ROFR in Retreat
The last several years have seen a concerted push by electric utilities to eliminate competition from the transmission component of the electric grid. Depending on location, new electric transmission projects in the United States are either put out for bid to see who can build and maintain them at the most attractive price or summarily awarded to the local utility. The latter system, known as “right of first refusal” (ROFR), has proven to increase costs for new transmission projects by 20 to 30 percent. That’s bad news for electric consumers, but the ability to pad their rates looks pretty good to utilities, particularly since they’re guaranteed the extra money.
Utilities have pushed to expand or enact ROFR laws in a number of states; however, the tide seems to have turned. The critical moment came in 2023, when Illinois Gov. JB Pritzker vetoed a ROFR bill passed by the legislature. That same year, the Iowa Supreme Court invalidated its state ROFR law as having been enacted improperly. Subsequently, a federal judge in Texas ruled its state ROFR law unconstitutional, and an Indiana judge suspended its ROFR law on similar grounds. (That case remains pending).
The anti-ROFR trend has continued this year. The Iowa Legislature has declined to reenact ROFR, and bills to implement ROFR in Oklahoma and Wisconsin have stalled or been defeated. The anti-competitive label has become so toxic that proponents have even tried to disguise their proposals.
But the biggest win for electric competition is coming out of Montana, where a bill that would repeal the state’s ROFR law is headed to the desk of Gov. Greg Gianforte. The old ROFR law was unusual in that it only applied to a portion of the state—around 45,000 square miles of eastern Montana, an area equivalent in size to Indiana. The success of the repeal effort will no doubt spur repeal efforts in other states like Minnesota, where ROFR requirements are adding millions to consumers’ bills.
Montana’s ROFR repeal shows that competition can work not only in the electric transmission market but in the political arena as well. ROFR proponents have tried a variety of arguments to convince lawmakers that the seemingly intuitive benefits of competition are illusory; however, actions in Montana and elsewhere suggest these tactics are not working.