Energy regulations that shaped 2012


Over the past year, the energy industry has seen a significant amount of regulatory policy debates. Ranging from net metering to storm clean up to cyber security, these issues came to a head in 2012 and set the stage for the future of the industry. Here, FierceEnergy revisits some of the year's top regulatory developments as the industry prepares for 2013.

10. Cyber security issues loom unresolved

Cyber security is a huge issue for banks and technology companies and, in 2012, utilities and grid operators started feeling the pressure as well. The smart grid security market is projected to reach $14 billion by 2018, according to Pike Research. Technology is evolving at breakneck speed, much faster than utilities can adapt.  This undoubtedly gives cyber criminals the upper hand in targeting the U.S. grid and critical infrastructure.

The White House has voiced support for sweeping cyber security legislation, but the Lieberman-Collins bill failed to gain traction in the Senate this summer, and little is likely to get done before the new Congress assembles in January 2013. Despite legislative failings, President Obama is expected to release an Executive Order addressing cyber security of the nation's critical infrastructure, including the electric grid.

Even with a lack of official mandate, the Federal Energy Regulatory Commission, the National Association of Regulatory Utility Commissioners and the U.S. Department of Energy have all created programs dedicated to monitoring and researching smart grid cyber threats. And third parties like IEEE are working with vendors to ensure that standards are developed to make sure that new technologies promote a secure and reliable smart grid. Next year will likely bring even more action, as cyber threats are only likely to increase as the industry moves forward.

9. SONGS closure

The continued closure of California's San Onofre Nuclear Generating Station (SONGS) has been fodder for discussion in 2012. Units 2 and 3 at the plant have been inactive since shutting down January 2012 for testing and analysis after inspections found wear to tubes and steam generators. Southern California Edison owns a 78.2 percent stake in SONGS. The remaining owners are San Diego Gas & Electric (20 percent) and the City of Riverside Utility Department (1.8 percent).

The SONGS closure sparked concerns this past summer of energy shortages from increased load and diminished generation. It has also lead to staff reductions, with SCE announcing in August that it plans to lay off 730 employees as it continues to pare unneeded resources and achieve higher operational efficiency.

In October, SCE petitioned the Nuclear Regulatory Commission to allow SONGS to resume operation at a reduced capacity. The plan would reactivate Unit 2 at 70 percent capacity for a five-month period, as well as create new safety measures.

8. Storms ravage utility service areas

Utilities -- and their customers -- endured a series of severe storms during the past year.

Superstorm Sandy was the most severe, causing millions outages from New England to the Carolinas. Even with advanced notice, some utility customers had estimated power restoration wait times of more than a week. In June, the Washington, D.C. area was ravaged by a severe and rare derecho, a straight-wind thunderstorm that quickly toppled trees and left more than a million customers without power -- some for a week or more -- across its 800-mile path.  In August, Hurricane Isaac brought its own trouble and approximately 700,000 outages to the Gulf Coast, prompting regulators in Louisiana to investigate storm response procedures.

Unsurprisingly, storms pose big challenges for utilities and regulators to determine how to allocate storm clean-up costs and whether utilities acted in the public's best interest. The financial impacts of Hurricane Irene were still being felt in 2012, nearly a year after it made landfall on the East Coast.  National Grid in August reported an $11 million shortfall in Rhode Island resulting from storm cleanup, and is asking regulators to consider a rate hike at their January 2013 meeting.

Storms also remind regulators of the ongoing need to update an aging grid with automated technologies than can self-heal or prevent outages and help bolster arguments for spending money to upgrade what is largely a frail electrical grid, not designed to withstand a pattern of more frequent and damaging storms.

7. Renewable energy project approvals/green energy policy

Regulators in 2012 approved a number of substantial renewable and green energy projects. These range from new wind and solar developments, to distributed generation and efficiency improvements, and all share a goal of increasingly grid reliability as well as creating an improved ratepayer experience.

Most recently, Massachusetts passed its second three-year efficiency plan under its Green Communities Act. The new will bring together the state's utilities and save residential and business customers as much as $9 billion. On Election Day, California voter's passed Prop 39 and created a new tax structure for renewable energy funding. It will create just over $1 billion in revenue for the state, 50 percent of which will be set aside for various energy-efficiency projects. And Pennsylvania announced back in March that it planned to invest nearly $16 million in 10 different renewable projects across the state for a projected $250,000 in annual savings.

In other renewables news, the California Public Utilities Commission this year approved a proposal by SCE to develop 1.3 MW of concentrated solar power generation, in partnership with BrightSource Energy. Wind also saw expansion, as the U.S. Department of the Interior approved a 1,000 turbine wind farm in Wyoming. Upon completion, it will be the nation's largest wind farm, with an annual capacity of between 2,000 and 3,000 MW.

6. FERC muscles market manipulators

Big banks were slammed in 2012 by a slew of energy market manipulation investigations brought by the Federal Energy Regulatory Commission in an inspired effort to protect utilities and the U.S. power markets.

Earlier in November, FERC stuck JPMorgan's electricity-trading division with a sixth-month suspension. This came after a September investigation alleged that the bank skimmed as much as $80 million in inflated profits from the California energy market between 2010 and 2011. JPMorgan admitted no wrongdoing, but was unable to prove its case to regulators.

FERC made another big splash in November, proposing a $470 million fine against Barclays bank, which was accused of "highly coordinated and discussed" illegal activity in the California energy markets from 2006 to 2008. Regulators also laid out $18 million in fines for individual Barclays investors. FERC investigations have also embroiled Deutsche bank and several utilities, including Constellation Energy and Gila River Power.

Going forward, utilities and energy traders should expect continued vigilance by FERC in protecting the integrity of the energy trading market.