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Electricity: A Look Back at 2013, and Energy Trends to Watch
for in 2014

By Bill Malcolm, guest author

 

Here is a brief look back on 2013 and a look ahead to 2014 in the energy industry.

 

 

The elephant in the room: Low electric load growth

I am unaware of any time period in recent history in which electric load growth has been so low. What caused "the perfect storm" that led to such low load growth?

  • the lingering recession
  • energy efficiency programs and mandates
  • growth of demand response (now 16,000 MW in PJM)
  • more efficient appliances
  • the price elasticity of demand (i.e., higher rates cause consumers to use less)

 

Of course, low demand growth leads to low growth for new generation resources. Regional exceptions include ERCOT in Texas, Southern California (with the closure of San Onofre), and North Dakota (where a baseload coal plant was cancelled and the oil boom enhanced demand in the western part of the state).

 

The only need for new resources could be attributed to EPA impacts (causing power plant closures and retirements) but only if such plants are not replaced (which many are with new gas plants, wind, etc.). 

 

With a flat kWh sales denominator, any expenditure or program, however worthy, pushes up rate levels. In many Midwest states, impacts of power plant and transmission line construction have taken historically low-cost states like Wisconsin and Indiana to the middle of the pack. Indeed, one Wisconsin utility now has an average rate around 15 cents/kWh (compared to a state average residential rate of 12.5 cents/kWh over the period 2008-2012). 

 

The Badger State had enjoyed lowest-in-the-Midwest electric rate status for many years. Perhaps the rate increases will result in re-thinking whether there is need for new generation and transmission.

 

Worst trend of the year award: Closing nuclear plants for economical reasons

With power surpluses in many parts of the country and anemic demand growth we have seen surprise closures or announcements of potential closures of both aging coal-generating plants and nuclear power plants — some of which just had their NRC licenses renewed.

 

Perhaps the poster child for this unfortunate trend was the closing by Dominion in Wisconsin of the Kewaunee nuclear power plant. The owner had just received a license renewal from the NRC and employed 700 workers.

Not only did the previous buyer of the power from this plant decline to renew their contract with the plant, they are potentially replacing it with a new gas-fired plant.

 

So Wisconsin ratepayers already suffering from higher than national average rate levels are stuck paying to replace the embedded-cost nuclear power with a new plant and potentially volatile fuel prices.

 

Other announced nuclear plant closures include the Entergy Vermont Yankee plant as well as potential closures in Illinois discussed recently by Exelon. Southern California Edison’s (SCE's) San Onofre also closed this year for operational and safety reasons.

 

Runner up: Debates on retail choice

You know times are changing when a state like Indiana, which just adopted daylight savings time a few years back, decides to debate retail electric choice. However, the continued low wholesale power prices have made retail access a success story in neighboring states while Indiana has lost its electric rate advantage. Legislation is anticipated in 2014, and it will be an idea debated in the state’s energy plan.

 

We Energies in Michigan's Upper Peninsula lost 85% of its retail load to marketer Integrys this year. Insiders predict legislation that will further increase retail choice is unlikely until 2015 in Michigan.

 

In any event, look for retail choice debates to spring up again in 2014.

 

Will solar power change the utility to just a distribution system operator?

Another new trend in 2013 was a concern over the impacts of distributed generation (DG), net metering, and solar. Several states decided to pay the full retail rate for distributed generation when buying back power — far higher than its wholesale value.

 

With solar, some charged that it was being subsidized by non-participants and receiving grid services at no charge. An EEI Foundation Study, “Value of the Grid to Distributed Generation Customers,” found that solar was not paying its fair share of costs given it uses the grid 24 hours a day[1].

 

Another concern is cost shifting of solar subsidy and solar back-up/grid costs to non-participating customers. In November, the Arizona Corporation Commission allowed Arizona Public Service (APS) to impose a $5 per month charge on solar.

 

Solar advocates claim that the underlying rates are the real issue (i.e. the PG&E and SCE residential rates are steeply inverted thereby inflating the solar savings). Advocates also point to DG and a “dynamic microgrid” as the utility business model of the future, which can help manage extreme weather events like Superstorm Sandy (see November Public Utilities Fortnightly[2]).

 

Some state regulators seem to agree:

  • New York Public Services Commission (PSC) Chair Audrey Ziebelman told a National Association of Regulatory Utility Commissioners forum in November that in a “post-Sandy world” we are required to go to a distributed generation system that makes the utility the distribution system operator or load coordinator [3]. She praised the localized reactive power that DG can provide. The Chair noted that in the 1990s, the utilities had a central station generation model whereas today we have a customer-driven market.
  • Commissioner Jeanne Fox of the New Jersey Board of Public Utilities said that solar and DG are the future — customers are “doing their thing” and not waiting for regulators and utilities. She said integrating solar and DG makes sense.

RTOs continue to expand

It’s never a dull moment in the Regional Transmission Organization (RTO) footprint world. Always remember that RTO membership is voluntary.

 

On Dec. 19, Entergy and several neighboring utilities such as Cleco will join Midcontinent Independent System Operator (MISO). This adds 25,000 MW or so of generation to the grid and a distinctly Southern flavor to the grid operator once known as the Midwest ISO.

 

Meanwhile, Western Area Power Administration or WAPA (Great Plains Unit/Basin/Heartland) has announced it may join Southwest Power Pool (SPP). This could also force Montana Dakota Utilities (MDU) to switch to SPP from MISO given much of MDU’s service territory is surrounded by the WAPA control area.

 

WAPA — a federal power marketing agency and its decision to join an RTO is quite a catch for SPP. Power Marketing Administrations (PMAs) are not subject to FERC jurisdiction and have historically been suspect about the push into a RTO.

 

In any event, we now will have two mega north-south RTOs (MISO and SPP) as well as the granddaddy of big RTOs, PJM. Only the Southeast, the desert Southwest, and the Northwest remain as RTO hold outs.

 

Challenges of wind integration increase with growth in wind, other renewables

MISO and ERCOT both now have more than 10,000 MW of wind, and the amount of wind coming on line is growing.

ERCOT reports the Competitive Renewable Energy Zone (CREZ) transmission lines are about to come on line at a cost of $7 billion to transport Panhandle wind to the load centers. MISO’s multi-value projects (around $6 billion) also continue to be planned or built to, among other things, allow more wind to get to load centers.

 

In 2013, legislative attempts to repeal state wind mandates have gone nowhere. So look for more wind to come on line, which means integrating the variable resource will be more important than ever. States like Illinois and Minnesota have a 25% mandate.

 

Integrating such a variable generation resource is a continual challenge. The North American Electric Reliability Corporation (NERC) recently did a study with the California ISO on integrating renewables[4]. With 20%-30% being met by renewables or demand response in the future (not under the control of centralized dispatch), the challenge will be to meet moment-by-moment demand on the system, the study noted. Stay tuned in 2014 for more developments.

 

Cost recovery trackers and regulatory streamlining

Why wait for the PSC to process your case in a multi-year proceeding? Several legislatures have enacted measures to shorten or streamline the regulatory process. These include bills to fast track rate increase requests for mandated programs, transmission infrastructure, and the like.

 

Other states are limiting the time PSCs have to process cases:

  • In Illinois, a formula rates bill was passed that fast tracks smart meter program roll out.
  • Indiana’s SB 560 gives the Commission just a year to process cases and created a new transmission and distribution cost system improvement charge.
  • Michigan allows utilities to put filed rates in effect subject to refunds.

 

Look for similar bills to pop up in other states in 2014.

 

Gas, gas, and more gas

Low cost natural gas — buoyed by the dramatic increase in supply thanks to fracking — continues to be the fuel of choice for all new power plants. Natural gas for vehicles and fleets also is on the rise. My favorite is the new Laclede Siemens partnership to promote NGV fleets and fueling stations.

 

Conclusion

That’s all we have space for in this recap, but when it comes to the energy industry, there’s always more to discuss. I will save Order 1000, mergers, demand response, and the benefits of RTO capacity markets (or not), for a future article.

 

In short, 2013 has been an interesting year with many of the trends continuing into the New Year.

 

 

 

About the author: Bill Malcolm is an energy economist based in Indianapolis. He has worked for PG&E, MISO, and ANR Pipeline. He can be reached at billmalcolm@gmail.com.

  


References:

 

[1] Value of the Grid to Distributed Generation Customers, Edison Electric Foundation Study, updated October 13 at www.eei.org

[2] November 2013 issue of Public Utilities Fortnightly (articles on microgrid, game changers, and more).

[3] See NARUC meeting handouts, November and July 2013 at www.naruc.org

[4] Cal ISO NERC study: Maintaining Bulk Power System Reliability While Integrating Variable Energy Resources—CAISO Approach, November 2013 at www.nerc.com

 

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