The U.S. electric utility industry faces an ongoing period of low sales growth, challenging their traditional operating profiles and forcing utilities to broaden their product offerings, according to a Fitch Ratings report.

Electricity efficiency gains, demand side management (DSM) programs, and distributed generation (DG) have reduced customer consumption and cannibalized traditional, utility-supplied power. Fitch believes that utilities will have to include efficiency, DG and DSM as part of their product portfolio going forward.

Energy Information Administration (EIA) recently revised its forecasts for retail U.S. electricity sales growth to 0.7% per year through 2040. Fitch expects substantial regional variance from the national forecast with growth in the southeast and southwest. Energy efficiency, whether mandated or promoted by favorable cost economics, continues to play a significant factor in dampening retail sales, as does net metering and DG. Fitch also notes the economic recovery and expansion since 2009 has done little for electricity sales growth.

Low electricity sales growth will pressure unit costs, challenge the economics and benefits of future capital investments and rate design, and need to be restructured as costs are allocated over a changing customer profile.

Fitch notes the economics of energy efficiency are compelling, as the benchmark levelized cost of electricity used to compare the cost of energy efficiency programs is substantially less than all forms of conventional or renewable power generation. Efficiency is an effective tool in displacing new power generation, produces peak load shaving, and avoids or at least reduces the highest cost sources of electricity generation.

The full report Power Down II: Efficiency Gains Short Circuit kWh Sales is available at www.fitchratings.com.