Guest column: Expanding ‘right of first refusal’ does more harm to utility rates
Things are getting more expensive these days. Whether it’s the price of eggs at the store or the price of gas at the pump, the cost of living has increased rapidly. Electricity is no exception to this trend. Between June 2021 and June 2022, the average price of electricity in Oklahoma increased by nearly 50%, rising from 7.3 cents to 10.9 cents a kilowatt hour.
You might think, given this situation, that Oklahoma’s Legislature would be focused on how to bring prices down. Yet, if recently filed legislation becomes law, Oklahoma electric consumers will end up paying even more for bloated new transmission projects.
The bills in question, Senate Bill 498 and SB 1103, would eliminate competition for new transmission projects in the state. Historically, it was assumed that electric transmission was not a ripe area for competition. Of course, having multiple lines of poles and wires running side by side would not make economic or engineering sense. But over the past few decades, though, it has become evident that there are still creative ways to introduce competitive pressure into the electric transmission system. For example, research has shown that using competitive bidding to determine who can build, own, and operate transmission can result in cost savings of 20% to 30%. One of the first competitively built transmission projects, the Duff-Coleman line in Indiana, was completed six months ahead of schedule and with $1 billion in benefits for consumers.
SB 498 and SB 1103 work by giving each utility the exclusive “right of first refusal” (or ROFR) to build and operate new transmission projects in their territory. Once given this right, utilities would no longer have to compete to be able to build projects, and no other energy company would be able to do so. Oklahoma already has an ROFR requirement for smaller transmission projects, but SB 498 and SB 1103 would expand this to cover all new transmission.
It’s no coincidence that utilities are eager to expand ROFR right now. With the passage of the Inflation Reduction Act, demand for new transmission is expected to grow drastically, with billions in new build outs. An expanded ROFR requirement would provide utilities with a major windfall.
What Oklahoma consumers are supposed to get out of ROFR is less clear. Utilities, it should be noted, do not operate like a normal business, which has an incentive to keep costs down so they do not eat into the business’ profits. The prices utilities are allowed to charge are based on their costs, to which is added a set percentage of profit. This means the more a utility spends, the more profit it can make; a recipe for wasteful spending.
Granting utilities a new ROFR entitlement now is also unwise for another reason. Because ROFR requirements inherently favor in-state utilities over other out-of-state companies, they have spurred lawsuits claiming that the laws violate the U.S. Constitution’s Dormant Commerce Clause. While the results of these actions so far have been mixed, a recent decision by the federal Fifth Circuit Court of Appeals strongly indicated that a Texas ROFR law was unconstitutional on these grounds. Given the legal uncertainty surrounding this issue, it is not clear why Oklahoma should jump into the fray.
Oklahoma law governing electricity should be based on what is good for the consumer, not what benefits monopoly utilities. Expanding ROFR would be a step in the wrong direction for the state.