ROFR Loses, Wisconsin Wins

Competition Prevails

MISO has just announced the winners of two regional transmission projects being built in Wisconsin. In a turn of events that will surprise few, Wisconsin's transmission company, ATC, was not selected for either project.

This is a big win for competition, free markets, ratepayers, and Wisconsinites as a whole.

As it turns out, the winners trounced the competition by offering some of the lowest bids, returns on equity, and revenue requirements.

BECI Project

The Bell Center-Columbia-Sugar Creek (BECI) project connecting Illinois and Wisconsin was the big piece of meat. The project was proposed as a roughly 200-mile 765kV transmission line estimated to cost $1.446 billion.

Among the 5 bidders, the highest came in at $1.363B, the lowest at $808M, and the second lowest (the Winner's bid) came in at $1.006B.

The winner of this project, Transource, offered a bid that was 30% lower than MISO's estimate and 24% lower than the highest bid. 

They also offered the second lowest revenue requirement––the total amount of revenue they want to collect from ratepayers––asking for $775M, 25% less than the highest bidder's $1.035B.

Additionally, we can also tell which proposal was submitted by ATC even though non-winners remain anonymous. ATC is Developer C in the chart above. 

Throughout the Selection Report, Developer C is said to have "demonstrated the most relevant experience in Wisconsin," (p. 18) "demonstrated the most certainty surrounding its regulatory permitting plan, supported by ongoing correspondence with the PSCW," (p. 22) "Developer C’s first responders are nearby," (p. 30) and its "spare parts [are] located at existing maintenance facilities in the project area" (p. 34).

From the chart above, ATC, then, submitted the second highest bid, coming in 11% under MISO's estimate.

Finally, Transource also offered competitive financing terms. 

They were the only developer who offered to cap their Return on Equity (ROE), offering a maximum return of 9.8%, and also capped their capital cost at $1.176B, the second lowest offer (p. 8).

These sorts of financing measures were one of the principal benefits MacIver discussed with regard to competition. We noted that with ROFR, transmission companies would have no incentive to offer revenue caps or other kinds of cost containment––unlike what is seen here.

WISE Project

The Wisconsin Southeast Project (WISE) was the smaller of the two projects. It was a 345kV transmission line roughly 125 miles in length, estimated to cost $662M.

Viridon was selected for this project, who offered both the lowest capital cost and revenue requirement.

They proposed to construct the line for $349M, 47% below MISO's estimate. 

They also proposed a revenue requirement of only $256M, 41% lower than the highest bidder.

Like before, ATC is also Developer C in this Selection Report.

Their capital cost proposal was the highest of the 4 bidders, coming in at $481M, 27% under MISO's estimate. Their revenue requirement was only the second highest, and came in at $370M, 15% below the highest bidder. 

However, ATC also had the highest ROE, proposing a maximum ROE of 10.48%.

Viridon, on the other hand, offered to cap its annual revenue at 5% above its estimates, and any additional revenue required to earn at least an 8.2% ROE. 

Most importantly, Viridon also offered to reduce their "weighted average cost of equity" (WACE) if they exceeded their estimates; i.e. if they went over budget, they would earn less profit.

Conclusion

These projects are undeniable proof of what free-marketers already knew: competition reduces costs and improves outcomes for consumers.

However, we are not out of the woods yet. 

It is still possible for courts to grant injunctions halting the development of these projects if a lawsuit is filed, and it is possible that MISO cancel these projects if a ROFR law is passed in the state before any ground is broken.

Both of these scenarios have played out in other states, so MacIver will keep watch.