Who gets to profit from a bigger grid? Ask the states.

By Jeffrey Tomich | 05/23/2024 06:48 AM EDT

Federal regulators left it to the states to wrestle with monopoly utilities that want exclusive rights to expand the power grid.

Power lines are seen in Pownal, Maine.

Power lines in Pownal, Maine. Robert F. Bukaty/AP

Billions of dollars in potential profits are on the table for the companies that build thousands of miles of transmission lines over the next decade to move more carbon-free power.

Who gets to build and who gets to profit from that development were at the heart of a proposal by the Federal Energy Regulatory Commission during its two-year effort to write a rule that ultimately required longer-term electricity planning across the country.

In Order 1920, the landmark rule from earlier this month, FERC declined to bring back a federal “right of first refusal” that would give monopoly utilities the exclusive right to propose multibillion-dollar projects passing through their service area. Since 2011, federal policy has been to encourage competition.


FERC has said it may consider the issue later. But by punting the issue for now, regulators are leaving the debate to the states, where utilities are likely to keep lobbying to extend their monopolies to the corner of the grid they don’t already control.

“We suspect that utilities will continue to protect their turf,” said Paul Cicio, executive director of the Electricity Transmission Competition Coalition.

The question of who gets to plan, build and reap the financial benefits of new high-voltage power lines has become a sore spot for utilities that want more guarantees as the Biden administration sets a faster pace for the clean energy transition.

Lawmakers in Texas and states in the Upper Midwest over the past five years have enacted laws giving monopoly utilities exclusive rights to build and own those lines. Utilities with powerful political operations have pressed state legislators in Iowa, Wisconsin and Illinois to limit competition in the name of getting lines built more quickly and at lower costs.

Critics of right of first refusal for utilities — including consumer groups and competitive developers — are girding for more battles at the state level.

Cicio, a Washington lobbyist who has long represented industrial energy consumers, said rising transmission costs have been a growing concern for manufacturers. Others like aluminum smelters absorb huge energy costs.

Competition — forcing developers to bid against one another for the right to build projects — is a way to contain those costs, Cicio argues.

Investor-owned utilities that own the bulk of generation and transmission-only electricity companies disagree.

Officials at the Edison Electric Institute, the industry’s lobbying goliath, have said federal regulators missed “an opportunity to add a critical tool to the toolbox at a time when electric companies are working hard to reduce transmission project development time and cost impacts to customers.”

It’s a position shared by Michigan-based ITC Holdings, an EEI member and the nation’s largest transmission-only utility.

Nathan Benedict, ITC’s director of regulatory strategy, said he understands FERC’s hesitation to weigh in on the right-of-first-refusal policies. “The record was big, and there were strong opinions on both sides,” he said.

Benedict also said the signal from FERC that it will further consider the issue is “directionally positive.”

Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, said he believes FERC “did the right thing by punting” on the issue.

“By explicitly deferring and saying, ‘Maybe we’ll consider this in another proceeding,’ I think [FERC] really insulates itself from a legal challenge from the utility industry.”

Right-sizing the grid expansion

While utilities didn’t get what they sought in reestablishing a federal ROFR, they did get more than a little consolation prize in Order 1920 — the right to expand capacity on certain older existing lines if doing so satisfies a long-term transmission need.

FERC calls it right-sizing. It requires transmission providers to look at certain existing transmission lines that need to be replaced and determine if expanding the capacity on those lines could eliminate the need for new projects.

The commission gave utilities the exclusive right to build right-sized projects.

Peskoe, a critic of the right of first refusal who’s criticized utilities for the sluggish pace of regional transmission development over the past decade, said the right-sizing provision has merit.

“The incentive is very clear for the utility industry to look for these opportunities,” he said. “So it’s not all bad news from a consumer perspective assuming that these projects pencil out.”

And that should be the case, he said, because right-sized lines would be evaluated in the same way as regional transmission projects, meaning they must be proved to have a net benefit for consumers.

ITC said the right-sizing provision is a step in the right direction and there’s potential. But there remain questions about how many projects will be proposed and how the process will work.

“It remains to be seen, really, how much it’s going to be used,” Benedict said. “I think that’s all very speculative.”

Large energy consumers, meanwhile, said FERC’s right-sizing provision wrongly incentivizes utilities to seek to rebuild existing lines with larger ones that they would own and profit from at the expense of new projects that would be subject to competitive bidding.

“This is giving incumbent electric utilities a blank check,” Cicio said. “Utilities have no incentive to contain costs without competition.”

He said the group is still reviewing the 1,300-page order in detail and weighing options for a legal challenge.