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2 Historical Perspective _ r ~ l ~ Regulation _ ,,,,,,,, :: ; ' """' ""'':':""" "" ' - Technology . ~ If ~ ~ ~Sihihily4~1l~FD6Is _ ~,'::: '2:2.2'. ', :::.'.2:'' .2.2.'' ..... ... , ~ , ~ _ . ~, f1'^~dent~ai 1 ~ , , , ,.,., } ~ . .~ ~ . . . l.~i.~`ct~ta:t ' . 1' SU PP LY | Conservation |~ l ~ , Electri' :ity Income _- Using Devices DEMAND This chapter provides ~ historical perspective on the relationship of electricity to economic growth. It deals with the shaded portions of the above reproduction of Figure 1.1. Early patterns are brief ly noted. A more extended discussion of the period at ter World War II ~ ~ ~ or ~ ._~, goes into the correlation of electricity use with gross national product (GNPy, patterns of composition of economic sectoral electricity use, changes in output, and the effects of price changes. This material forms the basis for comment on the likely continuity of prior relationships and possible changes in them. The chapter, in 15

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16 conj unction with further discussion in Chapter 5, helps to support two of the principal conclusions that the study draws: o Electricity use and Gross national product have been, and probably will continue to be, strongly correlated. o Changes in the composition of national output toward less . electricity-intensive Hoods and services have been offset by growth in the intensity of electricity use within all the major use sectors so that the combined effect on electricity demand _ growth has not yet been great. However, if the trend toward a - leveling off in sectoral electricity intensity growth that began in the late 1970s continues, future shifts toward less electricitY-intensive goods and services are likely to dampen _ . . ~ electricity demand growth relative to national output. HISTORICAL PATTERS: 1902 TO 1983 The Growth of Electric ity and Other Energy Consumption Electricity is such a versatile energy form that its use and the number of its applicat ions have g rown rapidly throughout the tweet ieth century. Electricity consumption continues to grow more rapidly than that of other energy forms. As a consequence, the proport ion of the nation's primary energy supply used to produce electricity has expanded substantially--from near zero at the turn of the century to 36 percent in 1983. The growing importance of electricity as a component of total energy supply can be seen in Figure 2-1, which shows the growth in primary energy input, in British thermal units (Btu), for the production of electricity. Another way of measuring the comparative growth of electrical and nonelectrical energy is by directly comparing the energy delivered by electricity (instead of by the primary energy consumed in its generation) and the energy delivered by other forms (mostly coal and coke, oil products, and natural gas). The average annual growth rates shown in Table 2-1 are based on such data. Clearly electricity consumption has grown at a higher rate than has the consumption of other energy forms throughout the twentieth century, including the most recent decade. In fact, over the last decade electricity use continued to g row, while that of all other energy declined (an unprecedented occurrence in the long historical record) . Nevertheless, the rate of growth of electricity consumption itself fell sharply during the recent past compared with its growth rates in all earlier periods. That the rate of growth of electricity use has tended to decline, particularly compared with the early periods of its introduction, is not surprising. As the base f rom which growth is measured becomes larger, even ever-growing absolute inc remeets can translate into smaller percentage growth rates. By the same token, the early rates of

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17 80 70 - 4J m o 60 . _ ._ ~5 5 50 of o - :~ 40 an o C' 30 G UJ of FIGURE 2-l 1983. Total Energy Primary Energy Input hi! I i/ to Electricity \ ~_~~ 10 O Nonelectric Enerov ,~ 1910 1920 1930 . 1940 1950 1960 1970 1980 YEAR Historical trends in U.S. energy consumption, 1902 through SOURCES: U.S. Bureau of Mines, as presented in Towards Pro ject Independence: Energy in the Coming Decade, prepared for the Joi nt Committee on Atomic Energy, U. S. Congress, 94th Congress, 1st Session (December 19751; Edison Electric Institute, Historical Statistics of the Electric Utility Industry through 1970, and Statistical Yearbooks; U.S. Department of Energy, Annual Energy Review, various issues.

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18 TABLE 2-1 Average Annual Growth Rates in Total Energy, Electricity, and Nonelectric Energy Consumption for Selected Periods, 1902 through 1983 (Percent per Year) Nonelectric Period Total Energy Electricity Energy 1902-1912 6.1 15.5 5.6 1912-1920a 2.9 10.8 3. 3 1920-1930a 1.2 7.3 1. 3 1930-1940 0.7 4.6 0. 5 1940-1950 3.5 7.9 3 0 1950-1960 2.8 8.1 2.2 1960-1973 4.1 6.7 3. 4 1973-1983 -0. 5 2.0 -1. 7 Average annual g rowth rates for total energy and for nonelectric energy were computed from British thermal units (Btu) of consumption. The growth rate for electricity was computed from kilowatt hour figures. Because of rapidly improving efficiency of electric power generation in the early years, electricity kilowatt hours grew much faster than Btu input for electricity generation. This aspect of the computation is the reason that, for these two periods, the growth rate of total energy appears to be lower than the growth rate of both of its components. SOURCES: U.S. Bureau of Mines, as presented in Towards Project Independence: Energy in the Coming Decade, prepared for the Joint Committee on Atomic Energy, U.S. Congress, 94th Congress, 1st Session (December 1975~; Edison Electric Institute, Historical Statistics of the Electric Utility Industry through 1970, and Statistical Yearbooks; U. S . Department of Energy, Annual Energy Review, various issues.

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19 growth of a newly emerging product or industry, such as electricity in the first part of this century, will loom large compared to those of already established quantities, such as population, GNP, or the use of other energy f arms . In considering electricity growth in historical perspective, it is instructive to review time trends, as such, and to compare the growth races of electricity with those of other energy forms. However, the focus of this study is electricity in economic growth. Accordingly, our goals are to try to discern trends in the relationship between electricity and economic growth and to consider some of the factors underlying these trends. Electricity Growth in Relation to the Growth of Gross National Product How should the relationship between electricity use and economic growth be expressed? Our approach is to look first at the relationship in aggregate terms, that is, in terms of total electricity made available in the United States, regardless of source, and of GNP, expressed in constant dollars. Later this relationship will also be examined, although only for the years following World War II, in terms of the major sectors of electricity use: residential, commercial, and industrial. The discussion addresses the nature of the aggregative relationship, changes in this relationship over time, and sectoral relationships compared to the aggregative, or national, one. It is well known that regional disaggregations will exhibit diversity, but this chapter does not address that effect. When standard statistical techniques are used to measure the relationship between annual levels of electricity use and GNP (in constant dollars) , certain regular features of the historical record appear. Perhaps the most significant characteristic of the relationship is its stability over appreciable segments of time. This stability is indicated in Figure 2-2 (with additional detail in Figure 2-3), which displays lines of regression for four periods covering most of the twentieth century to date. * For any point on these lines one may calculate an average electricity intensity, that is, electricity consumption per unit of GNP. Changes along these lines relate increments in electricity use to increments in GNP; each period is marked by a stable linear relationship, which, though showing some annual fluctuations, indicates a strong tendency toward a constant incremental intensity of electricity use within each period. Equally signif icant is the fact that there are only a few changes in the slope (and the level) of the regression line over the long histor ical record. Clearly d iscernible changes in slope occur red following World Wars ~ and II. Even the Great Depression did not result in a change in slope; the level of the regression line did shif t upward, however, reflecting the fact that during this period GNP . *A regression is the best functional relationship between two (or more) cor related var. tables as j udged by a part icular stat i stical c r ite rion, such as the criterion of ordinary least squares.

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20 450 400 o c 300 o . _ ._ - z O 250 u' 0 200 - c: ~ 150 c' J 100 50 o , _..... l / An/ /1930~1 946 / . ~ '' World War I / 1902 1912 100 1 947-1 983 / Post-World War I I I S;h if t / Depression Shift t non-'n7q 1 1 , 1 _ 1 1 _ 1 200 300 400 500 600 700 GNP (billions of 1972 dollars) FIGURE 2-2 Electricity consumption vs GNP in the United States, with lines of regression by periods, 1902 through 1983. NOTE: GNP is expressed in constant (1972) dollars. Data for 1902 through 1928 have been converted from constant (1958) dollars in U.S. Department of Commerce, Bureau of the Census, Historical Statist ics of the United States, Colonial Times to 1970, Bicentennial Edition, Part 2, Series F1-5, p. 224; for 1929 through 1980 from Council of Economic Advisers, Economic Report of the President, February 1984, p . 222; for 1981 through 198 3 f ram Counc il of Economic Advi sers f or the Joint Economic Committee, Economic Indicators, March 1985, p. 2. Electricity consumption is expressed as "electricity made eve; ]=h7^ in the United States." ~onceptua ~ by this quantity includes utility generation and nonutility generation ~ industrial self- and co-generation), and net imports. Electricity data sources are Edison Electric Inst itute ( 1973, 1984a) . SOURCE: Compilation and f igure by Energy Study Center, Electric Power Research Institute, Palo Alto, California.

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21 400 - o - 300 . _ Q of o z 200 o > G C: 100 LL] J UJ o Years 1902-1 912 1 91 2-1 920 1920-1 929 1929-1932 1930-1 946 19441946 1946-1 947 1 947-1 983 Trend Slope 0.29 0.s8 o.ss 2.12 torso. / 38 037 35 / 36 ' 29 32 '` 2 1~/ i\ World War I-t 17 a`9ttO5 02~1 \~ Post-World War I I / Transition Slope 2.19 0.20 0.14 3.30 49 / 487/ 47 I 46Lis 42 a/ i J _ , I ~ ' 0 200 300 400 500 600 GNP (bil lions of 1 972 dollars) FIGURE 2-3 Electricity use and GNP--the transitions. NOTE: GNP is expressed in constant ( 1972) dollars . Data for 1902 through 1928 have been converted f rom constant (1958) dollars in U. S . Department of Conunerce, Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970, Bicentennial Edition, Part 2, Series F1-5, p. 224; for 1929 through 1949 from Council of Economic Advisers, Economic Report of the President, February 1984, p. 222. Electricity consumption is expressed as "electricity made available in the United States. " This quantity includes utility generation and nonutility generation ~ industrial self- and co-generation), and net imports. Electricity data sources are Edison Electric Institute (1973, 1984a) . SOURCE: Compilation and f igure by Energy Study Center, Electric Power Research Institute, Palo Alto, California.

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22 decreased relatively more than did electricity use. The record of the past decade poses the question of whether we are once again witnessing a change in slope, an issue that is addressed later in this chapter. The specif ic f indings embodied in Figures 2-2 and 2-3 may be summarized as follows: 1. From 1902 to 1912, (a period during which data on electricity use are available only for every f if th year), the national economy tended to use an additional 0.29 kilowatt hours (kWh) per additional dollar of GNP, measured in constant (1972) dollars. * 2. A transition to a new slope occurred between 1912 and 1920; the 1917 observation shown on Figure 2-3 appears to be transitional. 3. Between 1920 and 1929 the incremental use of electricity per unit of GNP averaged 0.58 kWh per dollar, twice the value that prevailed between 1902 and 1912. 4. Following 1929, GNP dropped by almost one-third, while electricity use declined only slightly. Consequently, average electricity intensity increased. However, the slope of the line for the years 1930 through 1946 did not change signif icantly f rom that for the years 1920 through 1929. Thus, incremental intensity of electricity use remained the same, even though average electricity i ntens ity rose . 5 e Another transition occurred following World War II, and the new trend line has persisted ever since (with a critical question remaining about the most recent past). The new slope shows on the average an increment of 2.12 kWh per additional constant (1972) dollar of GNP, about three and one-half times that characterizing the relationship observed between 1920 and 1946. POST-WORLD WAR I I TRENDS: 1 9 4 7 TO 1 9 8 3 The Growth of Electricity Use and of Gross National Product The relationship between increases in electricity use and increases in GNP is shown for the full post-World War II period in Figure 2-4. The relationship appears to have persisted through the entire period, with the possible exception of a break since the mid-1970s. Although observations for the most recent years fall below the trend line, this fact is still consistent with a characteristic feature of the relationship, that is, a tendency for individual years to exhibit a cyclical pattern around the long-term trend line, as the f igure shows. However, to conclude that the data points af ter the mid-1970s are nothing more than a manifestation of a persistent cyclic pattern is only one way of interpreting the record for recent years. There has been a strong decreasing trend in the ratio of the annual percentage *A discussion of measures of electricity use and load demand r in terms of energy (kilowatt hours) and power ~ kilowatts), appears in Appendix B.

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23 2800 _ 2600 2400 2200 ~ 2000 - o O 1800 - - - 0 1 600 z 1400 8 ~ 1 200 J t 000 LU 800 400 _ 600 _ 200 o / 1 9114 1980 /983 1982 of-\ / .ge1\ ran 19,3 1947 ~ 1 1 1 1 1 1 1 1 ' 1 0 200 400 600 800 1000 1200 1400 1600 1800 GNP (billions of 1972 dollars) FIGURE 2-4 Electricity consumption vs GNP in the United States, 1947 through 1984. NOTE: GNP is expressed in constant (1972) dollars. Data from Council of Economic Advisers, Economic Report of the President, February 1984, p. 222; Council of Economic Advisers for the Joint Economic Committee, Economic Indicators, March 1985, p. 2. Electricity consumption is expressed "= ran; -~1 <:- =~= " This quantity ~ ~ "electricity made available in the United States. " This quantity includes utility generation and non- utilitv generation ~ industrial self- and co-generation), and net imports. Electricity data sources are Edison Electric Institute (1973, 1984a). SOURCE: Compilat ion and f igure by Energy Study Center, Electric Power Research Institute, Palo Alto, California.

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24 growth of electricity use to that of GNP, and this fact is f requently cited as evidence that the relationship between the two has changed. Figure 2-5 shows that the ratio of percentage electricity growth to percentage GNP growth has f alien f rom an average of about 2 before 1973 to about 1 today. This tendency toward convergence is consistent with the postwar linear relationship between the two variables. The electricity use-GNP line of regression for 1947 to 1983 shows an increment of 2.12 kWh of electricity for every constant (1972) dollar increment of GNP. In the early postwar period, when average electricity intensity was comparatively low (about 0.6 to 0.8 kWh per dollar) , the high incremental electricity intensity (2.12 kWh per dollar) led to much higher electricity growth rates than GNP growth rates. As average electricity intensity has increased--to 1.57 kWh per constant (1972) dollar in 1983--the effect of the incremental electricity intensity (2.12 kWh per dollar) has relatively decreased, leading toward a convergence in growth rates.* A critical question before us, then, is whether the long-standing post-World War II trend has been broken by another of the historically infrequent transitions, but for the first time toward a decline in the incremental intensity of electricity use. To shed more light on this question, we next examine some of the underlying forces that determine electricity use in relation to national output. Such influences include the trends of electricity use in the major consuming sectors, the effects of changes in the composition of national output, and the effects of changes in energy prices. Electricity Use in the Major Consuming Sectors Electricity use is ordinarily classified by three major consuming categories: 0 Residential, that is, private households o Commercial, that is, nonindustrial business establishments o Industrial, that is, agriculture, mining, construction, and manufacturing. ** Table 2-2 shows the changing importance of each sector as reflected by its percentage of total electricity consumption over the postwar period. The residential sector sharply increased its share of *In other words, because of the nonzero intercept in the relationship (which appears as the offset of the regression line from the origin in Figure 2-4), the percentage growths of electricity and GNP along the regression line are more nearly equal where both quantities are large, as in the later years, than where both quantities are small, as in . earlier years. **These def initions differ somewhat from the Edison Electric Institute (EEI) sector definitions. However, for our purposes, the differences are not great enough to warrant concern, and so we have used the EEI statistics, with no change, to fit our categories.

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25 LL cD Z 12 I o LL] llJ CD 6 En UJ Cat 6 Z ~ 6 in O - 10 8 6 - ~n a, ~4 ._ to 2 Q Z . 1' ~- Electricity a I' ~_ . . ~:. . .- GNP ---~\ 1 1 1 1950 1960 1970 1980 U' 6 4 G ~I ~ > ~N ~ \` O G 1 1 _ O ~ G ~O l l l l l 1950 1960 1970 1 980 YEAR FIGURE 2-5 (a) Growth rates of U.S. electricity use and GNP, (b) ratio of the growth rates. SOURCES: Based on data f rom Edison Electric Institute, Statistical Yearbook of the Electric Utility Industry, various issues; U.S. Department of Commerce, Bureau of Economic Analysis, The National Income and Product Accounts of the United States, 1929-76, Statistical Tables; and Survey of Current Business, various issues.

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46 300 to o 11 ret Cal 200 - X UJ Z UJ ~ 100 z 90 8 80 70 8 400 11 ~ 300 a' - X 200 z a: Q G o .tI: Personal Consumers Irk 1 970 1 975 100 ~ 90 _ 80 1 _ JO 1 _ / / / I me Industrial Producers fuel oil __ Natural gas E lectrici~y ~ 1980 1984 Natural gas ~ ., ~ / Petroleum `_ - ~ . . . ! -A ~ Electricitv 1970 197 5 1980 1984 YEAR . FIGURE 2-15 Trends in real energy prices, 1967 through 1984. SOURCES: U. S. Department of Labor, Bureau of Labor Statist ics, Handbook of Labor Statistics, Bulletins 2000 and 217S; and Monthly Labor Review, various issues.

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47 RESI DENTIA L o 8: 7 6 Hi: ~ 5 LL A: )4 _ 3 _ 2 _ 1 9 :\~~\~ 8 7 ~ \ \ Electricity/Oil\ o Etectricity/Gas 6 LU 5 4 \' I N 1) USTR I A L -\ : _ 3 _ ElectricitY/Distillate Oil ~\ Electricity/Gas Electricity/ \ ~A Residual Oil \ I l I . 1 l l I I , 1960 1970 1980 1984 1 960 1970 1980 1984 YEAR YEAR FIGURE 2-16 Electricity price ratios in the United States, 1960 through 1984. NOTE: Price ratio calculated as ratio of actual prices in dollars per million Btu. SOURCES: Based on data f rom Edison Electric Institute, Statist ical Yearbook of the Electric Utility Industry; American Gas Association, Gas Facts; U. S. . Department of Commerce, Bureau of the Census, Annual Survey of Manufactures: Fuels and Electric Energy Consumed; rJ.s. Department of Energy, Energy Information Administration, Monthly Energy Review, various issues.

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48 increases themselves- also tend to discourage electricity use. It is not simply a matter of dividing a fixed energy market among electricity and other energy forms; the total market for energy may be diminished as a result of rises in all energy prices. Econometricians have tried for years to disentangle the complex of own-price elasticity, cross-price elasticity (with other energy forms), delays in pr ice responses, and nonpr ice f actors such as income and changes in end-use technology. Powerful statist ical tools are employed, but the results leave much to be desired. The available data base does not yet cover enough experience with high energy prices, and, in addition, theory provides very little guidance in this complex task. Bohi (1981) provides a critical review of the methods, data, and results of the leading econometric analyses of the demand for energy forms. He finds that even for electricity, which has been subject to extensive study, 'there is wide disagreement about the responsiveness of demand to changes in prices and incomes, and surprisingly broad gaps in the understanding of the nature of this process" (p. 551. Each sector is considered separately by Bohi. In 25 studies of the residential sector, the spread of long-range, own-price elasticities was found to be -0.45 to -1.89, with a consensus value of -1.0 (that is to say, a 10-percent price increase would produce a 10-percent consumption decrease). However, after considering the methods and data employed in the studies, Bohi concludes that the best estimate for long-range residential price elasticity is -0.70 (p. leg, Table 7-1; long-range effects are usually considered as achieved in up to 10 years). Five studies on the commercial sector are reported. Some used more than one approach, so that there are nine different sets of results. Price elasticities ranged from -1.0 to -1.60. Bohi declines to choose the most likely value, saying simply that "commercial demand appears to be price elastic in the long run...." (p. 79~. Review of a broad range of industrial electricity demand studies, which used a variety of approaches, yielded a range from -0.51 to -1.82 with a consensus estimate "around -l.30.n But Bohi notes that "...one has difficulty in placing much confidence in the consensus estimate" (p. 90~. His own judgment, after examining the various studies, is that the price elasticity of industrial demand is between -0.5 and -1.0 (p. 159, Table 7-1). Sweeney (1984) concludes that "the long-run delivered price elasticity of demand for electricity probably exceeds [that is, is more negative than] unity but may be as low as -0.7 (p. 36). Bohi discusses cross-elasticity estimates but does not present numerical values. He notes that problems in the data tend to make estimates of cross-elasticities unreliable. The most that can be safely concluded, therefore, is that own- and cross-price elasticities exist that are nonnegligible, but hard to establish precisely. As a result there are counteracting price influences on electricity demand--in particular, electricity's own price and electricity's price movements compared with those of other energy forms. In addition, of course, there are the sizable effects on the growth in electricity demand produced by the overall growth in the

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49 national output of goods and services. The net aggregative ef feats of all of these forces are assessed in the next section comparing pre- and post-embargo trends in electricity consumption. CONTINUITY AND CHANGE: PRE- AND POST-EMBARGO TRENDS The foregoing discussion shows that growth rates of electricity use have slowed in recent years from the high growth rates of earlier periods. Data for the postwar period are presented in Table 2-6. GNP growth, averaged over recent years, has also slowed from the higher rates achieved over most of the postwar period (Table 2-6~. In light of the strong association that has long been observed between electricity and GNP, viewing electricity growth rates only with respect to time can give misleading impressions. Nevertheless, the ratio of electricity growth rates to GNP growth rates has been gradually declining (Figure 2-S), a point to which many analysts have also drawn attention. Although this trend is consistent in principle with a linear relationship between electricity use and GNP, the question remains whether the degree and rate of convergence are consistent with the trend that has characterized the entire postwar period. Electricity price changes are frequently cited as the reason for a shift in the relationship. The econometric studies summarized above show that when the price of electricity increases it tends to slow the growth of electricity demand. However, the more recent historical period over which these statistical analyses were performed also contained the counteracting influences of rising competing fuel prices, which tend to counterbalance to some degree the effect of the electricity price increases. The extent of the competing fuel price influences on the historical relationship is less well established. Our examination of the data leads us to believe that by far the most important contributor to the slower growth rates in electricity demand over the last decade has been lower economic growth. Others have come to a similar conclusion. The econometric analysis of Hogan (1984) shows that the primary reason for the lower growth rates in electricity demand during the 1970s was slower economic growth. He attributes only about 30 percent of the drop in electricity demand since 1972 to electricity price increases. The Edison Electric Institute (1984b) reached similar conclusions regarding the magnitude of price effects at the aggregate level. However, Hogan notes that his results capture "only part of the eventual adjustment we can expect in the gradual replacement of energy-using equipment" (p. 27~. Thus, it can be expected that the energy price changes already experienced will continue to affect demand growth in the future. The central question is, of course, what the net effect of all factors--price, income, structural change, technological advance, and so forth--has been on electricity demand in recent years and what these influences portend for the future. In our judgment, at the present time there is no clear answer to this question. Figure 2-17b

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50 TABLE 2-6 Average Annual Growth Rates of Electricity and Gross National Product (GNP) and Their Ratios over Selected Postwar Periods Rat lo of Electricity Electr ic ity GNP and GNP Per lad Growth Rate Growth Rate Growth Rates 1947-1960 8.07 3.52 2.29 1960-1973 6.70 4.17 1.61 1973-1983 1.99 2.04 0.98 SOURCES: Based on data f rom Edison Electric Institute, Statistical Yearbook of the Electric Utility Industry, various issues; U.S. Department of Commerce, Bureau of Economic Analysis, The National Income and Product Accounts of the United States, 1929-76, Statistical Tables; and Survey of Current Business, various issues.

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51 identifies three different interpretations (depicted by lines A, B. and C) of the recent trend in electricity use as a function of GNP. The first interpretation (line A in Figure 2-17b) is that no shift has occurred in the underlying long-term relationship, but that the data for recent years represent a "down phase" of the cycle that has persistently characterized the long-term relationship. In fact, over the postwar period it could have been inferred several times that shifts had occurred in the slope of the relationship given its cyclic movements (Figure 2-17a). Nevertheless, these inferences would have been incorrect, as shown by data for subsequent years. If the cycle continues as before, there will soon be a period when the consumption of electricity will exceed trend values. However, if the growth rate of electricity use does not exceed the growth rate of GNP over the next few years (that is, if the "down phase" is not succeeded by an "up phase"), this interpretation must be considered incorrect. A second interpretation is that a permanent shift has occurred in the relationship, one toward a diminished increase in electricity use per dollar increment in GNP. This interpretation corresponds to a downward shift in the slope of the electricity-GNP trend line, and in fact the relationship can be read in such a way as to support this belief (Figure 2-17b, line B. which is an extension of the uppermost arrow on Figure 2-17a). Still another interpretation is that the increase in the rate of structural change between the industrial and commercial sectors and within manufacturing in recent years will neither be corrected nor proceed at the same rate in the future. If the future shift were to revert to the slower historical postwar rate and the sectoral electricity intensity relationships continue to hold, then the effect on the electricity-GNP trend would be a parallel downward shift in the postwar trend line (an intercept shift), leaving the slope coefficient intact (Figure 2-17b, line C).* ~ *If this result occurs, it would be a mirror image of the transition f ram the relationship of the 1920s to that of the 1930s. Incremental electricity intensity did not change between the two periods, as can be seen f rom the parallel lines of regression for the two periods (Figure 2-31. Because the percentage decreases in GNP in the years immediately following 1929 were larger than the percentage decreases in electricity use, average electricity intensity actually increased. However, as the years passed the trend of the 1930s turned out to be parallel to that of the 1920s. The net result of the change in average intensity was simply a shift in the line parallel to itself (mathematically, a shift of the intercept) . At the t ime that the shi f t occur red, the re was of course no way of knowing that this outcome would result. Likewise, only time will tell whether the line of the future will fall below and parallel to the line representing 1947 through 1973. Such behavior would ref. lect a decrease in average intens ity as a result of pr ice effects, conservation, and the permanent decline of some energy-intensive industries, with any lingering effects of past price rises being offset by the tendencies toward increased electrification already di scussed.

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52 2400 2200 2000 Mann - 1400 a1980 // THE RECORDt9824| ~ //1981 I _ \ /19834 2000 - {/- c 1800 ;/ 01600: ~j: 1, /; 1 200 _ ~ooo: I: 800 ~.t -6oor ~ 400 :1947; 200 1 1 1 1 1 1 1 200 400 600 800 1000 1 200 1400 1 600 1 200 1400 1 600 1800 > 2800 2600 2400 \ 2200 \2000 1 800 1600 b SOME POSSIBLE FUTU R ES A / .~ i// 1981 // \ _ / ha/ / 1 973 / ~ 1982 1 1 ~ GNP (billions of t972 dollars) GNP (billions of 1972 dollars) FIGURE 2-17 Electricity vs GAP: (a) the 1947-1983 record, (b) some possible f uture relet ionships . NOTE: The long-term trend line in the left f igure is the same as in Figure 2-4. The lines with the arrowheads in this f igure indicate how the trend seemed to be changing at various times in the past based on short-term movements of the data. However, these movements turned out to be aberrations, and there was always a reversion to the underlying long-se rm trend. The f igure to the right depicts three possible interpretations of the recent past, none of which can be proved or disproved at the present time. Line A is a continuation of the basic long-term trend of the main f igure; line B is a continuation of the short-term trend starting in 1976; line C is a new trend line. Line C assumes that the decline in average electricity intensity that occurred through 1984 represents a lasting change, but that incremental intensities will revert to the basic trend (see text for further discussion and for a historical parallel) . Cyclic and random variations (e.g., because of weather) around any future trend line will still occur, no matter what the trend line turns out to be.

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53 It will be several years before these questions are resolved. The post-embargo years are still too few to provide definitive answers about trend shifts. In the meantime, however, the historical record suggests that the electrification of the economy will continue. Indeed, electricity use has continued to increase in all sectors over the post-embargo period while fuel consumption more generally either has been stable or, as in most cases, has fallen, as is shown in Figure 2-18. Furthermore, our examination of the major consuming sectors indicates that substantial potential remains within these sectors for the continued penetration of electricity in many uses. Generally, the rates of growth in electricity use will depend on the strength and growth of the economy. That much is clear. The exact quantification of this relationship for the current period and its relevance to future trends are important questions that remain to be settled.

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54 lot 8: 6: 2 1 ,0 1 1 , 1 RESIDENTIAL ~ l tar _- ~1~~~ ~ ___ ________ I . . .. - .... Petroleum 1 A t I 1 1 , 1 960 1 965 1 970 1 975 ro 8 c o ._ ._ c o ~4 _ of o C: Rae z LU o l2r 10: 8g 6 4 2 _ 1 980 ~ 984 COMMERCIAL I ~: lo_ - ~| Naturai aas Petroleu m . . 19601965 1970 1975 1980 1 984 INDUSTRIAL I Petroleum atu ral gas _ ' _ ~.-- /1 ~ ~ O I I 1 ! 1960 1965 1970 YEAR Coal 1975 1980 1984 FIGURE 2-18 Gross energy use by economic sector, 1960 through 1984 . ,. ~ SOURCES: U. S. Department of Energy, Energy Information Administration, State Energy Data Report, DOE/EIA-0214 (83~; and Monthly Energy Review, var ious issues .

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