A federal judge on Monday struck down a section of a Texas law that gives state utilities the “right of first refusal” for building new electrical transmission lines.

The law, SB 1938, made it harder for utilities with no in-state transmission facilities to build new lines, reversing the state Public Utility Commission’s policy that allowed utilities with no Texas facilities to build in certain territories.

In a 33-page ruling, Judge Robert Pitman of the Western........

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