The cost-cutting climate we’re living in has had a negative impact on utility exchange traded funds (ETFs). Companies that have announced earnings aren’t terribly optimistic about the near future, either.

The few utility companies that managed to beat expectations did so by cutting costs and raising rates, explains Melinda Peer for Forbes. Many executives also delivered a dire warning for the sector: pricing weakness will continue and no meaningful improvement will be evident until 2011, at the earliest.

Recessionary conditions have forced corporations to limit production and cut costs, resulting in lower electricity demand. Industrial retail demand for electricity is down around 12%; another 2% decline is expected this year.

The utility sector is the second-worst performer in this rally, after telecommunications. With earnings season close to a finish, 74% of the S&P 500 has beaten earnings estimates this season, while only 58% of utilities can make the same claim, explains Ariel Nelson and Adam Daniele for CNBC.

What will it take? Many companies are waiting for an industrial turnaround, which will trigger demand for the utility companies.

• Utilities Select Sector SPDR (XLU): dowm 0.1% year-to-date

• iShares Dow Jones U.S. Utilities (IDU): up 1.1% year-to-date

For more stories about utilities, visit our utility category.

Tags: IDU, Sector ETFs, Utilities, XLU