Utilities’ push to extend monopolies may shape grid’s future

By Jeffrey Tomich | 03/15/2023 06:51 AM EDT

Midwest states are considering “right of first refusal” bills that may influence whether new power lines get built on a timetable necessary to meet climate goals.

photo collage with transmission towers and FERC building

POLITICO illustration/Photos by Francis Chung/POLITICO (FERC); Varistor60 /Wikipedia (center); arnab_rath/PixaHive (right)

When Kansas utility regulators approved a 94-mile high-voltage transmission line through the state’s southeastern corner last summer, the proposal was unremarkable in every way — except one.

At a time of fast-rising labor and materials costs, the $85.2 million bid by NextEra Energy Transmission was about half the project cost estimated by the region’s grid operator, the Southwest Power Pool (SPP).

That fact didn’t go unnoticed. Kansas regulator Susan Duffy said the bid process — which is required by the Federal Energy Regulatory Commission — “was important to ensure that our ratepayers in Kansas who will pick up approximately 16 percent of the cost are not burdened by a noncompetitive project.”


But for local utilities, the cost savings weren’t a victory. Months later, state lawmakers fast-tracked a bill, S.B. 68, which would award future projects to local utilities and stamp out competition from out-of-state companies.

The Kansas legislation, still pending, is but one of several examples of monopoly utilities using political clout to muscle out potential competition. Similar “right of first refusal” (ROFR) bills for transmission projects have been considered in at least half a dozen Republican-led states from Montana to Mississippi. The same fight is occurring in the courts and before FERC, where it’s caught the attention of antitrust officials.

Hanging in the balance is who gets to build billions of dollars of new high-voltage power lines across the U.S. in the coming decade and what the ultimate price tag is for consumers. It’s a zero-sum game with winners and losers, and the outcome may also help dictate whether these new regional lines get built on the timetable necessary to meet climate goals.

“I think the interstate regional transmission expansion process will be slowed down significantly” if states continue to adopt ROFR laws, said Jim Rossi, an energy law professor at Vanderbilt University who testified against the Kansas bill. “Having a ROFR typically will incentivize greater segmentation of transmission expansion. So, we’re going to have more in-state lines and more in-state lines that are at smaller scales than necessary to effectively modernize the interstate grid.”

Competition for regionally planned transmission didn’t exist until 2011.

That’s when FERC adopted its landmark Order 1000, which sought to spur more regional transmission development while containing costs by eliminating the federal ROFR for regionally planned power lines, which are approved by grid operators like Midcontinent Independent System Operator (MISO) and SPP.

In eliminating utilities’ monopoly over regional transmission, however, FERC expressly left it to states to enact their own ROFR laws. Within a few years, several — Minnesota, the Dakotas and Nebraska — did just that.

Only in recent years, when it became apparent there would be a huge uptick in transmission development to accommodate renewable growth, did other MISO states like Texas, Iowa and Michigan enact similar laws.

Not to be left out, utilities in Kansas, Missouri, Oklahoma, Mississippi and Montana got lawmakers to prioritize ROFR legislation this year. Indiana is considering a bill to expand its ROFR law, too. And legislation is anticipated in Wisconsin.

So far, Oklahoma and Montana have tabled ROFR legislation. Mississippi passed a bill, and Gov. Tate Reeves (R) signed it earlier this month.

While there’s fervent disagreement about whether transmission should be subject to competition, there’s little secret to why utilities in certain states are pushing hard to snuff it out.

The U.S. is on the cusp of a transmission boom, a high-voltage rewiring to enable the switch away from electricity generated with fossil fuel to a grid dominated by renewable energy and batteries. And the Midwest and Great Plains regions are poised for huge investments, said Sharon Segner, senior vice president of LS Power, a competitive energy developer.

Just in the Midwest, MISO approved $10.3 billion of new regional transmission last year to enable renewables and batteries to plug into the grid and boost reliability (Energywire, July 26, 2022). Another set of Midwest projects worth an estimated $24 billion could be approved next year. Ultimately, $100 billion of new high-voltage power lines could be approved across the grid operator’s 14-state territory this decade.

SPP, which spans much of the Great Plains, is expected to likewise see more transmission needed.

“These battles are occurring where the transmission is going to be needed, and that happens to be states where the wind blows,” Segner said in an interview. “Utilities are trying to get ahead of that and wanting to have a monopoly for that regional transmission.”

“These bills are the vehicle for utilities to pursue a monopoly with the clean energy transition,” she said.

Cash, FERC and Koch

Utilities and lobbyists say the legislation is in response to a failed federal policy, FERC’s Order 1000, and that competition for transmission isn’t the exercise in economic theory that it may seem to be.

They cite an industry-funded study by Concentric Energy Advisors Inc. that concludes winning bids by competitive transmission developers are Trojan horses: They’re lowball offers that win jobs, but projects ultimately cost millions of dollars more than estimated.

The utilities suggest to lawmakers that out-of-town developers are less trustworthy, perhaps even fly-by-night outfits, with no loyalty to local communities impacted by projects.

“Do you want local companies with roots in our state and community, with a vested interest in our future, who builds infrastructure for the long-term interest of Missourians … building these major transmission projects?” Warren Wood, Ameren Missouri’s vice president of regulatory and legislative affairs, asked state lawmakers during a hearing earlier this month.

Wood said the term “competitive transmission,” as defined by Order 1000, is “misleading” because incumbent utilities likewise use bidding to seek out the best price for materials and supplies to hold costs down.

Utilities pushing ROFR legislation have something else working for them: political muscle.

In Kansas, ITC Holdings Inc., a transmission company with utility status in the state, employs former FERC commissioner Tony Clark as a lobbyist, as well as a veteran Republican lawmaker who just left office after two terms as Kansas’ speaker pro tempore and chair of the state House Energy, Utilities and Telecommunications Committee.

In Missouri, Ameren has 41 registered lobbyists — seven more than there are members of the state Senate. Utilities also called in help from the Edison Electric Institute, which flew former FERC commissioner Marc Spitzer to Jefferson City, Mo., to testify for ROFR.

Spitzer’s testimony for right of first refusal legislation earlier this month came with a mea culpa. The George W. Bush appointee was a member of FERC when it unanimously approved Order 1000.

“In hindsight, we made a mistake,” Spitzer told members of the state House Utilities Committee.

On the other side of the debate, consumer and environmental groups, free market advocates and big industrial power users have lined up with developers in urging lawmakers to let competition work.

In Missouri, it’s a cause that has even united the strangest of bedfellows — renewable energy advocates and Americans for Prosperity, backed by billionaire Charles Koch.

The Show-Me State is a key battleground in the fight over right of first refusal laws, LS Power’s Segner said, because there’s roughly $1 billion of transmission projects at stake that were approved by MISO in the set of new lines approved last year.

While most consumers are unaware of what drives changes in electric rates, manufacturers and other sophisticated energy users know transmission costs are rising faster than any other component of their bills.

Since the mid-1990s, annual high-voltage transmission investments by major utilities have increased by almost 500 percent, according to a recent EIA blog post.

“Nationally, transmission is the most significant area where we’re to see increase in costs in the electric sector in the years to come,” Vanderbilt’s Rossi said.

Josiah Neeley, Texas director at R Street Institute, a free-market think tank, said the effect of ROFR laws ripples beyond the borders of states that have enacted them and threatens to drive up transmission costs in other Midwestern states by hundreds of millions of dollars. That’s because the cost of regionally planned transmission is spread across the region.

It’s akin, Neeley explained in a blog post, to a group of people who agree to split the bill at a restaurant. If someone orders the lobster, everyone at the table pays more.

The R Street analysis is based on a study by Brattle Group for LS Power, which found that competitively bid transmission projects produced a 20- to 30-percent cost savings.

“This information shows that there is a case for federal action from FERC in order to prevent this sort of interstate conflict through protectionism,” Neeley said.

It’s not just advocacy groups pushing back on ROFR proposals.

The Department of Justice and Federal Trade Commission filed joint comments at FERC last year urging commissioners not to follow through with a proposal to reinstate the federal right of first refusal for regionally planned transmission.

In a proposed rulemaking that is still pending, FERC proposed reinstating the federal ROFR in certain cases to spur regional transmission development. The commission suggested competitive bidding may be at least in part responsible for slowing development.

The debate is playing out in the courts, too. While the 8th U.S. Circuit Court of Appeals upheld Minnesota’s ROFR law, the 5th Circuit ruled that Texas' ROFR law violates the dormant commerce clause of the U.S. Constitution and remanded the case, brought by NextEra Energy Transmission, to the district court.

In that case, Texas attorney general asked the U.S. Supreme Court in December to undo the 5th Circuit ruling. And just this month, the Supreme Court asked Solicitor General Elizabeth Prelogar to file a brief on the Texas petition (Energywire, March 7).

Meanwhile, back in Kansas, the ROFR debate comes amid continued hand wringing over rising electricity rates by lawmakers, regulators and consumer groups, who say it threatens to hurt economic growth.

Average retail electricity prices in Kansas are the highest in the seven state Great Plains region, according to December data from the U.S. Energy Information Administration. This despite the state having abundant wind resources.

While no magic solution to the cost pressures, SPP’s studies indicate the Wolf Creek, Kan., to Blackberry, Kan., 345-kilovolt line will reduce customer bills in the region by enabling access to cheaper energy.

According to SPP, the project is expected to provide approximately $23.7 million in transmission congestion savings in its first year and as much as $377 million in savings over the next four decades.

NextEra’s bid

NextEra was among seven pre-qualified transmission developers to bid for the rights to build, own and operate the line, which would stretch from a substation outside of Kansas’ lone nuclear plant to southwestern Missouri.

A panel of independent industry experts with decades of experience in transmission development reviewed and ranked bids from seven companies according to factors.

The panel gave NextEra’s proposal the highest score and recommended to SPP’s board that the company be awarded the project. Not only was NextEra’s cost the lowest, experts said the bid also scored highly in engineering design, operations and the company’s ability to finance the project.

Paul Snider, executive director of the Kansans for Lower Electric Rates, the lobbying arm of the Kansas Industrial Customers Group, a trade association of large power users, said he is baffled why lawmakers would consider eliminating competition for big transmission projects if they’re worried about rising rates.

“We've had such an intense discussion the last six years about Kansas having uncompetitive electric rates,” Snider said in an interview. “Then you have this [utility] position of we don't need competition for some of these projects, when it clearly benefits customers.”

The fate of S.B. 68 is still unclear. After passing out of the Senate Utilities Committee, the bill has yet to make it to the Senate floor for a vote.

The industrial group wants the bill to die, Snider said. But some of its members are interested to see how the vote would go.

“Are they going to side with their utility?” he said. “Or are they going to side with ratepayers?