By Matt Welch
April 25, 2025
Texans have long championed free enterprise and competition. Over 25 years ago, our state was one of the first to deregulate most of our electricity market, unleashing billions in private investment and innovation. We know that when businesses compete, consumers win. Yet today, one critical part of our electric system remains shielded from competition by outdated policy.
When it comes to building high-voltage transmission lines – the “interstate highways” of our electric grid – Texas was a leader in using competition to reduce costs. But in 2019, Texas lawmakers quietly erected a barrier to competition in the transmission market. Senate Bill 1938 (SB 1938) granted incumbent utilities a Right of First Refusal (ROFR) for new transmission projects – banning new entrants from the Texas market.
The law now mandates that if a new power line will connect to a utility’s existing equipment, only that same utility can build and operate it. In practice, ROFR slammed the door on independent companies eager to invest in our grid. It “mutes what little competition exists in the power transmission market” and benefits incumbent utilities at the expense of new entrants and Texas electricity consumers.
This isn’t just bad policy – it’s antithetical to Texas’s free-market principles. The time has come to restore the competitive, free-market spirit to our transmission sector, ensuring reliable power at the lowest cost for Texas families and businesses.
Defenders of the ROFR say it ensures reliability by letting familiar local utilities build needed lines. But Texans know better: competition and accountability drive performance, not a complacent monopoly. Under the ROFR regime, a handful of transmission utilities can essentially dictate project terms, timelines, and costs – all recovered from ratepayers – without facing any competing bids. This lack of competition reduces the incentives for efficiency and transparency. It’s economics 101: when there’s no alternative provider, customers (in this case, all of us who pay electric bills) must accept whatever price and terms the monopoly sets.
Not only is SB 1938 bad economics, it’s on shaky legal ground. Major energy developers like NextEra Energy saw SB 1938 for what it is – protectionism – and challenged it in court. And they’ve been vindicated.
As a result, federal courts have blocked Texas’s ROFR law from being enforced at least in areas in Texas, but outside ERCOT. The U.S. Court of Appeals for the Fifth Circuit, in holding against SB 1938, said, “imagine if Texas–a state which prides itself on promoting free enterprise–passed a law saying that only those with existing oil wells in the state could drill new wells.”
The Trump Administration Justice Department, in an amicus brief to the U.S. Supreme Court said, “The court of appeals correctly determined that SB 1938 discriminates against interstate commerce by prohibiting any company without an existing in-state presence from competing in the market for the construction and operation of electric transmission facilities…” The writing is on the wall–Texas should get rid of this competition killing law because it is just plain bad policy.
The timing for reform could not be more critical. Texas is on the verge of a massive grid buildout to keep up with our booming economy and population. ERCOT and the Public Utility Commission have identified at least $30+ billion needed for new and upgraded long-distance power lines in the coming years to support a massive growth in electricity demand.
Who will build these lines, and under what terms? If we leave it to the status quo, only the incumbent transmission companies. They will get blank checks leaving Texans hoping government bureaucrats (rather than true competition) will protect them from excessive costs.
Given that transmission costs are ultimately paid by electricity consumers on our monthly bills, we must sure those investments are as cost-effective as possible. And we’re not talking about small savings – evidence from other regions shows competitive bidding can slash costs significantly.
In regions where competitive transmission bidding is allowed, the results speak for themselves. An analysis by The Brattle Group found that competitive solicitations for transmission projects have yielded roughly 20%–30% cost savings on average compared to the original estimates. For example, the Midcontinent Independent System Operator (MISO) recently opened a 345-kV line project in Indiana to competitive bids, and the winning bid came in 26% below the grid operator’s cost projection. In PJM, LS Power won the Artificial Island Project, which received 26 bids, and saved consumers almost $600 million.
How many competitive bids do projects in Texas get? Zero. Competition saves consumers money and also tends to bring more rigorous cost control – bidders often commit to cost caps or fixed prices, something monopoly utilities rarely offer under cost-plus regulation. And with multiple eyes on a project, there’s greater transparency in planning: Texans can see different proposals and choose the best one, rather than being told there is only one option.
It’s time for Texas to practice what it preaches about free markets. Embracing competitive bidding for transmission projects is a pro-consumer reform that aligns with our principles. We should start by repealing SB 1938’s ROFR provisions to ensure its anti-competitive principles do not apply to the forthcoming wave of projects in ERCOT. State leaders and regulators should set up an open bidding process for new major lines – inviting not just the incumbent utilities, but also independent transmission developers and consortiums, to put their best proposals on the table.
If an incumbent utility truly is the best suited to build a given line, they should have no trouble winning in an open, fair bidding process – and Texans can then be confident we’re getting the best deal.
In sum, opening the transmission sector to competition is about putting Texas ratepayers first. It means leveraging the power of the market to deliver the most reliable grid at the lowest reasonable cost. Texans have never shied away from competition, and we shouldn’t do so here either. As we prepare to invest tens of billions in new transmission lines, let’s make sure we get the best deal for our hard-earned dollar.
