SC lawmakers to study whether to overhaul state's power grid and electric utilities

South Carolina lawmakers are considering whether to overhaul the state power grid and dramatically change the way electricity is generated, managed and sold.

Members of the S.C. House and Senate voted last month to study proposals that could inject competition into the market, require utilities to collaborate more and potentially upend the way the monopolies operate in the Palmetto State.

The attempt to rethink how the state's power system works comes more than three years after S.C. Electric & Gas and Santee Cooper — two of the state's largest power providers — halted construction on two new reactors at the V.C. Summer plant in the Midlands after spending more than $9 billion on the failed project.

That collapse, which customers are still paying for, infuriated lawmakers and led them to review how the state regulates utilities and holds those vital businesses in check.

In the past two years, legislators repealed the law that allowed SCE&G to charge ratepayers for the abandoned reactors during the construction phase rather than after they were to be put into service. They clarified that the Office of Regulatory Staff, the state's utility watchdog, should look out for the interests of consumers, not utilities. They elected a new group of regulators to the Public Service Commission. And they explored the possibility of selling Santee Cooper, South Carolina's state-run utility.

But the new committee set up in September could seek to go far beyond those changes.

It will study whether South Carolina's electric utilities should collectively plan for how to generate enough electricity to meet demand. It will review whether power companies should join with energy providers in neighboring states to set up a competitive wholesale market for electricity.

The new panel could advocate for the state to break up the electric utilities into two distinct groups: companies that own power plants and others that manage the lines that transport electricity to homes and businesses. Lawmakers will also review the idea of giving every South Carolinian the ability to choose their electricity provider.

Shelley Welton, a law professor at the University of South Carolina who studies energy markets, is not surprised that frustrations over the failed V.C. Summer project are prompting lawmakers to consider bigger changes.

"It's really interesting when people are finally forced to peer behind the curtain," she said.

The new committee is set to consider some complicated issues. Those conversations, Welton said, will feel abstract to most. But the choices legislators make will likely influence where South Carolinians get their electricity, how that power is generated and how much it costs people each month.

Some of the changes being studied, like setting up a competitive market for wholesale electricity, have been shown to benefit customers in other parts of the country, Welton said. And some of the proposals could potentially speed up the expansion of renewable energy resources, like large solar developments, she said.

But Welton also sounded a note of caution. She pointed to the Base Load Review Act, the law that allowed the construction of the V.C. Summer project to be financed by ratepayers rather than SCE&G, as an example of officials changing utility laws that they don't fully understand.

There are many ways to structure and regulate the electric utility industry, she said, and none is a solution for every problem.

That is why the Legislature plans to hire an independent consulting company to help lawmakers study the issues and calculate the costs and benefits of each plan.

"I like the idea of doing this somewhat cautiously," Welton said.

The traditional system

South Carolina's electric utility industry hasn't changed much since the first power lines were erected in the state nearly a century ago.

Power providers are legal monopolies in the Palmetto State. They are given set territories and are the only companies allowed to supply electricity in those areas.

That system had a function. It was meant to ensure utilities didn't waste money by building multiple power lines to supply the same customers. But it also gives the utilities immense influence over what power plants are built, what energy sources they use and how much they charge customers.

The biggest producers in the state control nearly every step in the supply chain. They buy the fuel that is used to generate power. They own nearly all of the gas turbines, coal plants, solar farms and nuclear reactors that produce the electricity. And they build and manage the power lines that crisscross the state.

They also play a role in determining when and how other companies, like independent solar developers, can access their lines and supply an optional source of power to ratepayers.

The changes that will be studied by the Legislature next year could disrupt that system to varying degrees. The decisions that are made will affect nearly every electricity customer in the state, including people who buy their power from the state's municipal utilities and 19 member-owned cooperatives.

The potential changes, however, are likely to have bigger implications for South Carolina's three largest power producers: Santee Cooper, Duke Energy and Dominion Energy. Those three utilities generate the vast majority of the electricity created and consumed in South Carolina, including the power used by the co-ops and municipal utilities.

The rates for Moncks Corner-based Santee Cooper, the only public utility among the three, are controlled by its board of directors. Meanwhile, the rates for Duke and Dominion, two of the largest investor-owned utilities in the country, are set by the Public Service Commission.

Executives with Duke, Dominion and Santee Cooper will all have a seat at the table next year when the new committee kicks off its review. They will be joined by representatives from South Carolina's co-ops, environmental groups, solar developers and manufacturing companies.

"We support any initiative that would explore new opportunities to deliver savings to our customers without hurting reliability or safety," said Mollie Gore, Santee Cooper's spokeswoman.

"We believe there are options that can help us deliver greater value to our customers, increase system efficiency and leverage renewable energy," said Ryan Mosier, Duke's spokesperson.

"Dominion Energy is always looking for ways to ensure a reliable, resilient and secure grid that delivers electricity safely and affordably to our customers," added Rhonda O'Banion, spokeswoman for Richmond, Va.-based Dominion, which bought SCE&G in early 2019.

A regional energy market

One of the proposals the committee will study is whether to require utilities in South Carolina to join or form what is known as a "regional transmission organization," or RTO, which helps manage the supply and movement of electricity throughout many parts of the country.

Those groups, which typically are made up of multiple conventional utilities and smaller independent providers, create competitive markets for large amounts of power to be bought and sold. They also plan for where transmission lines need to be built in order to more efficiently meet demand for a specific region, which can cover multiple states.

California, Texas, New York and many other states throughout the Midwest and Northeast have that sort of structure in place. But the Southeast has yet to join that trend, allowing utilities to operate largely within their own silos.

Environmental groups in South Carolina, such the Coastal Conservation League and Southern Alliance for Clean Energy, want to change that.

They believe creating an RTO for the region could make it easier for independent producers to sell their electricity, injecting more competition into the market. They also think it would help speed up the adoption of renewable energy, make it easier for newer technologies to be adopted and potentially drive down costs for ratepayers.

Several studies recently looked at the possibility of setting up a regional system in Georgia, Alabama, Florida, Mississippi, Tennessee and the Carolinas.

One of them was produced by Energy Innovations, a group that is focused on advancing renewable energy and reducing greenhouse gas emissions. It estimated an RTO could potentially save utility customers in the Southeast $384 billion between now and 2040, if all of the states participated in it.

Part of those potential savings would come from utilities sharing power more efficiently, which would prevent each of them from building too many plants and passing on the costs to customers.

"If we cling to an outdated model, we are going to be ill-equipped to compete," said Eddy Moore, energy and climate director for the Charleston-based Coastal Conservation League.

A call for change?

Study committees are common in the South Carolina Legislature. Lawmakers review issues, type up recommendations and deliver them to the General Assembly. But in some cases the recommendations are never acted upon.

Sen. Tom Davis, a Beaufort Republican who helped push for more competition in the state's electric utility industry in recent years, doesn't expect that to happen this time time around.

Davis noted how the study committee was created with support from both Republicans and Democrats. And he pointed out that the Legislature is prepared to spend hundreds of thousands of dollars to hire a consulting firm to help lawmakers sort through the "enormously complex" issues, though part of that cost could be offset by a federal grant.

It's the public interest that makes Davis confident the study committee will result in some form of change. The costly V.C. Summer project is now considered one of the biggest financial disasters in state history. But it also raised people's awareness about where their electricity comes from and how much it costs, Davis said.

"The public's attention is engaged on this issue right now, and the only time you can change something is when the public is engaged," he said.

Recent polling seems to support that. The Conservation Voters of South Carolina, one of the state's environmental groups, surveyed 1,078 voters this month about energy related issues. The results showed 67 percent of the respondents thought their power bills were too high. Sixty three percent of those people said they supported reforming the electric utility industry, though they seemed less certain about how to accomplish that.

The pollsters asked whether state regulators or free market competition would drive better decision-making in the energy industry. People were split pretty evenly on those two choices. But roughly 47 percent of the respondents were unsure how to even answer that question — a potential sign of how little most people think about the electricity they use every day.

"Most people just want electrons. They don't really care where they come from," said Welton, the USC law professor. "They just want it to be affordable."

That's what the new committee is expected to study, Davis said. Other states were able to break old habits within the industry, including some that dated back the 1930s. The goal is to determine if similar changes can be adopted in South Carolina, and if they will lower the cost of electricity.

"I want to see what worked and what hasn't worked in other states," Davis added. "This isn't theory. You've got to make it work with what's on the ground here in South Carolina."

The recommendations out of the committee are expected to be completed by November 2021. It will then be up to the entire Legislature to decide whether to change the century-old process of powering South Carolina.

Reach Andrew Brown at 843-708-1830 or follow him on Twitter @andy_ed_brown.