President Biden got it right in his 2022 State of the Union Address when he said “capitalism without competition is exploitation.” Competition is the keystone of the American economic model and its success. Unfortunately, the Federal Energy Regulatory Commission is considering a proposed rule on electricity transmission that not only fails to support the expansion of competition but also backs away from existing rules designed to usher in a new era of transmission competition to lower electricity costs for consumers.
According to a study by Princeton University, the United States will need to spend $2.1 trillion on transmission by 2050 if it is to reach net-zero emissions in that time. Competitively bid transmission projects have been shown to offer savings as great as 40 percent, which means requiring transmission projects to be competitively bid could save ratepayers $480 billion. Either way, consumer electric bills will substantially increase, but competition can reduce those cost increases and electricity price inflation.
The president, the Department of Justice, and the Federal Trade Commission are squarely supporting competition, as outlined in a joint comment submitted to FERC backing transmission competition. In a statement, the director of the FTC Office of Policy Planning, Elizabeth Wilkins, said, “Competition is still the best way to ensure that our electric grid is built out in a way that lowers rates, increases innovation, and improves sustainability and resiliency.” Despite this, FERC is proposing an anti-competition policy — putting it add odds with the rest of the executive branch.
The problem is that incumbent monopoly electric utilities are opposed to competition and cheered when the proposed rule to scale back competition was released. Electric utilities make money by tacking on a 10 percent to 12 percent return to their equity investments — and continue to receive returns on their transmission investments for up to 40 years. These monopolies fear competition, as evidenced by the voluminous comments they have filed to prevent transmission competition.
Under the Obama administration in 2011, FERC issued Order 1000, designed to usher in a new era of competition by eliminating a federal right of first refusal for incumbent utilities. However, in a giveaway to incumbent utility companies, state-level right of first refusal laws have limited the number of competitively bid projects to only 3 percent of all transmission projects nationwide.
From 2014 to 2021, the transmission portion of consumer electric bills has increased a staggering 79 percent while the energy and distribution cost components have remained relatively low. The explanation is simple: by blocking competition, incumbent utilities have been able to steadily increase consumer prices without the fear of losing business.
All Americans have been hit hard by record Consumer Price Index inflation, but more than half of that growth has come from energy price increases. Electricity price inflation came in at 15.5 percent on an annualized basis in the latest CPI report, outpacing the inflation rate.
While higher gasoline prices tend to get all the attention, in 2021, the typical American consumer spent $179 per month on gasoline and $176.67 on heating, comprising electricity, natural gas and fuel oil and accounts for about 3 percent of household expenditures. A Census Bureau Household Pulse Survey reveals that 33 percent of 44 million renter households across the country were behind on their energy bills in the past year.
Electricity transmission competition is a proven anti-inflation policy that works every time. New Jersey offers an example of how transmission competition fits into the picture of fighting electricity price inflation and connecting renewable energy projects with the grid. The New Jersey Board of Public Utilities recently concluded their largest competitively bid transmission project, with savings ranging from 50 percent to 66 percent — or between $2.3 billion and $4.6 billion.
Congress and the Biden administration have made fighting inflation a priority while also working to lower the price of energy. Both policies can be accomplished by embracing electricity transmission competition. FERC should stand up for consumers and lead the fight for transmission competition instead of blocking it.