You've heard talk lately about the convergence of electricity and natural gas. That idea has grown as commodity markets have matured for gas and emerged for bulk power.
Over the past quarter-century, the electric utility industry has undergone oil embargoes, economic recessions, increasing regulatory complexity, and great advances in technology. Perhaps the two best adjectives to describe the last 25 years are "uncertainty" and "change." With deregulation and restructuring upon us, the pace of this change and uncertainty is accelerating. But one thing remains constant: When it comes to presidential elections, growth in electric demand is a good indicator of an incumbent's chances for reelection. Electricity is not a primary driver for voters, but economic growth and stability clearly are (em and the economy is closely intertwined with electricity demand.
During the past six presidential election years, only twice did the annual growth in electric demand increase at a rate of less than 4 percent (see Figure 1). In those years, incumbents were replaced. In 1980, Jimmy Carter, unable to curtail the nation's economic slide, was defeated by Ronald Reagan. In 1992, George Bush, unable to instill confidence in voters at the end of an economic slowdown, was defeated by Bill Clinton. Ironically, electric load declined in 1992 for only the third time in over 50 years.
The first annual decline occurred in 1974, following four consecutive years of robust growth during which electricity sales averaged just over 6.8 percent. By 1975, the economy and electricity sales (up 2.4 percent) began to recover. But although electric demand increased by more than 6.2 percent in 1976, the nation's distrust of the post-Watergate Republican Party was too much to overcome, and Jimmy Carter was elected President.
The second decline occurred in 1982, during Ronald Reagan's first term in office. The 1982 recession resulted in the worst drop in electric demand since before 1950. However, by the next election, economic activity (em and, therefore, electric demand (em rebounded strongly. Electric demand increased by nearly 6 percent in 1984 (em the strongest increase in electric demand in the previous 19 years. Needless to say, Ronald Reagan was reelected.
The third decline occurred in 1992, following five years in which electric sales averaged more than 3.3 percent. The past three years of Bill Clinton's term witnessed strong growth in electric demand: just over 3 percent on average.
So what will happen in 1996? When final numbers are tabulated for 1995, some economists expect to find economic growth in the fourth quarter near zero or slightly negative (em largely because of the government shutdown late last year. Although electric demand is expected to remain strong due to extreme cold temperatures throughout the North Central and Northeastern states, this year's January blizzard along the Eastern seaboard will probably have an adverse effect on manufacturing and industrial production.
On the other hand, if the economic slowdown of late 1995 and coincidental upsurge in fuel prices are only temporary, look for electric load to continue its strong performance of recent years. If the past is an indicator of the future, the safest bet for Bill Clinton's reelection campaign is a robust year in electric demand. Growth of 4 percent or greater will go a long way toward realizing that