Sunday, September 11, 2011

Electricity Comes of Age: The Flatlining of U. S. Residential Consumption

“Flatlining” is a term from medicine meaning that the patient’s heart and/or brain has ceased to function. U. S. electric utilities are very far from ceasing to function (except for the occasional brownout or blackout), but a recent Associated Press article revealed that the growth of electricity use by U. S. residential customers has slowed or even stopped, and is actually declining by some measures. This is good news for some and perhaps not so good news for others. But first we should put the matter in historical perspective.

The first consumers of mass-produced electricity were businesses and industries, for which electric power meant cash saved or earned when compared to previous ways of doing things. Originally, utilities sought to sell electricity to homes as a sideline, mainly as a way to increase the “load factor,” which means essentially the percentage of time their expensive generating stations were running efficiently at close to capacity. Factories and businesses ran during the day, so having someplace to sell electricity in the evenings was a profitable new business for the utilities to explore. So for most of the twentieth century, the electric utilities’ marching orders to residential customers were to sell, sell, sell. And they did. By about 1925, half of all U. S. residences were wired, and the momentum to do more and more with electricity carried over well into the 1960s. Some of my older readers may recall “Reddy Kilowatt,” a cartoon character fashioned from a light bulb, who urged customers to rely on electric power from everything from clothes drying to brushing your teeth in your new home that sported the all-electric medallion next to the doorbell.

Somewhere around 1980, the tide began to turn. The rise of the environmental movement, the energy crises triggered by oil-cartel actions, and anxiety about nuclear power inspired by the Three Mile Island and Chernobyl accidents combined with concerns raised in the 1990s about global warming and carbon footprints. Add to these cultural factors the hard objective facts that the market for new energy-consuming appliances was pretty well saturated and electric rates were rising, and sooner or later NOT consuming more electricity started to look better than the alternative for many people.

In addition, the deregulation trend finally reached the electric-utility business and fundamentally changed how power companies made money. Until deregulation, state regulatory boards guaranteed the industry a fixed percentage of profit, and the best model was to grow sales so as to increase the absolute profit in dollars. But after deregulation with its accompanying price competition and downward pressure on expenses, encouraging consumers to use less electricity actually started to make sense sometimes, when the alternative was adding expensive generating capacity.

There are many other factors in the current (pardon the pun) flattening of demand, but the portrayal of reducing energy usage as a virtue together with a change in the mix of appliances that use juice probably account for much of the decline in growth. Newer houses and appliances simply use less electricity to do the same thing compared to older models. And one cannot deny that government-supervised incentive programs such as the Energy Star rating system for appliances has played an important role.

A longstanding theme in modern engineering is efficiency, defined broadly as achieving a given result with the minimum use of resources. From the perspective of efficiency, the prospective decline in residential electricity use can only be welcomed, at least to the extent that it represents true gains in efficiency and not simply people using less of everything because they’re out of work, for example. (There is some of that, too.) One can carry this trend to an unhealthy extreme, such as some Europeans have done in designing and living in houses that use no energy for heating or cooling, relying only on incidental heat produced by water heaters and electric appliances. One can do such a thing, but only at the expense of hugely thick insulated walls, a floor plan that approximates an igloo, and exotic measures such as giant air heat exchangers in the basement.

What of the future? If I were an investor, I would look somewhat skeptically at the electric utility business, at least its residential sector, because growth is the fundamental watchword for a capitalist economy. Investing in a no-growth business is not generally perceived as a smart move. If the old regulated system still prevailed, things would be different, and industrial electric usage is still expected to rise for some years. But as the news item pointed out, unless some radical new use for electricity in homes is devised such as the explosive growth of the overnight-charging electric-car market, a declining demand for a commodity is generally a sign that rough financial times lie ahead. State regulation was implemented widely in the 1930s to stabilize a deteriorating private market for electricity, and if something similar happens in the future, deregulation may lose its attractiveness and we may see state regulatory boards stepping in once more.

So will Reddy Kilowatt ride again? I doubt it. No one gives their water utility much thought, largely because it is a well-established industry for which not many new uses are being developed. The same thing may happen to electricity. But the one thing that’s certain about developments in technology is that something no one guessed would happen, is bound to happen sooner or later.

Sources: The Associated Press article on declining growth in residential electricity use in the U. S. appeared in numerous places, and I saw it in the Austin American-Statesman, where it was carried online at

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