By REBECCA SMITH  as reported in Wall Street Journal

Slack demand for electricity across the U.S. is leading to some of the sharpest reductions in power prices in recent years, offering a break for consumers and businesses who just a year ago were getting crunched by massive electricity bills.

On Friday, the nation’s largest wholesale power market serving parts of 13 states east of the Rockies is expected to report that electricity demand fell 4.4% in the first half of the year. That helped to push down spot market prices by 40% during the first half of this year.

[Electricity Prices Plummet]

Wholesale electricity — power furnished to utilities and other big energy users — cost an average of $40 a megawatt hour in the region, down from $66.40 a year earlier. The price declines in this market, which extends from Delaware to Michigan, come on top of a 2.7% drop in energy use in 2008 over 2007.

The falloff in demand represents a reversal of what has been one of the steadiest trends in business. For decades, the utility sector could rely on a gradual increase in electricity demand. In 45 of the past 58 years, year-over-year growth exceeded 2%. In fact, there only have been five years since 1950 in which electricity demand has dropped in absolute terms.

But this year is shaping up to have the sharpest falloff in more than half a century, and coming on top of declines in 2008, could be the first period of consecutive annual declines since at least 1950.

Dramatic price reductions don’t immediately mean lower power bills for all consumers. That’s because many customers pay prices based on long-term contracts. But lower prices will have a softening effect over time.

In California and Texas, a combination of cheap natural gas and lower industrial demand is putting pressure on prices.

In the Houston pricing zone, which has many power-gobbling refineries and chemical plants, the spot market price was $61.82 in June, versus $129.48 a megawatt hour a year earlier. Power demand in Texas is down 3.2% so far this year due to business contraction and reductions in employment which are causing many households to economize.

Just a year ago, many businesses and residential customers were reeling from electricity prices on the spot market that had spiked to historic highs, driven by high fuel prices and hot summer weather. Some businesses curtailed their operations because electricity and natural gas were too pricey.

[Electricity Prices Plummet]

But the flagging economy has resulted in a slump in demand that has jolted some energy markets. American Electric Power Co. and Southern Co., for example, both reported double-digit drops in industrial electricity use for the past quarter.

Meanwhile, natural gas, which strongly influences electricity prices, has fallen below $4 per million BTUs, or British thermal units. That’s down from $12 at last year’s peak.

For many businesses, the cost of electricity represents one of the few bright spots in a dismal economy. Andy Morgan, president of Pickard China Inc. in Antioch, Ill., which makes fine china, figures his electricity cost is down 30% to 40%.

Last year, when everything was spiking, he looked at different options — including negotiating a fixed-price contract for energy with a supplier. He says he held off and now he’s happy he did.

“We’ve definitely reaped savings,” says Mr. Morgan, adding that “especially in a down economy, you’ll take whatever you can get. That’s one of the few blessings during this storm.”

Slowdowns at major industrial companies such as Alcoa Inc. help account for the decline in electricity usage this year. The recession and drop in consumer demand for products that contain aluminum has caused the company to idle 20% of its smelting capacity world-wide this year.

In the U.S. the company has cut production at smelters, which are traditionally big energy users, in New York, Tennessee and Texas. Kevin Lowery, a company spokesman, said he did not believe that Alcoa has saved much money thus far because the company primarily purchases electricity through 25- to 35-year contracts.

Steel Dynamics Inc. is benefiting from lower pricing. The company operates five steel mills, with four purchasing electricity at spot market prices in Indiana, Virginia and West Virginia. The benefit, though, is smaller than it might be because the steelmaker is producing less steel this year.

“We’re producing fewer tons, but every ton we produce we seek to minimize the costs and electricity is one of those,” said Fred Warner, a company spokesman. Its mills are running at 50% capacity this year, down from 85% capacity last year.

Some wonder whether the deregulated markets of the Eastern U.S., Midwest, Texas and California will be especially hard hit if demand comes roaring back. That’s because utilities in these markets no longer are required to build new resources. It’s left up to the power generators to determine when the market conditions are ripe.

“There’s more supply than demand and prices are really low so it doesn’t make sense to build anything,” says John Shelk, president of the Electric Power Supply Association in Washington, D.C., a group that represents power generators.

Many electricity markets throughout the country have implemented demand reduction programs that give consumers a further incentive to reduce power use. The 13-state PJM Interconnection market has been one of the most aggressive — and has seen one of the steepest price drops.

A new report from the region’s official market monitor found a strong correlation between falling prices and an increase in demand-reduction programs. In the PJM market, energy users can collect money through an auction process for pledging to cut energy use in future periods.

In May, PJM conducted an auction to ensure it will have the resources it believes it will need in 2012-13. About 6% of the winning bids came from those who pledged to cut energy use by a total of 8,000 megawatts in that future period.

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—Timothy Aeppel, Sharon Terlep and Kris Maher contributed to this article.

By MIRIAM JORDAN

In Tough Economy, Homeboy Industries Trains Ex-Cons for Brighter Prospects

LOS ANGELES — When Albert Ortega was released from prison four months ago, he was determined to turn his life around. So he went green.

Mr. Ortega sports tattoos of an Aztec warrior on his back, a dragon on his chest and the name of his former gang, the East Side Wilmas, rings his biceps. Drug trafficking kept him locked up for most of the past seven years, he says. But after serving his last term, for 18 months, he heard about a solar-panel installation course.

“I wanted a new way of life,” says the tall, brawny 34-year-old. “Solar puts me on the cutting edge.”

Solar Panels for Ex-Cons

2:46

A training program in East Los Angeles is teaching ex-cons to install solar panels so they can improve their skill set and market themselves for the new green economy. WSJ’s Russ Britt reports.

In the race to train America’s “green-collar” work force, a group composed mostly of former Los Angeles gang members on parole is an early participant. Their training is funded by Homeboy Industries, a Los Angeles nonprofit that helps people with criminal pasts find employment.

President Barack Obama has made the production of renewable energy one of the pillars of job creation. All sorts of people are now rushing to acquire skills to launch careers in the budding sector.

For years, Homeboy Industries put former felons to work at a bakery and cafe it runs in East Los Angeles. Last summer, founder Greg Boyle, a Jesuit priest, was approached by a supporter about the idea of preparing them for the green economy.

Because job-placement for ex-convicts is especially difficult in a recession, “I leapt at the opportunity,” says Father Boyle, who started Homeboy two decades ago.

Homeboy joined forces with the East Los Angeles Skills Center, a public vocational school that offers a hands-on program to teach the design, construction and installation of solar panels. The course is one of only a few such programs in California and commands a months-long waiting list.

[Albert Ortega]

Albert Ortega

The center created an intensive course for Homeboy. “I loved the idea of doing something for these guys,” says Brian Hurd, the senior instructor who designed it. “My best student ever was a Homeboy referral” in a construction course, “who needed a second chance.”

Homeboy, funded by individuals, community groups and revenue from its businesses, pays the $131 tuition for each student; it also pays participants an hourly wage of $8. The class meets for two months, weekdays from 9 a.m. to 3 p.m.

“I was so motivated, I would fall asleep with the books on my bed,” says Mr. Ortega. Determined to get into the course, he phoned or visited Father Boyle for two weeks, until he was asked to take a drug test. Mr. Ortega passed and was offered a spot in the class.

“I knew I was good at wiring,” says Mr. Ortega, who once installed car-stereo systems. “I was always good at math.”

On a recent morning, some 30 tattoo-coated students sat at desks in a basement classroom, taking notes as their instructor scrawled algebra equations and geometry problems on a chalkboard. Then they figured out such things as the area of a house’s roof and the angle at which solar panels should be mounted on it.

Manuel Delgado, 42, who dropped out of high school, said he struggled at first. But, four weeks into the class, he’s doing “real good,” he says. “I got 76% on my last math test.”

Another student, Jessica Espinoza, 23, says she couldn’t find a job after being locked up for two years because she helped a felon escape from a courthouse. “The minute they saw I went to jail, employers didn’t give me the time of day,” she says. “Hopefully I can take what this school gave me and make a career in this new industry.”

In the afternoon, the students donned protective goggles and got to work on solar panels and electrical circuits in the workshop. At one station, they drilled holes through aluminum rails where panels are mounted; others drove bolts into metal racks. A few studied the layout of a roof to figure out sizing for pipes.

[Homeboy Industries, a Los Angeles nonprofit, helps prepare students to enter the 'green-collar' work force] Miriam Jordan / The Wall Street Journal

Homeboy Industries, a Los Angeles nonprofit, helps prepare students to enter the ‘green-collar’ work force

Mr. Ortega helped his classmates wire up a panel. One was Ken Chung, a general contractor who decided to train for a career in solar energy after his business of building homes and pools began to dry up.

After months searching for a training program, Mr. Chung decided the Homeboy course would give him the skills he needed. But when he informed his wife that most of his classmates would be ex-felons, she was worried. “I told her, ‘Honey, just give me a week to try and see,’ ” he recalls.

On his first day, he says a fellow student asked: “What were you in for?” Mr. Chung, a 45-year-old Malaysian immigrant, didn’t understand. “I asked him to repeat the question.”

The East L.A. Skills Center offers a night class in photovoltaic installation (the official name of solar-panel installation) that is open to the general public, but there’s a long waiting list. That’s why some “regular folks” have been clamoring to get into the Homeboy class, says Ed Ruiz, the instructor. “Most of them take one look and say ‘no thanks,’ ” he says.

Doug Lincoln, 61, who once managed luxury-car dealerships, was offered admission to the Homeboy course after he inquired about a faster-paced class. On hearing it was mainly for ex-cons, “I thought it was a joke,” he says.

Now, Mr. Lincoln is about to graduate. He plans to start a solar-panel-installation firm, he says, and hire some of his former Homeboy classmates. “These guys are more motivated than hundreds of employees I’ve managed,” in the car business, he says.

Mr. Chung, the contractor, has also thrived in the class. He and Mr. Ortega get together for lunch on the weekends, either tacos or Chinese noodles. “Albert has taught me many things,” says Mr. Chung. They challenge each other to design solar-energy systems for homes and then critique each other’s work. “I know about his kids. He knows about mine,” says Mr. Ortega.

Last month, Mr. Ortega passed an exam that qualifies him to install solar panels nationwide. He says he has already been approached by employers. But he says he is waiting until Feb. 16, when he’s off parole, before starting work, because until then he can’t travel out of Los Angeles County. When that happens, he says, “I’ll be just another citizen.”

Several of his classmates who completed the course are already working, earning about $15 an hour; experienced installers can make upwards of $30 an hour. Philippe Hartley, general manager of Phat Energy, a Los Angeles solar company, has hired several Homeboy graduates. The Los Angeles Unified School District plans to start hiring some graduates of the program to install 50 megawatts of solar power on its campuses. “Being former gang members doesn’t preclude them from building a career in solar technology,” says Veronica Soto, a school-district director.

Others are also interested. “We expect to hire out of the program as quickly as they can get them to us,” says Gabriel Bork, a vice president at Golden State Power, a solar-panel installation company. “These guys are much better trained than many others I have hired.”

Write to Miriam Jordan at miriam.jordan@wsj.com

Printed in The Wall Street Journal, page A1

Frigid temperatures and winter storms have blanketed the country from New Orleans to Chicago this month, weather that usually leads to a spike in the price of the most popular fuel for home heating, natural gas.

But not this year.

Natural-gas prices remain in a slump because manufacturers, which are even bigger users of gas than chilly homeowners, have cut back their operations in response to the recession. And low demand means low prices.

Associated Press

Despite a cold, stormy start to winter in much of the U.S., natural-gas prices have stayed relatively low as the recession hits industrial usage.

Despite an uptick this week, natural-gas futures have fallen 9% this month, to $5.910 per million British thermal units, and are down 16% from last year despite colder weather. Prices haven’t been this low in December since 2003.

Storage levels remain 3.4% higher than normal even after the frigid start to the season. According to federal data released Wednesday, the U.S. withdrew 147 billion cubic feet of gas from storage last week, about normal for this time of year, but less than would be expected after a bout of cold weather.

Boon for Consumers

Low prices are a rare piece of good news for consumers, who might get smaller bills this year for home heating and electricity.

But the price slump spells bad news for gas producers, who have been forced to slash spending on drilling, and for gas-producing states like Texas and Colorado, which had been shielded from the national economic slowdown by their strong energy industries.

[Natural Gas Futures]

The low prices come despite an unusually cold start to winter, which has seen rare snowstorms in New Orleans, Houston and Las Vegas, subzero temperatures in Chicago and a devastating ice storm in the Northeast.

Michael Schlacter, chief meteorologist for the forecasting service Weather 2000, said the weather so far this season has been the most extreme in at least eight years.

“Mother Nature’s doing all she can,” Mr. Schlacter said.

Manufacturing Downturn

But rising residential and commercial heating demand has run up against slumping industrial demand for natural gas, which is used to make everything from diapers to fertilizer.

“Industrial demand is going away in a big way,” said Abudi Zein, senior vice president at Genscape Inc., which monitors electricity generation and fuel supplies.

Forecasters expect the weather to warm up in at least parts of the country early in the new year, but industrial demand isn’t likely to recover for months because the recession has knocked down industries like auto manufacturing.

“We know industrial demand is going to be impacted in 2009 — it has to be,” said Dave Pursell, an analyst at energy-focused investment bank Tudor Pickering Holt & Co. in Houston. “Everything that goes into a car — steel, glass, plastic — is natural-gas intensive.”

Adding to the downward pressure on prices, natural-gas production has remained relatively high. Gas producers such as Chesapeake Energy Corp., Range Resources Corp. and Exco Resources Inc. have been slashing drilling budgets since autumn in response to falling prices. But it has taken months for those spending cuts to show up on the ground in the form of reduced drilling activity, and it will take months more for production to fall significantly.

Rebound Is Seen

Longer term, many analysts think prices are likely to rise. Tudor Pickering, for example, predicts gas will drop as low as $4.75 per million BTUs in the third quarter of 2009, but will rebound in 2010.

Subash Chandra, an analyst at Jefferies & Co., is predicting a faster recovery. Even though a lot of gas is in storage, he said, it can’t all be tapped right away, so the immediately available supply of gas is lower than many people think.

But after a year of ups and downs, no one can have much confidence in price predictions, he said. “Gas has thrown so many head-fakes in the past,” Mr. Chandra said. “Anybody who thinks they’ve had it figured out in December, even if they’re freezing their noses off, well, history tells a different story.”