The Federal Energy Regulatory Commission (FERC) announced that its priority for 2024 is to improve the process of planning, siting, and paying for more transmission lines to meet the growing needs of the power grid. Installing and maintaining transmission lines, part of the infrastructure that brings electricity from plants to consumers, is an increasingly expensive project to undertake. One factor behind the rising costs is Right of First Refusal (ROFR) laws, which limit competition between utility companies and make it more difficult for the country to meet its energy needs efficiently.

Under ROFR regulations, incumbent utility companies have first claim over any project that comes into their area. Different companies don’t have the opportunity to compete for the job by offering timely and cost effective solutions because the reigning utility company is automatically selected for the new project.

ROFR requirements exist at the state level and vary across the U.S. In recent years, there has been an uptick in bills filed to limit competition between utility companies through ROFR. States like Minnesota, North Dakota, and South Dakota enacted state-level ROFR laws in 2011 and 2012. Additionally, nine other states have passed similar legislation, with varying degrees of success against legal challenges.

Economists have noted that allowing competition between utility groups instead of unconditionally favoring the incumbent company leads to an average of 20-30% savings. Alternatively, when a monopoly model is favored, projects take longer and are more expensive. Consumers ultimately bear the burden of these unnecessarily costly projects.

The inefficiency of ROFR laws impacts surrounding states as well because many vital electrical transmission projects span multiple states. Residents of a state without these regulations can be forced to shoulder the added costs that come along with cumbersome restrictions on who is allowed to build a project.

Watching how these debates play out in states will be very important in the coming years as policymakers work to address these needs in a way that will prove affordable for consumers.