Testimony in Opposition to Missouri ROFR Requirement
Testimony from:
Josiah Neeley, Senior Fellow, R Street Institute
In OPPOSITION to SB 568
May 2, 2023
Senate Committee on Consumer Protection, Energy, and the Environment
Chair and members of the committee,
My name is Josiah Neeley. I am a senior fellow at the R Street Institute (R Street), a center-right, free-market think tank that supports limited, effective government in many areas, including the electricity market. This is why SB 568, which would grant incumbent transmission utilities the right of first refusal (ROFR) to build and operate new transmission projects, is of special interest to us.
I would like to make a couple of points today. First, this bill would raise costs to consumers by eliminating the cost-cutting effects that competition brings. Research has found that competitive bidding for electric transmission projects reduces the cost of project bids by between 20 and 30 percent on average.[1] Our own research shows what this means for states like Missouri. R Street recently published research looking at a group of transmission projects approved last year by the Midcontinent Independent System Operator (MISO)’s regional transmission organization.[2] That group of projects is the first of several major system upgrades being prepared by MISO in the coming years. The projects so far approved amount to around $10 billion in expected costs, but the total for the entire set of projects could be as much as $100 billion. Our research concluded that for the Missouri portion of the currently approved projects, competition could mean a cost savings of between approximately $50 million and $150 million, depending on the scenario.
Proponents of ROFR have made reference to a study by Concentric Energy Advisors that purports to show competition does not result in cost savings.[3] But it is important to be clear about what the Concentric study does and does not say. The Concentric study looks at a handful of competitively bid projects, and lists ways that the projects ended up costing more than was originally anticipated. Such cost overruns are a fact of life, and can occur with ROFR projects as well as competitively bid ones. The Concentric study does not attempt to show that ROFR projects are not more expensive than projects under competition.
ROFR requirements such as the one contained in SB 568 also raise serious constitutional concerns. Under the Dormant Commerce Clause of the U.S. Constitution, states may not enact laws that discriminate against out-of-state businesses.[4] As the U.S. Court of Appeals for the Fifth Circuit recently stated, ROFR requirements discriminate against out-of-state businesses because “only companies that already have transmission lines can build new lines that connect to the existing lines.”[5] Multiple states have had their own ROFR laws challenged. Most recently, the Iowa Supreme Court has enjoined that state’s ROFR law, albeit on non-constitutional grounds, calling it “crony capitalism.”[6] While the results of these suits so far have been mixed, the constitutionality of such requirements remains legally uncertain. As such, this is not an opportune time for Missouri to pass its own version of a legally dubious law.
Finally, most of the testimony in favor of SB 568 has focused on the non-ROFR aspects of the bill, particularly the provisions encouraging co-location. Co-location is a fine idea, but there is no reason why co-location should preclude competition for these projects.
For these reasons, the R Street Institute opposes SB 568. Thank you for your time today, and I would be happy to take questions.
Sincerely,
Josiah Neeley
Texas Director and Resident Senior Fellow
R Street Institute
[email protected]
[1] Johannes Pfeifenberger et al., “Cost Savings Offered by Competition in Electric Transmission,” The Brattle Group, Dec. 11, 2019. https://www.brattle.com/wp-content/uploads/2021/05/17805_cost_savings_offered_by_competition_in_electric_transmission.pdf.
[2] Josiah Neeley, “How ROFR Laws Increase Electric Transmission Costs in Midwestern States,” R Street Institute, March 7, 2023. https://www.rstreet.org/commentary/how-rofr-laws-increase-electric-transmission-costs-in-midwestern-states.
[3] “Competitive Transmission: Experience To-Date Shows Order No. 1000 Solicitations Fail to Show Benefits,” Concentric Energy Advisors, August 2022. https://ceadvisors.com/wp-content/uploads/2022/08/Competitive-Transmission-Experience-To-Date-Shows-Order-No.-1000-Solicitations-Fail-to-Show-Benefits.pdf.
[4] NextEra Energy Capital Holdings, Incorporated et al. v. Chairman Peter Lake, Public Utility Commission of Texas et al., United States Court of Appeals for the Fifth Circuit, Aug. 30, 2022. https://www.ca5.uscourts.gov/opinions/pub/20/20-50160-CV0.pdf.
[5] Ibid.
[6] Clark Kauffman, “Citing ‘crony-capitalism,’ Iowa Supreme Court blasts late-night legislative logrolling,” Iowa Capital Dispatch, March 29, 2023. https://iowacapitaldispatch.com/2023/03/29/citing-crony-capitalism-iowa-supreme-court-blasts-late-night-legislative-logrolling.