Ever since the failed $8.5 billion VC Sumner nuclear plant project in South Carolina, the region has been exploring ways to better protect ratepayers from utility overreach and unchecked spending. As a result, SC passed a bill to study the benefits of market reform for the state. A study conducted by Brattle Group found that SC ratepayers could save upwards of $360 million a year by joining a regional wholesale market.
Earlier this year, NC experienced it’s own challenges associated with Winter Storm Elliott, which led to rolling outages for more than 500 thousand customers. These reliability concerns led the NC General Assembly to introduce a study bill to explore potential savings and reliability improvements that would come with alternative market structures. In fact, some third parties already authored a study that showed NC could save nearly $593 million/year by joining an RTO market.
A recent episode of the Squeaky Clean Energy Podcast covers the latest developments related to market reform in the southeast and the potential benefits it could bring to ratepayers. Chris Carmody of the Carolinas Clean Energy Business Alliance and Reese Rogers of the Clean Energy Buyers Association join us to break down the latest!
Utility Regulations in NC – Limits and Opportunities
In NC, the current structure of utility regulations limits customer energy savings and clean power generation. Chris Carmody explained that Duke Energy is a monopoly as the only seller of electricity in some parts of the state. It is also a monopsony, or the only buyer of energy in its territory. If someone is an independent power producer or has a solar array on their home, only Duke can purchase that energy. If Duke does not want to buy someone’s surplus of energy, that person cannot sell. Duke’s pricing may not be cost-effective for the power producer.
Residents are not the only ones facing limitations from this regulatory structure. Businesses can struggle to purchase clean electricity when they do not have control over their power sources and prices. If a utility does not offer what a business needs to meet clean energy goals, the business might consider establishing its operations elsewhere. Reese Rogers pointed out that the companies choosing not to locate in NC are not as visible as those moving to NC, so many people are not aware of the impact that utility regulations can have on business location decisions.
Carmody said CCEBA’s members are concerned about limited energy options. “Opening the energy market in NC to more competition translates to more options to meet customer preferences and in turn supports economic development for the state as a whole. It’s not just a narrow business benefit but something that can benefit all ratepayers in the state,” he explained.
Why is market reform a hot topic now? Carmody explained that in NC, people are upset about energy being less reliable (especially after Elliott in December 2022) and increasing energy prices. The Southeast is lagging in energy reliability as regions like the West and Midwest turn to Regional Transmission Organizations (RTOs).
A Potential Solution: RTOs
An alternative energy structure, like a regional transmission organization (RTO), could offer several benefits. An RTO is an organization responsible for moving electricity through multi-state areas. It optimizes supply and demand for wholesale electric power. It could improve reliability and resilience of the grid within a region.
In fact, another Brattle study found that an RTO could save NC up to $600 million per year. Plus, a 2020 study by Vibrant Clean Energy and Energy Innovation found that an RTO in the Southeast could save the region $384 billion by 2040, create over 200,000 full-time jobs, and reduce emissions by over one-third.
Past studies on RTOs show their potential benefits. Rogers said that studies show utilities that joined RTOs did save money. “In the Southeast, we have the opportunity to look at the RTOs that exist and dig through to determine the best market structure for us in NC,” he continued.
Carmody said that numbers speak when reviewing market reform options. The Western RTO reports financial savings and carbon reductions, which is information available online. That level of transparency is not currently available in the Southeast but would be helpful for evaluating market structures.
Savings for Customers Across Communities
Innovation does not just refer to new technologies but to the ways that the energy transition occurs in communities and brings benefits to customers. RTOs can be innovative by increasing transparency among community members regarding energy costs. Right now, utilities can charge people various rates because they are not transparent, which can pit customer classes against one another. At the large business level, the rates are not public, so the utility could be inconsistent with rates. While the utility is not supposed to favor one business over another, the lack of transparency makes it difficult to know whether rates are consistent.
With an RTO, wholesale competition lowers the broad pool of costs, so the overall savings to residents and businesses are transparent. The structure shows how benefits are split to reach people of different income levels.
Reasons for Pushback Against RTOs
While RTOs can confer benefits, utilities have pushed back against this market structure since reducing energy costs can threaten their profits. Being in a regulated market gives Duke Energy a guaranteed rate of return, making deregulated markets a risk to their business.
Since utilities can be large political donors, passing policies to shift NC’s energy market structure may be difficult. Utilities can spread the message that an RTO would make them lose control over their power which would reduce reliability, scaring ratepayers away from this structure.
RTO Legislation in NC
What does the future look like for an RTO in NC? The Brattle study showed that if NC and SC joined together on energy transmission, they could save $1 billion per year, creating interest in an RTO. However, currently, House Bill 503 – which was introduced by Republican leaders and has co-sponsors from both parties – is still waiting for a committee hearing and potential floor vote in the house. It’s still uncertain what the future of this bill looks like during the 2023 legislative session.
“Government-regulated monopolies are rewarded for the more equity they invest … that incentive has to change,” said Carmody. If they invest in infrastructure, utilities will get paid more, but at the expense of cleaner and reliable energy for customers.
Well-designed market structures will be important for the energy transition. Businesses setting clean energy and carbon neutrality target dates will want to take steps to meet those goals. Therefore, business engagement and working collaboratively with partners on energy market structure changes will be important moving forward.
Transmission as a Serious Barrier
Evidently, RTOs would help NC meet its clean energy transition needs, especially as transmission remains a challenge. It may be most efficient and cost-effective for states to work together on transmission, so NC does not want to be left out of RTOs. Energy is interdependent across states, and NC must find how it fits in so it can join in on experiencing the benefits.
Building a resilient and streamlined grid will require opening the market for competition. Hopefully, market transformation in NC will not take a VC Sumner-type crisis. Other visible consequences of the current market structure, like employers not locating here due to energy concerns, could lead to change. Therefore, we must consider other structures like an RTO for a reliable, more cost-effective future.
Want to learn more? Listen to the full episode as well as the rest of the Squeaky Clean Energy Podcast episodes to continue learning about RTOs and other timely clean energy topics affecting NC’s energy transition. Thank you to Chris Carmody and Reese Rogers for joining us!