For critics and advocacy groups fighting against “anti-competitive” energy policies like Right of First Refusal (ROFR), it seems like the cure is always more competition.
It’s a potent, emotional argument that connects with many Americans, and it has been effective at swaying regulators and legislators in the past. But new studies are finding that adding competition actually adds costs and delays when it comes to building the transmission systems our nation depends on.
Most of our evidence comes from the study of the Federal Energy Regulatory Commission’s Order No. 1000, issued in 2011. This rule eliminated the federal ROFR in certain circumstances and opened regional and interregional transmission projects to bids from any “qualified entity,” meaning utilities that work and live in the regions they serve must be challenged by out-of-state developers and private investors with little knowledge or interest in the well-being of the community. The aim was to introduce competition and spur regional and interregional investment in our nation’s aging power grid. A decade on, however, Order No. 1000 appears to have done the opposite.
Less regional and interregional transmission investment
Transmission investment is at a historically high level, but much of it remains focused on reliability improvements and local solutions needed to replace aging infrastructure. The complexities of permitting and approving major regional and interregional transmission projects has slowed the completion rate of these projects, with fewer than 150 miles of high-voltage (345 kv+) transmission lines added to the U.S. power grid in 2021, according to GridStrategies. The addition of bidding to these projects extends their timeline and increases risk, slowing our efforts to remake the power grid.
According to a 2023 Department of Energy study, the nation’s rate of annual transmission installation between 2016 and 2020 actually turned negative, meaning we are falling further behind our future needs rather than catching up.
Ironically, our lack of investment in major regional and interregional transmission infrastructure also reduces competition in the generation sector, which requires more transmission capacity and regional connections to operate effectively. Considering that the cost of generation accounts for more than half of the price of electricity in the U.S., it would make more sense to embrace policies and approaches that streamline transmission development so competition can be maintained in the generation sector.
Higher project costs
On a project-level basis, the cost-saving promises made by competition advocates have failed to materialize over the past decade. While these groups estimated that the introduction of competitive bidding would result in cost savings of 20-30%, a new analysis by the DATA Coalition finds that competitive projects actually exceed cost expectations by an average of 6-19%. And while competitive projects are often designed with cost caps to reduce risk, these same projects also exceed their stated caps by more than 50% on average.
A similar study by Concentric in 2022 found 27% cost increases for projects subject to Order No. 1000, with the report’s authors writing, “we continue to see no evidence that suggests competitively developed projects systematically achieve outcomes that deliver 20 to 30 percent cost savings to customers or are completed more expeditiously than incumbent-developed projects.”
The reality is that transmission projects in ROFR states are often more cost-efficient because of their streamlined processes and increased oversight. Michigan’s ROFR law, for example, requires transmission operators to meet with the state’s public service commission and provide quarterly reports on the estimated cost to build within 180 days of a project’s approval.
Longer project timelines
While competition advocates argue that market forces will push transmission developers to work faster, the bidding process actually slows our ability to improve the power grid. The same Concentric study found an average of 12 months in schedule delays for projects subject to Order No. 1000—an unacceptable proposition, considering that the average transmission project takes up to 10 years to plan, site and build.
In states with ROFRs, utilities can come to agreements with state officials much faster, shaving months or even years off a project’s timeline. When looking at multi-state projects, it’s not unusual for a ROFR state to begin planning its portion of a proposed transmission line months before that of neighboring non-ROFR states.
Closing thoughts on competition
The truth is, competition in the transmission sector often prefaces a race to the bottom. While private and speculative developers may enter the process promising to build new transmission for less, the results of the past decade do not bear those promises out. Considering our nation’s rapidly increasing need for modern transmission infrastructure, we have no time to waste putting projects through a supposed competitive process.
Rather than more competition, what the transmission industry really needs is more collaboration—between stakeholders, regulators and legislators, to create systems that streamline the planning and permitting processes while also protecting electric ratepayers, who ultimately foot the bill for power grid improvements.
