In close vote, Indiana Senate committee advances “right of first refusal” utilities bill

Indiana’s Senate Utilities Committee on Thursday narrowly passed a contentious bill that critics say would stifle competitive markets and add unnecessary costs to energy infrastructure projects.

House Bill 1420 advanced 6-5 to the Senate, with bipartisan opposition, following hours of testimony. 

“Incumbent” Indiana utility companies already have a “right of first refusal” to build, own, and operate new transmission lines in their service area. But the bill expands that to inter-regional transmission projects. This prevents new projects from being competitively bid on by other energy companies outside of that territory that would then retain an ownership stake.

Before advancing to the full chamber, the measure was also amended to require utilities that are taking on new electric transmission construction projects to file additional notices with regulators.

“(This bill) really deals, primarily, with congestion. … When you turn your lights on in the morning, the electricity that you are turning on — most of the time — came from the Dakotas’ wind farms. But by the time things start moving along, the pipe just isn’t big enough,” said bill author Rep. Ed Soliday, R-Valparaiso. He maintained that the ultimate goal of the legislation is to ensure better cost control for the utility companies and lower rates for customers.

But critics argue 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. 

“Transmission infrastructure is the backbone of our country’s power system, ensuring that Americans across the country have continuous access to affordable reliable electricity to power their homes and businesses and neighborhoods,” said Trish Demeter with Advanced Energy United, a trade association representing the advanced energy industry. 

“Competitive processes for building, owning and operating this transmission infrastructure reduces risk to consumers here in Indiana and spurs innovations and increases transparency around the cost and processes for building these projects,” she continued. “Allowing the competition to work and allowing all — either incumbent or competitive operators — to compete for these processes will bring the best projects and the best owners and operators forward.”

Less time bidding means faster access to energy

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.

Another provision also stipulates that — if the incumbent does not want a project — they must notify MISO within 90 days, and then a competitive bid process would initiate.

With Indiana shifting from coal to cleaner energy sources, like renewables, MISO, the multi-state Midcontinent Independent System Operator, has laid out plans to start working on transmission infrastructure upgrades. 

Already, that’s opened up $10 billion in new projects for potential developers. Upwards of $20 billion is expected in the next phase of projects.  

“Why we need this — this transformation has been progressing at an astonishing pace in recent years. As the evolution continues, society must decide how to balance three main objectives when it comes to the electric system: reliability, sustainability, and affordability,” said Bob Kuzman, a representative of MISO, the electric grid encompassing the Midwest. 

Kuzman noted that if state policy gives a right of first refusal to the incumbent utility, MISO “immediately assigns” an approved transmission project to the utility, “which begins planning and construction immediately.” Without that ability, however, MISO must submit a request for proposal for project bids —  a process that takes between 300 to 755 days.

“As the availability of wind and solar resources change minute to minute and hour to hour across the grid, we must be able to move large amounts of energy a longer distance to maintain the balance of electricity supply and demand,” he said. “In order to prepare for the future, we must invest in our transmission system to ensure reliability of the grid.”

Danielle McGrath, president of the Indiana Energy Association, pointed to transmission systems in the state hit by recent storms. When outages occur, “locals want that repaired,” she said, adding that the incumbent utility is best equipped to own those assets and oversee responses.

“When transmission is not owned by us, we essentially become the middleman, waiting to hear from somebody else. What’s going to happen to our existing grid that we’re operating that we have an obligation to serve our customers with?” McGrath asked.

Soliday echoed the same sentiment: “The reason we want to use local (utilities) is because they know the systems — they know how they interact with one another. They know how to communicate with one another.”

The Consumer Energy Alliance, the Indiana Manufacturers Association, and the Indiana Farm Bureau were also among the bill’s supporters. 

“Our members, like many Hoosiers, appreciate the need for reliability and affordability in our energy sector as the transition to more renewables increases in our state. While it’s certainly important to consider costs, we also think a layer of this bill is about private property rights and landowner involvement with transmission facilities,” said Jeff Cummins, representing the Farm Bureau. “We want to ensure the private property rights of all landowners in areas developed for energy generation and transmission — especially the landowners who will be most affected by construction.”

But less competition could increase costs

Still, those opposed to Soliday’s bill said it will further undermine competition against monopoly utilities — which is essential to keeping electric bills down.

Kerwin Olson with Citizens Action Coalition held that competitive bidding is necessary to reduce costs on already pricey transmission projects.

“Our position is based all about ratepayers, all about consumers, who have for decades now been subjected to monopoly control and monopoly pricing,” he said. “And we have seen a significant escalation in the cost of electricity in the state of Indiana. … We have an affordability crisis, with a large portion of the population being unable to afford their utility bills on a monthly and an ongoing basis.”

Fred Mills, representing LS Power, maintained that while ratepayer bills are likely to increase over time as the state’s energy transition continues, House Bill 1420 “raises and raises energy costs on Hoosiers” even more. 

“Hoosiers have long benefited from competitive bidding. We require it at the state level, we require it at the county level, we require all our cities to do that,” Mills said. “Why in the world would we want to do anything else with regional transmission projects? Competition saves money. But competition also drives something else besides lower costs — it derives strategic innovation and looking outside of the box for the best solutions for Hoosiers.”