South Carolina PURPA rates now the lowest in the country
South Carolina voted in November to lower Public Utility Regulatory Policies Act (PURPA) rates for utilities while also shortening solar contracts in the state. Six out of seven of the South Carolina Public Service Commission (PSC) commissioners voted in favor of the changes.
The vote came after the South Carolina legislature passed Act 62, part of the South Carolina Energy Freedom Act, earlier in 2019. The law was meant to increase energy options in the state beyond traditional energy like coal and other fossil fuels.
Act 62 directs the PSC to address renewable energy issues “in a fair and balanced manner” as well as considering how costs will affect customers. The act directed the commission to “ensure that the revenue recovery, cost allocation, and rate design of utilities that it regulates are just and reasonable and properly reflect changes in the industry as a whole, the benefits of customer renewable energy, energy efficiency, and demand response, as well as any utility or state-specific impacts unique to South Carolina which are brought about by the consequences of this act.”
PURPA was enacted in 1978 to encourage solar development across the country, requiring utilities to purchase energy from small-scale solar developers. However, their purchase prices are determined by multiple factors. Utilities argue that the costs are no longer matching the avoided costs of purchasing that energy. Duke Energy said it worked with solar developers and other stakeholders on Act 62.
“We are pleased with the final product – a comprehensive, compromise bill that was passed unanimously by the Legislature,” said Ryan Mosier, spokesman for Duke Energy in South Carolina. “It is the next step in the right direction for solar policy in South Carolina. The law directed the Public Service Commission to set the terms of contracts ‘for the purchase of energy and capacity at avoided cost, with commercially reasonable terms and a duration of 10 years.’ That’s exactly what happened in these cases.”
In the South Carolina PSC meeting, the commission voted to set PURPA avoided cost rates for Dominion Energy for solar power purchase agreements at 2.143¢/kWh ($21.43/MWh) for 10-year contracts.
According to the Solar Energy Industries Association (SEIA), South Carolina currently has 830.59 megawatts of solar installed in the state, throughout 18,942 installations, or 0.96 percent of the state’s electricity. South Carolina currently ranks 16th in the nation in terms of solar. Solar advocates argue that lowering their payments will hurt solar development in the state.
In comparison to the South Carolina rates, Duke Energy’s North Carolina contract is $38/MWh for a 20-year contract, and Dominion Energy’s Virginia contract is close to $40/MWh for a 20-year contract. But Dominion Energy believes that the South Carolina ruling will set the rates more closely with actual avoided costs — and their customers will benefit the most.
“PURPA is meant to promote only solar that can provide its power at the utility avoided cost. PURPA is not a tool to incentivize solar development,” said Ashley Cunningham, public affairs specialist with Dominion Energy. “The only consideration for setting an avoided cost under PURPA is that it be set accurately at the utility’s actual avoided cost so that the utility’s customers do not pay more than they otherwise should.”
Cunningham explained that the costs they pay for qualifying solar facilities are passed through to customers, so “it’s important that avoided costs be set accurately so that electric customers are not harmed. Federal law (PURPA) recognizes the importance of protecting the customer, while encouraging renewable development, by mandating that avoided costs be ‘just and reasonable to the electric consumer of the electric utility and in the public interest’.”
Duke Energy agrees that customers will benefit from the PSC’s change. Mosier said that “every dollar” Duke Energy pays to solar developers under PURPA is also passed through to customers.
“The company supports solar development in a manner that protects customers from long-term contracts at inflated rates in a market that continues to see price declines,” he said. “Duke Energy is committed to solar, but advocated in these cases that the Public Service Commission should protect customers from overpaying for the purchase of solar energy mandated by the federal government. We believe the outcome of these cases does that.”
The South Carolina PSC is not the only entity to look at PURPA rates. In September, FERC also proposed a change to the PURPA rules. FERC’s Notice of Proposed Rulemaking (NOPR) offers to provide state regulators more flexibility to adjust rates based on current market conditions, allows states to incorporate market rates into avoided cost energy rates, and allows energy rates to vary during a qualifying facility (QF) contract, among other things.
“PURPA laid the foundation for the Commission’s open access transmission policies and the competitive wholesale power markets that we have today,” FERC Chairman Neil Chatterjee said during the initial meeting. “But a lot has changed since 1980. We have seen tremendous technological advancements in renewables, increasing sophistication in competitive electric power markets, and abundant supplies of domestic natural gas. It’s time to modernize the Commission’s implementation of PURPA to reflect those significant developments.”
Duke and Dominion both agree that the change will benefit customers by bringing their PURPA costs more in line with their avoided costs — but it doesn’t mean that solar development will stop growing in the region.
“The solar industry continues to expand in the South, and we see no reason why that shouldn’t continue,” said Mosier. “In the past, solar adapted to current market conditions and prospered. Duke Energy sees solar as a growing and important part of our overall energy mix.”
Dominion Energy also emphasized their commitment to renewable energy in the state. Cunningham explained that they have signed contracts for more than 1,000 MW of solar capacity in South Carolina, with more than half of that already in service. She said, “Dominion Energy’s commitment to clean energy is exemplified in the fact that we have the fourth-largest system of solar energy in the nation.”
The discussion over modernizing PURPA rates continues in numerous states across the country, as well as at the national level. FERC will take comments on its NOPR until early December.
