SNORT! We’ve just eliminated the need for Capx 2020. We’ve just demonstrated the power of conservation. Conservation is doable, now, in a serious way. Conservation is CHEAP. Conservation is the most cost-effective way to generate, because “if we don’t use it, we don’t have to generate it.” We’ve heard it a million times, and maybe people are finally starting to understand. Like the serious reduction in use of gasoline, we’ve got to keep on this, keep reducing use, as Program wisdom urges, “when you think it’s time to lighten up, BEAR DOWN!”

Before the CEC forum, and afterward in emails, there were questions as to why I’d say that utilities are overestimating use of electricity, and demand for electricity. Where would I get that idea? Well, it’s what they do!

Let’s start back in the 70s, when there was an intense frenzy of utility infrastructure construction, power plants, transmission, based on claimed demand, and voila, they way overbuilt, some plants even stopped mid construction with ratepayers holding bill, and we haven’t needed much more than peaking plants since. THAT’S overestimating. Check out Alfred kahn’s “The Economics of Regulation” for details, also Charles Komanoff’s classic “Power Plant Cost Escalation” for more.

The utilities are also known for exaggeration when they want something, like nuclear waste dry cask storage or uprate of plant, to panic us to believe that we’re going to freeze in the dark in an incubator without a job when in fact, it’s not all that needed — this is nothing new — when Xcel was whining and crying in 2003 until they got their Prairie Island bill through legislature, the NERC report issued covering that period reflects extreme overestimation of use in the MAPP/MRO region:

2005 NERC Long-Term Reliability Assessment

Take a look at p. 57, where the 2003 forecasts for 2004 are way way off:

Energy

The MRO tracks annual electricity use by both region and subregion:

• Annual electricity usage for the entire MRO region in 2004 (195,528 GWh) was 0.6% above 2003 consumption (194,286 GWh) and 3.0% below the 2004 forecast (201,605 GWh).

• Annual electricity usage for MRO-U.S. in 2004 (154,053 GWh) was 1.1% above 2003 consumption (152,310 GWh) and 3.7% below the 2004 forecast (159,932 GWh).

• Annual electricity usage for MRO-Canada in 2004 (41,475 GWh) was 2.7% above 2003 consumption (40,369 GWh) and 0.5% below the 2004 forecast (41,673 GWh).

Now we’ve got an even more blatant example, with Xcel admitting an extreme decrease in use. Remember how the utilities whined and cried and so many enviro yahoos who should have known better felt so smug and accomplished to pass legislation with a 1.5% conservation goal? Well, utilities admit we’re at 3% without even trying:

Dick Kelly, chief executive of Xcel Energy Inc., Minneapolis, says his company, which has utilities in Colorado and Minnesota, saw home-energy use drop 3% in the period from August through September, “the first time in 40 years I’ve seen a decline in sales” to homes. He doesn’t think foreclosures are responsible for the trend.

And note they’re WORRIED about it, not heralding the impact of conservation:

An unexpected drop in U.S. electricity consumption has utility companies worried that the trend isn’t a byproduct of the economic downturn, and could reflect a permanent shift in consumption that will require sweeping change in their industry.

Here’s the article in toto:

Surprise Drop in Power Use Delivers Jolt to Utilities

An unexpected drop in U.S. electricity consumption has utility companies worried that the trend isn’t a byproduct of the economic downturn, and could reflect a permanent shift in consumption that will require sweeping change in their industry.

Numbers are trickling in from several large utilities that show shrinking power use by households and businesses in pockets across the country. Utilities have long counted on sales growth of 1% to 2% annually in the U.S., and they created complex operating and expansion plans to meet the needs of a growing population.

“We’re in a period where growth is going to be challenged,” says Jim Rogers, chief executive of Duke Energy Corp. in Charlotte, N.C.

The data are early and incomplete, but if the trend persists, it could ripple through companies’ earnings and compel major changes in the way utilities run their businesses. Utilities are expected to invest $1.5 trillion to $2 trillion by 2030 to modernize their electric systems and meet future needs, according to an industry-funded study by the Brattle Group. However, if electricity demand is flat or even declining, utilities must either make significant adjustments to their investment plans or run the risk of building too much capacity. That could end up burdening customers and shareholders with needless expenses.

To be sure, electricity use fluctuates with the economy and population trends. But what has executives stumped is that recent shifts appear larger than others seen previously, and they can’t easily be explained by weather fluctuations. They have also penetrated the most stable group of consumers — households.

Dick Kelly, chief executive of Xcel Energy Inc., Minneapolis, says his company, which has utilities in Colorado and Minnesota, saw home-energy use drop 3% in the period from August through September, “the first time in 40 years I’ve seen a decline in sales” to homes. He doesn’t think foreclosures are responsible for the trend.

Duke Energy Corp.’s third-quarter electricity sales were down 5.9% in the Midwest from the year earlier, including a 9% drop among residential customers. At its utilities operating in the Carolinas, sales were down 4.3% for the three-month period ending Sept. 30 from a year earlier.

American Electric Power Co., which owns utilities operating in 11 states, saw total electricity consumption drop 3.3% in the same period from the prior year. Among residential customers, the drop was 7.2%. However, milder weather played a role.

Utility executives question whether the recent declines are primarily a function of the broader economic downturn. If that’s the case, says Xcel’s Mr. Kelly, then utilities should continue to build power plants, “because when we come out of the recession, demand could pick up sharply” as consumers begin to splurge again on items like big-screen televisions and other gadgets.

Some feel that the drop heralds a broader change for the industry. Mr. Rogers of Duke Energy says that even in places “where prices were flat to declining,” his company still saw lower consumption. “Something fundamental is going on,” he says.

Michael Morris, the chief executive of AEP, one of the country’s largest utilities, says he thinks the industry should to be wary about breaking ground on expensive new projects. “The message is: be cautious about what you build because you may not have the demand” to justify the expense, he says.

Utilities are taking steps to get a better understanding of the cause. Some are asking customers who reduced usage to explain what is influencing them. Xcel and other utilities, for example, have been running environmentally focused campaigns to urge consumers to use less energy recently, a message that might be taking hold.

Power companies are also questioning the reliability of the weather-adjustment models they use to harmonize fluctuating sales from quarter to quarter. “It’s more art than science,” says Bill Johnson, Chief Executive of Progress Energy Inc., Raleigh, N.C.

If the sector is entering a period of lower demand — which could accelerate further if the automotive sector collapses — many utilities will have to change the way they cover their costs.

Utilities are taking a hard look at the way they set rates and generate profits. Many companies are embracing a new rate design based on “decoupling,” in which they set prices aimed at covering the basic costs of delivery, with sales above that level being gravy. Regulators have resisted the change in some places, because it typically means that consumers using little energy pay somewhat higher rates.

Get used to it Xcel. We’ve just eliminated need for CapX!