Update – June 19, 2019 – New Lawsuit Challenges Texas “Right-to-Build” Transmission Law

On Monday, NextEra filed a complaint in U.S. District Court for the Western District of Texas alleging that recently enacted 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, 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 dormant Commerce Clause precedent.

NextEra also claims that the law violates the Constitution’s Contract Clause. Last year, the Midcontinent System Operator (MISO), a FERC-regulated regional transmission and market operator, conducted a competitive process to choose a developer for a 23-mile transmission line in East Texas that is designed to enhance market efficiency. MISO ranked NextEra’s proposal highest among the twelve it received and awarded the rights to develop the project to NextEra. The company claims that its ability to construct the project is impaired by SB 1938.

NextEra’s dormant Commerce Clause claim tracks legal arguments filed by LSP Transmission in its ongoing case about Minnesota’s Right-of-First-Refusal law. In 2018, a federal district court held that the law providing in-state utilities with the right to develop new transmission lines does not violate the dormant Commerce Clause. That decision is currently on appeal in the Eighth Circuit. Meanwhile, by next Monday the Supreme Court will issue its first dormant Commerce Clause decision that is not about state taxes in more than a decade. A broad ruling could have repercussions for these cases.

NextEra’s complaint is available on the Texas page.