Bottom Line Up Front
The Public Service Commission is holding “avoided cost” hearings in October that will have long-term impacts on your electricity bills and our clean energy sources – and utilities want to put the squeeze on the decision in favor of profits.
In the proceedings, the Public Service Commission will determine the avoided cost, or value, of solar energy in South Carolina’s market. If the PSC sets an artificially low avoided cost, utility-scale solar development will cease indefinitely in the state, leaving thousands without jobs and inflating your energy bills.
Also at stake are hundreds of millions of dollars of South Carolina solar projects waiting for development, primarily in rural counties.
The utilities make money from building mega-projects like VC Summer. Their responsibility is to their shareholders and their job is to make a profit. Undermining the solar industry is in their interest because if they don’t have to buy solar, then they get to build mega-projects that cost you more money – which is why they are arguing for an artificially low avoided cost in this proceeding.
The Energy Freedom Act requires that solar companies be treated on fair and equal footing with the monopoly utilities so customers can realize the benefits of solar energy. If the Commission adopts an artificially low avoided cost rate as the utilities propose, then South Carolina customers will be deprived of lower costs, rate certainty, local economic development, and access to clean, renewable energy.
Watch the hearings live: https://www.scetv.org/live/public-service-commission
Avoided Cost Hearings Explained
One of the many responsibilities of the SC Public Service Commission is to determine the method to calculate payments to solar developers and make sure that they are commercially reasonable and compliant with federal law.
On the heels of the newly passed the Energy Freedom Act, the Public Service Commission will consider their first big issue this fall: Avoided Cost.
For the past four years, the PSC has always approved utility-proposed solar payment rates without change and has rejected numerous solar industry critiques of the complicated pricings proposals. This is the first time the PSC will apply the new law.
“Avoided cost” refers to the cost of energy or capacity that the utility would have had to pay if it built a plant to generate that energy. If solar developers can provide solar energy to fill some of our state’s needed energy generation and capacity, then we can avoid building utility mega-projects like VC Summer, which cost customers money and put our state’s environment and future at risk.
What It Means For You
What most folks don’t realize is that South Carolina’s energy market is dominated by two of the biggest investor-owned utilities in the country, Dominion and Duke Energy. Our state’s vertically integrated market means that these multi-billion-dollar corporations are regulated monopolies, which is why the Public Service Commission serves the necessary function of electric utility regulators, ensuring that prices are accurate, contracts are fair, and customers are protected.
The Energy Freedom Act was adopted in order to advance the responsible development of renewable energy in South Carolina in a way that protects and benefits ratepayers, increases consumer choice, injects additional competition into the state’s energy market, and promotes the state’s policy of encouraging renewable energy.
The EFA spells out that the Commission must treat small power producers like solar companies on a “fair and equal footing with electrical utility-owned resources” like Duke and Dominion. The PSC is responsible for setting an accurate avoided cost so that solar energy can compete on a level playing field in our state.
Fair Competition Is A Big Deal
It is important to remember that utilities like Duke and Dominion are investor-owned, meaning their responsibility is to their shareholders and not customers. Their job is to make a profit and they make money from building major infrastructure projects, like new power plants. Therefore, they view solar companies as competition because if they purchase their power from a solar farm instead of building a new power plant, they don’t make a profit.
It is in the utilities’ best interest to set an artificially low avoided cost because if solar companies don’t get paid enough for the power they produce, solar companies can’t compete. That’s why each time the PSC hears cases on avoided cost methodology, the utilities argue for the lowest avoided cost.
The solar companies and environmental groups in these cases, on the other hand, argue for an accurate avoided cost – placing an accurate value on the production cost of solar allows solar companies to compete on equal footing with other power generation methods like coal fired power plants. More competition in the energy market means lower costs for consumers, more choices, and cleaner energy.
The consequences of adopting an artificially low avoided cost would result in an elimination of large scale solar in the state of South Carolina.
In addition to the environmental benefits of solar (a clean, renewable energy resource), a competitive solar industry provides customers with lower costs and shields ratepayers from the inherent risks associated with mega-projects like VC Summer. It also encourages local economic develop and provides for more consumer choice and preference.
This Is Important For Your Wallet Too
If an accurate avoided cost is set, then utilities pay solar companies the same price as they would spend should they build a power plant themselves – so there is no short-term impact to customers. In the longer run, however, customers see the significant impacts of an accurate or inaccurate avoided cost through rates, choices, and environmental effects.
If a utility builds a new power plant, the risk associated with that plant is borne by the utility which passes that along to the customer through higher rates. For example, if Dominion proposes a new power plant and says it will cost X, but two years down the road the price of steel goes up and now the new plant costs Y, utilities will pass on this cost increase to customers through higher rates. Think VC Summer or the Duke $15 billion coal ash recovery.
If the utility buys solar energy from a solar company, however, they purchase it at a fixed price and the solar company bears all risk. So if the price of steel goes up, this is taken out of the solar company’s bottom line, not customer’s pockets.
Another example is with natural gas. If natural gas prices rise as expected, customer bills will increase. But since solar contracts (which Duke signed for up to 35 years in neighboring states) include fixed prices, fluctuating energy market prices have no impact on the customer because the price is fixed.
Injecting competition between solar developers and utilities brings down prices for customers in the long run. Utilities are motivated to keep their costs as low as possible by competition with solar companies for the right to generate electricity. Without competition, there is no motivation for utilities to keep costs low.
What The PSC Is Doing Now
The first PSC avoided cost hearing this year started October 14th and could last up to a week. In these proceedings, Dominion Energy will present their cases for their preferred avoided cost methodology while solar companies, environmental groups, and consumer rights organizations will provide an argument for an accurate, fair avoided cost.
Starting the very next week (Oct. 21), solar companies and environmental groups will immediately shift gears to hash out similar proceedings with Duke Energy. The Commission will follow these arguments with a vote in November and a proposed order in December.
So tune in to the PSC live stream! These proceedings, while a bit wonky and technical, will determine the future of solar energy in our state for years to come and will have long-term effects on your electricity bills (which have been some of the highest in the nation for years).
And make sure you’re on CVSC’s email list, we’ll keep you posted on the goings-on at the PSC and ways to get involved. Don’t forget to check out www.upowersc.com for information about the Public Service Commission and the upcoming commissioner elections.