Bill Marsan is executive vice president and general counsel at American Transmission Co.
In a recent opinion piece, Paul Cicio, who chairs the Electricity Transmission Competition Coalition, wrote “the case for competition has never been stronger, and the recent [right-of-first-refusal] defeat in Wisconsin shows momentum building against utility incumbents’ anti-consumer, anti-competition efforts to stop transmission competition.”
Much like the rhetoric used by opponents during the debate, Mr. Cicio’s claims do not hold up to reality.
While it is true that ROFR did not make it through the Wisconsin legislature this year, the reasons owe more to political skullduggery than any proven arguments that competition in transmission development lowers consumer costs. On the contrary, during the legislative debate, ROFR opponents never provided evidence of a merchant transmission provider delivering actual savings to ratepayers. In fact, not a single merchant developer stepped foot in the Wisconsin State Capitol to explain why they should own pieces of Wisconsin’s critical infrastructure. Instead, the developers funded front organizations to spread their misinformation.
States adopt ROFR laws because locally regulated transmission entities provide more value, safety and reliability for electricity consumers. Transmission development under FERC Order 1000 has been a total failure, characterized by delay, cost overruns and disregard for proven methods of building transmission infrastructure on time and on budget.
For its part, FERC is expected to issue a final rule on regional transmission planning and cost allocation on May 13. The new rule is expected to address issues related to regional planning and siting of power lines, how to accelerate the build-out of the transmission system and cost allocation.
Opponents of ROFR laws will tell you the debate is about competition. It is not. Whether a state adopts a ROFR or not, no customers or businesses will get to choose the transmission lines that serve them. Opponents of ROFR laws claim the federal process results in more competitive bidding, but that could not be further from the truth. ROFR laws only outsource the decision regarding who owns a project. Competitive bidding for the main cost components of the project — engineering, construction and procurement — remain.
Opponents of ROFR laws also claim that incumbent transmission providers have no incentive to reduce costs. The exact opposite is true. Incumbent providers operate in their states every day. Their employees live and work in the state. Incumbent providers are responsive to their regulators, consumers and local stakeholders. They have to keep costs down to stay in business. Merchant developers have just one goal: win a bidding process by saying or promising whatever is necessary. Once secured, they usually return and ask for more time or money or both. Worse, if the project does not pan out as they hope, they walk away, resulting in more delay, costs and reliability risks. Incumbent providers, unlike merchant developers, have an obligation to serve. They will not walk away from their customers.
Here are the facts. A recent study conducted by Concentric Energy Advisors looked at actual results from projects that were subject to FERC Order 1000 and found that incumbent transmission providers frequently stay within budget targets, “with final and/or updated project cost estimates falling between -2.9% and 7.0% of initial estimates.” Opponents of ROFR continue to cite an outdated study from The Brattle Group to bolster wishful claims of savings. But we now have actual results from the FERC Order 1000 process and the proof is in. Two-thirds of the projects mentioned in the 2019 study exceeded cost estimates and, on average, the final cost recovered from customers exceeded the winning bid amount by at least 59%. While the Brattle study was perhaps instructive at the time it was completed, it is akin to continuing to rely on a pre-election poll when we have the election results. The results are clear — the competitive process in FERC Order 1000 is broken.
The one thing we agree on is that electricity demand is growing faster than at any time in the last 50 years. Getting transmission infrastructure built on time and on budget is an important factor in meeting demand. The traditional regulatory model for building, operating and maintaining transmission works. Transmission competition under FERC Order 1000 has not.
Adopting a state ROFR is the logical response to the demonstrably false promise of transmission competition.
Case dismissed.