5th Circuit considers quashing Texas transmission law

Source: By Niina H. Farah, E&E News reporter • Posted: Wednesday, June 3, 2020

The 5th U.S. Circuit Court of Appeals is based in New Orleans. Bobak Ha’Eri/Wikipedia

Federal appeals court judges this week questioned whether they could overturn a 2019 Texas law giving existing utilities in the Lone Star State priority in constructing electric transmission lines.

The 5th U.S. Circuit Court of Appeals on Monday examined an energy company’s claims that Texas S.B. 1938 violated interstate commerce protections enshrined in the Constitution. The “dormant” commerce clause has featured across a range of legal challenges over pipelines and coal exports.

5th Circuit Judge Gregg Costa asked an attorney for NextEra Energy Inc. whether “incumbent preference” under the Texas law — which says only owners of existing facilities can build, own and operate new transmission lines — counted as a commerce clause violation.

“It seems to me the real tension in this case is deciding what’s an in-state or out-of-state interest,” said Costa, an Obama appointee.

The consequences of the law are starker than simply giving in-state utilities a first chance at a project, replied Stuart Singer, a partner at the law firm Boies Schiller Flexner LLP.

“It’s not a right of first refusal,” he said. “It’s an absolute ban.”

The only way to get around the language of the law, Singer later added, is to buy an existing utility.

“That’s not part of the commerce clause,” he said.

Singer also sought to differentiate the case from a similar Minnesota law that the 8th U.S. Circuit Court of Appeals recently upheld (Energywire, March 26).

“We think the 8th Circuit case was wrongly decided,” Singer said, adding that the Texas law goes beyond Minnesota’s.

Texas, meanwhile, has characterized its law as preserving the state’s “right of first refusal” in the face of the Federal Energy Regulatory Commission’s Order 1000, which aimed to increase competition in regional transmission planning. Minnesota’s law also came in response to the FERC order.

The state did not exceed its powers in drafting the law, said Texas Assistant Solicitor General Lisa Bennett, who represented the Public Utility Commission of Texas.

“If we can’t have an owner of the line that we attach to who can build it,” she said, “then the owner of the attachment next door can do it.”

Costa echoed Singer’s critique of the rule in his questions to Bennett.

“Everyone wants to call it a ‘right of first refusal,’ but isn’t it an outright ban?” he asked. “It’s not just that the incumbents get first dibs; it’s that NextEra is banned entirely, right?”

‘Judicial risk’

The 5th Circuit’s decision could clarify the legal perils facing states that draft similar laws, analysts for ClearView Energy Partners LLC wrote in a note to clients yesterday.

“[T]he Fifth Circuit’s ruling could provide additional clarity of how the courts are interpreting the limits the dormant Commerce Clause imposes on states that create in-state preferences or requirements, an issue that has raised judicial risk in the past for state renewable power mandates,” wrote ClearView Vice President Timothy Fox.

NextEra filed its lawsuit on the grounds that the state law would prevent the company from building its Hartburg-Sabine Junction transmission project, a 500-kilovolt line in eastern Texas slated to be completed in 2023.

During Monday’s arguments, Singer pushed back against a suggestion by Judge Jennifer Walker Elrod, a George W. Bush appointee, that the case may not yet be ripe for challenge, since the complaint had not first gone through an administrative process.

“The law on its face … we cannot get or qualify for a certificate of convenience or necessity,” he said. “There is nothing to be done at the administrative level.”

If the panel invalidated the state law, Singer said, it would have no effect on the Electric Reliability Council of Texas, which manages the electricity market for much of the state. He said the panel could also narrowly tailor the application of its decision to the region or to the Hartburg-Sabine project.

Costa seemed skeptical of the Trump administration’s alternative suggestion of sending the case back to the U.S. District Court for the Western District of Texas to rethink the framing of its decision upholding the state law.

Justice Department attorney Adam Chandler, who backed NextEra in Monday’s arguments, said the court did not apply “the correct legal principles” in its decision. He said the 5th Circuit could instead guide the lower bench on how to better analyze the legal questions in the case.

“Why would we remand on purely legal questions?” Costa asked. “That seems like just delay.”

Chandler replied: “If the court wants to go ahead and rule, we have no position on that.”

Judge James Dennis, a Clinton appointee, also sat on the 5th Circuit panel.