U.S. Supreme Court Denies Appeal of Fifth Circuit Ruling Against Texas Right of First Refusal Law
Summary
On December 11, 2023, the US Supreme Court denied the State of Texas January 2023 appeal of the Fifth Circuit’s ruling against Texas’ transmission Right of First Refusal Law. The Texas case will now go back before the U.S. District Court for the Western District of Texas, where it had been remanded by the 5th Circuit. The court will have to decide whether Texas has no other options to "advance a legitimate local purpose.”
Background
In August 2022, the U.S. Court of Appeals for the Fifth Circuit ruled against the enactment of a Texas energy regulation law, saying it violated the dormant Commerce Clause in the U.S. Constitution. The appeals court presented a scathing opinion by writing, “Imagine if Texas – a state that prides itself on promoting free enterprise – passed a law saying that only those with existing oil wells in the state could drill new wells.”
Citing key Commerce Clause cases, the appeals court found this Texas law discriminatory. “Transmission lines that are part of an interstate grid are much closer to the heartland of interstate commerce than the wine stores, dairies, or waste processing facilities that have faced dormant Commerce Clause scrutiny. What is true for alcohol and milk under the dormant Commerce Clause must be true for electricity transmission,” the appeals court wrote.
In March 2023, the US Supreme Court asked the US Department of Justice Solicitor General to provide an opinion on the Fifth Circuit’s decision. The Solicitor General made the following points in filing an opinion with the Supreme Court:
The court of appeals correctly determined that S.B. 1938 discriminates on its face against interstate commerce.
The court of appeals correctly determined that S.B. 1938 discriminates against interstate commerce by prohibiting any company without an existing in-state presence from competing in the market for the construction and operation of electric transmission facilities that would be part of the interstate transmission grid.
As the court of appeals observed, the law “bar[s] companies from competing in MISO or SPP territory unless they already own a transmission facility in Texas.” That “restrictive in-state presence requirement discriminates against out-of-state” transmission companies, flouting this Court’s consistent “admonition that States cannot require an out-of-state firm ‘to become a resident in order to compete on equal terms.’”
This Court has repeatedly held that a state or local government’s discrimination against out-of-state entities remains objectionable even when it discriminates against some disfavored in-state interests, too.
States … have no authority to grant monopolies in the interstate electric transmission markets comparable to their authority to grant monopolies in the market for retail distribution of natural gas.