Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) were established to manage grid operations and to plan transmission projects based on reliability, economic efficiency, and public benefit. These organizations are intended to serve the public interest by ensuring that decisions regarding transmission investments are made on a neutral, evidence-based basis. However, concerns have been raised about whether the planning process may disproportionately reflect the perspectives of incumbent utilities and transmission owners.
The controversy surrounding Invenergy’s Grain Belt Express project in the Midcontinent ISO (MISO) region provides a useful case study. This Energy Brief examines the independence of U.S. ISO/RTO transmission planning, considering stakeholder influence, financial benefits, and the implications of integrating merchant transmission projects alongside traditional utility-led initiatives.
Stakeholder Influence in Transmission Planning
ISOs and RTOs are structured to include a wide range of stakeholder voices—from utilities and state regulators to consumer advocates and independent developers. In principle, this open process is designed to balance interests and produce planning outcomes that benefit the grid as a whole. In practice, however, research and stakeholder commentary have observed that incumbent transmission owners—often large, investor-owned utilities—can have a significant impact on planning discussions. Some industry experts note that the processes in place may inadvertently favor those entities that already own large portions of the grid. For instance, some regional structures have been observed to allow these utilities to contribute heavily to the assumptions and parameters used in planning studies, which may lead to outcomes that align more closely with their business interests.
The MISO experience illustrates these concerns. Independent market monitors have, at times, raised questions about the level of oversight and the potential for biases that could lead to a preference for projects that benefit incumbent utilities. Critics have pointed out that the criteria used for project inclusion sometimes favor proposals from established market participants. While MISO and other RTOs emphasize the transparency and rigor of their stakeholder processes, the debate continues over whether the process fully captures the diverse range of perspectives needed for truly balanced planning.
FERC Order No. 1000, issued in 2011, was designed to improve the regional planning process by increasing transparency and opening the door for competition. It required that transmission planning consider regional needs and explicitly set aside the federal “right of first refusal” for incumbent utilities. Despite these measures, some states have developed policies that continue to provide advantages for local utilities. As a result, many transmission projects still tend to be led by incumbent players. This suggests that while the framework is intended to be neutral, the practical influence of established market participants remains an important factor in shaping transmission planning.
Financial Benefits and the Cost Recovery Model
Transmission projects approved by ISOs and RTOs typically follow a regulated cost recovery model. Under this model, the utility that builds a transmission line is allowed to recover its construction costs, plus an approved return on investment, through regulated tariffs paid by consumers. This arrangement provides a predictable revenue stream, and it creates an incentive for utilities to pursue capital investments. From the perspective of the regulated utility, these projects contribute to a growing rate base, which is reflected in their financial returns and, ultimately, shareholder value.
Independent analyses have shown that when competitive processes are used—for example, when projects are opened to bids from multiple developers—the resulting costs are often lower than those estimated for traditional utility-built projects. In several instances, competitive solicitations have resulted in bids that were 20% to 40% lower than utility proposals. These findings suggest that when alternative models are evaluated on their merits, there is potential for cost savings for ratepayers.
Nevertheless, the existing model largely favors incumbent utilities. When utilities build projects and recover costs through regulated tariffs, the public absorbs any overspending or conservative estimates through higher rates. This cost recovery mechanism means that utilities benefit from an increase in their asset base regardless of whether the project is the most cost-effective solution available. Although the model has long been defended on the basis that it ensures grid reliability and stability, critics argue that it may also lead to decisions that do not fully reflect a least-cost, consumer-focused approach.
Balancing Shareholder Interests and Consumer Benefits
A key issue in the debate over transmission planning is the tension between maximizing shareholder returns and minimizing costs for consumers. Publicly traded utilities are under constant pressure to deliver steady returns for investors. This pressure often translates into a preference for capital projects that increase the rate base, even if those projects result in higher costs for ratepayers. In contrast, a focus on consumer benefits would ideally emphasize cost-effectiveness and efficiency, ensuring that every approved project contributes directly to improved grid performance and lower overall costs.
Regulators and consumer advocates have called for enhanced oversight to ensure that transmission investments are truly necessary and cost-effective. Recent FERC orders and policy discussions indicate an ongoing effort to refine the planning process by incorporating more independent review and transparent analysis. Proposals such as establishing independent transmission monitors and broadening stakeholder participation aim to address the potential conflict of interest inherent in a system where the project sponsor also stands to benefit financially.
The question is not whether utilities should be allowed to invest in transmission—capital investments are essential for modernizing and expanding the grid—but whether the process should better balance the needs of all stakeholders. A more balanced approach might involve more rigorous evaluation criteria for project benefits and costs, including consideration of competitive proposals that could provide similar or better results at lower costs.
The Grain Belt Express and the Merchant Transmission Challenge
Invenergy’s Grain Belt Express (GBE) project in the MISO region has become a focal point in the debate over transmission planning independence. Grain Belt Express is a merchant HVDC transmission project designed to transport up to 5,000 megawatts of wind power from the Plains to Midwest markets. Unlike traditional utility projects, GBE is financed privately, with costs recovered through market contracts rather than regulated tariffs. This model shifts financial risk away from ratepayers and depends on contractual arrangements with power buyers.
MISO’s decision to exclude Grain Belt Express from its long-range planning studies was based on the absence of signed interconnection agreements and its exclusion from any utility resource plan. Invenergy argued that this exclusion was inconsistent, as the planning models often incorporate speculative generation resources that do not yet have firm contracts. The debate over Grain Belt centers on whether the planning process should accommodate advanced-stage merchant projects and, if so, how they should be evaluated relative to traditional proposals.
The implications of including Grain Belt in planning models are significant. Some independent analyses suggest that incorporating the capacity provided by GBE could reduce the need for other large-scale infrastructure projects, such as additional 765 kV corridors, which are typically more expensive and fall under the utility-led, regulated model. In theory, if a merchant project like Grain Belt can deliver cost-effective capacity and enhance grid performance, its inclusion could lead to overall savings for ratepayers by reducing redundant investments.
At the same time, proponents of MISO’s approach argue that merchant projects must meet rigorous criteria before they are considered in regional plans. They maintain that it is premature to factor a merchant project into long-term planning scenarios without full contractual commitments. This perspective is grounded in the need to ensure reliability and avoid planning for capacity that might not materialize. The Grain Belt dispute, therefore, highlights the broader challenge of integrating innovative, market-driven projects into an established planning framework that has historically been dominated by regulated utility proposals.
Merchant Versus Incumbent: Comparing Business Models
The difference between merchant and incumbent transmission projects is rooted in how revenue is generated and how risks are allocated. Incumbent utilities build transmission lines under a regulated model that guarantees cost recovery and a fixed return on investment. This model provides financial certainty but also incentivizes capital expansion. In contrast, merchant projects must secure market contracts or rely on competitive pricing to generate revenue. This approach naturally imposes market discipline and cost optimization, as the developer is accountable to its contracting customers rather than relying on a guaranteed tariff.
For incumbent utilities, the growth of merchant projects presents both a challenge and an opportunity. On one hand, successful merchant projects can offer cost-effective solutions that may relieve pressure on traditional utility investments. On the other hand, if merchant projects capture significant transmission capacity, utilities may experience slower growth in their regulated asset base, which could affect their long-term earnings. Some utilities have sought to participate in the merchant market through subsidiaries or partnerships, thereby blending the advantages of both models.
Ultimately, the ability of the transmission planning process to accommodate both approaches fairly is a critical test of its independence. Ideally, planning models would evaluate projects based on merit, cost-effectiveness, and contribution to overall grid reliability—regardless of whether the project is utility-led or merchant-developed. Recent policy discussions at FERC and among state regulators suggest that there is growing support for reform measures designed to ensure that competitive proposals are given due consideration. This could help align transmission planning more closely with the dual goals of enhancing grid performance and protecting consumers from excessive costs.
Conclusion
The independence of U.S. ISO/RTO transmission planning is a multifaceted issue. On one hand, the established processes are designed to be inclusive and transparent, drawing on a range of stakeholder inputs to serve the public interest. On the other hand, evidence suggests that incumbent utilities and transmission owners continue to exercise significant influence over the planning outcomes. The financial structure of regulated cost recovery—while providing stability and predictability—can also create incentives for utilities to favor projects that expand their rate base, potentially at higher costs to ratepayers.
The Grain Belt Express project illustrates the challenges of integrating independent, market-driven solutions into an established framework that has historically favored utility-led investments. Merchant projects offer an alternative model that may provide cost savings and risk diversification, yet their exclusion from planning models can lead to redundant or overly expensive investments.
Recent FERC orders and ongoing policy debates signal a willingness to refine the planning process. Enhanced oversight, broader stakeholder participation, and a more rigorous evaluation of project benefits and costs could help ensure that transmission planning truly reflects the public interest rather than the interests of a few dominant market players. As the U.S. continues to modernize its electric grid, achieving a balanced, transparent, and cost-effective approach to transmission expansion will be critical in ensuring that investments benefit all consumers.
