The Energy Industry: A Review of 2013 Highlights and What May Come in 2014, Part I

By Bill Malcolm, guest author

As we turn our calendars to a new year next Wednesday, it’s time to look back at major developments in the energy industry in 2013 and make some educated predictions at what we may see in the year ahead:2014

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.

Next week we will examine a few more hot topics and/or key trends including the impacts of distributed generation (DG), net metering, and solar; RTO expansion; challenges of wind integration; cost recovery trackers and regulatory streamlining; and natural gas as a choice fuel.

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.

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
This entry was posted in Electricity, Natural Gas and tagged , , , , , , , . Bookmark the permalink.

One Response to The Energy Industry: A Review of 2013 Highlights and What May Come in 2014, Part I

  1. Pingback: The Energy Industry: A Review of 2013 Highlights and What May Come in 2014, Part II | Enerdynamics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s