Electricity taxpayers will face higher electricity costs and inflation due to proposed transmission planning actions by the Federal Energy Regulatory Commission (FERC). Rather than embracing or better unlocking transmission competition to reduce costs to taxpayers, FERC’s April 21 notice of proposed rulemaking makes it easier for existing monopoly utilities to avoid competition, leading to higher costs for consumers.
It’s a costly giveaway for trade groups and utilities, but more inflationary spending comes at the expense of electricity consumers. Competition brings innovation, inflation solutions and American norms — but the power sector is different. Utilities make money by spending money and recoup from consumer rates at an annual after-tax return on investment of 10% to 12%. The more they spend, the more they earn.
Existing transmission owners have sought to secure exceptions to the competitive process for themselves, adopt state “right of first refusal” laws, and other anticompetitive barriers to hinder competition and innovation in transmission planning and construction.As a result, from 2014-2020, RTO/ISO Market transmission costs increased by $74.9 billion or 78.7%, while electricity demand was flat. According to the Energy Information Administration (EIA), demand was 3.76 billion MWh in 2014 and 3.72 billion MWh in 2020.
FERC’s actions are also at odds with President Biden’s rhetoric during his March 1 State of the Union address, when he said “capitalism without competition is exploitation” and his executive order to “promote competition in the American economy.”
In fact, across the country, consumers are being exploited by incumbent electric utilities that circumvent FERC Order 1000.Research shows that only 3% All transmission projects are competitively bid, and competitive bidding projects reduce costs among consumers 20% to 30%. The competitive process that has taken place shows that there are many qualified and well-capitalized competitors eager to build and operate the transmission, and that the competitive process itself will not slow down construction.
Given Biden’s plan to decarbonize the economy, transmission competition is particularly important to drive innovation and cost accountability, which some expect will require record spending on transmission.according to one of the Princeton’s “Net Zero America” Study By 2050, the United States may need to spend $2.1 trillion to build the transmission grid.
Consumer advocates are calling on FERC to require all transmission projects of 100 kV or greater to be bid. By 2050, reducing costs by 25 percent through competition would save consumers an estimated $525 billion.
A free market is the only way to reduce the cost of upgrading and expanding the grid. However, Biden administration appointees have thwarted this effort by supporting utilities rather than consumers.
Incumbent power companies that oppose transmission competition would have you believe that electrons stop at state borders. The vast majority of transfers take place in interstate commerce, which is why it is under federal jurisdiction and why FERC action is needed to ensure consumers benefit from competition and reduce costs.
Jon B. Wellinghoff served as Chairman of the Federal Energy Regulatory Commission from 2009 to 2013.
Paul N. Cicio is president of the Electric Transmission Competition Coalition (ETCC), a national coalition of more than 70 different consumer organizations from 50 states.