Paul Cicio is chair of the Electricity Transmission Competition Coalition.
Electricity price inflation rose 5% on an annualized basis, according to the Bureau of Labor Statistics’ March CPI data release, 30% higher than the consumer price index. The principal driver is the escalating cost of transmission.
PJM provides a stark example. Over the last ten years, transmission costs as a percent of the wholesale electricity price has grown from 9% to 28%. Even as headline consumer goods inflation has slowed from its peaks, electricity prices remain high despite relatively flat demand and in some cases falling generation costs. Incumbent electric utilities, emboldened by state right of first refusal laws and by circumventing the Federal Energy Regulatory Commission’s Order 1000 are driving these increases at the expense of consumers.
All eyes are on FERC and its transmission planning notice of proposed rulemaking. Will FERC embrace competition and reduce the cost of new transmission by 40% or will they back away from competition and send electricity costs soaring and make the cost of renewable energy unaffordable and potentially ending America’s goal of reaching net-zero by 2050? The stakes are high.
As consumers of electricity, the track record of recent RTO/ISO solicitations and the significant cost reductions should give FERC confidence in the value of competitive bidding of transmission projects. Suggestions by incumbent electric utilities that competition doesn’t work represent nothing more than a desperate last grasp from utility-funded groups who profit from shielding transmission projects from competitive bidding.
The case for competition has never been stronger, and the recent ROFR defeat in Wisconsin shows momentum building against utility incumbents’ anti-consumer, anti-competition efforts to stop transmission competition. The victory in Wisconsin was the latest in a string of victories for consumers including at the judiciary where the Iowa Supreme Court struck down ROFR laws as “quintessentially crony capitalism.” Additionally, the 5th Circuit Court of Appeals held that Texas ROFR law was a violation of the dormant Commerce Clause — a position that the Supreme Court of the United States upheld when it decided against granting cert.
The Midcontinent Independent System Operator, known as MISO, services all or parts of North and South Dakota, Minnesota, Iowa, Missouri, Wisconsin, Illinois, Michigan and Indiana. ROFR laws are roughly divided among these states. But the costs incurred due to ROFR bills don’t stop at a state’s border. Even the states that allow competition will pay millions more for tranche 1 MISO projects moving forward because of other states’ ROFR laws. Wisconsin could stand to save $268 million on transmission development from full competition in MISO, but due to various ROFRs in neighboring states will only realize $92 million of it.
The benefits of competition compound for states and therefore consumers leading to exponential savings each month. Even if just one more state, say Minnesota, repealed their ROFR, Wisconsin’s savings on transmission costs would rise to $161 million. The interstate burden these ROFR bills have makes a compelling pitch for FERC to stand up to incumbent electric utilities.
No incentive to reduce transmission costs
Without competition, the incumbent utility has no incentive to reduce the cost of transmission because it generates increased profits. All of these inflated costs are passed on to consumers. Where transmission projects have been competitively bid, competition has not deterred needed regional transmission development to the detriment of customers or markets. MISO, the Southwest Power Pool and California Independent System Operator regions are successfully building transmission projects using competitive processes, demonstrating that you can have robust long-term regional planning and competition.
Recent solicitations show that competition has accelerated project delivery faster than expected by driving bidders to offer firm in-service schedule guarantees with financial penalties. Without competition, the incumbent utility would never do that. Such assurances help offset, and in many cases, fully offset, any delays associated with running an RFP, proving that longer project selection processes do not mean delayed in-service dates.
Even if competitive solicitations add some time to the overall development and completion of transmission projects, experience shows that the extra time and effort spent up front ensuring the competitive process brings value to customers more than pays for itself on the back end. If there are opportunity costs, they are modest compared to the substantial cost savings, which can reach up to 40%.
Cost caps offered by winning bidders are not illusory, as ROFR supporters allege. In fact, NextEra Energy Transmission honored its cost cap and absorbed approximately $4 million in unexpected project costs associated with undergrounding a portion of their Suncrest project required by the incumbent utility. An incumbent utility not subject to competition would have sought to pass through such cost overruns to customers.
Even though exclusions to the cost caps for competitively developed projects allow for some cost escalations, based on the Brattle Group’s analysis of historical experience with competitive solicitations, these escalations will be less than the cost escalations for traditionally developed projects without such cost containment commitments.
The Net-Zero study by Princeton University found that the U.S. will have to spend $2.1 trillion over the next three decades to achieve President Biden’s vision of a net zero emissions economy by 2050. The green transition and the gird development necessary for it can only be accomplished in a cost-effective way through competition.
Electricity transmission competition, where allowed, has lowered the cost of new transmission projects by up to 40%, and could save ratepayers over $800 billion going forward as we build out the grid. Both the Department of Justice and the Federal Trade Commission have found that competitive bidding will improve grid sustainability and resiliency while lowering rates and increasing innovation. The administration’s goal of reaching net zero and building out the grid for a transition to a renewable future can only be achieved if we start competitively bidding electricity transmission now.
We rest our case.
Editor’s note: This op-ed has been updated with additional details about which MISO transmission projects will result in increased costs for states due to right of first refusal laws, according to an R Street Institute report.
