Search

Studying Energy Market Reform in the Carolinas

Background


In the Carolinas - and the Southeast by extension - residents get their electricity from either a private or public provider. If the energy provider is a private for-profit utility, their business goal is to maximize the return on investment for shareholders. Publicly owned utilities, on the other hand, are non-profits managed by local elected officials and their goal is to maximize benefits for the local customer owners.

Why does the energy provider matter? Simply put - for the majority of residents, North Carolina (and the Southeast) has a monopoly-controlled, highly regulated electricity market where Duke Energy and Dominion Energy make most decisions about where power comes from. The same thinking applies to the rural cooperatives and the municipal public power communities – there is little to no ability to choose where one’s power comes from.

In the Southeast a “vertically integrated” utility is one that owns energy generation, transmission, and distribution. This means a utility has a monopoly on the production and sale of power. Clean energy companies working in this energy environment find it extremely hard to compete on a level playing field. Another way to say this is that the Southeast doesn’t have a free market where renewables can enter the market and compete on price and power.



Competition


There a lot of ways to create competition in the energy space. Retail choice, wholesale market, community choice aggregation are a few that come to mind. One that is currently getting a lot of attention in North Carolina and South Carolina though is the Regional Transmission Organization or RTO.

What is an RTO?


About two-thirds of U.S. customer demand is served by RTOs, which are regulated by the Federal Energy Regulatory Commission (FERC). RTOs independently operate the transmission facilities owned by its utility members. At the core of every RTO is the energy market. RTOs balance electricity supply and demand in their day ahead and real-time energy markets by committing the least-cost resources a day in advance in hourly increments and then adjusting in real time by dispatching the least-cost resources every five minutes. This means lower marginal cost resources, such as wind and solar, are dispatched first.

About a month ago, Duke University completed a study on the RTO for the Southeast and concluded that a large Southeast power market would be the best way to lower costs and improve competition for independent power producers. In addition to the Duke University report, South Carolina and North Carolina have both expressed interest in conducting a comprehensive study of the benefits of joining an RTO.

South Carolina took the first step by introducing a study bill back in January 2020 called the “Electricity Market Reform Measures Study Committee”. South Carolina leaders were incensed about the failure of the V.C. Summer plant, especially given the fact that South Carolinians have been paying the country’s highest electricity bills— about $400 more than the U.S. average, according to U.S. Energy Information Administration (when considering the price of electricity and the consumption).[1] In a state that has tenth highest poverty rate in the country (15.3% in 2019), lawmakers began to consider what to do about energy. The RTO study bill was one of several actions the legislature took to consider adding competition in the energy sector.

Shortly thereafter, momentum began to move northward into North Carolina for a similar study bill. Associations such as the North Carolina Clean Energy Business Alliance (NCCEBA) and Carolina Utilities Customers Association (CUCA) jointly held a webinar in early May with several hundred stakeholders to provide background on the RTO and develop support for moving forward with a study in the Carolinas.

There are many reasons to consider both North Carolina and South Carolina in an RTO study: Duke Energy’s territory is in both states; North Carolina has experience with PJM, an RTO in the northeast corner of the state; it is a bi-partisan issue with Republicans supporting free market energy and Democrats supporting clean energy; and finally, it may lower costs and raise affordability, important in both states which have persistent poverty.

The Path Forward


So, is the RTO the best path forward? Some concerns remain such as mandatory capacity markets, seeding control away from state policy and giving that policy to FERC, and the fact that RTOs were not designed for high renewable energy penetration. As one data point: states such as Connecticut in the Northeast want to get out of ISO New England because the regional capacity market is forcing investment in natural gas plants that goes against the state policy of more renewables. This debate has been going on since 2018.

But North Carolina should join its southern neighbor in studying the benefits of an RTO. Perhaps that will be a focus for the next session of the N.C. General Assembly. North Carolina has studied many policy issues related to energy including the state’s renewable energy resources prior to development of the Renewable Energy and Energy Efficiency Portfolio Standard, and most recently, how energy storage provides value to North Carolina consumers such as value to the grid, rates and other factors. There is no harm in adding an RTO to the list of other energy issues requiring due diligence before any action.

[1] Based on 2016 data. Average residential energy expenditures for 2016: SC $1,753, Alabama $1,757, Connecticut $1,706, Maryland, $1,665, and Hawaii, $1,665. When it comes to overall electricity usage, South Carolina has the sixth highest usage per customer.

61 views

© 2020 by Diane Cherry Consulting.