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State bills spark debate about who should build the transmission: incumbent utilities or independent companies

Legislators in at least five states are considering bills to give utility companies a first refusal right to build transmission lines that network operators bid for, excluding independent transmission companies from the business.

The legislation anticipates an expected transmission upgrade that is deemed necessary to improve grid reliability and provide access to areas rich in wind and solar resources. Bills could determine who builds and profits from parts of that construction: incumbent utilities or independent broadcast companies.

The financial stakes are great. The Midcontinent Independent System Operator, for example, approved a $10.3 billion transmission expansion plan last year and is developing a second round of expansion expected to be approved in mid-2024 that could cost $20 to $30 billions of dollars. In states without ROFR laws, projects will be tendered.

Eight MISO states have ROFR laws, which give utilities the exclusive right to build the transmission. These states are Iowa, Indiana, Michigan, Minnesota, Montana, North Dakota, South Dakota and Texas.

Legislators act on ROFR in six states

Indiana, Kansas, Missouri, Mississippi and Oklahoma could join these states pending legislation. A bill in Minnesota would repeal the state’s ROFR law.

The Indiana House passed a ROFR bill on February 20 and sent it to the Senate. A similar bill passed the Mississippi Senate earlier this month. The Montana Senate Energy and Telecommunications Committee was scheduled to hold a hearing on the ROFR legislation on February 23.

ROFR laws are already influencing the development of broadcasting. In Texas, which bans non-incumbent utilities from building the transmission, MISO has asked the Federal Energy Regulatory Commission for permission to cancel a $115 million transmission project that was awarded to a NextEra Energy subsidiary due to state law on the ROFR.

On Feb. 16, the Texas Public Utilities Commission ruled that ROFR prevents the agency from issuing a permit to Grid United, an independent transmission company, to build a 280-mile, 525-kV high-voltage Pecos West project between El Paso Electric’s territory in the Western Electricity Coordinating Council and LCRA Transmission Services in the Electric Reliability Council of Texas. Grid United withdrew its application the following day.

Additionally, pending ROFR legislation in Indiana threatens an ongoing MISO-managed solicitation for an approximately $250 million project, according to Sharon Segner, senior vice president of LS Power Development.

Competition leads to delays, increased costs: utilities

Utilities argue that competition isn’t working in the broadcasting industry.

“Some industries exhibit monopolistic tendencies, and sometimes more traditional regulatory tools will deliver a better outcome for consumers, and the electric industry is just one such example,” said Tony Clark, senior consultant at Wilkinson Barker Knauer, Kansas Senate Utilities Committee on behalf of the ITC Great Plains broadcasting company.

FERC’s Order 1000, which regulates transmission scheduling and aims to inject competition into the process, has led to soaring costs and project delays, according to Clark, a former FERC commissioner. If the legislation isn’t adopted, the transmission will take longer to build and could result in higher costs for customers, he said.

In solicitations for broadcast projects, companies lower their bids to win the solicitation, Clark said. Also, transmission companies may not understand the parameters of a proposed design versus an incumbent utility who knows the geography and weather conditions a transmission line may have to endure, she said.

“Returning accountability to local utilities will result in greater Kansas oversight, better cost outcomes for customers, and the ability to invest in Kansas’ power system in a timely manner,” Darrin Ives, Evergy’s vice chairman for power supply, told the committee. regulatory affairs.

The Kansas Farm Bureau, Liberty Utilities, Midwest Energy and Sunflower Electric Power also supported the bill, which was introduced at the request of ITC Great Plains, according to a brief prepared by legislative staff. ITC Great Plains is part of ITC Holdings, a Fortis subsidiary located in Novi, Michigan.

Utilities are trying to prevent other companies from building needed transmission lines in the future, according to LS Power’s Segner.

“These bills are their vehicle,” he said in an interview. “It’s a fight over whether or not they have a monopoly on the clean energy transition.”

Consumer groups join the anti-ROFR fray

In a change from previous ROFR debates, a broad coalition that includes consumer and business groups spoke out against the laws, according to Segner.

“The consumer voice opposing these ROFR laws is galvanizing and our observation is that opposition to these ROFR laws is growing,” he said. “They are not fighting transmission in and of itself. What they’re saying is they want it to be affordable and to be competitive.

In Kansas, ROFR bill is opposed by Americans for Prosperity, Clean Energy Business Council and Climate + Energy Project, Kansans for Lower Electric Bills, Kansas Agribusiness Retailers Association and Kansas Grain and Feed Association, Kansas Chamber, LS Power, NextEra, Polsinelli Energy Practice Group, R Street Institute, Spirit AeroSystems and Wichita Regional Chamber of Commerce.

Through reduced competition, the bill will drive up electricity costs and transmission expenses, according to Heath Koehler, Spirit AeroSystems’ senior manager for global facilities management.

“These competitive advantages include innovation, higher quality of service and lower prices,” he said.

Kansas Corporation Commission staff were neutral on the bill, according to Justin Grady, head of revenue, cost-of-service and finance requirements at the KCC. There are pros and cons with the status quo, he told the public services committee.

On the positive side, there were significant cost savings in the 345kV Wolf Creek-to-Blackberry project that SPP awarded to NextEra in 2021, he said. The contract included cost limits and “concessions” on return on equity, he said. But the bidding process adds complexity and delays to project development, Grady said.

The US Supreme Court could intervene in the key ROFR case

The ROFR laws have been challenged in court.

In a move backed by Entergy, ITC Holdings and Xcel Energy’s Southwestern Public Service, the Texas PUC in December asked the US Supreme Court to reverse an appeals court ruling that the state’s ROFR likely violates the clause commercial dormant of the United States Constitution. The Supreme Court has not said whether it will accept the case.

In addition, on February 21, the Iowa Supreme Court heard oral argument on LS Power’s challenge to Iowa’s ROFR. In July, the Iowa Court of Appeals upheld a district court decision dismissing a lawsuit by LS Power that the state’s ROFR violated the Iowa constitution. The district court said that LS Power had no right to sue because it was not harmed by law.

In support of LS Power in the state high court, the Coalition of MISO Transmission Customers, a group representing large industrial and commercial companies, said the ROFR laws lead to higher electricity prices.

MidAmerican Energy told the court that the district court made the right decision by dismissing LS Power’s lawsuit and refusing to suspend the ROFR law.

“THE [Iowa Utilities Board] governs every aspect of MidAmerican’s business, including its responsiveness to end-user reliability issues,” the utility said. “In addition, that regulatory framework specifically includes fees that must be reasonable and cost-based. A non- incumbent, like LSP, is not subject to the same regulatory agreement to provide services.

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