Law & Principles

As electricity rates surge, proposal may reduce competition

October 24, 2023

Ray Carter

Oklahoma has shifted from having some of the nation’s most affordable electricity rates to being ranked among the most expensive.

Now a proposal being considered at the Oklahoma Legislature could reduce competitive bidding for new transmission lines, which critics warn could drive prices up even higher.

Currently, state law allows utilities to skip competitive bidding for new transmission line projects involving up to 300 kilovolts (300,000 volts). But some officials now want to raise the competitive-bidding exemption to include transmission projects involving up to 345 kilovolts.

In a recent legislative study, lawmakers considered whether giving state utilities the “right of first refusal” (ROFR) on transmission projects will benefit Oklahomans.

David Osburn, general manager for the Oklahoma Municipal Power Authority (OMPA), which provides wholesale electricity to 42 Oklahoma municipalities, said the answer is no.

Osburn’s presentation noted that transmission has been OMPA’s fastest growing expense over the past eight years, surging from $14 million in 2015 to over $23 million per year today, an increase of 64% that occurred despite the OMPA’s load remaining virtually flat.

Osburn’s presentation noted surging transmission cost “has had a direct impact on the cost of electricity paid by the citizens of our members.” Meanwhile, transmission has “become a growth opportunity for some regulated utilities” as they earn a return of 10.5% to more than 11% on transmission, he noted.

OMPA officials argue new transmission projects should be competitively bid because that lowers up-front cost in the design process. Recent transmission projects in the Southwest Power Pool, of which Oklahoma is a part, show that competitive bidding can produce significant savings. OMPA officials noted the original estimate for a recently approved transmission project was $376 million but the actual cost after competitive bidding was $291.6 million.

“The goal should be to control costs and keep transmission rates in check, and the best way to do that is to continue the existing structure,” OMPA’s presentation stated. “Giving incumbent transmission owners exclusive rights is akin to writing blank checks.”

But a presentation by Chris Winland, director of strategic planning for ITC Great Plains, dismissed those concerns.

Winland’s presentation stated that although “the concept of competition is embedded in the American free enterprise system,” it “hasn’t worked and can’t work in the transmission space as envisioned.”

Winland’s presentation argued that competitively bid transmission projects take longer to complete and can face more cost overruns than projects without competitive bidding.

Consumer advocates oppose any effort to reduce competitive bidding for transmission projects.

“Whether talking about ROFR or a performance-based rate model, eliminating competition leads to increased costs for businesses and families, while eliminating the benefits of oversight and transparency that free-market competition brings,” said John Tidwell, state director of Americans for Prosperity–Oklahoma.

State Sen. Lonnie Paxton, a Tuttle Republican who requested the study, said lawmakers will continue to consider the issue.

“This is a critical issue that impacts our economy, business community, and consumers,” Paxton said. “We need to find the best path forward to provide efficient, reliable, and affordable electrical service to our citizens and businesses. Given the complexity of this issue and its widespread impact, we’ll continue having discussions in the coming months.”

In September 2022, a report by the Alliance for Electrical Restructuring in Oklahoma showed that electricity rates in Oklahoma surged by 49% from June 2021 to June 2022. During that time, Oklahoma went from having the most affordable electricity rates in the nation to having the 18th-highest costs among the 50 states, according to the report.

By July 2023, a report by WalletHub found that Oklahoma had the sixth-most-expensive electricity rates in the nation.