Promoting Cost-Effective Grid Modernization

Recent legislative reforms enacted in several states grant incumbent utilities a right-of-first-refusal (ROFR) over new electric power transmission lines. Regional grid planners, who typically defer to state law, often avoid running competitive solicitations for regional transmission projects located in these states. As a result, state ROFR laws expose customers to excessive regional transmission costs. Such state ROFR laws are constitutionally dubious, and ultimately harmful to customers. Customers affected by ROFR laws do not realize the cost savings and other benefits of competition, including superior cost containment and innovative grid modernization solutions. States can promote cost-effective grid modernization by encouraging competitive bidding selection processes for new regional transmission lines, and preserving or enhancing the authority of regulators to balance a broad range of factors in permitting and cost recovery for projects. Regulators commonly use such approaches to evaluate the purchase of power generation from competitive sources, and cost-effective grid modernization could benefit from similar safeguards to protect customers as new regional transmission line projects are approved