In December, Texas asked the Supreme Court to review and overturn a 5^th Circuit decision that held the state’s law blocking non-utility transmission investment facially discriminates against out-of-state developers under the dormant Commerce Clause. Yesterday, transmission developer and complainant NextEra responded, arguing that that the 5^th Circuit correctly decided the issue and did not create a circuit split, and that the case is a poor vehicle for Supreme Court review. The Texas law at issue restricts state utility regulators’ authority to grant Certificates of Public Convenience and Necessity (CPCN) for transmission development. Under SB 1938, only existing transmission owners may hold a CPCN, which effectively blocks new entrants and eliminates competition.

As Texas summarizes in its brief, the state law at issue “requires that new transmission lines be built by the endpoint owners irrespective of domicile.” The law “draws a neutral distinction” between incumbent electric utilities that own transmission in Texas and all other companies that are forbidden by Texas’s SB 1938 from owning transmission. NextEra responds that the law creates “an impermissible local-presence requirement” that effectively prevents it from competing for the regional grid operator’s transmission procurements. The Fifth Circuit correctly held that SB 1938 protects local incumbents against out-of-state competition, a concern that is “at the very heart of what the Commerce Clause forbids.”

Texas insists that NextEra’s claims are invalid because it is not “similarly situated” to in-state utilities. The state points to a 1997 case where the Supreme Court explained that “when the allegedly competing entities provide different products . . . there is a threshold question whether the companies are indeed similarly situated for constitutional purposes.” Texas explains that utilities benefiting from the law sell transmission service as part of a delivered energy product they provide to consumers. NextEra, by contrast, does not compete with utilities to provide state-regulated electric service, its transmission-only product is therefore not similarly situated to the utilities’ product for dormant Commerce Clause purposes. NextEra responds that it competes directly with utilities to build interstate transmission. In that “market for transmission projects—the only market in which Texas’ law applies—the in-state and out-of-state providers are similarly situated, and similarly regulated, in all relevant respects.”

Texas urges the Court to take the case because it claims the Fifth Circuit has “deepened a well-defined circuit split regarding how to treat distinctions based on incumbency for the purposes of the dormant Commerce Clause.” It points to a 2020 decision by the Eighth Circuit holding that a Minnesota law granting in-state utilities a “right-of-first-refusal” to build certain transmission lines planned by the regional grid operator does not violate the dormant Commerce Clause. NextEra counters that there “is no clear split” with the Eighth Circuit because Texas’s law “is more restrictive than a mere right of first refusal: it bans new entrants outright, and does so forever.”

Finally, NextEra notes that the Fifth Circuit has remanded the case to the district court for factual development and argues that the Court’s immediate intervention is unwarranted. Texas claims that “the possibility that factual development will ultimately be helpful for the Court is illusory” because the 5^th Circuit’s conclusion that the law facially discriminates establishes a  “virtual per se rule of invalidity” that is nearly impossible for Texas to overcome at the district court. Texas’s petition presents “a threshold legal question that either requires no factual development or that will guide any further factual development.”

Note that in October the Supreme Court heard oral argument about whether a California animal welfare law violates the dormant Commerce Clause. Petitioners in that case invoked the extraterritorial prong of the dormant Commerce Clause doctrine, which is not at issue here. In separate proceedings, litigants unsuccessfully argued that Colorado’s renewable energy standard and California and Oregon low-carbon fuel standards are unconstitutional extraterritorial laws. The Court’s decision about California’s law (which it could release any time before July) might have implications for future challenges to state clean energy laws.

The filings are on the Texas page.