ROFR is Back

LeMahieu and Peterson Lead the Charge

Yesterday afternoon the Wisconsin Senate reintroduced right of first refusal legislation (ROFR) in the form of Senate Bill 28 (SB28). The legislation was spearheaded by Senate Majority Leader Devin LeMahieu (R-Ootsburgh) and cosponsored by Assemblyman Kevin Peterson (R-Waupaca).

SB28 is a rehash of 2023's ROFR legislation (AB470) which failed to make it to a vote, and which was also introduced by Assemblyman Kevin Peterson.

This legislation would afford to Wisconsin electric transmission companies the right to call 'dibs' on any regional transmission project authorized by the Midcontinent Independent System Operator (MISO) and which would normally be subject to a competitive bidding process. 

In effect, competitive MISO projects taking place within Wisconsin would no longer be open to competitive bidding, and would instead be granted, automatically, to whatever Wisconsin transmission company the project connects to.

Pure and simple, a ROFR law grants a monopoly to incumbent transmission companies who would no longer have to compete against competitors on construction costs, equity returns, time horizons, or revenue caps. 

While representatives and utility companies claim a ROFR law would reduce overall costs to ratepayers, the truth is that a ROFR law is a means for Wisconsin utilities to guarantee they get to eat the $1.8 billion slab of competitive Wisconsin-based projects just authorized by MISO.

Misleading Pro-ROFR Arguments

Already, pro-ROFR material is circulating throughout the State and the capitol. A new coalition called Wisconsin for ROFR (WI4ROFR) released a memo claiming "Only incumbent Wisconsin transmission companies––not new developers––can lower costs to Wisconsin by $1 billion..."

This claim presents a number of problems. First, the entire memo is based off a "report" commissioned by Wisconsin's American Transmission Company (ATC) who told the author what assumptions to make. In that Report, the author made the following qualifications regarding his "study":

And then added this:

Does this sound like someone who wants to be attached to the "findings" of this report? I doubt many scientific journals would publish such a paper which failed to establish the reasonableness of its assumptions.

Perhaps the reason for the author's self-distancing has something to do with the assumptions handed down to him by ATC. And in fact, they do.

That brings us to the second major problem of this study: the assumptions.

ATC's Unreasonable Assumptions

ATC claims that a new developer winning and building a competitive project will increase the rates of Wisconsinites more than ATC would if they won and developed the project. The only way ATC is able to reach this conclusion is because they assume that new developers cannot share their costs regionally; claiming that new developers don't have what's called an Attachment O filing from which to reference.

The Operation & Maintenance (O&M) expenses included in an Attachment O are among the costs shared throughout the region, and the Attachment O is one of the four criteria MISO considers when deciding who will win a project. 

First off, even if a new developer doesn't have an Attachment O, then MISO's score for that new developer's proposal would be much lower and potentially disqualifying.

In other words, ATC's proposal would have to be incredibly bad for MISO to still select a new developer despite not having an Attachment O. In which case, why would ratepayers want to mandate that ATC develop projects when their proposals aren't even better than new developers who submit incomplete proposals?

Second, ATC assumes that new developers can never share O&M expenses. But if a new developer wins and builds a project, after their first year of operation they acquire an Attachment O. Furthermore, since MISO considers O&M expenses when evaluating bids from developers, new developers could (and do) estimate their O&M expenses, and include a guarantee that they will never require revenue reimbursements beyond a certain level.

Third, if Attachment O filings were so important then why would MISO allow new developers to place bids in the first place? If they are that important in determining overall costs to ratepayers, MISO would exclude new developers from the bidding process or otherwise seriously penalize proposals without Attachment Os. But MISO doesn't do either of these things.

Lastly, there's a very important reason ATC chose to focus only on Attachment Os, 25% lower construction costs, and new developers: because it's the only scenario where they could possibly make they argument that they are the least-cost developer of transmission projects.

In reality, ATC is competing against new developers and other incumbents! They are also required to show that they are better than other established utilities, not just new entrants. As for ATC's assumption that new developers who manage to construct transmission lines at costs 25% lower than ATC, the reason 25% is chosen as the threshold is because any additional reduction in construction costs completely obliterates their argument. In reality, competitively developed projects come in at costs ranging between 23% and 70% below MISO's cost estimates!