Statistics and Predictions—Proceed Cautiously

As a veteran energy journalist, I have written countless stories based on government- or company-provided statistics and many others that relied on “someone important’s” outlook on the future. These stories have value, but they also are full of pitfalls.

For example, the latest full-year data from the Energy Information Administration show that electricity consumption in the United States totaled just over 3.69 trillion kilowatt-hours in 2012, up 5.8 percent from the 3.49 trillion kwh consumed a decade earlier. While not robust, that increase is in keeping with the long-term decline in the growth rate of U.S. electricity consumption so that’s the end of the story, right? Not by a long shot, as those endpoints hide a huge story—the great recession of the late 2000s. Digging into the numbers just a little deeper, you find that current consumption is still below the 2007 pre-recession peak of 3.76 trillion kwh and the story isn’t as rosy as it might have first appeared.

While a straightforward example since everyone is well-aware of the recession’s economic impact, the point is still valid: statistics need to be used carefully. As Mark Twain, one of my favorite authors once wrote: “Facts are stubborn things, but statistics are pliable.”

The great recession also underscores the need to take predictions for what they are worth—not very much.

In a long-forgotten roundtable interview with a number of utility chief financial officers, William Rogers, then the CFO of Sierra Pacific Resources (now a part of Berkshire Hathaway Energy), told EnergyBiz magazine: “In Nevada, we’re not concerned about recession in our local economies.”

Rogers had justification for making that now-regrettable statement in late 2007/early 2008 (the interview was published in the January/February 2008 issue of EnergyBiz): In the 18 years from January 1990 to December 2007, the peak of the U.S. economy prior to the recession, Nevada had the nation’s fastest growing economy. (Center for Business and Economic Research, UNLV)

But like most good things, it didn’t last. When the recession hit, it hit Nevada particularly hard—the state plummeted to the bottom of the heap and from 2008-2010 it led the nation in job losses. This was reflected in a noticeable decline in electricity consumption, which still had not topped its 2007 peak by the end of 2012.

The takeaway is clear—while your title may be noteworthy, the crystal ball you use to look into the future is just as cloudy as everyone else’s. As Wall Street money managers are required to say: Past performance is no guarantee of future results.

Keeping those two cautionary notes always in mind, I hope to shed some light on key issues in the energy industry. I hope you will join me.

–Dennis Wamsted

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