State Senator Tom Davis of South Carolina is a rare breed in politics today. At a time when no other state is actively considering competitive reforms to their traditionally monopoly-regulated utility sectors, and many politicians in states already benefiting from competition in electricity are promoting anticompetitive measures, he is leading the push for his state's consumers and economy to benefit from greater customer choice and competition among electricity providers.
The Republican lawmaker discusses how the multibillion-dollar V.C. Summer nuclear debacle in South Carolina in 2017 jolted him and other Palmetto state lawmakers to take a deep dive into utility regulation. He provides specific details of the electricity reform legislative proposal he will unveil Nov. 30 for consideration by the Legislature during next year's session. A political pragmatist, Davis looks to move the entrenched monopoly steamship by degrees.
"The ideal at the end of the day is going to be a system where providers have to compete and the ones that can generate power most efficiently and most cheaply and most reliably win, and that consumers have choices on their side," Davis says. But he suggests it's not politically realistic to think the ideal outcome can be accomplished in one fell swoop.
"I think it's important for us to move incrementally" in pursuit of the ideal during next year's legislative session, Davis says. Calling politics "the art of the possible," he described a legislative process that ponders, "What can we get across the finish line? What can we get out of subcommittee and full committee and if it gets to the floor, what can we do to overcome anybody who wants to object or to filibuster?"
With 2024 being an election year, Davis says he is hitting the ground running to accomplish legislative objectives before campaigning and politics become a distraction. "2024 is going to be an incredibly busy year from an electoral perspective. And so that's why it's important right now . . . to focus on some of these issues before we all get swept up in the politics of campaigns and elections," he says. "It's important to dial our energy into, and our focus into, what are some important public policy reforms to accomplish in 2024. That's why I'm placing so much emphasis on this right now because I do think there's a window of opportunity for us."
Regardless of how far along the continuum to a competitive ideal the legislative process allows for next year, it won't be the endgame, Davis suggests, promising that subsequent legislative sessions will see further efforts to reform the state's electricity sector to produce better outcomes for consumers by moving the state ever further along the continuum to a competitive ideal. "It's absolutely essential that we bring to bear on that system of power generation more market forces, more competition, because you're not going to get the best technologies, you're not going to get the lowest costs, you're not going to move toward what I think is a better future if you don't have that dynamic working in that space."
State Senator Tom Davis of South Carolina is a rare breed in politics today. At a time when no other state is actively considering competitive reforms to their traditionally monopoly-regulated utility sectors, and many politicians in states already benefiting from competition in electricity are promoting anticompetitive measures, he is leading the push for his state's consumers and economy to benefit from greater customer choice and competition among electricity providers.
The Republican lawmaker discusses how the multibillion-dollar V.C. Summer nuclear debacle in South Carolina in 2017 jolted him and other Palmetto state lawmakers to take a deep dive into utility regulation. He provides specific details of the electricity reform legislative proposal he will unveil Nov. 30 for consideration by the Legislature during next year's session. A political pragmatist, Davis looks to move the entrenched monopoly steamship by degrees.
"The ideal at the end of the day is going to be a system where providers have to compete and the ones that can generate power most efficiently and most cheaply and most reliably win, and that consumers have choices on their side," Davis says. But he suggests it's not politically realistic to think the ideal outcome can be accomplished in one fell swoop.
"I think it's important for us to move incrementally" in pursuit of the ideal during next year's legislative session, Davis says. Calling politics "the art of the possible," he described a legislative process that ponders, "What can we get across the finish line? What can we get out of subcommittee and full committee and if it gets to the floor, what can we do to overcome anybody who wants to object or to filibuster?"
With 2024 being an election year, Davis says he is hitting the ground running to accomplish legislative objectives before campaigning and politics become a distraction. "2024 is going to be an incredibly busy year from an electoral perspective. And so that's why it's important right now . . . to focus on some of these issues before we all get swept up in the politics of campaigns and elections," he says. "It's important to dial our energy into, and our focus into, what are some important public policy reforms to accomplish in 2024. That's why I'm placing so much emphasis on this right now because I do think there's a window of opportunity for us."
Regardless of how far along the continuum to a competitive ideal the legislative process allows for next year, it won't be the endgame, Davis suggests, promising that subsequent legislative sessions will see further efforts to reform the state's electricity sector to produce better outcomes for consumers by moving the state ever further along the continuum to a competitive ideal. "It's absolutely essential that we bring to bear on that system of power generation more market forces, more competition, because you're not going to get the best technologies, you're not going to get the lowest costs, you're not going to move toward what I think is a better future if you don't have that dynamic working in that space."
EMP S3E22: South Carolina State Senator Tom Davis
(transcript edited for clarity
EMP: Welcome to the Energy Markets Podcast. I’m Bryan Lee, and our guest today is Tom Davis, Republican state senator from South Carolina. Sen. Davis is a rare breed in politics today, as he is advocating competitive reforms of the Palmetto state’s monopoly-regulated electric industry. His views represent a welcome respite from what we see nationally where no other state with a traditionally monopoly-regulated utility industry is actively considering competitive market reforms, and in many states already benefiting from competitive reforms we see politicians pushing anticompetitive policies. Yet Sen. Davis is promising to unveil a procompetitive legislative proposal for South Carolina later this month. Sen. Davis, thanks for joining us today.
TD: Appreciate you having me. Great to be with you.
EMP: So this all started with the V.C. Summer nuclear plant debacle? Tell us what happened there.
TD: It did. And July 2017 was the culmination of an ill-fated a joint venture between Santee Cooper, which is the South Carolina state-owned public utility, and SCE&G or SCANA at that point in time – they have subsequently been purchased by Dominion, but back then it was SCE&G – SCG&E and Santee Cooper had a joint venture to build a new nuclear reactor in Fairfield County at the V.C. summer site. And long story short after about eight or nine years and spending $10 billion, which is in ratepayers’ base, they announced in July of 2017 that they were pulling the plug, they were going to walk away, and we got pennies on the dollar for the stuff that was on the ground. And so that really jolted the Legislature. Up until then, speaking for myself, I really hadn't given a lot of thought to how we went about generating and transmitting and distributing power in South Carolina. And that debacle in July 2017, you know, forced us to do a deep dive, or at least it forced me to do a deep dive into understanding this space a little bit better. And what I found in the ensuing couple years was that we've had essentially the same mode of power generation structure in South Carolina for the past hundred years. About a hundred years ago, the Legislature divided South Carolina up into three geographic regions. We then said to the utility in each one of those regions will give you a monopoly service territory, and for every dollar that you invest in power generation we’ll give you a guaranteed return on your capital. And we needed to do that a hundred years ago in order to attract venture capital and entrepreneurial capital to South Carolina, and it worked. I mean, a hundred years ago, we got utilities to come in and invest a lot of money in power generation and it served its purpose. But you can see the moral hazard associated with that model, right? Because if you've got territories – in South Carolina, three territories – and if a utility has a monopoly to serve in that territory, and if they're guaranteed a rate of return on invested capital for power generation, there's a moral hazard. There's a bias toward the utility pursuing capital-intensive projects. Because the more capital intensive the project, more money they spend on power generation, the higher returns that they get for their shareholders or for the utility. And so we saw that play out with the joint venture in Fairfield County between, you know, Santee Cooper, and SCE&G because, in looking at the emails between executives of the two power companies in the months and years prior to July 2017 when they pulled the plug, we could see that they knew they weren't going to complete that particular plant. They knew that it wasn't going to get finished. And yet they still spent billions of dollars, you know, because they got a rate of return on that invested capital. And so, in the aftermath of that, you know, and after a couple of years of studying the issue, I introduced legislation in 2019 called the Energy Freedom Act. My colleague, Peter McCoy in the House and I jointly sponsored that legislation. And what it essentially did was this – and that got passed – but what it said was, you know, notwithstanding these territorial jurisdictions and utilities having monopolies in these territories, if you're an independent power producer, and if you can demonstrate that you can generate power for less than the avoided cost of the utility, then that utility has to offer a power purchase agreement to that IPP to purchase that power and then pass along the savings to the ratepayers. So that was an important reform. We also stated that the power purchase agreements had to be at least 10 years in duration, so that IPPs had access to capital markets. So I mean, that was really sort of a PURPA-related legislation, right? We essentially took what you know, the federal government had already outlined in PURPA, and stated in South Carolina that we expected the Public Service Commission to make utilities comply with that and to let IPPs fairly compete, provide power generation. And so, you know, the step was to try and move away from a system where what we do is pay utilities a guaranteed rate of return on invested capital, and instead trying to increase competition in energy production markets, so that ultimately, what consumers end up paying is a function of that competition. Because as a practical matter – and I apply the same philosophy to various spaces, whether it's healthcare, education or energy – that whenever providers have to compete, and whenever consumers have choices, you're going to get a better product at a lower cost. And that particular market dynamic, I think, is the point of departure for all these public policy discussions. And it certainly was a point of departure for me in the aftermath of what happened at V.C. Summer to bring in some reforms to the energy space in South Carolina.
EMP: Moral hazard is the right way to put it. Twenty-five to thirty years ago when it seemed like all the states were going to restructure their electric industries, we heard all the time they get a return on putting paneling in the boardroom and that sort of thing. And you know, South Carolina's experience with V.C. Summer was not unique. Florida utilities at that time also started nuclear projects, and then scuttled them leaving their customers with billions of dollars to reimburse the utility for. And in Georgia, as you know, next door, we've got the Vogtle plant, which ballooned to over $30 billion in cost.
TD: Right. And I think this is important – I mean, it's something that the public at large, really doesn't give a second thought to. They flip a switch and they expect power to come on. And they really don't think beyond that. And quite frankly, up until July of 2017, the 170 legislators in the General Assembly in South Carolina – we really didn't give much thought in regard to how power is being generated. So it's long past due. And so we did the first step in regard to the Energy Freedom Act that I just talked about, in regard to getting IPPs a chance to bid for power generation. But then we took the next step two years later, in 2021, and we established a study committee, a market reform study committee, that I co-chair along with my colleague, Rep. Jay West in the House, and our charge was a little bit broader. It was to look at the whole system and to recommend whatever further reforms are necessary to bring that healthy market dynamic into our energy generation space. How can we reap the benefits of competition and how can we reap the benefits of giving consumers choices in the energy space? And one of the things you quickly realize, and you know this and your audience is going to know this because this is their profession, but it came as a surprise to me. There's a certain dynamic involved in energy that you need to be aware of, I mean, you can't just take market principles and apply them in the abstract into that space. You have to understand that space. You have to understand the incentives at the federal level, you have to understand, you know, what utilities have been promised in terms of their IRPs and the capital investments that they've made. I mean, what's equitable in terms of giving them a return on existing plants that they have? So, you know, it's easy to talk about the problem in the abstract and sort of the solution is markets and is competition, but then the challenge is in fairly and equitably applying those principles to the space in particular, and that's what I'm working on right now with the legislation that I plan to file on November 30.
EMP: Well, I want to get into that, but first, I want to get back into a little bit of the history. So the study committee, that was established by Act 187?
TD: Correct. And essentially what it was, is it was a continuation of the Energy Freedom Act, because the Energy Freedom Act was just a first step toward bringing market forces to bear by letting IPPs have a level playing field and demonstrating whether they could generate power for less than utilities’ avoided cost. But it wasn't really sweeping legislation by any imagination. But then intuitively, legislators understand that markets work and that markets ought to be the point of departure. And so that was the impetus behind the 2021 legislation creating the study committee, tackling more broadly those reforms. And so, we did that for a couple of years. We hired an expert consultant, the Brattle Group, who I think did an excellent job of doing a deep dive into our system. The legislation that created the study committee also had 18 or 19 different stakeholder groups, including the utilities, a whole broad range of stakeholders, because this has to be a comprehensive look at energy generation. It has to be something that everybody who has an interest in this space has a need to be heard. They should be heard. Legislators need to hear them. And so I think we did that. I think we did a very broad look at this. I think we did a deep dive with the help of an excellent consultant. We’ve got an excellent report that serves as a framework for some of these reforms that that we're going to be talking about here. So I'm encouraged, you know, going into 2024 about taking the next step.
EMP: Yeah, we had John Tsoukalis and Andrew Levitt from Brattle Group on the podcast a while back who talked about the report that they prepared for the study committee. You echoed their words in describing it to me as a menu of options. So you have all of these options.
TD: Right. And I liked the way you described the Brattle report in that it gave legislators a menu or a series of options. And I think it's helpful, at least for legislators, to think of it in this context. I mean, you've got – let's look at it in terms of a continuum. And you have at one end of the continuum, the current model we have which is essentially a vertically integrated monopoly system where a utility is given, you know, the right to serve in a particular territory, and they're paid a rate of return based on invested capital for power production. And then you can move along that continuum and at the other end of the spectrum, I think maybe probably the paradigm there would be Texas where you have open markets, where you've got free competition, where you've got, you know, robust market participation. And so, but along that continuum from the existing model, we have – the vertically integrated territorial monopoly model – moving along on that continuum to the Texas model, you have various stops along the way where you can begin to integrate some components of choice and markets into your system. And what Brattle did was identify what those stops along that continuum are. I mean, for instance, you can do energy imbalance markets, you can have joint dispatch agreements, you can have all sorts of procurement. You can start doing the things that are consistent with moving toward markets without necessarily taking the immediate plunge right into a system that’s a regional transmission organization or something where there’s this freewheeling wholesale competition writ large. And so, you know, that was important because when you're a legislator, what you deal with up here in Columbia at the statehouse is the art of the possible. What can we get across the finish line? What can we get out of subcommittee and full committee and if it gets to the floor, I mean, what can we do to overcome anybody who wants to object or to filibuster? I mean, what is the art of the possible? And so having that menu of things that will move us along that continuum toward what I frankly consider to be the ideal, which is bringing as much market forces to bear as you can, I think that's useful because it gives us as legislators sort of a guide in terms of, okay, this is what's possible to accomplish right now, you know, given the stakeholders and their position and given where public opinion is or where the opinion is of my colleagues. And that's important because we have to do, we need to do, something in 2024 to move it further down this continuum. I don't want this study report simply to be an abstract idea. Something that gathers dust on a bookshelf. I mean, this has to be a blueprint toward taking an additional step along that continuum. The Energy Freedom Act in 2019 was the first step. It’s important in 2024 that we take the next step, but we also have to be very realistic about expectations here. Anybody who thinks that we're going to be able to in 2024 move all the way along that continuum and get to an RTO model, you know, and have free-wheeling competition and having these three utilities giving up their territories, that is not politically realistic to think in those terms. And so, but it's important for us to get as many market reforms as we can implemented, because the more you take steps along that continuum, and the more you can demonstrate that this is a better model, that then sets the stage for additional reforms in the future. So the Brattle report, I think, gives us a good framework. It gives us a lot of great options. It gives us specific things that we as legislators can look at to move along that continuum to what I consider to be the ideal.
EMP: Well, you've promised to unveil your legislative proposal later this month. Are you prepared to share any tidbits with our listeners?
TD: Yeah, I think it's fair to say that a portion of it is going to include all-source procurement, which is building upon what I think is one of the most important aspects of the Energy Freedom Act, which is opening up energy production markets to competition, moving away from this mindset of utilities building power generation themselves, and not looking for procurement and not looking to third parties and not looking to the RFP process. I think that's an important paradigm shift. We have to get utilities thinking in terms of, how can we bring on reliable, cheap power for our consumers and making that the emphasis as opposed to having their emphasis being on how can we go ahead and get the Public Service Commission to authorize us to build new power generation ourselves? And that's just a shift in mindset. And so I do think that an important part of this legislation is going to include an all-source procurement mechanism. I think there's also going to be a component of it that involves more consumer choice at some levels. For instance, here in South Carolina, if you're a large energy user coming into South Carolina, and you go into a particular geographic region, and you've got certain power needs, if that utility that has a right to serve can't meet those power needs, you're going to pick up and go somewhere else. And we found out that earlier this year, we lost a billion-dollar-plus major investor in Orangeburg County, because the utility with the right to serve in that area couldn't meet their power needs. And so one of the things I think this legislation I'm going to file is going to include is, if you are a company that has extremely large power needs, that you have the ability to shop and get your power taken care of outside of the utility that's been assigned to your territory – maybe go to one of the other utilities, one of the other two utilities, or maybe go directly to an independent power producer and negotiate rates that way. We have an immediate near-term energy generation problem here in South Carolina. And it seems to me the discussion so far among the utilities has been in regard to, for instance, Santee Cooper and Dominion want to build a new gas plant, a billion-dollar gas plant that at the earliest will come online in 2031. And I'm open to having that discussion about whether or not that's a solution to our long-term energy problems. But it does nothing in the short term to address immediate problems that we have. We're missing out on economic development opportunities because we can't currently provide generation for some of the companies that want to come to South Carolina. So we need to encourage that mindset of being more aggressive about going into the marketplace, more aggressive in regard to procurement, more aggressive in regard to issuing RFPs and trying to get dispatchable power that's currently out there, as opposed to simply being content on, well, we're going to build more power generation and in eight years, all our problems will be solved. We can't limit the discussion to that. We have an immediate need right now to take care of and I think that means more aggressive procurement among existing providers.
EMP: If I understand correctly, so open-source procurement would mean that the utility would not be self-developing resources. It would put all of its resource needs out for bid?
TD: Out for bid, or it may be at the end of the day, once you receive those bids, it may be that the utility’s proposal to build generation itself becomes the more economically feasible thing. But it's all part of a competitive process. You give market participants out there – I mean, utilities or IPPs that have dispatchable power and the ability to meet needs, we need to access that because we have an immediate problem. And right now, you know, we have utilities coming around to that now. We have utilities understanding that we have immediate problems and those immediate problems have to be dealt with in a procurement basis. But again, that is not the incentive structure we currently have in place in South Carolina. Our incentive structure in South Carolina right now incentivizes utilities to build new generation because they get paid a guaranteed rate of return on building that new generation. So it's just a bias that's in our current system. And again, it goes back to what I said at the very beginning. There's a moral hazard associated with that because if you've got a system that incentivizes a utility to pursue capital-intensive projects, that's what they're going to put a lot of their effort into trying to justify and trying to advocate for. You got to shift the focus back to how do we meet immediate power needs in South Carolina? How do we go ahead and deliver power more abundantly, more reliably and more cheaply? And shifting that focus is necessarily going to involve utilities not just looking to generation capacity themselves, but looking at what's out there that’s dispatchable in the marketplace.
EMP: And then the other aspect, I heard you mention is it would be just large customers – large electricity users would be allowed to source their needs outside of their local utility?
TD: Yeah, and I think that's modeled a little bit on what I think Georgia has. Georgia has a carveout in that regard where a large energy-using economic project or developer – a company would have the ability to go into the market to get its needs met. And look, I'm mindful of unintended consequences here, too. That needs to be put on the table. Because to the extent that large energy users are – okay, let's say they contract directly with an IPP to have their energy needs met, I get the fact that there is a there is a consequence to that. There's an indirect consequence in terms of perhaps putting more of the load on maintaining the grid on existing companies, or are on smaller consumers or people who are on the grid, because you're taking the large power user off the grid, you’re necessarily, you know, having their fixed costs associated with grid maintenance fall on that remaining universe of individuals and users. So I'm not unmindful that this is a complex situation. And it's not nearly as simple as maybe I'm making it sound. But again, this was all in terms of directionally where we need to move in terms of how the conversation needs to be shaped. And it needs to be toward how can we guarantee abundant reliable power in the near term at the lowest possible cost? And we have to have utilities accept the fact that that is going to involve in many cases, if not most, getting power on a procurement basis from third parties as opposed to simply building generation themselves. And that's a mindset that simply has to change.
EMP: Is that the full scope of what you're planning to unveil? Or is that just what you're willing to talk about now?
TD: No, I mean, there's more aspects of it. I mean, look, I mean, in the near term, we're going to have territorial jurisdictions with utilities. And in the near term, we're going to have a PSC that's going to serve as sort of the overarching entity that looks at that system and looks at proposals by utilities. And what that means is we need to have a PSC that's extraordinarily competent. We need to have a PSC that has its own expertise and its own ability to evaluate utility proposals, and not have them rely so much on the experts that the utilities have. I mean, let's be frank. There is a degree of regulatory capture here in South Carolina, where the utilities, they've got all the experts. They've got incredible expertise. They're very persuasive. They got the best lawyers. And you've got a PSC here in South Carolina, quite frankly, that relies on them because they don't have the ability to turn to their own resources or their own analysts. And so a portion of our reform as well needs to have that PSC be more robust, to be more informed, to be able to engage in a way that's based on their own data. And let them be that honest broker. Let them be that entity that South Carolina can repose trust in. And so a piece of this legislation as well is going to involve how can we bring more competence and expertise and resources to the PSC so that they become that honest broker that can evaluate these particular petitions without relying so much upon the utility and not having so much what I perceive to be an undue amount of regulatory capture in our system.
EMP: So you recently posted a column in the Post and Courier talking about “alarm bells,” you said, “are sounding in South Carolina warning of potential energy shortfalls, reliability concerns, utility customers experienced blackouts last year during winter storm Elliott, economic development projects,” as you mentioned, “have been turned away. But the fingerpointing thus far has curiously avoided implicating our state's monopoly electric utilities or antiquated market structure that dates back more than a century.” You said, “If South Carolina is serious about modernizing its electric system to perform under the demands of a growing economy, the increased risks of extreme weather, and the diverse needs of current and future customers, then it is incumbent on the General Assembly to reexamine whether an electricity model that produced the V.C. Summer nuclear debacle, rolling blackouts on Christmas 2022 and lost economic investment opportunities is still viable in today's dynamic energy environment.” Now, that prompted a little bit of backlash. Will Folks in his online news outlet says that he was in your wedding, that you’re longtime friends, he calls you quote, “hands down the smartest, most honest, most principled lawmaker in the Palmetto State.” But then he accuses you of risking your credibility by “shilling” for “crony capitalist Google.” Now, I know he's allowed you to publish a rebuttal to that. But do you want to respond to that?
TD: Yeah, I did publish a rebuttal that went up online on his site yesterday. And first of all, Will is a dear friend. I mean, he and I got to know each other 20 years ago. We each lived in Mark Sanford's basement on Sullivan's Island when he ran for governor in 2002. I was the public policy analyst guy in the campaign and Will Folks was the press secretary. So we developed a fast friendship and he's been one of my best friends for 20 years. And I think, you know, in my rebuttal, I said this, I said, if you're talking about opening up energy production markets to competition, if you're talking about subjecting utilities that have had monopolies to competition from independent power producers that might be able to generate power more cheaply than their avoided costs, I mean, how is that crony capitalism? Or how is that favoritism by opening up markets and saying the better provider is the one that gets to provide. The one that can generate power most cheaply is the one that gets the contract. I mean, to me the crony capitalism is in regard to vesting power in the status quo and having a bias towards these utilities that have these territorial monopolies. And look, I get it. The energy space is complicated. I started my deep dive on this in July of 2017. And six years later, I'm not even going to pretend I know as much about this space as your audience does, because I don't. But as a legislator, I do have an open mind. I do have the ability to comprehend information. I do have the ability to hear arguments and evaluate which ones I think are right. And so, you know, to Will's credit, he did give me the opportunity to respond. And here's what we're up against here. And when I say “we,” I talk about those of us who want to open up markets, those of us who want to move away from the traditional monopoly structure that we have. We face a phenomenon that is referred to as concentrated benefits versus dispersed costs. And what I mean by that is when you have a system in place, that confers benefits upon a group of stakeholders, those stakeholders will fight hard to keep that in place, and they're well-organized and they have resources and they have the ability to hire the best lobbyists. They have the ability to participate in the legislative process and make political donations. They have the ability to ingratiate themselves up in Columbia because the benefits are concentrated upon a small group of companies. Now the cost of this particular model that we have in terms of rolling blackouts or failures at V.C. Summer and higher rates – I mean, those costs fall upon all South Carolinians. They're dispersed among, you know, over 5 million people in South Carolina. And it's very difficult for those upon whom those costs fall to organize as effectively and as constructively as those upon whom the benefits are concentrated. So you've got an unlevel playing field in terms of who's up there in Colombia sitting down and talking and whispering in legislators’ ears. And so what we have on our side, Bryan, what we have is the better argument. What we have on our side is we can look at what other states have done that have opened up their energy production markets, and we can demonstrate that costs have gone down for consumers. We have the better argument. And so at the end of the day, going on podcasts like yours right now, or writing op-eds like I did in the Post and Courier, or having the opportunity to publish a rebuttal to what my friend Will published in FITS News, or going out on the road and talking to small groups of people. We can make the case because we have better arguments. And so if you keep doing that on a granular level time after time after time, you can effect change. Now, here's the danger. You know, in 2017 – July 2017 – everybody in South Carolina's attention was focused on this problem because we had a catastrophic failure at V.C. summer. I mean, a $10 billion investment was wasted. And so people were paying attention and so there was a window of opportunity for us to start making some changes. And we did. The energy Freedom Act that I that I drafted along with Peter McCoy got enacted into law and that did bring some competition into the system. But the further we get away from that disaster, the more the public attention is diverted to other things, to health care costs, to education, to what's happening on the world stage, I mean, to other things. Because the public is engaged in everyday life. It's hard to get their attention on things. And so the further we get away from July of 2017, the more difficult it becomes to fight back against those upon whom the benefits are concentrated. So I think it's incredibly important that in 2024 we take the next step along that market continuum – we take that next step toward opening up energy production markets to competition. Even if it's a modest step, even if it isn't getting us exactly to where I think we need to be eventually, directionally I think it's incredibly important to continue that momentum. Because look, I mean, the window of opportunity for change, it closes very quickly, especially when you have an entrenched group of stakeholders who are committed to not letting those reforms happen.
EMP: Are you up for reelection next year?
TD: I am. I'm up for reelection in 2024. The entire Senate is up for reelection next year, all 46 members, and all 124 members of the South Carolina House are up for reelection next year. And of course, you've got a presidential election in 2024. So 2024 is going to be an incredibly busy year from an electoral perspective. And so that's why it's important right now. And what I've been doing, you know, the last couple of months, and I'll do it for the next two months before session starts, is to focus in on some of these issues before we all get swept up in the politics of campaigns and reelections. It's important to dial our energy into, and our focus into, what are some important public policy reforms to accomplish in 2024. That's why I'm placing so much emphasis on this right now because I do think there's a window of opportunity for us to continue these energy reforms, but that window of opportunity is not going to stay open forever.
EMP: I mentioned Will Folks’ article because he attacked you as being, quote, “in bed with eco radicals.” And that's the kind of thing that I think you'll see more and more of as we go to the election. To the extent the utilities don't want your efforts to proceed, they're going to put all of their resources into defeating you.
TD: I understand that. And look, I mean, and that's the nature of politics. I mean, you can't let what you think is the right thing to do be dictated by how that makes things difficult for you politically. Once you start to do that, you don't become an effective legislator. And that's the case, you know, for instance, I've been trying for 10 years to get medical marijuana legalized in South Carolina because I think it's important to empower doctors to give patients options beyond opiates, on the medical, I think, you know, evidence is that it can be efficacious. But I can't be fearful the fact that law enforcement is opposing that I can't be fearful the fact that law enforcement has taken an aggressive position against that and has characterized my efforts in less than flattering ways. But if I'm going to be influenced by that, then I'm not going to advocate on behalf of patients who desperately need it, or if you can shift it to other health care in terms of other health care outcomes. I mean, you've got doctors and hospitals, who don't want me to empower nurse practitioners, don't want me to empower physician assistants don't want me to empower, you know, non-physician healthcare providers. But if we're going to provide access to rural communities, I have to push against that and I know that I'm pushing back against a very powerful and an entrenched class in terms of the position. But I can't let that dictate what I do because I want to benefit all South Carolinians. The same as in the energy space. I mean, look, there are a lot of good people at Duke Power, at Dominion, at Santee Cooper, very intelligent people. And these companies are going to be a part of South Carolina's energy future going forward. I'm not saying that they're not. But I can't pull punches and I can't not say what I think the underlying problem is and still be an effective legislator. And I have confidence that if I get in front of people, and if I explain to them what I'm doing, and I explain my reasons, I explain the broader context in which we have this particular structure in place for a hundred years, and that it’s outlived its utility – no pun intended there – but I believe that my constituency is a very educated, engaged constituency, and I believe at the end of the day, the better argument will overcome whatever other political pressure there might be.
EMP: So you're meeting with utilities, you're talking to them about your agenda, correct? What kind of feedback are you getting?
TD: Very positive. And look, I mean, let me be clear here. Duke, Dominion, Santee Cooper, they're going to continue to be an extraordinarily important part of our energy generation system here in South Carolina. I have gone to the control center in Charlotte for Duke to see exactly how it works there. I've gone to the control center for Dominion in Columbia. I've met with Santee Cooper's executives to understand their situation. I have met with the co-ops and Central and others that buy power from Santee Cooper and distribute it to my constituents on Hilton Head and in Bluffton. I've gone up to Valley Forge in Pennsylvania to see how PJM’s control center works. I mean, because it's one thing to understand these things in theory and to read about them and to talk to people about them. But it's another thing to actually see something that is in process and how it works. You know, for instance, let me give an example. I didn't really fully understand until I went to the control centers for Dominion in Columbia or for Duke in Charlotte, I didn't understand the degree to which gas power and solar power were intertwined. And solar power, you know, if it's cloudy, or if it's rainy, and solar power is not coming onto the grid, you need to pair that with something like natural gas that you can ramp up to balance. And so if you're talking about solar power, and you want to bring more solar power onto the system, that inherently means you need to have gas power to pair it with. And until you come to the control center and you see that in real time as these guys these great professionals are doing an incredible job balancing the grid, you then understand that, hey, you know, I understand if not all about just advocating for green and clean energy and renewables and solar. It’s got to paired with something because we have to have a reliable source of power and you've got a pair it in case of times of curtailment when it comes to solar. So, you know, I mean I want to emphasize that – I'm not against the utilities and utilities that they're going to be with us. I want them to work well. I want them to succeed. All I'm saying is, in order for South Carolinians to benefit from the technologies that are emerging out there – whether it's in nuclear or small modular reactors, whether it's hydrogen, whether it's biomass, you know, whatever it might be – we can't just simply leave ourselves out of markets. We can't simply ignore the fact that you can go out there in that space and procure dispatchable energy from IPPs that are on the cutting edge of technology. Let markets work for us. Let's not try to outguess markets by saying, well, we think that we should have a billion-dollar gas plant so let's build that. I mean, maybe that's right. Maybe it's not. But it goes back to what, you know, the economist Friedrich Hayek said about the knowledge problem. I mean, if you've got a central authority making decisions in this space, they're going to get it wrong a lot of times. You've got to open it up to competition. You’ve got to open up the market forces because there's a lot of knowledge out there, a lot of entrepreneurial activity out there. The best ideas are out there. We need to have markets working for us. So I accept the fact that in the near term, we're going to have three geographic territories in South Carolina. We're going to have these utilities. They're comprised of people who are trying hard and want to do a good job. But it's absolutely essential that we bring to bear on that system of power generation more market forces, more competition, because you're not going to get the best technologies, you're not going to get the lowest costs, you're not going to move toward what I think is a better future if you don't have that dynamic working in that space.
EMP: What about Google? Are you meeting with them?
TD: I have had conversations with Google. I've had conversations with Nucor, with Century Aluminum, with other large power users. And the conversations I've had with them is to understand, okay, what are their particular set of problems? I mean, you know, what are they looking for when they look at South Carolina as a place to either relocate or to expand? I mean, how are their energy needs? What are their energy needs? And how can our current system address those needs? Because look, that's incredibly important. I mean, we have a Commerce Department here in South Carolina – Secretary Harry Lightsey, he's doing a good job of recruiting companies to come to South Carolina, which is a great place to do business – and it must be incredibly frustrating to him to land a huge economic prospect and have them come here, and they have substantial energy needs. And they sit down with the utility that's been assigned the territory to provide them service and they're told that firm service can't be provided. And so the company then goes elsewhere. So it's important that I understand, it's important that all legislators understand, how do large energy users view our system? How do large energy users view South Carolina as a place where they can do business? Because our economic development efforts to get these large companies that are going to bring in jobs and raise the quality of life for all South Carolinians, we're not going to get them unless we understand what their needs are. And to the extent we're not meeting those needs, we need to figure out their thoughts and how we can. And so that's the reason for meeting with large energy users like Nucor, and Century Aluminum and Google, is to understand their needs, their challenges, and how can we go ahead and meet those needs so they come to South Carolina?
EMP: Are you an eco radical?
TD: I don't think so. I'm certainly an environmentalist. I mean, I think anybody who lives on the coast like I do in South Carolina is mindful of how development, you know, whether it's, you know, economic development or whether it's residential building, you know, how it impacts our ecosystem. I mean, I live in an area that's very fragile, an estuarian system that is, you know, prone to runoff problems, is prone to a lot of the things that you saw happen in Chesapeake Bay back when I was growing up in Maryland. I don't want that to happen here. But look, I want to go where markets take us, right? I mean, I'm not somebody – now, there are some, you know, in some jurisdictions that will say, well, by the year 2040, or by the year 2050, in terms of our energy generation mix, we want X percent in renewables or X percent in solar. I'm not that person. I'm not somebody who says, this is the percentage and now we need to get there. I want markets to take us in that direction. Because I do think markets will lead us there in the long term. Because I think when producers produce and they determine what they're going to bring online, they look at consumers, they look at users, and users are increasingly interested and want to know how a company is getting its power. Are they getting their power from clean, renewable sources? Or are they getting it from coal? Are they getting it from something that that isn't as clean? And so, you know, you got to bring that demand side into this as well. You have to give consumers choices. Because if they do, they'll send signals to the producers in regard to what generation should be brought online. So if you allow markets to work, and if you empower consumers and allow them to express those wishes on the demand side, you're going to find the supply side, the provider side, moving in the direction of cleaner energy, because that's what consumers want. But understand that's a function of letting markets work. It's not a function of the General Assembly arbitrarily picking some random date in the future and some random percentage. It's about letting markets work. And so if you do that, I think the outcomes that the environmentalists will want and that many of us want, they will happen as a natural function of markets.
EMP: They do. We've got a track record of that in this industry for decades now. If you talk to former FERC Commissioner Nora Brownell, she'll tell you that when they opened up the market in Pennsylvania when she was a Pennsylvania state commissioner, they never expected that the first thing that would happen would be a rush to develop wind power in the state. But we've seen that time and time again. And if you look to Texas – you spoke to Texas as being at the one end of the spectrum – on this podcast we speak to that is where we need to get the entire U.S. industry into that type of paradigm. Because it's working. You've got all kinds of investment in the kinds of new technology that we need: battery storage, wind power, solar power. And from my perspective and the perspective of others, that's what helped them keep the lights on this summer in a very, very difficult, a very difficult summer that ERCOT had. Do you believe that climate change is real?
TD: I do. I think that, you know, I think we can argue at the margins in terms of, you know, to what degree is it is it man-generated as opposed to just another consequence outside of what our choices are? But I think that the science is indisputable that climate change is a real thing. It is something that that I think the generations coming up – my daughters and the younger generations – I think they're more aware of that, quite frankly, than maybe those in my generation have been historically. But you touched on an important thing there because so far we've been talking about you know, opening up, the supply side and generation markets to competition. The other side of that coin, of course, is giving consumers on the demand side more choices, because it means – and that's how markets are supposed to work. I mean, you know, consumers exercise their choices, and then the supply side responds to where those choices, you know, direct them. And so that's another healthy component to this. And so we need to focus on how do we give choices – now, so far, I've been talking about giving some choices to large, especially large energy users. I've talked about if you're a large energy user, letting them shop for their power needs across these jurisdictional lines or letting them contract directly with IPPs to meet their generation needs. But I think over time we need to expand those choice options to retail customers or to smaller users, and allowing those smaller users perhaps to form organizations or groups through which they can express their preferences more collectively. I think that's an important part to any market functioning is having, again, providers competing and consumers having choices. And so I don't know where that takes us ultimately. Nobody can predict in advance where that takes us. But that's the beauty of markets. Markets are about the efficient allocation of capital. I mean, we have scarce resources out there. There's only a certain amount of stuff we have out there to do things with. And our quality of life depends upon maximizing the yield on that scarcity. You can't maximize the yield on that scarcity unless you have competition among providers and choices by consumers. That's what's made America the wealthiest nation in the history of the world, is because we've been bottomed in a very real sense on this market dynamic. We've been bottomed on this assumption that if you want to sell something, you need to compete with your neighbor down the street on providing it and if you're somebody buying something, you have a right to take your business elsewhere. I mean, that's a bedrock principle that most Americans intuitively understand. There's absolutely no reason whatsoever that particular dynamic can't be applied to the energy space. And the only reason it hasn't been to the degree it should be is because we've had in place this model for a hundred years, and we put this other model in place a hundred years ago because we needed it then to attract capital to build power generation. We don't need it now. People want to invest in South Carolina now. This model served us well a hundred years ago. There are too many moral hazards associated with it now to serve us in the future.
EMP: So you talked about expanding choice to the smaller customers. That's not going to be part of your initial legislative proposal later this month?
TD: To a modest extent, there'll be some expanded choice and primarily among the extremely large power users. You know, it's interesting with legislation, if you try to do too much and if you load it down, it doesn't tend to move. And so I mention it, though, to make this point, that whatever it is that we pass in 2024, whatever it is I'm able to make the case for to a majority of my colleagues and get it down on the governor's desk, it's not the end of this inquiry. It's not the end of this push. Because whatever we accomplish in 2024, there's always going to be an opportunity for the next legislative session beyond that, to move further along that continuum. Because it is important to understand that the ideal at the end of the day, and I'll be very clear about this, the ideal at the end of the day is going to be a system where providers have to compete and the ones that can generate power most efficiently and most cheaply and most reliably win and that consumers have choices on their side. Because I'm confident that as with education, or healthcare, or any other sector of the economy, that's where you optimize results. So you know, so even though retail consumer choice, you know, smaller user choice may not be and won't be a part of the discussion this year, it isn't because it isn't important. It's just because there's only so much bandwidth, and so many things you could take on at one time. And that leads me to one final point I want to make. I think it's important for us to move incrementally along this continuum. And because I'm making certain assumptions in regard to what the benefits of markets are. And so it's important as we move along that continuum to constantly take stock and look at what were the consequences. Were the assumptions you made correct? Are we getting the outcomes you thought you would get? Are you getting, you know, independent power producers responding to meet demand? Are you driving down prices? Are we moving toward more cleaner energy? It's important to look at the results of what we do as a legislature and not just simply think that we're always right and we don’t have to revisit it. You pass legislation based on the best information you have, based on things you think will move us forward. But then you watch and you observe results and you make corrections along the way. It's important to be very pragmatic, and not to be so conceited or arrogant to think that you get it right the first time and you don't need to revisit it or monitor the situation.
EMP: Well, Senator, I really appreciate your making the time to talk with us today. You've been generous with your time and your thoughts, and we appreciate that. We wish you all the best with what you're doing going forward and hopefully you'll come back on the podcast down the road and give us an update.
TD: Well, I appreciate you giving me this opportunity to talk about something that that is very near and dear to me. Very important. And the more opportunities I have to get this argument out there, I think the better our chances are of getting something done in 2024. So thank you.
EMP: Is there anything else before we go that you'd like to add for the good of the record?
TD: No, I think it's important to understand this: that as we have this debate it's important that we be civil. It's important that we be respectful of other's views. And I'm guilty of this sometimes in speaking in terms of polemics or speaking in terms of absolutes. And really, if I'm honest, any public policy discussion is going to involve the other side making good and valid points. And good legislation arises out of vigorous debate. It arises out of others challenging your assumptions. And so it's important to go into this debate with that attitude. Because somebody who is opposing me, I can't feel like they're an enemy. I’ve got to look at them as a friend who is forcing me to up my game, is forcing me to think about things that I may not have thought of. And it's important for all of us to have that that mindset when we engage in this process and don't see the other side, quote/unquote, as the enemy. See them as the necessary component to making this a good debate and a necessary piece or a part of making this good legislation.
EMP: State senator Tom Davis of South Carolina. Thank you very much.
TD: Thank you, Bryan. I appreciate you.
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