“Right of first refusal” bill would eliminate competitive bidding for Indiana’s major utilities

Opposition is mounting against a bill moving through the Indiana Legislature that would eliminate a key element of competition for utilities and electricity grid development.

HB 1420 would give Indiana utility companies the “right of first refusal” to build, own, and operate new transmission lines in their service area — preventing new projects from being competitively bid on by other energy companies that would then retain an ownership stake. 

Supporters say the bill is necessary to keep control of projects within the state, and that doing so will ensure that Indiana’s electric grid can continue to expand and meet consumer demands.

They warn, too, that without granting expanded rights of first refusal, more decisions would be made by regional and federal regulators.

Bill author Rep. Ed Soliday, R-Valparaiso, said the ultimate goal of the legislation is to ensure better cost control for the utility companies and lower rates for customers.

“The problem as we see it — if we don’t pass this bill, (federal or multi-state operators) would oversee the bid process, and a company could come in and lowball the bid,” he said earlier in the legislative session. “The Indiana Utility Regulatory Commission (IURC) would have no control over price, and these companies could impose any cost on our utilities.”

But critics are vehement that the proposal would stifle innovation, while also increasing costs for Hoosier ratepayers. They maintain that — without a comprehensive competitive bidding process — certain utilities would have even greater power to restrict competition and raise rates. 

New polling data also shows that Hoosier voters largely disapprove of the bill. A recent survey shared with the Indiana Capital Chronicle from a consulting firm that works with Republicans found a supermajority of voters agree that right of first refusal legislation will give utilities too much power and drive up prices. 

Most of those polled said allowing competition for billion-dollar energy transition projects is the best way to ensure that consumers get the best deal.

“Make no mistake, whether this bill passes or not, the investment in transmission has to – and will — continue as part of this transformation that we’re going to do,” said Fred Mills, who represents renewable energy developers LS Power and NextEra Energy. “The whole idea, however, is through the use of competition, those increases, hopefully, will be less than what they would have been if it were left to the utilities without any competition. This bill runs contrary to that.”

Soliday’s bill his has drawn criticism from some Republicans. The measure advanced 59-39 from the House in February.

The Senate Utilities Committee is expected to vote on the bill this morning. If approved, it heads to the full Senate for a floor vote next week.

Incumbent utilities get first bid

Indiana currently produces more than half of its electricity from coal, but the state is now in the midst of an industry transition to cleaner energy sources, like renewables.

That statewide shift has already caused Indiana to experience a sharp overall generation decline — largely the result of increasing coal plant retirements. It has also catalyzed a major need to upgrade transmission infrastructure, including a rewiring overhaul of the power grid. 

MISO, the multi-state Midcontinent Independent System Operator, has a plan to start working on upgrades. It comes at a cost, though — the first stage, alone, has a price tag of more than $10 billion. The lingering question, now, is who will oversee the projects. 

Utilities currently have rights of first refusal for transmission projects within their own territory, but the Federal Energy Regulatory Commission, or FERC, passed a rule a decade ago eliminating that right for cross-border projects. Soliday’s bill would return that right of first refusal to Indiana’s major, “incumbent” utilities when it comes to inter-regional transmission projects.  

The bill does require utilities to use competitive bidding when they subcontract out construction portions of their projects. Utilities will still own and operate the infrastructure, however.

The Indiana Energy Association, which represents electric and natural gas consumers, holds that limiting outside competition would accelerate the buildout of the grid by eliminating the requirement to solicit time-consuming bids — a process that can add months and years to a project.

They also note that customers will pay for the use of the transmission system no matter who owns and operates it.

If the bill is enacted, Indiana will be the latest state to give utilities more control. After federal regulators expanded the availability of competition for transmission projects, right-of-first-refusal laws have passed in a number of states over the past decade. 

Similar bills have also been introduced this year in Missouri, Kansas, Oklahoma, Montana and Mississippi.

A measure similar to HB 1420 was enacted in Texas in 2019 but was struck down last summer by a federal appeals court on the grounds it violated interstate commerce protections. Last month, an injunction against a similar law in Iowa was issued by the state supreme court.

Still, separate judicial decisions pertaining to other states’ laws have been more favorable or are still playing out in court.

Mounting pushback — including from some power companies

But giving utilities rights of first refusal creates a closed-bid process that could drive up costs, rather than keep a lid on the price of new transmission projects, Mills said.

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“With rising costs, competition saves money,” he continued. “We do that at the state level. We require cities to do that. We require counties to do that. And in fact, most everything that utilities buy are typically done in a competitive fashion.”

Mills added that out-of-territory companies bidding on transmission projects are just as capable and qualified as incumbent ones, noting that they all have to be vetted ahead of time by MISO to prove they have the “financial and technical wherewithal” to complete and manage a project.”

“We’re not restricting anybody to compete. In fact, we’re encouraging people to compete, whether it be the incumbent utility or other people. And that’s what’s going to get the best solution for Hoosiers,” he said. “But big transmission projects like these — the incumbent utility has little to no advantage over anybody else. The same regulators regulate whoever gets it.”

Hoosiers are opposed to the plan, too.

A poll conducted with 600 registered Indiana voters March 13-14 by Washington D.C.-based TargetPoint Consulting showed 86% said the right of first referral’s elimination of competition “will drive up prices and deprive customers of substantial cost savings seen in other states.”

Eighty-five percent said the right of first refusal will increase utilities’ power, and 82% reportedly agree “that competition has worked in other states and will bring substantial savings to Indiana.

Paul Cicio with the Electricity Transmission Competition Coalition, which advocates for competition in the country’s electricity transmission infrastructure, emphasized that competitive bidding reduces transmission project costs by up to 40%.

The bill, though, would “solidify” a de-facto monopoly held by incumbent utilities.

“What we’re seeing in other parts of the country is when there’s competition, companies — instead of getting 10% or 12% returns on equity, they’re going at 9%, and that saves the ratepayers money,” Cicio said. “They’re also putting a firm price on the project, and then they will put in penalties if they don’t construct the project on time. The local monopoly utilities will never, ever do that. If they don’t face competition, they will have an open-ended cost, and they will not have deadlines.”

He additionally criticized the bill’s rule requiring utilities to use competitive bidding when subcontracting portions of their projects. Cicio said that language masks the legislation’s anti-competitive intent.

“That is a ruse,” Cicio said. “With transmission competition, these incumbent utilities would go head to head with other utilities that build transmission facilities in Indiana and across the country, and they don’t want to face that competition.”