As the energy policy frenzy of this legislative session winds down, two terms need a bit more attention: regulated monopoly and subsidy. There is much confusion about the implications of both, but they are fundamental to energy regulation.
Our investor-owned utilities — SCE&G and Duke Energy — are regulated monopolies. If I ask any utility executive what that means, the likely response is “We have to serve everyone in our territory.” No. They get to serve everyone, exclusively, in a territory granted to them by the people of this state, and they are guaranteed a fair rate of return and cost recovery.
Right now, there is no free market for energy in South Carolina. I cannot choose my energy provider unless I move. This makes sense, currently, for many reasons, but mainly because these utilities own the lines that serve us. We wouldn’t want multiple transmission or distribution lines cluttering up the place. (In many states a separate entity manages the lines and buys and sells generation in a competitive market. But not here.)
These regulated investor-owned utilities are subject to the rules of the Public Service Commission with regard to operation and cost recovery. But the utility leadership team is hired and fired by stockholders and a board of directors — not ratepayers or the PSC.
Therein lies the reason for the disconnect we have been seeing between the utilities’ lobbying efforts and public outcry. It is a bizarre situation.
The only way to improve the situation is by introducing a new regulatory concept called performance-based regulation, which incentivizes utilities to prioritize their customers by rewarding them for exceeding standards in such performance areas as energy-efficiency investment and solar interconnection rates and speed — whatever the public deems important.
We hear a lot about how non-solar customers should not subsidize solar customers. But the fact is that all energy generation is subsidized.
Our investor-owned utilities should be properly compensated for doing a good job. But for that to happen, we need to institute a regulatory process that tells them what our definition of a good job is. Otherwise that definition will come from the shareholders, who largely care nothing about South Carolina.
On to subsidies. We hear a lot about how non-solar customers should not subsidize solar customers. But the fact is that all energy generation is subsidized.
Those tax credits that might have kept the V.C. Summer project afloat? Subsidy. The many federal-production tax credits for fossil fuel extraction? Subsidy. Eminent domain authority that makes pipeline and transmission line right-of-way acquisitions below market value? Subsidy. Below-market leasing of extraction rights on federal lands and in federal waters? Subsidy. I am currently paying for generation in other parts of the state that I am not using. That is a subsidy.
We incentivize and subsidize the things that we want, and we tax and disincentivize those that we don’t.
She paid for that tiny little power plant on her roof, not the utility, but we all benefit.
I am willing to subsidize that distant power plant because I want a stable, reliable grid. I am also willing to subsidize solar because I want less of my electricity to come from fossil fuels that pollute the air and water. I want a generation mix that is more distributed, more resilient and less likely to become a victim of cyber-attacks, hurricanes and fluctuating fuel prices.
When my neighbor puts solar on her house, she is reducing the immediate need for more centralized gas generation. When she produces more than she consumes and feeds energy back to the grid for me to use, through a process called net metering — even better. She paid for that tiny little power plant on her roof, not the utility, but we all benefit.
As battery-storage technology evolves, a new concept is emerging called the “virtual power plant,” where solar plus storage on multiple houses actually takes the place of a real power plant. I believe that moving our grid in this direction is worthy of subsidy, but our utilities will not move aggressively in this direction unless they are compensated and incentivized to do so. This requires direction from our Legislature and our Public Service Commission.
We have time to do this. We have sufficient generation capacity for the next few years. All utilities have confirmed this, in spite of the loss of V.C. Summer’s capacity.
Let us put the frenzy of this session behind us and start a more deliberative process that produces real change and incentivizes what is truly best for South Carolinians: a stable, clean, distributed, competitive grid.
Ms. Robbins is energy and state policy director for the environmental group Upstate Forever; contact her at firstname.lastname@example.org.