A rapidly changing power sector presents both challenges and opportunities for vertically integrated utilities, their customers, third-party providers, and state regulators in “cost-of-service” states, such as in much of the Southeast. Under the cost-of-service model, the state grants a monopoly to a vertically integrated utility that is responsible for generating, transmitting, and distributing electricity to consumers in a specific territory. The utility charges state-regulated rates to customers seeking to compensate the utility for its costs plus a return on capital investments. Some of the largest investor-owned utilities in the United States are headquartered in the Southeast under this model.
Over the last two decades, other parts of the country have restructured utilities and turned over operation of the transmission system to Regional Transmission Organizations (RTOs). States on the periphery of the Southeast, such as Virginia and Arkansas, have joined RTOs. The region, however, has mostly stayed with the more traditional cost-of-service model.
Stakeholders and policy makers in the Southeast are now engaging in conversations to explore the role competition could have in facilitating clean energy investment, encouraging innovation, and lowering costs for consumers.
Short of restructuring and joining RTOs, competition may be introduced to lessor degrees, such as requiring a utility to consider competitive wholesale procurements as a way to meet some of its load or enabling third-party participation in retail markets. These steps may incentivize utilities to be more efficient and responsive to customer demand. Recent examples of state legislatures enabling this type of competition in the Southeast include for rooftop solar in Georgia and utility-scale solar in North Carolina.
The Nicholas Institute’s Climate and Energy Program is writing a series of papers intended to describe competition options for the Southeast and to help inform states and stakeholders engaged in discussions about the future of the power sector. The papers will be available on this page below as they are published. Topics will include:
- Opportunities for harnessing competition in traditional cost-of-service states
- A case study on past attempts to create RTOs in the Southeast
- A framework for evaluating wholesale competition options in the Southeast assuming that the vertically integrated utility structure remains in place
- A high-level summary of competition options across the spectrum, including options for potential changes states can make to the vertically integrated utility structure, from incrementally enhancing competition to restructuring and full retail choice
