The Bottom Line: Electric transmission policy must encourage competition, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) have told the Federal Energy Regulatory Commission (FERC) in a joint public comment, aligning with comments filed by EPSA. The agencies advise against reinstating the Right-of-First-Refusal (ROFR) policy on the grounds that it would be detrimental to grid reliability and affordability. Competition brings a myriad of benefits to the consumer and to the grid as a whole, and the existence of the ROFR threatens those benefits. EPSA has also called for FERC to reject ROFR, and this push for competition echoes President Biden’s call for a “fair, open, and competitive marketplace” across the U.S. economy.
As the energy transition progresses, a significant amount of investment in transmission infrastructure will be needed to connect wind farms and solar arrays spread across the country to consumers in population centers. While investments in new transmission infrastructure can be costly, competition is one of the best ways to ensure that costs are kept low for consumers.
That was the message of a public comment filed by the Department of Justice (DOJ) and Federal Trade Commission (FTC) with the Federal Energy Regulatory Commission (FERC). The joint comment warned that reinstating a policy known as the Right-of-First-Refusal, or ROFR, would chill investment in new technology and threaten grid reliability and power affordability. The DOJ and FTC point to President Biden’s Executive Order calling for “a fair, open, and competitive marketplace” to promote better economic and social outcomes.
FERC’s consideration of the issue is especially timely because the Fifth Circuit Court of Appeals recently struck down a Texas law which granted incumbent utilities a state-level ROFR. The court found that this ran afoul of the Commerce Clause.
“Transmission lines that are part of an interstate grid are much closer to the heartland of interstate commerce than the wine stores, dairies, or waste processing facilities that have faced dormant Commerce Clause scrutiny,” the appeals court said. “What is true for alcohol and milk under the dormant Commerce Clause must be true for electricity transmission.”
In light of the decision, state regulators must demonstrate that the law serves legitimate local purpose and is not just a barrier to competition.
In the joint comments, the DOJ and FTC warned that “consumers will lose the many benefits that competition can bring, including lower rates, improved service, and increased innovation” if the measure is adopted.
Limiting Competition Would Disincentivize New Construction and Investment
FERC is currently considering reinstating ROFR, a rule that would enable existing transmission owners to block competitors from bidding to build and own new interstate transmission projects. But supporters of free markets—and the FTC and DOJ—warn that doing so would limit who can build transmission projects and disincentivize new construction.
Instead, the FTC and DOJ point to independent systems operators such as MISO and PJM as examples of entities with the broad scope and market focus to best help plan regional systems.
“Local, regional, and interregional transmission networks are physical networks, like interstate highways and interstate gas pipelines, that gain value through the efficiency of their interconnections,” write the FTC and DOJ. “Consequently, transmission developers acting independently and approaching their work from a local perspective cannot be expected to plan efficiently integrated regional or interregional transmission networks.”
In areas with competitive markets, they point out, new companies are more likely to enter the region, and the adoption of new technologies has led to lower carbon emissions and consumer prices.
Competition Has a Track Record of Success
In a joint statement accompanying the comments, FTC reiterated its commitment to competition, which it said remained the best way to encourage grid innovation and resilience without burdening consumers with soaring energy costs.
“Competition is still the best way to ensure that our electric grid is built out in a way that lowers rates, increases innovation, and improves sustainability and resiliency,” said Elizabeth Wilkins, Director of the FTC’s Office of Policy Planning.
“Granting a right of first refusal for transmission upgrade proposals to incumbent monopoly electricity providers without first exhausting procompetitive alternatives ill serves electricity customers,” she added.
The comments further suggest that FERC explore changes that use the power of competition, including requiring public utility transmission providers to share cost allocation information to better inform investment decisions.
EPSA Weighs In
With this comment, the DOJ and FTC reiterate many of the points that EPSA and competitive power producers have been making for several months – highlighting a key area for consensus among the federal power regulator, industry, and the Biden Administration.
EPSA also filed comments with FERC on the rule and continues to urge the commission to seize the opportunity to strengthen and support competitive energy markets. In the comments, EPSA expressed “deep concerns” about the move away from competitive systems:
“This retreat from competition is in fact a perverse step backwards at the very time that there is broad consensus regarding the extent of infrastructure development needed to drive and support changes in the resource mix and demand.”
Instead, EPSA urged the commission to “reassess its retreat from competitive transmission development principles” and to look back toward the market-based principles that have already led to the lowering of greenhouse gas emissions and consumer energy costs.