The South Carolina General Assembly has finalized sweeping energy legislation (the “South Carolina Energy Security Act”) to increase electric bills to finance major new fossil gas pipelines and power plants primarily serving large energy users. If built, the new pipelines and power plants will set the state on a course in which two of its three major utilities depend on fossil gas for over half of the electricity they generate. This move will tie the state’s economy to highly volatile international gas markets. Unfortunately, key consumer protections needed to prevent unfair cost shifting onto smaller customers were stripped out of the bill at the last minute. The Act also includes clean energy provisions championed by SACE and its allies that may streamline the expansion of solar energy and expand energy efficiency efforts. Throughout many legislative ups and downs over a two-year effort, SACE worked closely with many allies across South Carolina to remove numerous additional damaging provisions from the bill.  

The new Act began two years ago when utility companies claimed that state government oversight of utility activities was impeding economic development.  Utilities particularly chafed at laws requiring review and approval of their long-term plans, which were enacted seven years ago after two utilities spent $9 billion on building a nuclear plant that they abandoned halfway through completion. Customers will continue paying for that unfinished power plant on their electric bills for decades.

However, the legislation evolved over the past two years into a response to huge projected electricity needs associated with new computer data centers. The projected growth in energy needs due to data centers exceeds any energy growth seen in the United States for over 20 years. This projected load growth is driving utility companies across the Southeast to rush to build fossil gas power plants and pipelines to feed them, and to delay closure of multiple aging, expensive coal-fired power plants.  

Less Oversight of Utilities

The Act removes key oversight of the prudence of utility companies building new fossil gas plants. For instance, in a deeply unwise move, the Act provides that air, water, and Public Service Commission permits for major new utility infrastructure would be “deemed approved” if the relevant state agency fails to act on an application within six months. It also exempts certain power plants under 300 MW from the certificate of need process, allows the cost of power plants up to 250 MW to be added to rates between rate cases, and authorizes the Public Service Commission to approve ratepayer financing during construction of even larger power plants. Plants in the Southeast in this size range are generally gas-fired plants that can easily exceed $400 million in cost.

SACE believes that any automatic, “deemed” approval threatens to impose costs and pollution on the general population without the necessary legal and factual foundation. Further, because renewable resources tend to cause less air and water pollution, reduced permitting scrutiny inherently favors polluting fossil energy. SACE also believes it is unwise to charge ratepayers automatically for major power plants during construction. Any ratepayer charges before the plant operation should be carefully vetted and likely allowed only, if ever, after the plant is substantially complete. Ratepayer financing of construction costs prior to completion was at the heart of the $9 billion nuclear scandal that led to the enactment of South Carolina’s resource planning law.

Expansion of Fossil Fuels

The Act also authorizes a state-owned public power company, Santee Cooper, to join Dominion Energy South Carolina to build a major new fossil gas combined cycle plant (2,000 MW) on a former coal plant site next to the Edisto River. SACE testified that construction and operation of a plant of this size would be risky for captive utility customers. The construction timeline would depend on the completion of years of uncertain gas pipeline and electric transmission projects. Natural gas prices are also volatile and subject to increasing price pressure from the international gas export market. 

Just while the bill was being developed, the effect of a federal trade war and the rush to build power plants to serve data centers has roughly doubled the cost of gas-fired power plants, adding further risk to a project already expected to cost billions of dollars. Perversely, rather than inspiring a search for other ways to meet the power demand, such cost increases could swell the utility rate base that is the basis for determining utility profits under the state regulatory system. 

By authorizing a specific plant and its further provisions, the Act threatens to fundamentally undermine the review of long-term utility plans (“Integrated Resource Plans”) in South Carolina. Rather than constraining planned power plants to the amount needed to meet a carefully vetted recast, the bill opens the door to plants built for inherently speculative economic development projections. Longstanding econometric forecasting methods already account for economic growth. Even so, load forecasts often turn out to be on the high side. The new language encourages adding uncertain (and usually secret) possible economic development projects to these forecasts, creating a greater risk that consumers will pay for unnecessary power plants. 

Protecting Profits, not Customers

Rather than shielding consumers from potential cost overruns or unwise decisions, the Act creates a new electric rate process focused on protecting shareholder profits. The new process requires annual rate adjustments to maintain utility profit margins every year. This process will nearly always raise rates, even during an economic downturn or recession, when families and non-utility businesses are belt-tightening.  Utilities requested the new rate process in order to finance the expected major new power plant additions.  

Despite warnings from the AARP, the state Consumer Advocate, the representative of large industrial customers, SACE, and others about potential excessive rate increases, the head of the state government agency charged with investigating utility rate increases (the “Office of Regulatory Staff,” or “ORS”), testified that that rate stabilization could be implemented fairly under ORS oversight. The ORS claimed that customers actually requested the new rate process at hearings under questioning by utility lawyers. Legislators accepted this characterization, and only time will tell whether the new process becomes a “runaway train.”  

The Act’s additional “economic development rates” section also poses a significant danger of cost shifting for most electricity consumers. For the largest new industrial customers—those with a load exceeding 50 MW—the bill would allow the Public Service Commission to approve special low rates that are 25% below the incremental cost to serve them (the “marginal cost,” which itself is often manipulated to be well below the actual cost of service). These large customers already pay low rates for bulk power service, but the new law encourages even lower rates for the biggest companies, the costs of which would be borne by other smaller ratepayers. Even a single large customer could shift tens of millions of dollars of cost onto families and small businesses. To compound this problem, the bill also allows the new large industries’ competitors to get the same rate discount, potentially multiplying the cost-shifting to small customers. 

It’s Bad, but It Could Have Been Worse

Overall, the combination of potentially inflated load forecasts, “deemed approval” for power plants, legislative support for a specific multi-billion-dollar project, cross-subsidies for the largest industries on the backs of small ratepayers, and automatic rate increases creates an obvious, clear, and present danger. South Carolina consumers risk being saddled with high costs and unnecessary pollution for a speculative buildout of fossil-fueled infrastructure.  

While these changes in South Carolina law are bad for consumers and the environment, they could have been worse. The original House-passed bill authorized utility companies to construct up to three new “small modular” nuclear reactors and pass them along to their customers, including potential costs after abandonment. While SACE does not advocate for shutting down existing nuclear power plants at this time, we believe it is harmful to both ratepayers and the environment when utilities spend billions of dollars on the promise of clean energy and produce nothing. Senators removed this provision partly based on the strength of SACE testimony that it risked repeating South Carolina’s recent $9 billion nuclear fiasco. SACE noted that the only actual attempted small nuclear reactor in the U.S. (in Idaho) was recently abandoned when its cost to complete also reached $9 billion. Nevertheless, the final bill retains language establishing that it is South Carolina policy to encourage development of nuclear plants, including small modular reactors and even fusion projects that are not commercially available anywhere in the United States. 

Senator Tom Davis, in particular, also led multiple efforts on the Senate floor to remove highly damaging provisions from the original House version of the bill. The House initially accepted utility-drafted language that would override the current practice of allowing intervenors in Public Service Commission proceedings to access utility company software to review projected energy scenarios. The House language would have effectively precluded public-interest non-profit groups from reviewing utility plans by imposing software licensing costs that could exceed $100,000 per proceeding. Senator Davis’s amendment, however, produced a compromise allowing intervenors to review utility software for a smaller fee.  

The House bill also originally included utility-requested language that threatened to repeal the right of intervenors to appeal Public Service Company decisions. A Davis amendment removed this language.   

The House bill also would have effectively shut down the development of new solar power plants across much of the state by restricting contract lengths to 5 years, but a successful Davis amendment rejected this change. The House also attempted to remove local permitting review for most utility-scale solar plants and impose new state review requirements on any plant over 150 acres. Instead, Senators worked out a new system of setback requirements for solar development. 

Positive Provisions Affecting Clean Energy

The two most important provisions concern utility-scale renewable energy procurement and utility-funded energy efficiency programs.  

The most important renewable energy provision stems from another Davis amendment. Utility companies must issue periodic RFPs to competitively procure renewable energy and energy storage to fulfill their own filed, approved renewable energy plans. While it may sound duplicative to tell a utility company to execute its own renewable energy plans, Dominion Energy has a history in South Carolina of gaining approval for plans to purchase renewable energy, and then refusing to issue an RFP to follow through. Dominion has also levied legal attacks on specific projects after signing a contract to purchase the energy from them.  Further, in recent “all-source” RFPs run by Dominion allowing either renewable or fossil energy to submit bids to compete, the only result has been Dominion’s own affiliate winning every bid and then seeking approval to build its own fossil power plants. Faithful implementation of the Davis renewable energy provisions could lead to thousands of MW of renewable energy at the best available market prices, reducing pollution and bringing customer bills down. Still, time will be needed to gauge the result. 

The Act also declares that it is in the public interest for utilities to expand energy efficiency and other demand-side management programs. More specifically, it authorizes the Commission to approve procedures under which utilities will plan for and implement all cost-reasonable, prudent, available and cost-effective energy efficiency programs. It also allows approval of programs targeting low-income customers that do not meet cost-effectiveness tests. The Commission is also authorized to appoint a third party to administer a utility company’s energy efficiency programs if it fails to meet these requirements. While the Senate initially passed a Davis amendment that would set a statutory minimum target for utility programs to help customers save energy, the House rejected this numeric target that would have made the energy efficiency provisions easily enforceable. Implementing the remaining provisions will be up to the Public Service Commission. Similar legal requirements in other states have led to robust programs with very high levels of achievement, but as with the renewable procurement provision, the proof will be in the pudding.

Another demand-side management provision authorizes the Commission to approve utility demand-side management programs that include customer renewable energy and energy storage. This provision could enable virtual power plant or solar plus battery demand response programs, which the South Carolina Commission previously rejected. In addition to helping the utility meet peak loads, these programs can help customers be more resilient in the face of power outages.

Another significant positive renewable energy provision raises the current statutory cap on the size of behind-the-meter solar projects for commercial customers from 1 MW to 5 MW. If faithfully implemented, this provision could substantially expand the commercial customer-owned solar market in much of South Carolina. 

The Act also requires utilities to include more information about transmission planning in their Integrated Resource Plans.   

A further provision may be a “sleeper” that could produce nothing or could produce major positive impacts: The Act “encourages” utilities to work with very large customers to “explore cost-effective, efficient bulk power solutions.” Such solutions might include battery storage, renewable energy, or other generation co-located at the site of data centers or other large industrial energy users. This section of the Act also “encourages” but does not expressly require utilities to protect other consumers against cost-shifting. 

Opportunities missed

While clean energy gained a few modest victories, consumer protection did not. The Senate initially required that new data centers pay for the new infrastructure needed to serve them, but senators dropped this requirement in negotiations with the House.  

The Senate also initially endorsed landowner protection provisions that would require public notice and specific notice to landowners when a major utility infrastructure project is likely to result in taking private property through eminent domain. While these protections were passed unanimously in the Senate, they were entirely abandoned during House negotiations.      

Senate Majority Leader Shane Massey also attempted to pass an “industrial choice” amendment allowing data centers and other large industrial customers to choose their own energy supplier and contract for their energy needs. This amendment was defeated through intensive utility company lobbying, which also appeared to dissuade Senators from offering other market-based reforms proposed by SACE and others. The Southeast thus remains the only major part of the country that lacks a fully functional regional wholesale energy market. 

SACE also urged House and Senate Committees to end the practice under which utilities can pass through 100% of fuel costs to consumers. SACE urged the inclusion of a fuel cost-sharing mechanism to give utilities “skin in the game” and manage fuel costs rather than using captive customers as insurers against wild swings in costs. Still, no member was willing to offer the amendment in the face of strong utility opposition.    

Likely Outcome: Higher Bills, More Pollution

The Act as a whole included every major stated goal of South Carolina’s utility industry, particularly as it pertains to expanding fossil gas pipelines and power plants: streamlined permitting, an automatic rate increase process, endorsement of economic development as an independent basis to approve utility investment, legislative authorization for a major joint power plant project. Despite recent history in South Carolina, the Act also widely embraced nuclear power, including unproven and non-commercially available technologies. More positively, it accommodated the continued existence of the solar industry, including streamlined procurement of renewable energy and battery storage insofar as it is included within utility company plans, and a pathway for 5 MW customer-based solar projects. It included promising energy efficiency language, but left implementation uncertain. It provided a vague, potentially significant path for the largest industries to develop their own energy sources in coordination with utility companies. Overall, the more certain impact of the legislation will be higher bills and more pollution, with some opportunities for clean energy expansion to ameliorate cost and environmental impacts.

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Sweeping South Carolina Energy Legislation Embraces Fossil Gas and Nuclear, Mixed Bag for Clean Energy