THE CASE AGAINST REGIONAL TRANSMISSION MONOPOLIES.

• Author: Van De Biezenbos, Kristen

ABSTRACT

Over the next decade, the United States will need to build significant regional transmission infrastructure to achieve the country's goal of net-zero power by 2035. However, there is a significant barrier: the transmission system is almost entirely owned by private monopolies. As a result, the grid has grown not to serve the public interest but in accordance with the economic priorities of these monopolies, which are not incentivized to innovate, find efficiencies, or lower costs. Past attempts to encourage competitive bidding for regional transmission projects have been stymied by laws intended to protect the monopolies, including the right of first refusal (ROFR) to build regional transmission lines. After years of legal battles over the Federal Energy Regulatory Commission's (FERC) removal of the federal ROFR, a circuit split has emerged over whether state ROFRs violate the Dormant Commerce Clause. This Article argues that the circuit split obscures the stronger legal analysis, which is that FERC's withdrawal of the federal ROFR was within its exclusive jurisdiction under the Federal Power Act and thus renders state ROFRs per se invalid. Additionally, FERC must maintain the withdrawal of the federal ROFR despite monopoly pressure, as doing so would result in the blanket removal of both federal and state ROFRs. Lifting the gatekeeping effects of the ROFRs would finally allow more robust competition for regional transmission projects and facilitate building the decarbonized grid we need.

INTRODUCTION I. HOW MONOPOLIES GAINED DOMINANCE OVER THE U.S. ELECTRICITY INDUSTRY A. The Electrification of America Begins 1. Vertically Integrated Monopolies and the Fight Against Publicly Owned Power 2. The National Electric Light Association and the Campaign Against Public Utilities 3. Congressional Investigation of NELA and the Utility Industry B. The Era of Federal Regulation over Transmission Begins 1. FERC, PURPA, and the Breakup of (Some) Vertically Integrated Monopolies 2. The Push for Policy-Oriented Transmission Planning and Regional Transmission Organizations II. THE PROBLEM: ROFRS IN THE ELECTRICITY CONTEXT ARE ANTI- COMPETITIVE AND PROTECT MONOPOLY INTERESTS A. State Regulation of Transmission Siting and Construction Protects Monopolies B. Transmission Monopolies Are Not Natural Monopolies C. Monopoly Cost-of-Service Rates Keep Regional Transmission Costs Unreasonably High D. The Right of First Refusal for Transmission Monopolies 1. FERC's Withdrawal of the ROFR in Order 1000 Has Been Upheld 2. The Circuit Split over Whether State ROFRs Violate the Dormant Commerce Clause III. THE SOLUTION: REMOVAL OF ALL FEDERAL AND STATE ROFRS FROM REGIONAL TRANSMISSION PROJECTS A. The ROFR and the FPA's Jurisdictional "Bright Line" B. ROFRs Are Within FERC's Exclusive Jurisdiction, Rendering State ROFRs Per Se Invalid C. FERC's Current (or Future) Efforts to Reinstate the Federal ROFR Are Misguided and Should Be Dropped CONCLUSION Table of Acronyms EE1 Edison Electric Institute ERCOT Electric Reliability Council of Texas FERC Federal Energy Regulatory Commission FPA Federal Power Act FPC Federal Power Commission FTC Federal Trade Commission GHG Greenhouse Gas MISO Midcontinent Independent System Operator NERC North American Reliability Corporation NELA National Electric Light Association NOPR Notice of Proposed Rulemaking IPP Independent Power Producer IOU Investor-Owned Utility IRA Inflation Reduction Act ISO Independent System Operator OATT Open Access Transmission Tariff PUC Public Utility Commission (state) PUHCA Public Utilities Holding Company Act of 1935 PURPA Public Utilities Regulatory Policies Act of 1978 ROFR Right of First Refusal RTO Regional Transmission Organization SPP Southwest Power Pool INTRODUCTION

The United States has committed to cutting its greenhouse gas (GHG) emissions by 50-52% of 2005 levels by 2030 in order to meet its commitments under the Paris Agreement and has set an ambitious national target of net-zero electricity by 2050. (1) To help reach these goals, the Inflation Reduction Act (IRA) established a suite of financial incentives to add significantly more renewable generation with the aim of rapidly decarbonizing the nation's electricity sector in the next decade or so. (2) Achieving this will also require that we upgrade existing systems and build more transmission lines, which are high voltage lines that carry power from generation facilities to distribution networks, and are collectively referred to as "the grid." (3) These lines are needed to connect wind and solar facilities, which are typically located in rural areas where there is sufficient space for them. (4) However, our patchwork of state and federal rules governing the electricity sector have thus far worked against readying the grid for connecting new wind and solar facilities on a national scale. (5)

Indeed, it could be argued that the most consistent regulator of electricity is the industry itself, which is dominated by investor-owned utilities (IOUs), some of which are vertically integrated monopolies, while others are transmission or distribution monopolies, depending on whether they are located in parts of the country that have unbundled or disaggregated their electricity markets. (6) Until about twenty years ago, almost all IOUs were vertically integrated--meaning that they owned and operated all of the generation, transmission, and distribution in a particular area. (7) Transmission lines carry electricity generated at power plants to substations, where the voltage is lowered and the electricity can be sent into distribution systems, which are the lines and poles connecting homes, businesses, and industry to the power system.

Today, while many regions have separate generation, transmission, and distribution sectors, IOUs still dominate all three of these markets. (8) Further, even in disaggregated energy markets, transmission connections are overseen by Regional Transmission Organizations (RTOs) or Independent System Operators (ISOs) that are comprised of--and sometimes influenced by--member IOUs. (9) These IOUs also exert powerful political and economic influence over state politicians, state public utility commissions, and even on occasion the Federal Energy Regulatory Commission (FERC) itself. (10) But to achieve our decarbonization goals, we must find a way to break the monopoly stranglehold on regional transmission.

Working against this goal is the persistent narrative that adding "too much" intermittent renewable energy like wind and solar to a particular region's power mix will negatively impact reliability. (11) As evidence for this line of thinking, critics of renewable power point to recent widespread power outages in Texas and California, because both states have significantly more wind and solar power as a percentage of their total dispatched electricity (at least at certain times) than most other parts of the United States. (12) Plans to radically decarbonize electricity, according to these critics, will put the rest of the country in similar danger. (13)

This is not true. Unsurprisingly, this argument is one often deployed by IOUs that own generation facilities and upstream and downstream oil and gas companies, as well as politicians and executives who benefit from those industries. (14) Indeed, some monopoly utilities, both vertically integrated and disaggregated, have used their influence with state politicians, regulators, and utility commissions, by themselves or through their trade association, to undermine state and federal clean electricity initiatives for years. (15) At the same time, they have doubled down on investments in fossil fuel power plants and infrastructure and fiercely fought regulatory measures that would undercut the value of coal and natural gas assets. (16) In fact, renewable power can be combined with storage technology to be reliable even when it makes up a high percentage of the total electricity mix in a particular area, and it is significantly cheaper than fossil fuels and nuclear power as there are no associated fuel costs, maintenance tends to be low, and the energy source is inherently local and abundant. (17)

Concerns about the ability (or lack thereof) of intermittent renewables to provide firm or baseload power are frequently cited as a reason not to prioritize adding more wind and solar resources over traditional fossil fuel sources. (18) Additionally, even IOUs that are not vertically integrated have resisted changes to regional transmission markets, both within and without RTOs, that would encourage competition and facilitate more lines to connect renewable power generation, while at the same time showing little interest in building such lines themselves. (19) As a result, our current grid is low on the long-distance transmission infrastructure needed to connect more renewable power and is thus inadequate to achieve our decarbonization targets without significantly more regional connections. (20)

It is not difficult to see why IOUs are against competition. For decades, they have operated without challenge in their exclusive service areas under a system of regulated rates that guarantee them a return on their investments. (21) Many IOUs also continue to dominate transmission planning, even in RTO-ISO regions, and prefer to focus on expanding and upgrading their current systems. (22) Indeed, because there is little difference in their opposition to competition and they are both in control of access to existing transmission systems in different parts of the country, for the purposes of this Article, both vertically integrated IOUs and unbundled IOU transmission owners are referred to as "Transmission Monopolies."

Despite FERC's efforts over the past few decades to encourage more regional transmission planning, the United States still does not have the kind of comprehensive infrastructure that would make connecting rural wind and solar projects...