech, being slowly deployed, should have an aggregate effect to the energy provider.
Only after accounting for these two relatively large effectors should you begin to consider the possibility of volitional consumption change by the people. At that, consider how large a change of behavior it would take to be visible at the aggregate level; I finds it unlikely.
In the near term, energy prices may certainly rise as utilities have to cover their own costs and protect their bottom line. Similarly, we could see a period of inflation before deflation resumes. The path may be bumpy, but deflation is the ultimate destination (in my humble opinion of course)
Andrew
When added to the slowdown in manufacturing, then energy demand will probably drop considerably.
Not to mention, people have been hammered with advertising and management's "efficiency" experts trying to get them to buy every newer and bigger gadget and work just a "little" harder in order to pay for it.
Even Americans get burned out of free market, homogenized icanhazcheezburger "liberty" after a while and decide to just take a nap instead.
The same power companies who have been getting tax breaks for compact florescent bulbs and other improvements to efficiency are now whining about lower demand? What happened to worrying about the stress on the grid?
P.S. Facebook on a laptop takes a lot less power than that 72" plasma screen TV. Consider it a blessing.
