48 F.4th 306
5th Cir.2022Background
- In 2019 Texas enacted SB 1938, which provides that a certificate to build, own, or operate transmission lines that "directly connect" to an existing utility facility may be granted only to the owner of that existing facility (with narrow exceptions), effectively barring entities without an existing Texas transmission presence from entering certain markets.
- The law applies to Texas territory within interstate RTOs/ISOs (MISO and SPP) but not to the wholly intrastate ERCOT grid.
- NextEra (no Texas transmission footprint) was selected by MISO to develop the Hartburg–Sabine interstate project and had a purchase agreement for the Jacksonville–Overton line; both projects required PUCT certificates of convenience and necessity.
- SB 1938 made obtaining PUCT approval impossible for NextEra, which sued the PUCT commissioners alleging violations of the dormant Commerce Clause and the Contracts Clause.
- The district court dismissed NextEra’s complaint; the Fifth Circuit affirmed dismissal of the Contracts Clause claim but reversed as to the dormant Commerce Clause claims (facial discrimination, discriminatory purpose/effect, and Pike balancing), remanding for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SB 1938 facially discriminates against interstate commerce (dormant Commerce Clause) | SB 1938 is a physical‑presence/incumbency requirement that bars non‑incumbents (out‑of‑state entrants) from building interstate transmission into Texas, so it facially discriminates. | SB 1938 regulates incumbency, not geography; it applies evenhandedly to all incumbents regardless of where they are incorporated or headquartered, so it is not facially discriminatory. | Reversed dismissal: statute facially discriminates as applied to interstate transmission in MISO/SPP territory because it conditions access on prior local presence. |
| Whether SB 1938 was enacted with discriminatory purpose | Timing and sequence (enacted after MISO selected NextEra) and legislative context plausibly suggest protectionist purpose. | Legislature acted to preserve reliability and clarify PUCT authority—no discriminatory purpose. | Reversed dismissal: plausible discriminatory‑purpose allegations survive pleading stage and warrant discovery. |
| Whether SB 1938 discriminates in effect or fails Pike balancing (burden vs. local benefits) | The ban is a total bar to new entrants and any asserted reliability benefit is speculative; burdens on interstate competition may be excessive. | Law protects local reliability and siting control; incumbents have legitimate local interests. | Reversed dismissal: Pike/effects claims are fact‑dependent and cannot be resolved on the pleadings. |
| Whether SB 1938 impairs contractual obligations (Contracts Clause) | NextEra had contracts (Selected Developer Agreement; asset purchase) that were frustrated by SB 1938 and therefore the statute unconstitutionally impairs contracts. | Contracts required regulatory approvals (PUCT certificates); parties in regulated industries expect regulatory change; no vested contractual right was taken. | Affirmed dismissal: under modern Contracts Clause doctrine, NextEra had no vested contractual right and reasonably expected regulation in a heavily regulated industry, so no unconstitutional impairment. |
Key Cases Cited
- Granholm v. Heald, 544 U.S. 460 (2005) (state laws requiring physical in‑state presence to sell wine directly to consumers violate the dormant Commerce Clause)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (balancing test for nondiscriminatory laws that impose incidental burdens on interstate commerce)
- General Motors Corp. v. Tracy, 519 U.S. 278 (1997) (public‑utility regulation not categorically immune from dormant Commerce Clause; facial discrimination analysis depends on market context)
- Energy Reserves Group, Inc. v. Kan. Power & Light Co., 459 U.S. 400 (1983) (modern Contracts Clause standard: impairment tested against legitimate public purpose and expectation that regulated industries foresee further regulation)
- Elec. Power Supply Ass’n v. FERC, 577 U.S. 260 (2016) (federal regulation of interstate wholesale electricity and FERC’s role)
- Dean Milk Co. v. City of Madison, 340 U.S. 349 (1951) (local pasteurization requirement discriminated against interstate commerce)
- Tenn. Wine & Spirits Retailers Ass’n v. Thomas, 139 S. Ct. 2449 (2019) (residency requirement for liquor‑store ownership discriminates under dormant Commerce Clause despite state police‑power interests under the Twenty‑First Amendment)
- Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398 (1934) (Contracts Clause not absolute; states may enact laws addressing emergency/public needs)
- H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525 (1949) (early articulation of dormant Commerce Clause protection for free access to national markets)