A federal court granted a preliminary injunction on Friday against Indiana’s HEA 1420, a state law granting incumbent utility companies a right of first refusal for electricity transmission projects.
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This development comes amid a growing debate over “Right of First Refusal” laws, which allow established electricity companies to have first dibs on new projects involving the utility in the state. Critics argue that these laws stifle competition while passing on higher costs to consumers by essentially granting monopolies to companies that provide electricity.
The United States District Court for the Southern District of Indiana held in the case of LSP Transmission Holdings II, LLC v. Huston, that the law discriminates against interstate commerce by erecting barriers for out-of-state transmission companies while giving preferential treatment to in-state incumbents.
The plaintiffs in the lawsuit argue that this practice is a violation of the U.S. Constitution’s dormant Commerce Clause by mandating differential treatment of in-state and out-of-state entities.
“HEA 1420 expressly mandates differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter,” Chief Judge Tanya Walton Pratt wrote in the opinion.
She further argued that states are not allowed to prevent out-of-state companies from competing against in-state organizations:
“HEA 1420, though not a complete ban on out-of-state transmission owners, erects a barrier to the interstate electric transmission market by limiting who can compete for new construction projects in Indiana. The right of first refusal in favor of Indiana incumbents runs contrary to the Supreme Court’s admonition that ‘States cannot require an out-of-state firm to become a resident in order to compete on equal terms.'”
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The court also argued that the law was likely unnecessary when it comes to ensuring adequate service, as the state already requires public utility companies to provide a requisite level of service:
“Although HEA 1420 serves legitimate governmental interests—promoting transmission reliability, maintaining cost-effective infrastructure, and continuity of service—Indiana already requires ‘[e]very public utility… to furnish reasonably adequate service and facilities.’ Thus, the Defendants’ proffered reasons for upholding the statute are insufficient because the state’s interests are adequately served by existing, non-discriminatory utility regulations.”
The judge also noted that LSP Transmissions, the plaintiff in the lawsuit, would “suffer irreparable harm for which there is no adequate remedy at law because absent an injunction, it will be barred from competing” for projects in the state, and that “Courts have repeatedly held that a company is irreparably harmed if it is disadvantaged in—let alone completely barred from—competing for business opportunities.”
This is the right move on the court’s part, and hopefully lawmakers in other states considering such legislation will take notice. Wisconsin’s legislature, in particular, has been pushing for a similar type of law that would suppress competition by discriminating against other companies in favor of those already established.
Earlier in 2024, the Wisconsin State Assembly voted in favor of an ROFR law. State lawmakers are preparing to push the legislation through in the next legislative session.
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Jerry Ponio, legislative director for Americans for Prosperity-Wisconsin, praised the ruling, noting that “Utilities are desperately pushing elected officials to pass the same ‘ROFR’ proposal in Wisconsin to grant them a monopoly over the right to build them.”
A similar bill is being pushed in Iowa. A previous attempt to pass an ROFR law failed, but those supporting this legislation are not likely to give up – unless voters are willing to step up and send a strong message to those who would create their own monopolies.
If state legislatures pass ROFR laws, it will result in larger financial burdens on consumers who are already suffering from high rates of inflation and other economic problems. We’ll keep you posted on developments.