Wisconsin is the latest Midwest state legislature to consider legislation that would give incumbent utilities the right to build long-range transmission projects without competition from outside bidders.
SB838/AB892 would give incumbent utilities the “right of first refusal” (ROFR) for planned transmission projects that connect existing transmission infrastructure also owned by incumbent utilities.
The measure’s primary backer, American Transmission Company, once opposed such bills when it sought to compete for projects in outside territory.
Now, ATC maintains that incumbent utilities have local expertise and experience making them best suited to build transmission in their areas, and a right-of-first-refusal law would “control the reliability of the grid in the state by preventing the introduction of disparate developers constructing a hodgepodge of projects,” said Bill Marsan, ATC executive vice president and general counsel.
Critics, including Wisconsin industries and consumer watchdogs, say such laws stifle competition and raise prices for ratepayers, with the utility able to largely dictate its terms and earn rates of return with little protection against cost overruns.
Similar legislation was recently passed in Michigan, and has also passed in Iowa, North Dakota, South Dakota and Minnesota. Utilities have pushed such laws nationwide over the past decade in response to FERC’s 2011 Order 1000, which eliminated federal guarantees of incumbent utilities’ monopoly on transmission and enshrined a federal approval process for regional transmission proposals.
Companies and government entities have fought against the right-of-first-refusal laws, with NextEra Energy and others taking legal action to oppose them. The U.S. Department of Justice’s antitrust division said in a 2019 letter that a right-of-first-refusal bill in Texas “can harm consumers by reducing or eliminating competition.”
The stakes in Wisconsin and neighboring states are especially high, as regional grid operator MISO has tens of billions of dollars’ worth of planned long-range transmission projects queued up, with ratepayers in each state set to pay a portion of the cost. Major transmission projects are needed particularly to get wind power from the western plains across Wisconsin to populated areas.
“Whether or not this bill passes, you’re seeing a tremendous amount of transmission proposed and billions will be built in the Midwest, period,” said Wisconsin Industrial Energy Group Executive Director Todd Stuart. “Whether or not this bill passes, it’s coming, it’s just a matter of how much do you want to pay for it.”
Changing sides
American Transmission Company is co-owned by various investor-owned utilities, municipalities and electric cooperatives in Wisconsin, Illinois, Michigan and Minnesota. It was formed through 1999 Wisconsin legislation aimed at improving the grid, and 7,859 miles of its 9,928-mile system are in Wisconsin.
When Minnesota legislators were considering their right-of-first-refusal bill in 2012, ATC opposed it. Though ATC was an incumbent utility in the state, it wanted the chance to compete to develop transmission in outside areas.
ATC filed testimony with legislators saying the bill “unfortunately, would stifle competition in the development and construction of electric transmission facilities leading to higher costs for electricity users in Minnesota.”
Around that same time, an ATC partnership with Duke Energy known as DATC proposed to build seven high-voltage transmission lines costing more than $4 billion across Wisconsin, Iowa and other Midwest states — where it was not the incumbent utility.
Those proposals were never realized, and DATC left the competitive market in 2019. Now in Wisconsin, ATC is pushing for the same right-of-first-refusal law it opposed a decade ago in Minnesota.
“ATC changed its position based on the reality of the market and our conviction that the best way to actually get transmission built and serving customers was through the traditional state regulatory process,” Marsan said. He added that a competitive process means it takes about a year longer to construct planned transmission.
Calling for competition
The “broad and growing” coalition of groups opposing the right-of-first-refusal bill in Wisconsin is “kind of a Star Wars bar scene” for its political diversity, in Stuart’s words. Members include libertarian groups like Wisconsin Institute for Law & Liberty and Americans for Tax Reform along with the state’s Citizens Utility Board and trade groups like the Midwest Food Producers Association and Wisconsin Cast Metals Association.
“We want all tools in the toolbox for a cost-effective clean energy transition, and some of the stated benefits of these regional transmission projects are to help centers in the wind belt to get that power to places that don’t have as significant renewable resources,” said Citizens Utility Board Executive Director Tom Content. “Being able to enable competitive bidding is a great tool for customer savings on these big capital projects. [The bill] would undercut that.”
Stuart said the bill’s passage could mean serious cost increases for his members, which include paper mills, factories, breweries and foundries. These industries often pay electric bills of a million dollars or more a month — often their largest operating expense. Costs for transmission make up 10% to 12% of his customers’ electric bills, Stuart said, and his calculations based on studies indicate that competition for long-distance transmission projects can mean cost savings of up to 40%.
“We’re concerned over anything that has the potential to drive up rates, and this area — transmission — everybody believes will be one of the fastest-growing portions of the [electric] bill going forward,” Stuart said. “The competitive process is an important check and balance that will help reduce costs in the long run. In real world examples it can spur innovation and create savings for customers.”
Among competition-driven success stories, Stuart pointed to an 84-mile transmission line built by ATC’s own affiliate DATC, that connects grids in northern and southern California.
In case after case, as Stuart sees it, competitive bidding results in “financial concessions, cost caps, reduced return on equity, a guaranteed schedule, and also using local partners” in construction. “It’s long-term benefits for the consumers.”