The Problem
Right of first refusal, or ROFR, laws give incumbent electricity utilities the right of first refusal when states are looking to build out new interstate transmission lines, meaning entrenched monopolies receive priority for new construction, the spending on which can then be used to justify price hikes for ratepayers. The federal government, through FERC, repealed its “right of first refusal” rules in 2011 but left states able to implement their own laws.
There are ROFR laws on the books in 11 states: Montana, North Dakota, South Dakota, Minnesota, Nebraska, Michigan, Indiana, Oklahoma, Texas, Mississippi, and Alabama. Several other legislatures considered bills, advocated by the monopoly utilities, to create ROFR laws during the 2024 state legislative session.
The alternative to having an ROFR law is a competitive bidding process for new transmission construction, wherein incumbent utilities have to bid against other companies for construction projects. According to a 2019 study, this competitive bidding lowers construction costs by 20 to 30 percent, potentially saving ratepayers billions of dollars.
Which companies build out transmission lines is now an even more important question than usual, because the Biden administration’s Bipartisan Infrastructure Law and Inflation Reduction Act includes $30 billion for bulking out the U.S. power grid, including connecting it to new wind and solar projects.
The Solution
States with ROFR laws in place should repeal them — as Minnesota legislators have proposed — and state legislators should block any attempts at passing new ROFR laws.