The federal government’s economic data indicate that GDP rose 2.8% in the third quarter of 2009.  At first glance, however, economic improvement isn’t obvious from electric utilities’ kilowatt-hour sales to industrial customers in the third quarter.  (We focus on industrial sales because they are much less sensitive to the weather than are sales to residential or commercial customers.)  Compared with the third quarter of 2008, almost every utility’s industrial sales declined.  In many cases, the percentage decline was in double digits.

Why the discrepancy between sales and the economic data?  GDP figures are sequential, and are seasonally adjusted.  By contrast, the comparisons for electric utility sales are year over year.  When electric sales are examined sequentially, the comparisons look much more favorable.

Many companies are seeing signs of improvement in their service areas’ economies.  Industrial sales at Duke Energy (DUK), which serves parts of the Carolinas, Ohio, and Indiana, fell 15% in the third quarter—20% in the textile sector—but were 11% higher than in the second quarter of 2009.  Even the textile sector showed sequential improvement.  In some industries (such as chemicals and primary metals), sales were even above those in the fourth quarter of 2008.  Southern Company (SO) serves most of Georgia and Alabama and parts of Mississippi and Florida.  The company’s industrial sales declined 10% year to year in the third quarter of 2009, but rose 11% compared with the second quarter of 2009.  Management reported that there were “signs of stabilization and what may be the beginnings of recovery in certain sectors”.  American Electric Power (AEP) has one of the broadest service territories of any electric company, serving parts of 11 states.  AEP’s industrial sales declined 17% in the third quarter, but were 9% higher than in the second quarter of 2009.  Entergy (ETR), which serves the Gulf States region, is also reporting positive trends.  Entergy’s industrial sales fell by 6% in the quarter, but declined by just 2% in September.  Vectren (VVC), in southern Indiana, is another company that is seeing signs of stabilization. It was one of the few utilities that experienced an industrial sales increase (albeit slight) in the third quarter of 2009.  Even in Michigan, hurt by the troubled automotive sector, there are signs that the worst is over.  DTE Energy (DTE) is the parent company of Detroit Edison.  Its industrial sales plummeted 23% from the year-earlier level in the third quarter, but were 7% above sales in the second quarter of 2009.  CMS Energy (CMS), the parent company of Consumers Energy in Michigan, saw year-to-year declines in industrial sales of 11% in the first quarter, 12% in the second, and just 4% in the third.  The company projects that industrial electric sales will be down 9% for all of 2009, but will advance about 2% in the first half of 2010 and climb 6% in the second half.

That is just one company’s forecast.  Although it appears as if the electric utility industry will experience a rebound in industrial kilowatt-hour sales in 2010, it’s hard to determine just how strong the recovery will be.  Value Line estimates that the rate of GDP growth in the fourth quarter of 2009 and in 2010 will be narrowly above 2.2% pace in the third quarter of 2009.  Also, the kilowatt-hour sales data indicate what happened, but not why it happened.  Cleco (CNL), in Central Louisiana, saw its industrial sales fall 24% in the third quarter due not only to economic factors but to the loss of a customer that switched to cogeneration.  That customer isn’t coming back, even when the economy comes back.  And when a plant is shut down due to low demand or because production was moved outside of the service area, that business isn’t coming back, either.  So it is not out of the question that year-to-year industrial sales comparisons for some electric companies will continue to look ugly for a few more quarters, even as the economy recovers.