Energy policy abandons electricity consumers and increases inflation

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BY JON B. WELLINGHOFF AND PAUL N. CICIO, OPINION CONTRIBUTORS – 05/15/22 2:00 PM ET
THE VIEWS EXPRESSED BY CONTRIBUTORS ARE THEIR OWN AND NOT THE VIEW OF THE HILL

 

Electric ratepayers will face even higher electricity costs and inflation due to the Federal Energy Regulatory Commission’s (FERC) proposed action on electricity transmission planning. Instead of embracing, or better yet, unleashing transmission competition to reduce ratepayer costs, FERC’s April 21 notice of proposed rulemaking makes it easier for incumbent monopoly utilities to avoid competition resulting in higher costs for consumers.

This is a costly giveaway to trade groups and utility companies, yet more inflationary spending at the expense of captive electricity consumers. Competition brings out innovation, a solution to inflation and an American norm — but the power sector is different. Utilities make money by spending money and recover it in consumer rates with a 10 to 12 percent annual after tax return on investment. The more they spend the more they earn.   

Incumbent transmission owners have managed to secure for themselves a combination of exceptions to competitive processes, adoption of state “right of first refusal” laws, and other anti-competitive barriers to thwart competition and innovation in transmission planning and construction. As a result, from 2014 to 2020, RTO/ISO markets transmission costs increased by $74.9 billion or 78.7 percent, while electricity demand was flat. According to the Energy Information Administration (EIA), demand in 2014 was 3.76 billion MWh and in 2020 it was 3.72 billion MWh.

FERC’s action also is inconsistent with President Biden’s comments during the State of the Union address on March 1, when he stated, “Capitalism without competition is exploitation,” and his executive order on “Promoting Competition in the American Economy.”

In fact, across the country, consumers are being exploited by incumbent electric utilities that have circumvented FERC Order 1000. Studies show that only 3 percent of all transmission projects are competitively bid and that competitively bid projects reduce costs to consumers between 20 to 30 percent. The competitive processes that have been conducted demonstrate that there are many well-qualified and well-capitalized competitors who are eager to build and operate transmission and that the competitive processes themselves do not slow down the build out.

Transmission competition is especially important to drive innovation and cost accountability givenBiden’splans to decarbonize the economy, which is projected by some to require record transmission spending. Under one of the Princeton “Net Zero America” study scenario the U.S. may need to spend $2.1 trillion by 2050 to build out the transmission grid.

Consumer advocates have called on the FERC to require that all electricity transmission projects that are 100 kV or larger should be competitively bid. A 25 percent cost reduction through competition would save consumers an estimated $525 billion by 2050.

The free market is the only way to lower the cost of upgrading and expanding our electricity grid. However, Biden administration appointees have stonewalled this effort by siding with utilities instead of consumers.

Incumbent electric utilities who oppose transmission competition would have you believe that electricity electrons stop at a state’s border. The vast majority of transmission is in interstate commerce and that is why it is subject to federal jurisdiction and why FERC action is needed to ensure that consumers benefit from competition and lower costs.

Jon B. Wellinghoff was chairman of the Federal Energy Regulatory Commission from 2009 to 2013.

Paul N. Cicio is chairman of the Electricity Transmission Competition Coalition (ETCC), a nationwide coalition of over 70 diverse consumer organizations from all 50 states.