Lobbying Clash Intensifies Over Utilities’ Right to Build Grid

With trillions of dollars poised to pour into the US power grid, energy regulators are under pressure to reconsider a shield for electric utilities from competitive bidding in a sweeping final transmission rule expected this spring.

Both utilities and supporters of competition have been stepping up their lobbying campaigns in recent months in Washington and state capitals. The two sides have traded barbs with dueling studies and white papers portraying their approach as the path to lower consumer utility bills and accelerate the pace of clean energy deployment.

“The competition issue is front and center because the question is: Are we going to have a monopoly for the clean energy transition?” said Sharon Segner, senior vice president at LS Power, a New York-based competitive energy developer. Since 1990, LS Power has developed, constructed, managed, and acquired more than 47,000 megawatts of generation and more than 780 miles of transmission infrastructure.

“You see everyone’s in their camps on what their positions are because the stakes are really high,” Segner said on the sidelines of a utility regulators’ conference in Washington Feb. 27. “Because over the next 20 years, there’s going to be a lot of transmission planned.”

Electric utilities that have a monopoly over their systems want to protect their ability to exclusively build projects without bidding, arguing they can meet the moment and build projects that are the best deal for consumers. Those utilities have the existing rights-of-way, the labor force, and decades of experience operating the power grid, they say.

“They know how to get it built in the most efficient way, they know what the regulators need to see in terms of routing, what they need to see in terms of design,” said Krista Tanner, senior vice president and chief business officer for ITC Holdings Corp., a Michigan-based utility that’s the largest independent US transmission company. “They can do it faster.”

Right to Refuse

In April 2022, the Federal Energy Regulatory Commission proposed a sweeping rule to overhaul regional transmission planning. The proposed rule would require such planning to consider at least 20-year impacts, including the changing power-and-demand mix and extreme weather events.

The proposed rule also reinstated the federal right of first refusal, which allows utilities to avoid competitive processes if they partner with a non-affiliated developer on a regional project. The commission’s last major update to transmission planning rules, in 2011, had removed that barrier.

Then-FERC Chair Richard Glick defended the proposal, saying competition for regional projects created a “perverse incentive” for electric utilities to focus on smaller transmission upgrades, where they aren’t subject to competition. Power grid investments may reach $2.4 trillion by 2050 to connect more renewable energy, meet rising power demand, and keep the lights on during intensifying storms, heat waves, and cold snaps.

Utilities have insisted competition hasn’t generated the cost savings it promised.

An August 2023 study prepared for ITC and six other utilities shows completed and active competitive transmission projects awarded to competitive developers experienced an average of 12 months in schedule delays and 27% in cost increases.

“The bottom line is this: Public data indicates that competitive project costs are coming in much higher than expected, supposed savings have been fully erased, and cost containment provisions offer little protection for customers,” said Jordan Kwok, director of federal regulatory affairs at Exelon.

And a February report from Grid Strategies and WIRES, a pro-transmission trade group with utility members, criticized competition for making collaboration among utilities more difficult and thereby stalling transmission projects. The groups submitted the report to FERC.

Competitive companies can lowball their bids and escalate prices far beyond what utilities would charge customers, said Tony Clark, a senior adviser at Wilkinson Barker Knauer and a Republican FERC commissioner from 2012 to 2016.

“If you want the grid built out, then default to the traditional way we’ve always done it,” Clark said. “If a line interconnects to the company that has facilities in that area, give them the first right to build it, and regulate it.”

Sharpening Pencils

A pro-competition trade association argues that utilities have been slow to develop large-scale projects that competitive companies are eager to build.

A 2019 study prepared for LS Power found competitive bidding yields a 40% reduction in the cost of transmission projects nationwide.

Competitive bidders often have access to lower cost financing, and the cost escalation due to labor and supply chain issues tends to be lower than overruns for utility-built projects, said Johannes P. Pfeifenberger, principal at Brattle Group and an author of the study.

Bidders can be more efficient at getting contracts for materials and construction and use more innovative or different designs that lead to overall lower costs. Even when utilities sometimes beat out competitive companies in bidding contests, competition usually improves performance, he said.

“The competitive process forces everyone to sharpen their pencils, and that’s useful,” Pfeifenberger said.

A coalition of consumer and public interest groups, formed in 2021, has put out studies that show cost savings.

New Jersey customers will save $900 million after the state commission competitively selected a transmission project to help connect offshore wind, according to the Electricity Transmission Competition Coalition. Maine customers saved more than $1 billion after that state competitively selected two projects, it found.

In November 2023, the coalition released a report raising the alarm that FERC is nearing “one of the costliest electricity decisions in history” and that the proposed ROFR represents a "$277 billion electricity rate hike.”

“All of us deal with competition all the time,” said Paul Cicio, president and CEO Industrial Energy Consumers of America who is spearheading the coalition, which was launched in 2021 and includes LS Power, NextEra, and dozens of public interest and consumer groups, including the National Retail Federation and American Chemistry Council.

“We call on (FERC) to advance a rule that advances competition, specifically and very cleanly and very clearly,” Cicio said.

Legal Uncertainty

The disagreement over the true effects of competition is reflected in the checkerboard of state policies as a raft of right-of-first-refusal (ROFR) bills have cropped up in state legislatures.

Early last year, Montana and Oklahoma lawmakers introduced and then tabled bills that would establish a ROFR in their states. In March 2023, Mississippi enacted a right of first refusal, and in May 2023, Indiana followed suit. Kansas and Missouri both have considered ROFR bills, but neither state has moved them forward.

Last August, Illinois Gov. J.B. Pritzker (D) vetoed a provision that would’ve established a ROFR.

“Eliminating competition will cause rates to increase in the broader region that has $3.6 billion in planned transmission construction,” Pritzker said in a statement at the time.

In December, the US Supreme Court declined to hear a challenge from Texas to keep its 2019 law that allowed only electric utilities with an existing in-state presence to construct new transmission lines. It let stand a Fifth Circuit ruling that was a victory for NextEra Energy Inc., which sought to build lines in the state.

The disagreement has also split the Biden administration. In August 2022, the Justice Department and Federal Trade Commission sharply criticized FERC for proposing the competitive barrier, a rare move by the agencies.

Segner, of LS Power, noted FERC’s previous transmission order in 2011 was challenged in—and upheld by—three appellate courts: the DC Circuit, the Seventh Circuit, and now, the Fifth Circuit.

“The idea of FERC tinkering with rights of first refusal just also creates litigation risk as well,” Segner said.