The Trump Administration's Overreach Into State Energy Markets
Expected adds to national electric transmission portfolio, National Renewable Energy Lab
The new Federalism under President Donald Trump promised fewer federal regulations and less interference in state and local governments. The goals of these White House efforts were to spur a massive development of domestic energy production to power our economy into the digital future. After all, surely the Chinese are not burdened by such policies that slow energy development – and therefore we risk ceding the technological future to them.
But ironically, in electricity and hydrocarbon markets, the Trump administration's 'pro-competition' policies are actually holding back energy investments across the board and are counteracting the President's policy goals.
For electricity, Trump's Department of Justice has attacked pending bills in Iowa that would allow the incumbent electric utilities a right of first refusal on constructing needed transmission facilities. The DOJ states that allowing such a right of refusal would be anticompetitive but can cite no evidence to support the claim, because there is no such evidence. The White House's arguments against ROFR laws do make for good sound bites, but they also lack an understanding of how ROFR laws actually work.
Barring outright and illegal collusion among bidder, a right of first refusal (ROFR) does not restrict competition. The state's electric regulator will offer a contract for new facilities. If there is or are lower bids from new market entrants, a right of refusal allows the incumbent utility the opportunity to match the winning bid.
What happens when a new entrant bids low to win a project, and the incumbent refuses to exercise their ROFR rights? Is that a sign that the incumbent, facing the same set of facts and bid requirements, does not think that it can make money building out the project? If the new entrant succeeds, the state wins. If the new entrant fails or runs into cost overruns, then the state loses in terms of time and money. Anyone who has bid out a home remodel knows these perils.
Proponents of the ROFR provisions argue that the incumbent is already invested in the business and community. They – literally – know the landscape. New entrants, who are transactional at best, have less at stake and lack the local community ties to hire workers and fully understand the political and regional norms.
The debate over ROFR laws is a challenge playing out across America as the different state regulators grapple with an aged and deteriorating electricity transmission system that now also needs a rapid buildout to accommodate new loads from data centers and new wires from the rural areas where wind and solar farms are proliferating.
A prime directive of President Trump's administration is to lower energy costs across the nation. With steel, aluminum, and copper prices rising, the buildout of transmission is becoming more expensive by the minute. The states need a free hand to decide on their own which laws, regulations, and rules are appropriate for their markets. The federal government should live up to President Trump's pledge to reduce the overreach of federal regulation into state markets. To do so, one step would be federal regulators backing off on their misguided opposition to state ROFR laws.
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