The year 2024 is shaping up to be a big one for electricity competition, with major bills to expand the scope of markets in the electricity sector already filed in South Carolina and Virginia. An initial analysis of the Virginia bill can be found here. South Carolina’s S 909, filed by Sen. Tom Davis, is even grander in scale and contains dozens of reforms to different aspects of the electric system in the state. While the overall bill is a coat of many colors, several of the provisions involved increased competition in parts of the electricity system.

The Current System

South Carolina is like most states in that the electricity sector is “vertically integrated.” As a South Carolina consumer, an individual has only one choice of electric provider—their local electric utility—and that utility owns not only the wires and distribution system used to deliver power to one’s house but also the power plants that generate it. In exchange for these monopoly privileges, utilities are subject to regulation by state public utility commissions, which must approve the actions of the utility, including the rates that utilities can charge customers. Many states, including South Carolina, also require utilities to develop an integrated resource plan (IRP), which is an assessment by the utility of its future resources needs and a plan to meet those needs.

Energy Imbalance Market

Perhaps the most impactful section of S 909 has to do with organized wholesale electric markets. Despite owning their own generation, many utilities have found it inconvenient to balance supply and demand within their territory using only their own generation resources. Because electrical demand can change significantly on an hour-by-hour or even minute-by-minute basis, maintaining sufficient resources to meet all contingencies would require utilities to keep a costly reserve of resources that would mostly sit idle. As such, utilities in most states have found it convenient to join some form of multistate, organized wholesale electric market that allows them to exchange electricity with other areas in times of surplus or need. These markets help reduce costs and increase electric reliability, as individual utilities would have to deal with surpluses and shortfalls in power if they were limited to getting power only from their own generation.  

Around two-thirds of states belong directly to organized wholesale electric markets, known as regional transmission organizations (RTOs), which administer a full complement of organized wholesale electricity markets, among other functions. Alternatively, utilities in some other states belong to an energy imbalance market (EIM), which allows them to trade with a real-time organized wholesale market voluntarily. Although an RTO provides greater benefits than an EIM, many western states joined an EIM before moving toward full RTO membership. The Southeast, however, is the one region of the country that has historically lacked both an RTO and EIMs.

The lack of access to wholesale electric markets significantly raises costs to the electric system. For example, since 2014, several utilities in western states have participated in an EIM with the California Independent System Operator, resulting in $1 billion in gross benefits as of 2020.

A report by the Brattle Group found that South Carolina could save $362 million a year if it joined an existing RTO.

The potential cost savings from organized wholesale electric markets has sparked growing interest in the subject in a number of states. Both North and South Carolina have expressed interest in recent years. Under S 909, South Carolina would implement an EIM over several years, with full implementation by the beginning of 2028.

Competitive Procurement

As noted above, utilities in South Carolina are required to develop an IRP to assess and meet anticipated future electric needs. In developing these plans, they have an incentive to over-rely on their own resources and to justify a buildout of their own generation, as this increases the amount they can charge in electric rates. To avoid this kind of self-dealing, South Carolina requires a utility-IRP to include options for competitive procurement of resources needed to meet demand and other grid requirements. Requiring consideration of competitive procurement solutions helps prevent waste and ensure that utilities are pursuing least-cost options. S 909 specifically requires consideration of renewable energy and energy storage as competitive procurement options to be considered.

Choice for Large Consumers

While S 909 retains the overall monopoly nature of electricity service, it does create an option for some larger business consumers to exercise electricity choice by choosing an electricity provider other than their local utility. Two types of businesses can qualify for this option. First, a business may qualify if it is opening a new facility or expanding an existing one such that it will employ 50 additional people and involve $10 million in capital cost. The new or expanded facility must also use five megawatts of electricity a year. Second, an existing business may also qualify if it is at risk of going out of business due to high electricity costs.

Planning for the Future

S 909 contains several provisions to guide South Carolina to a future that is less reliant on coal resources. Included in this are explicit requirements for utility IRPs, development of utility distribution system plans, and expansion of demand-side management programs, including energy efficiency and demand response. One area that should be addressed is the importance of flexible demand and the provision of those products by non-utility implementers, such as a third-party aggregator. In a for-profit, monopoly construct, like in South Carolina, utilities have an incentive to construct large capital projects where they earn a return; energy efficiency and demand response, on the other hand, reduce consumption and the need for new power plants. In keeping with the theme of enabling more competition, South Carolina should expand those opportunities on the customer side.