If electricity use is any sign, the American economy is slowly recovering, says CEO of massive generating firm Southern Company Thomas Fanning.
The process though won’t happen overnight, he said.
The clearest sign that recovery is underway came from increased electricity use in the industrial sector in the second quarter of 2011, with an increase of 4.9% year over year. The sector showed a 3.5% increase from Q2 2010.
“This industrial recovery is very broad-based with various segments experiencing year over year growth,” said Southern Company CFO Paul Bowers in a call to discuss the company’s earnings yesterday. He said that industries from petroleum refining and transportation to metal mining and pipeline construction were rebounding, continuing a growth pattern that was driven by increased export sales beginning in mid-2009.
Consumer confidence is slowly growing as well, Bowers said, as markets stabilize and unemployment rates in Southern’s service areas begin to drop along with the expanding industrial sector.
“As recovery continues, improvement in productivity should yield to increased hiring of workers,” he said. “Peak recession levels remains sluggish but are consistent with our forecast.”
Profit Pop
Southern Company reported a generally strong quarter in revenue and profit terms, with 7.5% increase in revenue from a second quarter 2010 a revenue total of $4.521 billion. Net income for the quarter was $619 million, a $93 million boost from the same quarter in 2010. The utility–which powers much of the southeastern US–also expects continued growth with 240 active projects in the pipeline that may yield over 20,000 new jobs, Bowers said.
“We are encouraged by the first six months of 2011,” Fanning said. The “industrial side of our economy is driving a much needed recovery. We will return to pre-recession unemployment levels.”
For an in-depth view of utility planning from another large US generator, see: Questions And Answers With David Crane, CEO Of NRG Energy.
But Challenges Loom
The utility’s greatest lost came from Alabama, where a devastating April tornado destroyed much of the local electrical infrastructure and caused power outages in some areas for nearly a week. At the peak of the disaster, Alabama Power, one of five divisions of Southern Company, reported 412,000 outages, according to a local disaster relief statement.
According to Bowers, the utility lost 7,00 customers because of the tornado; the division showed revenue losses of 6.7% year over year, with millions of dollars in operations and maintenance going to restoration efforts.
Regulations Amiss
Southern Company is also suffering, according to Fanning from unclear regulatory standards that have made future investments a challenge. The company has been arguing for a national energy policy for years, Fanning said at the outset of the earnings call.
“We’re keeping our powder dry till we figure it out,” he said, referring to funding new projects.
Increasing environmental regulations has pressured the company to reduce its coal production and transition to natural gas, which emits less greenhouse gasses. Company executives explained that scrubbers have been installed on all coal-fired generation to achieve compliance with sulfur dioxide emissions standards.
The company has been “keeping dry” for quite some time though, as it also waits for approval from the Nuclear Regulatory Commission for new nuclear projects it applied for more than two years ago. Even though the process has been streamlined by the Obama administration into a faster-moving combined license application, much of the earnings call discussion focused on the company’s pending NRC application and the uncertainty that comes along with it.
“When you see overreaching regulation, that’s an indirect tax on the economy and that’s not good for anybody,” Fanning said.
