A New York-based electricity provider is suing two Minnesota public agencies over a law it claims improperly favors home-state companies for new power line projects.

The 2012 state law gives "incumbent" electricity transmission providers in Minnesota a "right of first refusal" for new power line projects. In other words, they get first dibs over companies that don't currently have transmission lines in Minnesota.

The law is anti-competitive and violates the commerce clause of the U.S. Constitution, said the suit filed Friday by LSP Transmission Holdings in U.S. District Court in Minneapolis.

"There are a few other states that have such laws," said Ari Peskoe, a senior fellow at Harvard Law School's Environmental Policy Initiative.

None has been tested in a federal court. The suit by LSP Transmission "could set an important precedent," Peskoe said.

LSP is suing the five members of the Minnesota Public Utilities Commission (PUC); and Minnesota Department of Commerce Commissioner Mike Rothman.

The PUC approves new transmission lines, while the Commerce Department makes recommendations to the PUC and is responsible for enforcing the right-of-first refusal law, the suit said. Both agencies declined to comment.

LSP Transmission owns 500 miles of transmission lines in two states, but not Minnesota, and is developing projects in six other states. The company is an arm of LS Power Group, a developer, owner and operator of electricity generation and transmission projects.

Earlier this year, LSP Transmission sought to bid on a 40-mile power line project connecting an Xcel Energy substation north of Mankato to a proposed new substation south of Winnebago, Minn., which would be owned by ITC Midwest LLC.

Bidding on such projects goes through the Midcontinent Independent System Operator Inc. (MISO), the federally sanctioned nonprofit that operates the electricity grid in parts of 15 states, including Minnesota.

MISO found that the Mankato-to-Winnebago line wasn't eligible for competitive bidding because of Minnesota law, the company claims.

"The statute … limits the right to build MISO-approved transmission lines in Minnesota to those entities that already have a Minnesota footprint, and excludes non-incumbents from building these lines," the suit said.

Xcel and ITC Midwest notified the PUC in March that they planned to build the power line from Mankato to Winnebago.

Xcel supported the 2012 right of refusal law, arguing that "elimination of the incumbents' right of first refusal would remove local control over transmission projects, and shift 'critical decisions' to the federal government."

Xcel, Minnesota's largest transmission line owner, declined to comment on the lawsuit.