Utilities Seize Control of the Coming Boom in Transmission Lines

Industry Discussions Energy & Utilities
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The power grid near Chicago, much like the region’s highways, is often congested.

Just about everyone involved agrees that the grid needs an upgrade, including a plan for a new transmission line that would run south of Chicago, across northern Indiana and into Michigan.

What they don’t agree on is whether local utilities should have first priority to build and own these kinds of projects and collect decades of guaranteed income from their use. The alternative is to have a competitive bidding process, usually overseen by the grid operator, to decide who gets the contracts.

The issue is almost as obscure as it is important, with implications for how the grid will add enough transmission lines to accommodate growth in renewable energy.

In the world of energy regulation, the shorthand for the policy utilities want is “ROFR,” or “right of first refusal.” The companies have persuaded legislatures in 12 states to pass laws that codify this right as it applies to transmission lines. Other builders of transmission lines, and some analysts, say the laws will lead to higher costs, and will stifle the market at a time when the process needs to be more open to allow for rapid expansion.

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You can envision a transmission line serving a major consumer such as an aluminum plant or a steel plant using electric furnaces. But fundamentally utilities are the big customers. And their decision to buy your power or not (and what price to pay) has a lot to do with the viability of a project.

I suppose the alternative is to ship the power through their territory and sell to a neighboring utility.

Unless Uncle Sugar is willing to fund the project or guarantee its success, you probably need major negotiating sessions with big customers. Until they come to terms, you probably can’t get financing or turn the first shovel of dirt.

And how will the state utility regulators respond? Will they allow the costs in the rate base to be paid by customers? Maybe not until they are convinced the transmission line is needed.

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