Indiana latest state poised to pass first-refusal rights for new transmission
A key Indiana State Senate committee votes this week on legislation that will beef up the ability of the Hoosier State’s electric utilities to steer the evolution of the electric grid.
The Senate Utilities Committee will consider House Bill 1420 at its April 13 session and is expected to send it on to the full Senate for a floor vote next week, making Indiana the latest state to move to maintain a say in the ownership of new transmission capacity and, importantly to state regulators, how the costs will be passed onto the ratepayers.
The bill was approved last week by the state House of Representatives. It comes at a time when Indiana is still producing more than half of its electricity from coal but has seen overall generation decline sharply in the past decade as various coal plants were retired, and with a solid potential for wind and solar generation, a high level of rewiring the grid appears likely.
HB 1420 gives Indiana utility companies the right to construct, own and operate new transmission lines in their territories rather than opening the projects up to competitive bids from other third-party entities that would retain an ownership stake. According to the text of the bill, the right of first refusal applies with respect to the construction or upgrades of electric transmission facilities if the construction or upgrades have been approved through a regional transmission organization planning process. The bill also requires an incumbent electric transmission owner that exercises its right to construct an electric transmission facility to solicit and evaluate bids for the construction.
Supporters have described the bill as a necessary precaution to help ensure that the expansion of the grid fits seamlessly with the projected needs of Indiana and then proceeds in an orderly fashion with a greater level of in-state control. Without granting expanded rights of first refusal, they warned, more decisions would be made by the federal government or by the multi-state Midcontinent Independent System Operator (MISO). A MISO spokesman declined comment on the Indiana legislation citing agency policy.
State Rep. Ed Soliday (R-Valparaiso), the author of HB 1420, said earlier the ultimate goal of the legislation was better cost control for the utility companies and lower rates for consumers. “If we don’t pass this bill, MISO would oversee the bid process and a company could come in and lowball the bid,” he said. “The Indiana Utility Regulatory Commission (IURC) would have no control over price and these companies could impose any cost on our utilities.”
The measure, which passed the state House of Representatives last week, requires “incumbent” utility companies to select construction bids “that fare most favorably in the evaluation of certain factors set forth in the bill.”
Opponents have leaned on the economic principle that opening-up Indiana’s market to additional competition would naturally keep a lid on the costs of new transmission projects; however, skeptics see the possibility of too many developers pushing ahead on their own and essentially foisting unnecessary projects on the state’s utility companies. A de facto utility monopoly, critics say, could strangle the expansion of renewables in the state and do little to keep consumer rates down.
According to the Indiana Energy Association (IEA), which represents over 2.3 million electric consumers and 1.8 million natural gas consumers, limiting outside competition would accelerate the buildout of the grid by eliminating the requirement to solicit bids, which can add months and years to the project.
The IEA also echoed Soliday’s argument that investor-owned electric companies had a history of successful coordination with local governments and agencies, and were under the regulatory authority of the Indiana Utility Regulatory Commission, which governs retail rates, while wholesale interstate transmission rates are set by the Federal Energy Regulatory Commission (FERC).
“Indiana customers will pay for the use of the transmission system regardless of who owns and operates it,” they said. “That is because the costs ae allocated among all users, including those in other states.”
States currently have refusal rights on projects that are completely within their borders, but FERC’s landmark Order 1000 eliminated those rights for interstate transmission and opened the door to non-utility payers, which was considered at the time to be vital to expanding regional renewable power supplies. At the same time, Order 1000 doesn’t override state or local regulations governing siting and permitting.
A measure similar to HB 1420 was enacted in Texas in 2019 but was struck down last summer by the Fifth U.S. Circuit Court of Appeals on the grounds it violated interstate commerce protections. The record for challenges in other states, however, have been mixed.
