Brief summary: Beginning in the late 1990’s, FERC established financial incentives for utilities building transmission lines by guaranteeing rates of return ranging between 10 and 13%. These highly profitable rates of return have rendered transmission builders free and clear of financial risk, as all costs for building, financing, operating, maintaining, and securing transmission lines up to 75 years are assumed by electric customers. This policy combined with the passage of Act 204 of 1997 making it unnecessary for utility proposals to undergo competitive comparisons with other energy solutions, has led to capital utility investments that have not only caused electricity costs to skyrocket, but that are also directly competing with communities being able to develop local solar resources and to improve energy efficiency.
According to a 2016 comment by Howard Learner, executive director of Environmental Law and Policy Center (ELPC), speaking at a July 2016 meeting of Driftless Defenders.
“most people wrongly assume that electric utilities make most of their profit by selling power. They don’t, they make money by putting steel in the ground.”
FERC, as mentioned above, sets high mortgage interest rates to guarantee transmission companies and their utility company shareholders low financial risk and high rates-of-return, in excess of 10%. As a result, there is little incentive for these companies to invest in high efficiency, low-cost projects that directly benefit consumers and their communities.
Utility shareholders understand that their profits come directly from large-scale coal, natural gas, wind, and solar projects that lead to increased electricity sales and that require high yielding capital investments in transmission expansion.
According to SOUL Wisconsin, prior to 1998, Wisconsin law required that there be a competitive bid process with energy efficiency, load management, and local power. With that legal stipulation removed after 1998, the incentive to invest in capital-intensive utility projects such as transmission lines and power plants rose dramatically. What also rose substantially were consumer electricity rates and fees because of the high interest debt for such investments. http://www.soulwisconsin.org/Badger-Coulee-Refusal_Review-Process-Calendar.html
Utility shareholders are fully aware that competition from customer-owned, distributed wind and solar projects could undermine the viability of their business model.
A study of the impacts of customer-sited photovoltaics on the average achieved return on investment, earnings, and retail rates for a hypothetical Northeast utility shows that when solar provides 10% of electricity, utility returns on equity fall by 18%. To address the impending threat of customer-owned distributed wind and solar projects, utilities are pushing back against trends like net metering that support distributed energy projects nationwide. https://ilsr.org/report-is-bigger-best/