Read this post on Josh’s Substack: Powering Spaceship Earth.
The Pelican Institute, a think tank in Louisiana, just released an excellent new paper on transmission. The report’s impetus is estimating the costs of rights of first refusal (ROFR), rules that restrict who can build new transmission lines. As the report states, “ROFR laws grant incumbent utilities the exclusive right to construct new transmission lines, creating a barrier to entry for potential competitors.”
The economic intuition here is clear—if you restrict who can build new lines, then costs may rise. Pelican’s new report compares Wisconsin and Minnesota because Minnesota has a ROFR law and Wisconsin does not. The takeaway: Minnesotans pay $180 million more for electricity each year because of ROFR:
Conversely, electricity prices in Minnesota were 0.298 cents per kilowatt-hour higher than they would have been in the absence of an ROFR policy. Monthly retail and commercial sales of electricity in Minnesota reach up to five billion kilowatt-hours per month, so this policy currently costs residential and commercial ratepayers up to $15 million a month, or more than $180 million per year.
Statisticians like to kick the tires on their analyses. One such “kick,” more formally called a robustness check, is to look at the effects of wind generation on prices. This analysis suggests that the big picture doesn’t change after accounting for wind generation in the model. To the extent that ROFR slows wind generators from being connected, there’s a chance that such transmission hamper the pro-competitive effects of adding new generators to the market.
Transmission policy has plenty to debate—how much we need, the cost allocation rules, and the right siting and permitting reforms. Requiring a competitive and open bidding process to build transmission should not be part of that debate. It is a boon to consumers in transmission, just like in other industries.
For more on transmission policy:
- Watch Philip Harris discuss his idea for an American supergrid.
- Read Josiah Neeley at R Street on how ROFR drives up costs across the Midwest.
- Read Catherine Hausman’s work on the political economy behind why transmission is often blocked.
- Read about how we’re building fewer new miles yet spending more.