Presented to the SC Senate Special Committee on South Carolina’s Energy Future
October 14, 2024
Recommendations for South Carolina’s Future Energy Needs
Chairpersons Massey and Setzler, members of the Committee, let me thank you for your hard work on the issue of the state’s energy future. Your dedication to a deep analysis of the issue and meaningful questioning of witnesses is the hallmark of good problem solving.
As you begin the process of drafting potential legislation, the S.C. Small Business Chamber of Commerce offers the below recommendations. Our goal is to keep electricity rates for the state’s small businesses as low as possible while making sure there is an adequate supply of energy for actual future needs.
1. Reduce the growth of energy needs
While the focus of the Committee has been on what kind of new energy generation is needed for the state and who will pay for it, there has been no discussion of how the state can reduce the growth in energy use. This is a critical part of the problem solving process to determine the actual future energy needs of the state.
If we can reduce the upward trajectory of energy needs, we will change the answers to how much new energy we will need and the best way to generate that energy.
A. Energy Efficiency Program for Low Income Housing
In the Dominion territory itself, there are over 100,000 households that fall below the federal poverty level. This housing stock is notorious for being in need of weatherization and energy efficiency improvements.
Last year the Tennessee Valley Authority, working with local power companies, targeted low-income neighborhoods for “free home energy improvements, including installations of new or repaired air conditioners, furnaces, appliances, water heaters and attic and wall insulation. The average household participating in the program, which has been completed in more than 6,000 homes, has cut energy use by 25%, saving the typical homeowner $500 a year, according to TVA.”
South Carolina does have state and community energy programs funded by the Weatherization Assistance Program, the State Energy Program, and contributions from Duke Energy and Dominion Energy. However, according to a November 30, 2023, report, since 2015 the average number of homes receiving weatherization and energy efficiency services is only 265 per year. At this rate, it would take 377 years just to address the low-income households in Dominion’s territory.
Recommendation: The state needs a “Marshall Plan” of significant state funding to vastly accelerate the goal of reducing the energy usage of low-income households regardless of the ownership of the residence. The future energy needs of South Carolina would be significantly reduced, the financial condition of low-income residents would be improved, and jobs would be created benefiting local economies. The present program for delivering these services should be evaluated to determine the best path forward. The legislature should create a budgetary line item for this effort and also use government surplus funds. All South Carolinians and every community would benefit greatly.
B. Fair, effective rate design for consumers
Utilities should offer a rate design that effectively incentivizes customers to reduce energy consumption during peak demand periods which would reduce the need for more generation. Of particular concern on this issue is Santee Cooper’s current proposal to start requiring its residential and small business customers to pay new peak demand charges in April 2025.
The new rate design would be ineffective in reducing residential and small business customer electricity demand during peak hours. It could also drive up overall energy usage at a time when utilities are struggling to meet rising demand.
In addition, ratepayers will be shocked when these rates go into effect. Even though Santee Cooper says the rate increase is only 8.7%, the Office of Regulatory Staff has found that some residents and small businesses will see bill increases well above 30% due to the new method for calculating their bills.
In these comments, the Southern Alliance for Clean Energy and the SC Small Business Chamber of Commerce have recommended to Santee Cooper a more fair and effective way to reduce peak hour energy use without unfairly penalizing small customers.
Recommendation: If Santee Cooper’s Board refuses to change the proposed rate schedule to more effectively reduce customer energy demand during peak periods, the Legislature should take action to require Santee Cooper to do so.
C. Require data centers to self-produce energy
In my September 12th testimony to the Committee I stated that based on utility executives’ comments, data centers are anticipated to account for about 65% of future energy production needs while providing little benefit to the state’s economy and only tax benefits to a host local government. Building energy generation to meet the needs of data centers is unfair to all consumers who would pay higher utility bills to subsidize the profits of the BIG TECH as well as having their state and local taxes used as incentives for data center development.
Recommendations:
- Prohibit the state and political subdivisions from using any funds for incentives for new or expanded AI data centers.
- Prohibit the SC Public Service Commission (PSC) from approving any provision to reduce electric rates for AI data centers.
- Require all new and expanded AI data centers to self-produce a minimum of 50% of their energy and capacity needs with clean energy like solar and battery storage.
- Prohibit the PSC from socializing any AI data center related utility costs to other consumer groups. There must be no cost-shifting.
2. Invest in new solar opportunities at cooling ponds
One of the primary reasons given for building a big gas plant is to replace the generation of the retired or soon-to-be retired coal plants in the state. But there is a less costly alternative to a one-to-one power-generation conversion from coal to gas.
Coal plants all have cooling ponds that can be repurposed for energy generation. Each of those ponds can be used for floating solar arrays that can produce a significant amount of the energy generation of the coal plant.
While floating solar arrays are used effectively around the world, they are not prevalent in the US. The most recent floating solar array was launched in June of 2022 at Fort Bragg, NC.
The benefits of floating arrays on cooling ponds are great:
- There is no land occupancy, a major complaint about large solar farms.
- There are no new transmission lines needed outside the physical plant of the retired generation facility. Existing transmission lines for the power plant would be used for distribution. This saves enormous costs and would not require any land occupancy, another hurdle for solar farms.
- This works very well with battery storage to keep feeding electricity 24-7.
- The installation time is very short when all components are ready.
Recommendations: The legislature should instruct Santee Cooper to develop a comprehensive plan for constructing floating solar arrays at its operating and retired energy generation facilities. The legislature should also ask the PSC to instruct the state’s investor-owned utilities to do the same.
3. Batteries are dischargeable energy. Use them.
Repeatedly we have heard that the main reason gas turbines are needed is that they are a dispatchable generation controlled by grid operators to meet energy demand 24/7. Such dispatchable energy is needed for all customer classes, especially industrial which includes data centers. Solar, it is presumed, does not produce dispatchable energy and thus is only viewed as a supplemental energy source for the state.
However, no discussion about the opportunity of batteries has been discussed. Batteries, with energy obtained when electrical demand is low on the grid, are dispatchable energy sources able to be controlled by grid operators 24/7.
Battery storage is the fastest responding dispatchable source of power on electric grids, and it is used to stabilize those grids, as battery storage can transition from standby to full power in under a second to deal with grid contingencies.
Battery storage facilities are often paired with other energy production, less expensive to build, and do not require the costs of new transition lines. While not replacing baseload needs, battery storage can reduce the need to build a large generation project based on peak demand.
As noted in the above recommendation, floating solar arrays in cooling ponds can be paired with battery storage to decrease the amount of dispatchable energy lost from a retiring coal plant.
Recommendation: The legislature should instruct Santee Cooper to develop a comprehensive plan to increase the use of battery storage along its current transmission lines and at all its cooling ponds. The legislature should also ask the PSC to instruct the state’s investor-owned utilities to do the same.
4. Build new generation that only uses existing transmission lines
A significant cost of building new energy generation is the cost of new or expanded transmission lines. Current energy transmission lines that serve retired or soon-to-be retired coal plants offer a significant financial benefit to consumers if paired with new energy generation facilities. The expanded transmission lines intended to serve the nuclear plants, now abandoned at the VC Summer Nuclear Facility in Fairfield County, are valuable assets for pairing with new generation facilities.
The consumers have paid for these transmission lines and thus they should continue to be used for the benefit of the ratepayers instead of building expensive new transmission lines.
Recommendation: The legislature should instruct Santee Cooper to not build any new energy generation that requires building new or expanding transition lines. The legislature should also ask the PSC to not approve any new energy generation facility that requires building new or expanding transition lines.
5. Don’t over build
South Carolina utility executives state that about 65% of their projected future energy needs are due to anticipated new data centers in the state. Essentially, their projections used to justify large new energy generation facilities are based on speculation.
However, there is no certainty that BIG TECH will want to locate new data centers in the state, especially if the recommendation that data centers be required to self-produce at least 50% of their own energy needs and government incentives be prohibited, as we recommend, are adopted.
BIG TECH is searching the world for the best incentives they can get. A Google executive recently said about their data centers, “we can build anywhere in the world…So, when the state offers these incentives, like any other company, we will take the state up on those opportunities.”
Projecting future energy needs based on BIG TECH’s shopping South Carolina for a good deal is not responsible planning when we are competing against the “world.”
Additionally, there are credible warnings about the future growth of artificial intelligence (AI), which is driving the need for data centers. A MIT professor, who has achieved the highest faculty title at the school renowned for its economic expertise, is warning that AI will not live up to its promised ability to dramatically improve business productivity by replacing many jobs. Professor Daron Acemoglu expects that AI is not going to produce the “economic revolution” BIG TECH is investing in, which could lead to a tech stock crash. “A lot of money is going to get wasted,” Acemoglu says.
South Carolina should not be taking a chance on our ratepayers wasting a lot of money building energy generation for an industry with a wandering eye and an uncertain future. Data centers may come, but they could also as easily go leaving ratepayers stuck with paying for far more energy generation than is needed. A more conservative approach is to build energy generation incrementally and not fall for the pitch that economy of scale justifies building a bigger generation facility. Remember that economy of scale was the reason the legislature approved building two new nuclear plants at VC Summer—the consumers would save money.
Recommendation: By pursuing all the above recommendations and discounting data center growth projections, the future energy needs of the state will become more realistic. By reducing the growth of energy needs, investing in new solar opportunities and batteries, and making data centers generate much of their own energy; new generation built restrictively and incrementally will be less costly for the consumers and still meet the energy needs of South Carolinians and our economy.
6. Finish VC Summer Unit 2 with no cost to ratepayers
In 2007, the SC Small Business Chamber of Commerce did not oppose the building of two new nuclear plants at the VC Summer Nuclear Facility in Fairfield County. However, in 2015 we aggressively opposed the project being years behind schedule and billions over budget. At that time SCE&G consumers had already seen their rates increase by over 15% using the Base Load Review Act (BLRA). We called for an independent evaluation of the BLRA and recommended that the legislature consider providing some financial relief to the ratepayers. In 2016, the Small Business Chamber formed a coalition proposing four amendments to the BLRA to address a utility’s accountability, profit regulation, responsibility and transparency.
When the nuclear project was abandoned in 2017, the Small Business Chamber advocated that in order for approval of Dominion Energy to acquire SCE&G, consumer rates should be reduced by 20%. In 2018, the Public Service Commission approved Dominion’s offer for SCE&G and required rates to be lowered by 15%. Unfortunately, the PSC also approved that Dominion ratepayers would have to pay $2.3 billion of SCE&G’s $5 billion nuclear plant construction costs. Today about 5.6% of Dominion Energy customer bills is for this debt and will continue for approximately 15 more years. The customers of Santee Cooper, not regulated by the PSC, were responsible for paying the utility’s share of the construction costs—approximately $4 billion. About 5% of Santee Cooper’s customer electric bill is for paying off this debt and will continue for another 8 years.
Now, a proposal has been made that Unit 2, which is 48% complete, of the abandoned nuclear project could possibly be completed using investment funding from special interests like BIG TECH to serve the long-term needs for that industry and other industries.
Recommendation: The legislature should instruct Santee Cooper to work with Dominion Energy to explore the opportunity to complete Unit 2 at the VC Summer Nuclear Facility using private investor funding and the energy generated purchased by BIG TECH and other industrial users. None of the construction costs should be put into the rate base for other customers.
7. No “capital cost trackers”
Investor-owned utilities have proposed the use of “capital cost trackers,” which would allow the cost of approved construction projects to be passed on to ratepayers as they are experienced by the utility instead of waiting to be recovered when the project is determined to be used and useful.
The utilities argue that this would enable them to reduce the cost of a project, benefit them in attracting capital, and would be better for ratepayers to have smaller, incremental increases in rates than one larger rate rise.
In my September 19th letter to Senator Massey and the Committee, I provided six arguments against the use of “capital cost trackers” concluding that “(t)here does not appear to be any real benefit for the ratepayer by adopting capital cost trackers. The benefit is only for the utilities.”
Utilities do not have problems accessing capital for approved construction projects. Our regulated and state-owned utilities offer a less risky investment for the financial markets thus making these investments more attractive. Santee Cooper’s recent $1.3 bond offering is reported to have been six times overs sold indicating much interest in the lending community.
Recommendation: The legislature should not change the regulatory process to allow “capital cost trackers” simply to benefit the utilities when there is no clear benefit, but potential harm, to the ratepayer or the state’s economy.
8 No anti-consumer provisions
In the last legislative session, the House passed H.5118, referred to as the SC Energy Security Act. The Senate correctly voted not to support this bill in large part due to the anti-consumer provisions.
The three provisions would have reduced the Public Service Commissioners from 7 to 3, changed the mission of the Office of Regulatory Staff to include being concerned with the financial health of the utilities, and prohibited the Department of Consumer Affairs from representing the public in rate hearings. If passed, these provisions would have paved the way for our investor-owned utilities to largely control the Public Service Commission decisions.
Should these provisions be included in any new legislation, the bill would receive the same opposition as H.5118 regardless of the merits of the rest of the legislation.
Recommendation: The legislature should include no provisions in a new energy bill that in any way diminishes the public’s and consumer groups’ ability to effectively participate in hearings before the PSC or creates an unfair advantage for utilities.
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