By REBECCA SMITH WSJ
Dec. 12, 2014 7:33 p.m EST
New or expanding manufacturing plants tied to the U.S. energy boom are increasing demand for electricity, reversing years of stagnant power use in the country, utility executives say.
Leo Denault, chief executive of New Orleans-based Entergy Corp. , said his company is witnessing “a renaissance in the industrial South” as heavy manufacturing returns to take advantage of abundant U.S. fuel supplies that are bringing down prices for natural gas and electricity.
For example, Big River Steel broke ground in September on a $1.3 billion steel mill in Osceola, Ark., that will melt scrap metal and make 1.6 million tons a year of flat-rolled steel using a massive electric furnace. The inexpensive electricity produced by Entergy’s Arkansas utility helped entice the company to locate on the Mississippi River site.
“There are three things we need—power, power, power,” said Mark Bula, Big River’s chief commercial officer.
Entergy’s utilities serve Texas, Louisiana and Mississippi, in addition to Arkansas. Industrial demand for electricity jumped 5.3% from a year earlier during the company’s latest quarter, compared to a decline of 0.2% in residential sales and a slight 0.9% increase in commercial and government sales.
Growing demand for power isn’t limited to the Gulf Coast. American Electric Power Co. , which owns utilities from Texas to Michigan, including several in Rust Belt areas, said eight of 10 industrial sectors it serves consumed more electricity in the third quarter than a year earlier.
Industrial electricity sales in counties with shale-gas production jumped 28% in the third quarter when compared with the same period of last year, said Nick Akin, chief executive of Columbus, Ohio-based AEP. Gains were especially notable in Texas and Ohio, he said, lifted by energy production in the Eagle Ford and Utica Shale formations.
Total industrial electricity sales rose 1.2% in AEP’s most recent quarter. That might seem staid, but utilities consider growth of 1% to 2% a year good because their customer bases are enormous.
Mr. Akin said industrial spending leads to job creation and new-household formation, both of which stimulate power demand. He expects commercial and residential usage to grow too, though AEP hasn’t had a comparable uptick in electricity sales in those sectors yet. Because companies buy electricity in bulk, profit margins on industrial sales are roughly a third the size of margins on sales to residential customers.
Industrial electricity sales began drifting lower for AEP in late 2008 and then dropped sharply during the 2009 recession. Power sales have grown between 2010 and 2014, but overall industrial-electricity sales are still 5% below pre-recession levels, the company said.
The Energy Information Administration, the statistics arm of the Department of Energy, expects residential power sales to remain flat next year but thinks sales to commercial and industrial consumers will grow.
Power sales to heavy industrial users have been a mixed bag for Exelon Corp. But the Chicago-based utility owner expects manufacturing employment will increase in most markets it serves next year, which should stimulate electricity sales.
Citing IHS Economics research, Exelon says it expects manufacturing employment to rise 1.7% in 2015 in parts of Pennsylvania served by its PECO utility, reversing 14 years of declines. The research also projects manufacturing employment growth of 1.4% in parts of Illinois served by Commonwealth Edison, Exelon’s hicago utility.
Southern Co. , which operates power utilities in four Southeastern states, said commercial and residential electricity sales fell during its latest quarter, compared to the prior-year period, but power sales to industrial consumers jumped 4.8%. The strongest growth came from industries that work with metals, stone, clay, glass, lumber and transportation; six of 10 industries moved back to pre-recession levels.
Industrial power demand isn’t limited to heavy manufacturing. Tom Farrell, chief executive of Virginia-based Dominion Resources Inc., said his utility is selling a lot more electricity to data centers that are constantly expanding.
“Half the nation’s Internet traffic runs through data centers in Virginia,” he said. “The biggest cost for them is the cost of electricity.”
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