Power to the incumbent utility?

Rising demand for electricity will require new transmission lines, and within the regulatory framework for the nation’s electric grid, states have a large say in who gets to build them.

As of 2025, a dozen states, six of which are in the Midwest, have laws giving utilities a “right of first refusal” (ROFR) to build new lines that fall within their service territory and have been approved by a regional transmission organization.

ROFR laws typically provide the incumbent utility with a specified time period to notify the state on whether it will exercise this right.

The project opens for competitive bidding only if the incumbent utility declines. (If the utility chooses to build, its own process for designing and constructing the new lines may include competitive bidding.)

Questions of competition

The argument against ROFR laws is straightforward: competition in the bidding process results in less expensive projects for both the builder and utility ratepayers.

It was the reason cited by Illinois Gov. JB Pritzker in 2023, when he vetoed an ROFR provision in HB 3445.

“Eliminating competition will cause rates to increase in the MISO region,” Pritzker’s amendatory veto message said. MISO is the regional transmission organization covering most of Illinois.

When Iowa legislators introduced an ROFR bill earlier this year, they sought input from the U.S. Department of Justice’s Antitrust Division.

The response: SF 585 is not in the best interest of consumers and could stifle innovation. For one, even if a project ultimately is built by an incumbent utility, the specter of competition can drive down cost and drive up quality. Second, in some cases, non-incumbent firms may be able to offer better designs and lower costs.

ROFR proponents counter that these laws can simplify an already complex process in a highly regulated marketplace.

They note that incumbent companies know their territories best — from the topography and customer base; to local and state officials and regulations; to which contractors, sub-contractors, suppliers and vendors can or can’t do the job.

Moreover, they say, responsibility for the completed project’s reliability lies with the incumbent company, which is incentive enough to build a good, cost-efficient project.

Six Midwestern states have ROFR laws: Indiana, Michigan, Minnesota, Nebraska, North Dakota and South Dakota. As of September, bills to create a ROFR had failed to advance in Iowa and Kansas, but remained alive in Wisconsin.

Rep. Jerry O’Connor, a sponsor of the Wisconsin legislation, says a carefully crafted ROFR law in his state would be the best way “to protect ratepayers in the world of utility monopolies.”

Under his bill, AB 174, the state would grant incumbent utilities ROFR privileges, while also requiring competition within that process. For example, utilities exercising their right of first refusal would have to:

• Solicit competitive, sealed bids for the construction, design or furnishing of materials for transmission projects of $1 million or more.
• Extend bidding by 30 additional days if fewer than three bids are received.
• Submit to a state legislative audit of 15 percent of transmission facility contracts to ensure compliance with those standards.

“When you look at utility monopolies, the only way you really can control them is to have legislative rules put in place to protect the public,” O’Connor says.

New era after federal order

The right of first refusal for incumbent operators to build new transmission lines in their territories was the national standard until July 2011, when the Federal Energy Regulatory Commission issued Order 1000. It eliminated the federal ROFR, thus opening the construction bidding process to any qualified entity.

The theory was that doing so would lead to lower construction costs, says Larry Gasteiger, executive director of WIRES, a trade association that includes transmission providers.

What’s happened instead, he says, has been lengthier processes around choosing the developers of transmission lines and more litigation over those choices, stretching out the timeline to get a new line permitted and built.

“It’s actually taking longer; it’s gotten very contentious. I think there are real questions around whether it’s really saving any money or not,” says Gasteiger, who served as FERC deputy director from 2009 to 2014. “At the end of the day, you’re stuck wondering, What did we get out of all of this?”

In 2024, FERC issued Order 1920, which reinstated a narrow federal ROFR for a “right-sizing” of projects — for example, replacing existing facilities when upgrades are needed to increase capacity.

That same year, the Alliance for Innovation and Infrastructure, a nonpartisan think tank, issued “Building New Critical Infrastructure: No Time to Waste.” The report examines the claims from both sides of the ROFR debate and addresses time as an often-overlooked factor in the broader discussion of building new transmission lines.

Among its conclusions:

• FERC Order 1000 has increased the time between when a need for new transmission lines is identified and when they come online, which “has likely influenced ratepayer costs.”
• Competitive bidding can add an additional year to the construction process — a cost factor that may negate expected project savings while creating additional costs to a regional economy due to delayed power supplies

“Policymakers should understand the impact of time and view it as the direct and indirect cost that it imposes on projects,” the report says.

To frame the debate as “competition vs. monopoly” therefore misses that broader picture, says Benjamin Dierker, executive director of the alliance.

Legal, political hurdles

State and federal courts also have been asked to weigh in on the constitutionality of ROFR laws.

In May, the Iowa Supreme Court upheld a lower court’s permanent injunction of a 2020 law. That decision was based on what justices determined to be a violation of the Iowa Constitution’s single-subject rule. The enacted legislation (HF 2623) was an appropriations bill that included an ROFR provision.

Subsequent efforts to pass a stand-alone ROFR bill in Iowa, including this year’s SF 585, have been unsuccessful.

In October 2024, LS Power, a New York City-based developer of transmission lines, challenged Indiana’s 2023 ROFR law (HB 1420) in federal court, alleging it violates the Commerce and Supremacy clauses of the U.S. Constitution, as well as the Indiana Constitution’s Privileges and Immunities Clause.

In that case, a district court in December 2024 issued a preliminary injunction barring the Indiana Utilities Regulatory Commission from enforcing the ROFR law. But in March 2025, the 7th Circuit Court of Appeals vacated that injunction in a 2-1 decision, ruling that LS Power didn’t have standing to seek relief from the commission.

The case was remanded back to the district court.