Transmission Construction Costs are Increasing Electricity Bills. Why are Some States Rejecting the One Thing that Can Provide Relief?
Is your electricity bill going up? If yes, blame the wires. Or more precisely the electric transmission lines that deliver power from where it’s generated to your home or business.
The cost of building and upgrading electricity transmission lines is skyrocketing. As electricity generation from renewable sources like wind and solar becomes cheaper, the increasing cost of transmission infrastructure is undermining those savings, jacking up consumer costs.
Many of the factors driving up costs for transmission are largely beyond our direct control. Yet there is one thing we can do that’s a proven cost-cutter when it comes to transmission construction projects. Unfortunately, some states, including Iowa, Kansas, Missouri, Oklahoma and Illinois, are considering rejecting a cost-savings approach, exposing consumers to higher prices.
Transmission Lines Are Expensive to Build and Maintain
High voltage transmission lines can cost $1-$3 million dollars per mile to build. Their expense makes the trend in higher construction costs alarming. Consider:
In the PJM Interconnection region (which serves states like Illinois, Ohio, and Pennsylvania), transmission costs have spiked by 182%.
"Over the past decade, major utilities in the United States have been spending more on delivering electricity to customers and less on producing that electricity," according to the U.S. Energy Information Administration in 2020.
Utility spending on power delivery was 65% higher in 2020 than in 2010, a trend that could continue as utilities invest in grid modernization, according to S&P Global.
Why Are Transmission Costs So High?
Several factors contribute to the rising cost of electric transmission line construction:
Material Costs & Inflation: The global supply chain crisis, combined with inflation, has increased the price of essential materials like steel and copper. These are key components for building transmission lines. The cost of steel alone rose by about 50% between 2020 and 2022.
Labor Shortages: Like many other sectors, the transmission construction industry faces a shortage of skilled labor, which leads to higher wages and longer project timelines.
Permitting Delays: Lengthy permitting processes and regulatory approvals slow down construction projects and raise costs. Projects that could be completed quickly often get mired in bureaucratic delays.
Right of First Refusal (ROFR) Laws: One of the biggest—and most avoidable—contributors to higher transmission costs is Right of First Refusal (ROFR) laws. These laws allow incumbent utilities the exclusive right to build new transmission lines without undergoing a competitive process to win lucrative construction contracts. Without competitive bidding, these utilities often build projects that are more expensive than necessary. For instance, a major transmission project in Minnesota saw costs double, reaching $1.14 billion after the state passed a ROFR law. This unnecessary cost burden ultimately gets passed down to consumers in the form of higher electric bills.
ROFR Laws Are a Choice—An Expensive One
ROFR laws are a policy choice that stifles cost-saving competition. Allowing only incumbent utilities to build transmission lines, without undergoing competitive bidding, ensures that consumers will pay more. Studies show that when competition is introduced into transmission line construction, costs decrease by 20-30%. Competition pushes developers to offer more efficient, innovative, and cost-effective solutions. Yet, ROFR laws block this critical tool for keeping costs low.
ROFR laws are the choice of the only entity that benefits from them – utilities that won’t have to compete as a result for multi-billion-dollar construction contracts. They’ve pushed ROFR laws in Iowa, Kansas, Missouri, Oklahoma and Illinois in the past unsuccessfully, and may do so again.
Competition is the Choice that Saves Money for Consumers
Studies show competition saves money. Experience proves it. Our nation’s economy depends on it. Yet ROFR laws are a choice to ignore the cost-saving power of competition in favor of higher prices.
With so much out of our control—global markets, inflation, and supply chain issues—using cost-saving competition to save money on transmission projects is one strategy that should not be ignored. Consumers should oppose ROFR laws when they are proposed to ensure that transmission lines are built at competitive and affordable prices.
The choice is clear: remove the barriers to cost-saving competition or continue allowing inflationary ROFR to burden consumers with higher electric bills.