Property of Itron. The Economic Impact of the Financial Crisis on Utility Sales. Frank A. Monforte, Ph.D. March 10, 2009

Transcription

1 The Economic Impact of the Financial Crisis on Utility Sales Frank A. Monforte, Ph.D. Itron s Forecasting Brown Bag Seminar March 10, 2009

2 Please Remember In order to help this session run smoothly, your phones are muted. To make the presentation portion of the screen larger, press the expand button on the toolbar. Press it again to return to regular window. For technical assistance during the meeting, dial *0. You will be connected to a Premiere Conferencing technician. If you need to give other feedback to the presenter during the meeting, such as, slow down or need to get the presenters attention for some other reason, use the pull down menu in the seating chart and we will address it right away. If you have questions, please type your question in the Q&A box in the bottom, right corner. We will try to answer as many questions as we can.

3 2009 Brown Bag Seminars The Economic Impact of the Financial Crisis on Utility Sales - March 10, 2009 Demand Response Forecasting - June 9, 2009 Incorporating Energy Efficiency Impacts in your Forecast -September 15, 2009 Stat Corner: Regression with ARMA Errors - December 8, 2009 All at noon, Pacific Time All are recorded and available for review after the session.

4 Itron Forecasting Workshops and Meetings 2009 HANDS-ON WORKSHOPS Forecasting April 15-17, Chicago; October 14-16, San Diego Fundamentals of MetrixND - June 15-16, 16 Boston SAE Modeling - November 5-6, Orlando Fundamentals of Short-Term and Hourly Forecasting - November 4-6, Las Vegas Energy Forecasting Workshop - March 16-17, 17, Sydney OTHER FORECASTING MEETINGS Energy Forecasting Week > ISO/RTO Forecasting Summit - April 27-28, 28 Las Vegas > North American Forecasters Forum - April 28-29, Las Vegas > Long-Term Forecasting/EFG Meeting - April 30 - May 1, Las Vegas 2009 Itron Users' Conference - September 27-29, Phoenix For more information and registration: Contact us at: , or forecasting@itron.com

5 Is the Housing Crisis the Root of all Ills? Housing Price Index The notion of a [housing] bubble bbl bursting and the whole price level coming down seems to me as far as a national nationwide phenomenon, is really quite unlikely, Alan Greenspan, Federal Reserve Chairman,

6 Is the Housing Crisis the Root of all Ills? Housing Price Index Housing activity will remain Healthy for some time to come. David Lereah, National Association of Realtors Chief Economist,

7 Is the Housing Crisis the Root of all Ills? Housing Price Index We got a big problem. George W. Bush, September 26,

8 Or is Greed the Root of all Ills? Dow Jones Index During dot-com IPOs of the early 1990s, the firms that underwrote the stock offerings did not hold on to those stocks. They flipped them. But in the case of mortgage-backed securities, the financial i firms decided d these were good assets to hold. That was their fatal flaw. Dr. Jeremy Siegel, Professor of Finance at Wharton, January,

9 Or is Greed the Root of all Ills? Dow Jones Index two interlocking issues massive failure, not only by traders, but by CEOs of Financial firms, their risk management specialists and the Major rating agencies to recognize that an unprecedented Housing-price bubble began building after [Greenspan ] failed to discover that firms were taking such large, risky individual stakes of without Itron protecting themselves 6000 Against a housing market collapse Dr. Jeremy Siegel, Professor of Finance at Wharton, January, 2009 Today

10 Credit Crunch (FED, Feb 09)

11 What is the Impact on Utility Sales? In November, 2008 Itron surveyed energy forecasters in North America, the goals were: > Access the preliminary sales impact of the economic crisis > Determine whether or not utilities are revising their forecasts to reflect the current economic crisis 72 utilities responded

12 Relative to expectations set prior to January 2008, are residential class sales lower, at, or higher than expected? 4% 20% Lower than expected About what was expected Higher than expected 76%

13 Residential Class Sales Summary by Region 100% Lower than expected About what was expected 90% Higher than expected 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada East South Midwest West

14 Relative to expectations set prior to January 2008, are commercial class sales lower, at, or higher than expected? 15% 20% Lower than expected About what was expected Higher than expected 65%

15 Commercial Class Sales Summary by Region 100% Lower than expected About what was expected 90% Higher than expected 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada East South Midwest West

16 Relative to expectations set prior to January 2008, are industrial class sales lower, at, or higher than expected? 10% 18% Lower than expected About what was expected Higher than expected 72%

17 Industrial Class Sales Summary by Region 100% Lower than expected About what was expected 90% Higher than expected 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada East South Midwest West

18 Average Percent Sales Reduction by Class and Region 6.00% Residential Commercial 5.5% 5.4% Industrial 5.1% 5.00% 4.5% 4.00% 3.00% 4.0% 3.5% 3.5% 3.2% 3.1% 3.1% 3.1% 3.0% 2.7% 2.5% 2.4% 2.3% 2.2% 2.00% 1.00% 0.6% 0.00% Average Canada East South Midwest West

19 Percent Breakdown by Reason for Decline in Sales by Region 100% 90% 80% Gas Housing Financial Weather Other 70% 60% 50% 40% 30% 20% 10% 0% Total Canada East South Midwest West

20 How long do you expect these trends to continue? 7% 10% Meet or exceed expectations Lower for next 6 months Lower for next 12 months Lower for at least one year 59% 24%

21 Are you revising your next year's sales forecast because of recent economic events? 100% 90% Revise Not 80% 70% 60% 50% 40% 30% 20% 10% 0% Res Com Ind

22 What About the Future? That is all well and good, but what should the forecast be? To answer that t question lets develop some historical i perspective

23 A Historical Perspective Real GDP Annual Per Change $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00%

24 Historical Utility Sales Impact Total U.S. 340,000 U.S.Total Start: April 2001 End: March 2003 Duration: ~ 23 Months 320, , , ,000 Start: April 1992 End: September 1993 Duration: ~ 16 Months Trough: September 1992 To Trough: ~ 5 Months Sales Trough: -1.14% Trough: March 2002 To Trough: ~ 11 Months Sales Trough: -2.43% 240, , ,000

25 Historical Utility Sales Impact Residential 130,000 Start: November 2001 End: November 2003 Duration: ~ 12 Months 120, , ,000 90,000 Start: April 1992 End: September 1993 Duration: ~ 17 Months Trough: November 1992 To Trough: ~ 7 Months Sales Trough: -3.08% Trough: February 2002 To Trough: ~ 3 Months Sales Trough: -3.21% 80,000 70,000 60,000

26 Historical Utility Sales Impact Commercial 120,000 Start: January 2002 End: January 2003 Duration: ~ 12 Months 110, ,000 90,000 80,000 Start: April 1992 End: July 1993 Duration: ~ 15 Months Trough: September 1992 To Trough: ~ 5 Months Sales Trough: -0.87% Trough: March 2002 To Trough: ~ 3 Months Sales Trough: -0.10% 70,000 60,000

27 Historical Utility Sales Impact Industrial 105,000 Start: September 2006 End: May 2008 Duration: ~ 20 Months 100,000 95,000 90,000 85,000 80,000 Trough: August 2007 To Trough: ~ 11 Months Sales Trough: -1.94% 75,000 70,000 65,000 60,000

28 Regional Sales Impact Residential Commercial Northeast Commercial South Commercial Midwest Commercial West Commercial US Total

29 Regional Sales Impact Residential Northeast South Midwest West US Total Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04

30 Regional Sales Impact Commercial

31 Regional Sales Impact Commercial

32 Regional Sales Impact Industrial

33 Regional Sales Impact Industrial

34 What We Learn from Past Recessions

35 What is the Impact on Utility Sales? 3.0% PJM NY ISO CA ISO 2.0% Total Poly. (Total) 1.0% 0.0% -1.0% Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb % -3.0% -4.0%? -5.0%

36 Economic Projections of FED (Jan 09) Variable Change in real GDP October Projection Unemployment Rate October Projection Central tendency Range Longer Run Longer Run -1.3 to to to to to to to to to to to 3.6 n.a to to to 5.0 n.a. 8.5 to to to to to to to to to to to 6.6 n.a. 6.6 to to to 7.3 n.a. PCE inflation 0.3 to to to to to to to to 2.0 October Projection Core PCE Inflation 1.3 to to to 1.7 n.a. 1.0 to to to 1.8 n.a. 0.9 to to to to to to 1.8 October Projection 1.5 to to to to to to 1.8

37 Caveats (or Big Unknowns) Will the Commercial Sector stay relatively solid like previous recessions? Will there be a spill over effect from the world recession on US products and services? What will happen to the auto industry? Will utilities move forward with T&D Investments, and Smart Grid and Alternative Generation Resource Initiatives? When will the Banking Industry stabilize?

38 Concluding Thoughts/Projections Trough 4 th Qtr 09 Overall loss ~ 6% Full Recovery 4 th Qtr 10 Wild Card Auto Industry! y

39 Thank You. To know more, start here:

40 Questions? Press *1 to ask a question or type in bottom, right corner HANDS-ON WORKSHOPS Forecasting April 15-17, Chicago; October 14-16, San Diego Fundamentals of MetrixND - June 15-16, Boston SAE Modeling - November 5-6, Orlando Fundamentals of Short-Term and Hourly Forecasting - November 4-6, Las Vegas Energy Forecasting Workshop - March 16-17, Sydney OTHER FORECASTING MEETINGS Energy Forecasting Week > ISO/RTO Forecasting Summit - April 27-28, Las Vegas > North American Forecasters Forum - April 28-29, Las Vegas > Long-Term Forecasting/EFG Meeting - April 30 - May 1, Las Vegas 2009 Itron Users' Conference - September 27-29, Phoenix For more information and registration: Contact us at: , or forecasting@itron.com