Midwest utilities claim they can build regional power lines better, faster and cheaper than out-of-state competitors and they should have exclusive, no-bid rights to those grid expansion projects.
Having so far failed to convince Wisconsin lawmakers to grant utility companies a right-of-first-refusal to build regional lines that tie into their service areas — and with the clock ticking on $1.8 billion in approved projects — the utility industry in Wisconsin is now playing its ace card.
Hungry to claim transmission projects mapped out by the Midcontinent Independent System Operator, utilities led by American Transmission Co. argue they will save Wisconsin consumers money if legislators award them exclusive rights to the grid projects. The reason, they say, involves federal cost-sharing rules that allow them to shift some costs to other states.
On its face, it’s a compelling argument meant to sway legislators in a state already burdened by some of the highest electricity prices in the Midwest. But the utilities have a political problem: Free market groups say the proposal is unconstitutional. And conservative commentators are turning up the heat on Republican leaders in Wisconsin for backing what they describe as a utility “cartel” that uses political muscle to protect its turf.
Perhaps most challenging for utilities in Wisconsin is that the supposed beneficiaries — the consumers — don’t buy the argument that the costs won’t find their way to monthly power bills.
Groups such as AARP, the Wisconsin Industrial Energy Group and Citizens Utility Board of Wisconsin (CUB), which represents the interests of individual consumers and small businesses, oppose the legislation. The consumer advocates treat A.B. 25 and a companion bill in the Senate like a Trojan horse, suggesting that utilities are motivated by boosting their own profits more than they are saving money for ratepayers.
“The very same utilities that have raised rates by billions of dollars over the last several years, now they’re dying to save us $1 billion?” said Todd Stuart, executive director of the industrial group. He said his members — more than two dozen of the state’s largest power users — believe more competition in the energy sector, not less, is the answer.
The consumer groups say they’re not opposed to utilities building the projects, they just want them to compete in an open process and win the business.
“If the utilities can provide all these savings, they can also provide it by winning the competitive bid,” said Tom Content, executive director of CUB. “And we think that they’re certainly able to do that.”
The legislation would codify a right-of-first-refusal (ROFR) for incumbent utilities to build transmission in Wisconsin. American Transmission Co. officials said the consumer groups are working against their own self interest by opposing the legislation.
“It’s perplexing that organizations who claim their mission is to protect ratepayers continue to oppose ROFR,” said ATC’s chief financial officer, Mike Hofbauer, in a statement. Some of the bill’s opponents, he said, have acknowledged the cost-shifting ability of incumbent transmission owners, “so their position sends a contradictory message about their efforts.”
Spreading cost
Much of the debate in Wisconsin involves a study commissioned by ATC that finds that federal cost-sharing rules give the company a structural advantage over other developers.
In short, the study states that on a $1.8 billion transmission project Wisconsin utilities can save consumers $1 billion over the life of the project if the upfront capital cost is 20 percent more than that of an out-of-state competitor.
The reason is that under tariffs approved by the Federal Energy Regulatory Commission and administered by the regional grid MISO, an incumbent utility assigned to build a regionally cost-shared project would assign a proportionate percentage of its existing fixed or overhead costs tied to its Wisconsin transmission system to the new projects. Those costs are then spread across other MISO states.
By contrast, the company says an out-of-state transmission developer wouldn’t have any existing overhead costs to “shift” to consumers in other states.
ATC says millions of dollars of overhead costs that it could shift to neighboring states would be multiplied by the 40 years, resulting in $1 billion in consumer savings over that period.
Critics, including the industrial group, which responded with its own analysis from an economist and former chief electricity economist at the state Public Service Commission, said the ATC study is based on flawed assumptions. The group asserts that Wisconsin consumers would pay more than they would if utilities were required to bid to win the projects and had incentive to hold down costs.
ROFR madness
Right-of-first-refusal fights in the states originated more than a decade ago with FERC’s landmark Order 1000 that eliminated a federal ROFR policy for regionally planned transmission projects. However, Order 1000 very specifically did allow states to enact their own ROFR laws.
Today, at least 10 states have functioning ROFR laws, including Wisconsin neighbors Michigan and Minnesota.
But federal courts have blocked Texas from enforcing a 2019 law in areas of the state not covered by the Electric Reliability Council of Texas, the state’s main grid operator. A federal judge temporarily blocked Indiana regulators from enforcing the law in that state, but an appellate court disagreed last week and lifted the injunction. Meanwhile, the 8th Circuit upheld a challenge to Minnesota’s ROFR law.
In Iowa, meanwhile, Gov. Kim Reynolds (R) made a ROFR provision part of a broader energy bill that her administration is pushing this spring. The Hawkeye State passed a ROFR law in 2021, but the state Supreme Court ruled it was unconstitutional based on the process used by lawmakers to pass the bill.
Political and legal fights over ROFR laws have escalated in the Midwest as transmission companies scramble to take advantage of a MISO initiative to build out the regional power grid. Over the last four years, the grid operator has approved more than $30 billion in new regional power lines.
Two-thirds of that amount was approved by MISO’s board in December, including two high-voltage transmission projects in Wisconsin estimated to cost $1.8 billion. MISO issued requests for proposals for the two power lines in recent weeks with bids due in late July and mid-August, respectively.
The implication is clear: A ROFR law would entitle incumbent utilities to the work — and millions of dollars in profit. Otherwise, MISO will choose the developer that submits the superior proposal, of which cost is a key consideration.
‘Corrupt bid-rigging’
The ticking clock on passing legislation has set off a political frenzy on both sides of the issue.
Wisconsin utilities and organized labor have been working together to pass the ROFR bills and have the support of state and local economic development groups and chambers of commerce who are part of a statewide alliance called WI4ROFR.
Meanwhile, consumer advocates have the backing of a laundry list of free-market groups and conservative commentators that have turned up the heat on the bill’s GOP sponsors.
Groups such as Americans for Prosperity and AFP funders Koch Industries, the MacIver Institute, R Street Institute and Wisconsin Institute for Law and Liberty have produced their own analyses that says a ROFR law is both bad policy and unconstitutional.
Josiah Neeley, a resident senior fellow at R Street Institute, a conservative think tank, called the message sent by ATC and other utilities “unseemly.”
“Effectively what the study is saying,” Neeley said, “is if you have a ROFR, it’s going to cost us more to build the line. But that’s OK, because we’re going to make other states pay for it.”
Neeley’s criticism and that of other free-market groups is tame, however, compared with the rhetoric of well-known conservative commentators in Wisconsin, who have dialed up the pressure on GOP lawmakers.
In podcasts and columns in conservative media, they compare utilities to drug cartels and make reference to ROFR law as “corrupt bid-rigging.”
Two dozen Wisconsin legislators, all Republicans, are reaching out to what they hope is a higher power to stop ROFR — President Donald Trump.
“We believe ROFR legislation stands in stark opposition to numerous executive orders issued by you and your administration, which emphasized the critical importance of protecting and enhancing competition to foster innovation and reduce costs,” the letter states.
Correction: A previous version of this story misspelled Josiah Neeley’s name.
