By: Josiah Neeley, Senior Fellow, Energy Policy, R Street Institute and
Eric Bott, State Director of Americans for Prosperity-Wisconsin)
With Wisconsinites increasingly worried about inflation and rising energy costs, you’d think state officials would be acting to alleviate the situation, not make it worse. But if legislation recently filed in Wisconsin goes into effect, residents may be in for another shock when they get their electric bills. The legislation would change the way electric transmission lines are built and operated in the state, eliminating competition and driving up costs for consumers to benefit a few established monopolies.
Specifically, the bill would give incumbent utilities the exclusive right to build large regionally cost shared power lines. Under these monopoly construction laws, incumbents can effectively bar new companies from competing for projects, locking them out of the system.
The lack of competition enforced by monopoly construction laws is bad for electric customers. We all know that competition can help keep costs down and spur better service. Think how expensive food would be if you were only allowed to shop at one grocery store. When it comes to building electric transmission, the cost savings from competition can be substantial. For example, the Brattle Group recently looked at how competitive transmission projects fared compared to their non-competitive counterparts. For electric transmission projects open to competition, the winning bid averaged 40 percent less than the initial cost estimate for the project, while non-competitive projects historically cost 34 percent more than initial estimates.
It is particularly important to keep costs low for electric transmission because of the atypical way transmission projects are paid for. When utilities build transmission projects, they are authorized to recover their costs, plus a set percentage of profit, passed through on customer electric bills. Unlike a normal business, where spending more than necessary harms the business’ profitability, the more money a utility spends the more money it makes. Making consumers pay more than is necessary to pad the bottom line of incumbent utilities is fundamentally unfair.
Transmission costs are already a growing cost of delivering electricity to consumers throughout the country, and up to $100 billion in new transmission projects are expected in the region in the coming years. Wisconsin’s electric rates are already above the national average and have been above the average for Midwest state for almost 20 years. The state can’t afford to make electricity more expensive.
In addition to being costly to consumers, monopoly construction laws can also provoke conflict between states. The costs of many transmission projects are allocated over multiple states, so a monopoly construction law in one state can increase costs for consumers in another. Such disputes can cause project delays. Illinois, for example, has resisted paying for other states’ transmission projects for more than a decade based on what it sees as unreasonable cost overruns.
Wisconsin lawmakers should be finding ways to lower electric bills, not raise them. Double digit rate hikes are already coming for energy customers, both large and small, in the first electricity bills of 2022. To prevent further price increases, Wisconsin must maintain the right of competition.
Josiah Neeley is Senior Fellow, Energy Policy,R Street Institute.
Eric Bott is State Director of Americans for Prosperity-Wisconsin.