In an objective vacuum, the notion of improving and expanding our electric grid and building new power plants sounds great – it is essentially accepted that we need more electric power to meet growing demand, driven by data center growth. The inherent problem with that, however, is that someone must pay for that investment, and more often than not, that means power consumers are paying for new transmission lines and generation power plants while they are being built, and thus before they can provide any benefit to those same consumers.

As pointed out in a recent Reuters article, “[m]illions of Americans are . . . financing electric grid projects before they get any benefit.” But why would that be allowed? The article explains: “Policy-makers, in an urgent bid to overhaul the nation’s aging electric grid, are increasingly letting utilities charge customers for power plants and transmission lines long before they’ve been built, boosting near-term bills in exchange for promised savings decades down the road.” 

This is a perfect model for the Investor Owned Utilities (IOUs) – most of whom are monopoly providers of power in some fashion. The IOUs can minimize the risk of their investment for their shareholders and transfer it to captive ratepayers, while also recovering costs from ratepayers for projects that cannot yet provide any useful service. And this is a growing trend, with some form of Construction Work in Progress (CWIP) surcharge rate recovery now available in a majority of states.

This IOU-friendly model omits consideration of many important factors, such as the fact that if independent power producers or transmission line developers build such projects, they bear their own risk of investment. Per the Reuters article, this model also fails to fairly capture the potential for cost overruns and delays, which are a common occurrence, meaning that ratepayers pay for that, too. Perhaps most importantly, however, is the fact that ratepayers are already struggling with higher electric bills, which can only be aggravated by this risk-shifting model.

As reported recently, average revenues paid by ratepayers in Ohio, Pennsylvania, and Virginia have increased by as much as 26 percent in the past year. Similarly, West Virginia retail customer power rates have increased by over 50 percent in the past several years, resulting in calls for legislative action. The reality is that consumers arguably should be the last source for essentially financing monopoly utility infrastructure upgrades and projects.

Todd Snitchler writes, “Utilities prefer a model in which captive customers bear the risk of generation investments.” He argues that “[p]olicymakers must remove barriers to new infrastructure and allow competitive power markets to function properly,” including relying on independent power producers to build new generation in the competitive wholesale market; that applies as well to development of new transmission infrastructure, which should be competitively bid.

As Snitchler notes, state regulators should challenge and act as a “stopgap for monopolistic behavior,” but sometimes cannot if no other options are available at the wholesale level, thus competition at that level is necessary to protect all consumers. Certainly, there is a strong viewpoint that it makes little sense for state regulators to allow monopoly utilities to shift multi-billion-dollar risks for new infrastructure investment to captive ratepayers (and away from their shareholders), especially given the immense cost pressure that consumers are already under.