America’s power grid is really a patchwork of regional grids, each with their own operators, with few high-capacity lines connecting them. This fragmentation comes at a real cost for customers, who are often unable to access cheaper power available just across a state or regional border. The Department of Energy’s recent National Transmission Needs Study identifies several of these cases, where regions’ electricity costs would decline substantially if they were connected by a high-capacity transmission line. Providing these benefits to consumers, however, requires confronting not just the incentives that discourage utilities from building interregional lines, but the state laws that let incumbent monopolies control who builds them.

Utilities earn profits by building new assets inside their service territory, so their financial incentive runs directly against non-locally isolated infrastructure. An interregional line threatens their model in two ways. A rival developer might win the right to build it, capturing revenue the utility would rather keep for itself. Alternatively, the line might successfully deliver cheaper power from elsewhere, which cuts into the utility’s own opportunities to build and bill for new assets.

>>>READ: Closing the Local Project Loophole: the Case for Competitive Transmission

The Federal Energy Regulatory Commission (FERC) has responded to this disincentive by mandating regional transmission planning, and Congress is now weighing how to extend that coordination across regions. Legislative proposals, including the BIG WIRES Act and parts of the Energy Permitting Reform Act (EPRA) of 2024, aim to coordinate planning across neighboring grids. 

Planning reform alone, however, ignores an equally pressing question about who gets to build these new lines. That question shows up today in laws across nearly a dozen states that threaten to undermine competitive construction of this infrastructure. These statutes grant each state’s utilities a right-of-first-refusal (ROFR), the right to build transmission in their territory before any other developer, even one that has already won a competitive solicitation. FERC stripped transmission owners of this right at the national level more than a decade ago to introduce competition, but utilities immediately asked states to restore the protections. Many utilities won these fights in state capitols across the country.

Yet, recent studies assessing competitive transmission against incumbent-built projects show how these laws hurt consumers. An analysis by the R Street Institute indicates that projects developed through competitive bidding were roughly 30 percent less expensive than comparable incumbent construction. Additionally, across the six FERC-regulated regions, they found that competitive projects’ median completion time was shorter in four of them. Absent competition, electric customers pay more and wait longer.

The first-best answer is to repeal these state laws outright. That fight is already underway in courts, and one worth engaging in. However, litigation has led to conflicting circuit court decisions about whether ROFR violates the Constitution’s dormant Commerce Clause, often interpreted to limit state laws that discriminate against interstate commerce. The Supreme Court has twice denied petitions to review the ROFR issue in both a Minnesota case in 2021 and Texas case in 2023, leaving the question unsettled.

Faced with this legal uncertainty, an equivalent, faster alternative could be legislation requiring incumbent utilities’ development to match the contractual terms of successful competitive bids. This idea surfaced in 2021 when Ari Peskoe, Director of Harvard’s Electricity Law Initiative, proposed it in the context of regional planning, but no legislation has incorporated it since. The intuition is simple: if a utility uses its right of first refusal to capture a project, it must match the lower costs or better terms offered by the winning competitive bid. This brings the costs paid by ratepayers closer to what they should be paying in the free market.

>>>READ: Will the Ratepayer Protection Pledge Work?

This change would not require an expansion of FERC’s existing authorities. The Federal Power Act already allows FERC to declare rates or practices “unjust and unreasonable,” and the D.C. Circuit Court already ruled FERC could use that authority to eliminate federal ROFR as an anticompetitive rate practice. Enacting competitive requirements for interregional transmission employs the same logic. Congress should write a competitive parity requirement into law directly, sparing ratepayers years of legal battles that often accompany FERC-initiated rulemakings and protecting households from unruly development costs landing on their utility bills.

Many interregional transmission proposals in Washington possess the right objective—planning and building more interregional transmission lines—but fail to acknowledge when this objective collides with state monopoly protections. Remedying this gap does not require wide repeals of ROFR statutes, though that would be ideal. Instead, Congress could explicitly codify action using FERC’s existing authorities to ensure that, whoever builds a line, a competitive price is the price American households and businesses pay.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.