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

By Bill Malcolm, guest author

Happy New Year!

In last week’s Part I of this post, we looked at a few energy industry trends that emerged in 2013: low electric load growth, the closing of nuclear plants for economical reasons, and debates on retail choice. But there’s still much to discuss as we look back on 2013 and ahead to 2014…

Will solar power change the utility to just a distribution system operator?
A 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]).

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 joined 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.

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.

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 likely to continue 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

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

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


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