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3 Utility Picks to Tap Likely Rise in Electricity Consumption

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Consumption of electricity in the United States is expected to witness growth going forward. Per the latest short-term energy outlook of the U.S. Energy Information Administration (“EIA”), total electricity consumption in the country is expected to increase 1.5% in 2021 and 1.7% in 2022. Such a scenario bodes well for electric utility companies since higher consumption would eventually stem from increased generation of electricity.

Notably, EIA mentioned in the report that the pandemic-led social distancing measures as well as restriction on economic activities like limitations on the number of people in restaurants and retail stores, affected the patterns of electricity consumption in 2020. In fact, residential electricity consumption saw an increase as the pandemic forced people to work from their homes. EIA estimated the annual residential electricity sales to increase 2.4% in 2021 and 1.6% in 2022, following growth of 1.3% in 2020.

Meanwhile, as residential electricity consumption increased in 2020, consumption in the commercial and industrial sectors witnessed declines. However, the scenario should change in the long run as deployment of vaccines has already started in the United States. This should allow the economy to operate at its optimum level going forward. Notably, EIA estimated in its outlook that commercial sector consumption fell 6% in 2020. The consumption is projected to make a comeback in 2021 as the EIA forecast it to grow 0.9% in 2021 and 1.8% in 2022. Nonetheless, EIA expected certain trends that emerged during the pandemic, primarily, work from home, to continue even beyond the pandemic, which might reduce the need for electricity at offices. Reflective of this, a survey by Upwork showed that 1 in 4 Americans are set to work remotely in 2021, as quoted in a CNBC article. The article also mentioned that 36.2 million Americans will be working remotely by 2025, which will be an increase of 87% from the pre-pandemic levels.

Demand for electricity in the industrial sector is also poised to make a comeback as economic conditions improve. EIA estimated that industrial production by electricity-sensitive industries is set to increase 2.9% in 2021 following a fall of 6.9% in 2020. This resulted in EIA’s projection that retail sales of electricity to the industrial sector is set to increase 1.2% in 2021 and 1.1% in 2022. To aid the growing consumption, EIA also expects power generation to rise 1.2% in 2021 and 1.5% in 2022. Moreover, Fitch Ratings predicted a stable outlook for the U.S. utilities sector in 2021, supported “by low interest rates, low commodity costs, modest secular sales growth assumptions and balanced rate regulation,” as mentioned in an S&P Global Market Intelligence article.

3 Top Electric Utility Picks

The electric utilities sector in the United States seems poised to make a comeback in 2021. This will be supported by increasing electricity consumption in commercial and industrial sectors. Moreover, residential electricity consumption is also set to stay on its growth path. This makes it a good time to invest in electric utility names that can make the most of this trend going forward. Notably, we have selected three such stocks that carry a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ALLETE, Inc. (ALE - Free Report) operates as an energy company. It generates electricity from coal-fired, hydroelectric, natural gas-fired, biomass co-fired, and solar. The Zacks Consensus Estimate for its current-year earnings increased 1.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 9.6%.

CenterPoint Energy, Inc. (CNP - Free Report) operates as a public utility holding company in the United States. The company's Houston Electric T&D segment provides electric transmission and distribution services to electric utility. The Zacks Consensus Estimate for its current-year earnings increased 5.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 7.6%.

MGE Energy, Inc. (MGEE - Free Report) , through its subsidiaries, operates as a public utility holding company primarily in Wisconsin. The company generates, purchases, and distributes electricity; owns or leases electric generation facilities located in Wisconsin and Iowa; and plans, constructs, operates, maintains and expands transmission facilities to provide transmission services. The Zacks Consensus Estimate for its current-year earnings increased 1.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 7.1%.

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