Electrical grid power play: Utilities take control of coming boom in transmission lines

The power grid near Chicago, much like the area’s expressways, is often congested.

The grid needs an upgrade, including a plan for a new transmission line that would run south of Chicago, across northern Indiana, into Michigan. There’s widespread agreement about that.

There’s little agreement, though, on whether utilities should have first priority to build and own these kinds of projects — and collect decades of guaranteed income from their use.

The alternative would be a competitive bidding process, the sort usually overseen by the grid operator, to decide who gets the contracts.

It’s a complicated but important issue, with implications for how enough transmission lines will be added to accommodate the growth in renewable energy that the state of Illinois and clean energy advocates are pushing for — a prolonged process, with waits that can be a decade or longer to get regulatory approvals and complete construction.

In the world of energy regulation, the shorthand for what utilities want is ROFR — the right of first refusal.

The companies have persuaded legislatures in 12 states— Illinois isn’t one of them, but Indiana, Michigan and Iowa are — to pass laws that codify this as a right regarding new transmission lines.

Other builders of transmission lines and some industry analysts say the laws will lead to higher costs and stifle the market at a time the process needs to be more open to allow for rapid expansion.

“If we give the utility industry a monopoly, our transmission system is going to evolve to meet utilities’ needs,” said Ari Peskoe of the Harvard Law School Environmental and Energy Law Program. “And those needs are not always aligned with public interest or with the clean energy transition.”

The Illinois-Indiana-Michigan transmission line has an estimated cost of $261 million, according to Midcontinent Independent System Operator — MISO, the grid operator that will oversee the project. The nonprofit company lists the line among 18 that are a high priority for improving the grid’s reliability across the Midwest.

In Indiana last month, state lawmakers debated legislation to give utilities a right of first refusal to build the Indiana sections of multistate transmission projects and about any other transmission project.

The bill, signed into law on May 1, wouldn’t affect the MISO project, which already is moving ahead. But utilities would be positioned to build the other big-ticket projects that are likely to follow.

The spread of state laws granting a right of first refusal is no coincidence. Large utilities operate in many states, and they and their trade groups want to be the ones to reap the income from the expected boom in transmission projects.

The lines make money through charges embedded in consumer bills, providing income for as long as a project is operational.

Who gets to build transmission lines

The patchwork of laws complicates things for companies that want to build some of the largest transmission projects. Instead of one company building the whole thing, some sections might need to be handed off to local utilities.

Grid operators — which often oversee transmission planning at the regional level — are caught in the middle.

The debate comes down to whether utilities should automatically be the ones to build and own transmission lines in their territories or be forced to compete with other companies that want to build and own the lines.

Some of the competitors placing bids, like NextEra Energy, own utility companies but also have subsidiaries that want to build projects in other utilities’ territories.

As of the beginning of this year, ROFR laws were in place in Alabama, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, North Dakota, Oklahoma, South Dakota and Texas. Since then, Mississippi passed its law, and lawmakers are considering right-of-first refusal measures in Kansas and Missouri.

Though Illinois doesn’t have such a law, the state still is affected because its grid is connected to states that do.

The laws have been most common in states that have strong wind energy resources in rural areas. The wind resources lead to a need to build transmission lines to transport electricity from wind farms to urban areas.

Indiana is a special case because it already has a right-of-first refusal law from 2013 that covers small transmission projects and now has been expanded to include just about all transmission projects.

The losers are energy companies with divisions that specialize in building large transmission projects. This includes LS Power of Missouri and NextEra of Florida.

Opponents of the laws have gotten help from conservative groups like Americans for Prosperity, an affiliate of the Koch network of nonprofits, which have cited what they see as the anti-competitive nature of the laws.

The opponents have allies in groups often associated with the political left, like consumer advocacy organizations, which say the laws will lead to higher utility bills, and environmental groups, which say utilities might not build transmission lines as efficiently as needed for a smooth transition to clean energy.