OREANDA-NEWS. The US coal industry's downturn cut into utility sales and profits last quarter.

American Electric Power (AEP), FirstEnergy and DTE Energy this week singled out lower power usage by coal mine operators and steel plants as among the reasons electricity sales to industrial customers slipped.

"We are seeing some significant erosion in our industrial sales as well as customer accounts," in AEP's coal counties, chief financial officer Brian Tierney said yesterday. "Low natural gas prices and environmental regulations combined with the drop in metals production and corresponding demand for metallurgical coal have created a perfect storm for Appalachian coal producers."

Sales to industrial customers typically are dwarfed by residential and commercial business. But the decrease in industrial sales underscores a somewhat circular relationship that some utilities have with the coal industry. Utilities purchase coal, and coal companies in turn use large amounts of electricity.

While neither AEP, DTE nor FirstEnergy specifically discussed coal-fired generation at their plants, the utilities have retired coal units in recent years. Data from the US Energy Information Administration (EIA) as well as regional electric grids show generation and fuel consumption across the US is moving away from coal.

AEP and FirstEnergy are likely among the most heavily exposed to coal's downturn since their service territories cross through Northern and Central Appalachia, where production has fallen by 40pc over the past two years, according to the EIA. But industrial sales at utilities servicing the Illinois basin and Powder River basin could also take a hit.

Electricity sales to the US industrial sector in the first two months of this year totaled 150.6GWh MWh, 0.8pc below a year earlier, according to EIA data released yesterday. Total electricity sales fell by just under 3.0pc to 612.3GWh.

The market could get more insight to utility ties to coal production early next month, when Duke Energy, Dynegy and Exelon discuss quarterly earnings and 2016 outlooks.

AEP said yesterday that its industrial sales to coal producing counties were 17.4pc lower in the first quarter of this year than in the same period of 2015.

Coal counties in West Virginia, eastern Kentucky and southwestern Virginia cover 14.0pc of AEP's industrial sales. Outside of those regions, industrial sales increased by 1.1pc between last quarter and a year earlier. The company's overall electricity sales rose by 0.9pc on a weather normalized basis.

FirstEnergy's sales to industrial customers fell by 2.8pc as lower usage from steel and coal mining more than offset demand growth from shale gas producers. Load demand was nearly 110GWh lower than in the first quarter of 2016, FirstEnergy Chief Financial Officer James Pearson said on 27 April.

Over the past four quarters, industrial load has fallen by 3.0pc on a weather-adjusted basis, while residential and commercial sales have decreased by more than 1.0pc, Pearson said.

DTE's industrial sales fell by 3.0pc on a weather-normalized basis when compared with the first quarter of 2015, while total sales were down by 1pc. Its power and industrial projects unit's operating earnings dropped by a third, to $33mn, primarily because of weaker demand from steel producers as well as lower coal production that cut into operations of the DTE's reduced emissions fuel (REF) projects. The utility expects the REF business, which treats coal to lower mercury and NOx emissions before combustion, to pick up later this year and help offset steel market weakness.

While the relatively warm winter and coal-to-gas switching also weighed on REF demand, the typical seasonal decline in coal production was also a factor, DTE said.

"As we assess the prospects for the balance of the year, we still feel good about the guidance we have out there for the segment," company chief executive Gerard Anderson said on 26 April.