Texas

Commerce Clause Challenge to Transmission Law
NextEra v. Paxton, et al.,
Most Recent Development: Texas petitioned the U.S. Supreme Court to review the Fifth Circuit’s decision (Dec. 2022).
Case Documents

Case Summary
NextEra’s complaint, filed in U.S. District Court for the Western District of Texas, alleges that amendments to the state’s public utility laws violate the dormant Commerce Clause and “substantially impair” the company’s “contractual right” to build a new line in East Texas. NextEra alleges that Texas law “ousts” the company “from acquiring further business or developing and constructing new transmission projects in Texas” by reserving the transmission market for utilities that already own transmission and distribution facilities in the state.

SB 1938, signed into law in May 2019, restricts the Public Utility Commission’s authority to grant Certificates of Public Convenience and Necessity (CPCN). Previously, the law allowed the PUC to grant a CPCN to an “electric utility or other person.” SB 1938 deletes “or other person,” and specifies that the PUC may grant a CPCN for a transmission line only to the owner of the existing facility that interconnects to the new line. The law also limits utility transfers of CPCNs.

These amendments, according to NextEra, “benefit a defined few utilities that already own transmission and distribution facilities in Texas, and block other entities, including new entrants, and out-of-state developers that otherwise could qualify as public utilities under Texas law, from developing or acquiring transmission facilities.” Because the law is “meant to reserve business opportunities . . . which used to be available to all businesses, only to existing electric utilities that currently own facilities in Texas,” NextEra argues that “a virtual per se rule of invalidity applies” under established dormant Commerce Clause precedent.

The court disagreed, concluding that the laws at issue in cases cited by NextEra were not “analogous” to the Texas Law. NextEra urged the court to invalidate Texas’s law based on dormant Commerce Clause cases “which involve the flow of goods in interstate commerce.” The ROFR law, according to the court “does not purport to regulate the transmission of electricity in interstate commerce; it regulates only the construction and operation of transmission lines and facilities within Texas.”

The Texas court also held that the law does not have a discriminatory purpose, rejecting NextEra’s claim that the Texas Legislature passed the law in reaction to the company winning a FERC-regulated process to build a transmission line in East Texas. Instead, the court found that the legislative history indicates that the Legislature “disagreed with the statutory analysis reflected in a 2017 PUCT declaratory order and enacted SB 1938 to eliminate any uncertainty in Texas law.” The ROFR law, according to the court, merely “continues the long-term practice in Texas of allowing existing providers to build needed new transmission lines.”

The Fifth Circuit reversed. As an initial matter, the panel held that Texas’s authority over infrastructure siting “is not immune from Commerce Clause scrutiny when it impacts the interstate market.” Because the developer’s project would have been part of the FERC-regulated interstate transmission network (and not the Texas-only ERCOT grid), the transmission line would be an “instrumentality of interstate commerce” that is “much closer to the heartland of interstate commerce than the wine stores, dairies, or waste processing facilities that have faced dormant Commerce Clause scrutiny” by the Supreme Court.

Turning to the statute, the panel concluded that SB 1938 “prevents those without a presence in the state from ever entering the portions of the interstate transmission market that cross into Texas.” The panel rejected the State’s defense that the law’s preference for “incumbents” is geographically neutral and therefore beyond the scope of the dormant Commerce Clause doctrine. According to the panel, “limiting competition based on the existence or extent of a business’s local foothold is the protectionism that the Commerce Clause guards against.”

Supreme Court

Texas’ Petition for a Writ of Certiorari (Dec. 28, 2022)

Briefs in Support:
Southwestern Public Service Co.
ITC Holdings
Entergy

NextEra’s Brief in Opposition (Jan. 30, 2023)

Texas’ Reply (Feb. 13, 2023)

Fifth Circuit

Fifth Circuit Decision

Filed Briefs
Appellant NextEra’s Initial Brief (Mar. 18, 2020)

Amicus Briefs in Support of Appellants
LSPower
US Government

Appellee Texas’s Brief (Apr. 22, 2020)

Amicus Briefs in Support of Appellees
Lower Colorado River Authority
Entergy
Oncor
Southwestern Public Service Company

NextEra’s Reply Brief (Apr. 29, 2020)

(June 1, 2020)