The costs of “crony capitalism” in regional transmission grid expansion

Abstract

There is an urgent need to expand regional transmission lines for reliability and clean energy, while also ensuring that new infrastructure investments are cost effective. However, several states have enacted – and some continue to consider – laws that grant incumbent monopoly utilities a right-of-first-refusal (ROFR) to build new electric power transmission lines. Transmission ROFR laws, such as those enacted by several Midwestern states, allow regional grid planners to select new transmission line projects without running competitive solicitations. While incumbent utilities have continued to lobby state legislatures to adopt transmission ROFR laws, the best evidence available shows that ROFR laws are harmful to customer welfare. Customers affected by ROFR laws do not realize the cost savings and other benefits of competition in transmission line selection, including superior cost containment and innovative grid modernization solutions. In addition, uncertainty about the legality of transmission ROFR laws–what the Iowa Supreme Court has called “crony capitalism”--does not promote a stable investment environment for new transmission infrastructure. Instead of enacting and continuing to endorse transmission ROFRs, states would better promote cost-effective grid modernization by encouraging competitive bidding selection processes for new regional transmission lines. Cost-effective transmission planning requires regulators to balance a broad range of factors in permitting and cost recovery for projects. State regulators commonly use such approaches to evaluate the purchase of power generation from competitive sources. Regional transmission line projects could benefit from similar safeguards to protect customers.