Guest Column: Setting The Record Straight On South Carolina Energy Issues

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by TOM DAVIS

As a testament to how confused people can get when it comes to energy policy in the Palmetto State, my friend Will Folks missed the mark in his recent column on the energy issues facing our state and misrepresented my motivations for pushing certain energy-market reforms. But to his credit, and in keeping with his oft-stated desire to have this website serve as a forum for a “marketplace of ideas,” he has graciously given me this space to submit a rebuttal.   

Will’s characterization of my support for increased competition and accountability in our state’s electric-power sector as “corporate cronyism” is both factually incorrect and logically contradictory, and vaguely Orwellian. Wanting South Carolina’s three electric-power monopolies – Duke, Dominion, and Santee Cooper – to compete in the energy-generation space with independent power producers is corporate cronyism? Really?

I have studied our state’s system of energy generation – a top-down, government-regulated, monopoly-utility dependent system that has been in place for the past hundred years – ever since July 2017, when Dominion’s predecessor in South Carolina, SCE&G, and Santee Cooper, the state-owned utility, abandoned a project to build a new nuclear reactor at the VC Summer site in Fairfield County, after spending $10 billion and sticking ratepayers with the bill.

That six-year deep dive leads me to conclude that our state’s system of energy production suffers badly from what Friedrich Hayek called “the knowledge problem.” In his 1945 essay titled “The Use of Knowledge in Society,” he warned that “problems cannot be solved by communicating … knowledge to a central board which, after integrating all knowledge, issues its orders.” Yet that is precisely what happens in South Carolina energy policy: monopoly utilities submit Integrated Resource Plans (the knowledge) to the Public Service Commission (the central board) which, after reviewing the IRPs, issues its orders.

The VC Summer debacle illustrates Hayek’s point, but there is a more recent example. Duke, Dominion, and Santee Cooper each experienced rolling blackouts during Christmas 2022. The utilities admit the main causes were failures with the natural gas and coal generators they own and operate, though there was no monetary consequence to them for those failures. (More on that in a bit.)

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Two years ago, Governor Henry McMaster asked the Office of Regulatory Staff (ORS) to investigate whether South Carolina faced winter-storm dangers like those that battered Texas in February 2021, and the ORS reported that, based on information provided by our state’s utilities, “the South Carolina energy system and Utility Providers are adequately prepared to prevent and respond to outages caused by ice storms and winter weather events.”

Almost exactly one year later, in December 2022, Winter Storm Elliott disproved the utilities’ claim. Over 100,000 South Carolina electric customers had their power turned off because the utilities could not meet the elevated power demand.

The energy-capacity predicament also adversely affects our state’s economic growth. Earlier this year, a major company abandoned plans to invest hundreds of millions of dollars and create thousands of new high-paying jobs in South Carolina because the utility with the monopoly to provide power could not guarantee the electricity service required. And a lack of uninterrupted natural gas service nearly caused the state to miss out on its recently secured commitment in the Midlands by Scout Motors.

Recently, in a belated response to the rolling blackouts and this inability to meet the power needs of companies that want to come to our state, and as reported by the (Charleston) Post & Courier on October 19, 2023, our utilities assured lawmakers that “they each had plans to collectively bring thousands of megawatts online in the coming years.” They were referring to a major new gas-fired power plant proposed by Dominion and Santee Cooper that will cost over $1 billion to build.

I have three concerns with this proposal. First, that new gas plant would take at least eight years to bring online, and insufficient energy capacity is causing our state to miss out on economic opportunities right now. I will certainly listen to the utilities’ proposal with an open mind, but I don’t see how it addresses the near-term capacity problem.

My second concern is this: Last December our utilities experienced multiple plant failures at a time when their production capacity was needed most. Across all our electric utilities, baseload coal and natural gas power plants went offline or failed to operate as anticipated – a severe-weather vulnerability that is being exposed nationwide and causing a downward revision in the way that many regulators value coal and gas-fired power for reliability. 

When the storm hit our state last Christmas, two of Dominion’s gas plants and one of its coal plants failed to operate as planned. From 8:00 a.m. to 9:00 a.m. on Christmas Eve, when customers needed around 4,500 megawatts of power, over 1,000 megawatts of Dominion’s baseload coal and gas power were not operating. Instrumentation froze at one gas plant. another gas plant had a mechanical failure, and a transmitter failed at a coal plant.

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Similar events played out on Santee Cooper’s 5,300 MW electric system. For nearly 24 hours during Winter Storm Elliott, Santee Cooper’s Winyah coal plant lost 230 megawatts of capacity due to (as reported by the utility) “forced outage and startup failure.” Santee Cooper’s other baseload coal plant lost 488 megawatts of capacity and its gas units lost 272 megawatts. 

On the much larger 34,400 MW Duke Energy electric system that serves North and South Carolina, up to 6,000 megawatts of power plant capacity was offline for various reasons on Christmas Eve.  Although some lost capacity was due to planned maintenance, most of the outages were unexpected. Even Duke’s newest baseload gas-power plant was unavailable to serve customers when the storm hit because it had suffered a fire in its generator. 

All told, South Carolina’s three utility companies had over 7,000 MW of power plant outages last Christmas, an amount larger than the entirety of Dominion’s and Santee Cooper’s systems. This is not acceptable and is a consequence an  antiquated system in which the utilities profit from building and owning generation, not from making sure that generation operates as expected.

[Parenthetically, it is worth noting that in the 13-state territory covered by a regional transmission organization known as PJM, which Will criticizes, gas-fired power was responsible for 70 percent of power plant outages, but customers were spared interruption and owners of the power plants that failed to add electricity to the power grid were assessed $1.2 billion in fines. In my judgment, becoming a full member of a regional transmission organization like PJM is likely not the answer to our state’s generation problems; however, it is certainly refreshing to see power generators that fail to meet their obligations being held to account – something that does not happen in South Carolina.] 

My third concern with the new gas-fired power plant proposed by Dominion and Santee Cooper is that it may be placing too many eggs in one basket. Dominion currently depends on natural gas for 40 percent of its electricity generation and its plans to jointly build the new plant with Santee Cooper will increase that dependency to 60 percent. The consumer pain will be severe when – not if – gas prices spike and winter storms cause more rolling blackouts.

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All of which brings me back to my central point: Meaningful reform depends on increasing competition in energy-production markets, and right now there is a tremendous amount of activity in that space. With nuclear, hydrogen, wind, solar, hydropower, geothermal, bioenergy – and yes, with fossil fuels like coal and natural gas – technology breakthroughs are occurring, often exponentially, with cost-benefit analyses so fluid that it is impossible for us to know in advance what the most feasible alternatives will ultimately be.

And that’s the point: no one authority, no matter how “expert,” can pick in advance the winners among the rapidly increasing, improving, and competing modes of energy generation. This is not a condemnation of Duke, Dominion, Santee Cooper, or the PSC; there are some very smart and well-meaning people in each. It’s simply the natural application of Hayek’s timeless knowledge-problem admonition to the energy space. 

Putting ratepayers on the hook for a huge $1+ billion gas-plant bet will prevent South Carolina from taking full advantage of emerging energy technologies that prove themselves in the marketplace. We certainly need more electric generation to serve our growing economy, but instead of trying to outguess the market we should put in place a competitive all-source procurement process in which our utilities solicit and select power resources – a process that would allow all sources of power to compete fairly against each other to best meet the utilities’ needs.

In short, we should let markets work for us instead of unrealistically hoping and praying that our utilities and the PSC will somehow be able to outguess them. Especially since this approach also has the virtue of securing energy generation the market can deliver now, thereby meeting the needs of companies that want to come here, as opposed to waiting for what our utilities hope to bring online eight years from now.   I look forward to making the case for these market-based reforms during the 2024 legislative session. I am aware how difficult this reform effort will be; the existing “concentrated benefits and dispersed costs” phenomenon that favors monopoly utilities as recipients of government protections at the expense of average citizens is certainly a formidable obstacle. But it is an effort worth making.

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ABOUT THE AUTHOR …

Tom Davis is an attorney from Bluffton, S.C. A former gubernatorial chief of staff, he represents Jasper and Beaufort counties in the S.C. Senate.

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