How Dueling PDFs Explain a Fight Over the Future of the Grid

In a wide, stone-walled hearing room at the Indiana Statehouse, a person speaking against a bill about who will get to build power transmission lines in the state explains that “a recent report from Brattle economists” shows the folly of the proposal at hand.

Soon after, a person who favors the bill says a report from Concentric Energy Advisors “debunks and refutes” the Brattle Group report.

The bill, which gives Indiana utilities a “right of first refusal” to build transmission lines—the power lines that act as the grid’s superhighways—and freezing out competition over who gets the contracts, passed in April. Indiana is now one of 12 states with such laws, which put local utilities first in line to build and own the coming boom in transmission line construction.

Spending on new interstate lines is a key component of the transition to clean energy because the lines deliver electricity from wind and solar power in rural areas to consumers in urban and suburban areas. Stifling of competition is a potential obstacle to the transition if it leads to higher costs, and the people who stand to suffer are the households and businesses that pay to maintain the grid through charges embedded in their utility bills.

While the debate on the Indiana bill is done, the Brattle and Concentric reports continue to duel as other states consider similar measures. Groups that oppose right-of-first-refusal laws tout the study they commissioned from Brattle, a Boston-based consulting firm, and utility-affiliated groups that favor the laws respond by referring to studies they ordered from Concentric, a consulting firm based in Marlborough, Massachusetts.

The reports give each side an opportunity to claim that its view is supported by economic analysis, as if they cancel each other out.

But this tit for tat distracts from a larger reality: Energy analysts and economists who have studied this issue are mostly critical of right-of-first-refusal laws. They largely agree with the Brattle report and disagree with the Concentric report, and they are close to unified in their belief that competition in building the grid will lead to lower costs and be good for the transition to clean energy.

“For major lines, especially (inter-regional) lines, I think competition is a really important thing,” said Paul Joskow, a Massachusetts Institute of Technology economist. “It’s not just because it provides a mechanism for controlling costs, but also it can lead to innovative solutions to reliability problems.”

Joskow is one of the leading writers on the subject, and is cited by Brattle and Concentric, which highlight different parts of his analysis from a 2019 paper. The main thrust of his argument is in line with Brattle’s view that competition is good and should be used more often.

Right-of-first refusal laws, often called ROFRs, help to determine which companies stand to benefit as the grid expands. The laws are a financial boon for utilities, entitling them to decades of near-guaranteed profits from owning the lines. The laws are on the books in 

Alabama, Iowa, Indiana, Michigan, Minnesota, Mississippi, Montana, Nebraska, North Dakota, Oklahoma, South Dakota and Texas, and utilities continue to push for the laws in Illinois, Kansas, Missouri and Wisconsin, among others.

Tracking the Spread of 'ROFR' Laws

Regional grid operators and regulators often oversee the process of deciding where to build interstate transmission lines and who will build them. Under a competitive framework, local utilities need to submit bids alongside other energy companies—like LS Power of New York and NextEra Energy of Florida—that operate across the country. In states with right-of-first-refusal laws, local utilities automatically get the contracts if they want them.

Encouraging competition makes sense to many people who study the economics of the grid, including Eric Gimon, a senior fellow at the think tank Energy Innovation.

“It’s really hard to prove ahead of time how much you’re going to save by introducing competition, because the whole point of competition is price discovery,” he said. “People have hidden rents that you’re not seeing and they’re just making cushy money, but they don’t want to tell you, obviously, or they just don’t have the incentive to look at how to make things cheaper.”

Michael Pollitt, a business economics professor at Cambridge University, said transmission right-of-first-refusal laws are a bad idea for many reasons.

“Obviously, such laws are restrictive and not conducive to getting more lines built more quickly,” he said in an email. “Existing utilities have a poor track record of building lines between their territories. In theory, inter-jurisdictional lines should be subject to competition, because different entities may see different values in the lines and it is not always the case [that the] lines always produce clear benefits to the utility at each end of the line.”

Theory Meets Reality

While economists and other experts in the field largely agree with the Brattle report, the people who have not taken a side or lean toward the utilities’ view often say they are doing so out of a sense of pragmatism and a desire to avoid conflict.

“It’s unfortunate that there’s a fight,” said Rob Gramlich, president of Grid Strategies, a consulting firm that specializes in policy issues related to the energy transition.

He thinks the conflict over who gets to build the lines is a distraction at a time when governments, regulators and companies need to focus on accelerating construction.

“Sure, in theory, competitive bidding for everything is better,” Gramlich said. “And, you know, economists can show you the theoretical foundation for that. But it doesn’t mean it’s always administratively workable, or that we have the institutions around to support it.”

Larry Gasteiger has a similar view. He is executive director of WIRES Group, a trade organization of companies, mostly utilities, that have interests in building transmission lines.

He said competitive bidding holds some appeal as an idea, but the electricity grid has a complexity, in terms of design and regulation, that makes competition difficult to execute.

Keep Environmental Journalism Alive

ICN provides award-winning climate coverage free of charge and advertising. We rely on donations from readers like you to keep going.

Donate Now

He also noted the role of labor unions in the debates. Unions often have existing relationships with utilities and are key players in advocating for ROFR laws. 

“If you get into a competitive [bidding], you don’t want your labor force to be subject to the least-cost situation, which I think a lot of times would probably be non-union labor,” Gasteiger said.

What’s absent from the discussion is a prominent economist or energy analyst who strongly endorses right-of-first refusal laws, with the exception of reports and individuals who work for utilities or organizations closely allied with utilities.

Meet the Authors

Who wrote these reports?

The Brattle report was co-written by Johannes Pfeifenberger, leader of Brattle’s electricity markets and planning group. Since 2020, he also has been a visiting scholar at MIT.

Pfeifenberger, who declined to be interviewed, is a leading authority about transmission planning, Joskow said.

The two know each other because of their association with MIT and because they are among a small number of people writing about an issue that is vital for the energy transition but has not attracted much interest from scholars, based on the number of publications.

The Concentric report was co-written by Danielle Powers, the firm’s executive vice president who specializes in analysis of electricity markets and transmission planning.

In response to emailed questions, she reiterated the reports’ key findings.

“A critical question regarding competition in transmission development is whether the results save customers money,” she said. “In our reports, we analyzed publicly available information and determined that competitive bidding for transmission has not delivered the expected benefits to customers. Discussions around expanding competition in transmission should be informed by data that reflects the results of competitive transmission processes to date.”

When asked for examples of economists or energy analysts who agree with her clients on ROFR laws, she suggested Carl Peterson. He teaches economics at the University of Illinois Springfield and holds the title “executive advisor” with Concentric.

“Claims that competition will massively reduce the cost of transmission expansion in the US over the coming years, are, to say the least, controversial, despite the assumption that such results are true,” Peterson said in a 2022 filing with the Federal Energy Regulatory Commission on behalf of Concentric clients.

Maintaining the Fossil-Fuel Grid

The Brattle and Concentric reports are trying to boil down complex issues into concepts that state lawmakers can understand.

Those ideas get simplified even more in legislative debates like the one in Indiana in April in which several people referred to the reports as a kind of shorthand for why their side is right and the other side is wrong.

Brattle released its report in 2019, sponsored by LS Power. The study examined the history of competitive bidding for transmission projects and concluded competition would lead to cost savings of 20 percent to 30 percent based on examples in the United States and other countries.

The study was looking at the landscape for projects following the Federal Energy Regulatory Commission’s approval of Order 1000 in 2011, a rule that was designed to require competition for large transmission projects that cross state lines.

Concentric released reports in June 2019 and August 2022 on behalf of a coalition of utilities, including Ameren of Missouri and Eversource of Massachusetts, among others. The reports argue that the evidence does not support the idea of expanding competition and that Order 1000 has failed to produce clear benefits. Concentric also said that competitive bidding increases the time needed to make projects happen and leads to additional costs for managing the bidding process.

Much of the first Concentric report is a rebuttal to the Brattle report. Since then, Brattle has issued a brief that serves as a rebuttal to the rebuttal. The firms disagree about how to calculate cost overruns for projects, among other differences about assessing the costs and benefits of competition.

Despite major clashes in the findings, the two consulting firms agree that Order 1000 has not led to a flowering of competition with huge benefits. Looking at projects from 2013 to 2017, Brattle found that only a few dozen transmission projects, 3 percent of all projects, involved a competitive process for the contracts.

Brattle said that utilities responded to Order 1000 by focusing their efforts on smaller projects that were not subject to competitive bidding.

Several others have documented this pattern of avoiding competition, including Claire Wayner of RMI, the clean energy research and advocacy group. She looked at transmission spending by utilities in PJM Interconnection, a grid region that runs from Chicago to New Jersey.

“Investment in at least some regions,” Wayner wrote in March, “is focused mostly on low-voltage projects that appear to be more about replacing and maintaining the existing fossil-fuel grid rather than substantially upgrading and preparing it for a decarbonized future.”

PJM Utilities

Based on this track record, Brattle said regulators should expand the use of competitive bidding to include smaller projects. Meanwhile, Concentric looks at much of the same evidence and finds that competition isn’t working.

This is not a new debate. Some energy companies have been trying for decades to reduce utilities’ monopoly control of various facets of the electricity market, and utilities have proven to be formidable in fighting back and finding ways around the rules they don’t like.

Joskow, the MIT economist, said the quality of arguments pro and con seem to take a backseat to which side has more influence—something that’s true on many energy issues.

“First of all, this is a relatively obscure subject,” he said. “Second of all, who’s going to read who has the expertise to really read these reports and be knowledgeable about them?”

    <div class="post-author-bio">

            <div class="image-holder">

                <img width="300" height="300" src="https://insideclimatenews.org/wp-content/uploads/2020/10/Gearino2-300x300.jpg" class="attachment-thumbnail-medium-square size-thumbnail-medium-square" alt decoding="async" srcset="https://insideclimatenews.org/wp-content/uploads/2020/10/Gearino2-300x300.jpg 300w, https://insideclimatenews.org/wp-content/uploads/2020/10/Gearino2-150x150.jpg 150w, https://insideclimatenews.org/wp-content/uploads/2020/10/Gearino2-64x64.jpg 64w" sizes="(max-width: 300px) 100vw, 300px">
            </div> <!-- /.image-holder -->

        <div class="content">

            <h3 class="author-name">

                <a href="https://insideclimatenews.org/profile/dan-gearino/">
                    Dan Gearino                 </a>


                <h4 class="profile-subtitle">Clean Energy Reporter, Midwest, National Environment Reporting Network</h4>

                <span>Dan Gearino covers the midwestern United States, part of ICN’s National Environment Reporting Network. His coverage deals with the business side of the clean-energy transition and he writes ICN’s <a href="https://insideclimatenews.org/tags/inside-clean-energy/">Inside Clean Energy</a> newsletter. He came to ICN in 2018 after a nine-year tenure at The Columbus Dispatch, where he covered the business of energy. Before that, he covered politics and business in Iowa and in New Hampshire. He grew up in Warren County, Iowa, just south of Des Moines, and lives in Columbus, Ohio.</span>

        </div> <!-- /.bio -->

    </div> <!-- /.post-author-bio -->
Please follow and like us:
%d bloggers like this:
Verified by MonsterInsights