Fifth Circuit Condemns Texas Transmission ROFR Law on Constitutional Grounds | Bracewell LLP

On August 30, 2022, the Fifth Circuit issued an opinion condemning a far-reaching Texas legislation on electrical transmission right-of-first-refusal (“ROFR”). The choice issues a 2019 Texas legislation that restricted the power to construct, personal, or function new transmissions traces to solely these entities already proudly owning transmission amenities in the identical area of the state (for instance, MISO or SPP). Previous to Texas adopting the legislation, NextEra sought to assemble the Hartburg Sabine transmission undertaking, a transmission undertaking deliberate in Texas (however exterior of ERCOT) pursuant to MISO’s Order No. 1000 course of. MISO awarded NextEra the rights to assemble the undertaking as a part of that aggressive course of, and people rights had been subsequently “derailed” by the brand new Texas ROFR legislation.

The courtroom’s motion rested on Dormant Commerce Clause grounds. Siding with NextEra and the U.S. Division of Justice’s Antitrust Division, the courtroom discovered that the decrease courtroom erred in dismissing NextEra’s dormant commerce clause arguments—in response to the courtroom, such arguments might face up to a problem of failure to state a declare.

Within the thorough determination, the courtroom reviewed FERC’s efforts in Order No. 1000 to steadiness federal and state jurisdiction, discusses intrastate versus interstate utility amenities, and addresses Texas ROFR legislation’s discriminatory impact on these not doing enterprise inside Texas. The courtroom causes that as a result of the “electrical energy grid is by itself an interstate market, state protectionist measures regulating its instrumentalities run a a lot higher danger of harming out-of-state pursuits—the power of corporations to compete, the costs customers pay—than laws on” different entities like retail wine shops, dairies, or waste processing amenities.

Dormant Commerce Clause and Different State ROFR Legal guidelines

The decrease courtroom had dismissed the case for failure to state a declare and the Fifth Circuit determination reverses the decrease courtroom’s determinations, partly, and sends the case again for additional litigation to find out whether or not Texas “has no different means to ‘advance[] a legit native goal.’” The choice features a dialogue evaluating the Texas ROFR to state transmission ROFRs in Nebraska, Oklahoma, North Dakota, Minnesota, and South Dakota. In response to the Fifth Circuit, the Texas ROFR is much extra restrictive than these present in different states.

Particularly, the Fifth Circuit distinguishes between the Texas ROFR and the Minnesota ROFR legislation that was at subject in a earlier Eighth Circuit determination in LSP Transmission Holdings, LLC v. Sieben, 954 F.3d 1018 (eighth Cir. 2020). In response to the Fifth Circuit, the Minnesota ROFR legislation upheld in LSP Transmission “doesn’t go almost so far as the Texas legislation in banning new entrants outright.” Particularly, the Fifth Circuit explains that the Texas ROFR gives no time restrict on the incumbent transmission proprietor to train its rights. In distinction, the Minnesota ROFR legislation gives the incumbent supplier 90 days to train its ROFR rights. As well as, the Texas ROFR legislation requires competing builders to personal present certificated amenities within the related market to the proposed transmission undertaking, one thing that isn’t current within the Minnesota ROFR legislation.

The related statute, Tex. Util. Code § 37.-56(e), gives:

A certificates to construct, personal, or function a brand new transmission facility that instantly interconnects with an present electrical utility facility or municipally owned utility facility could also be granted solely to the proprietor of that present facility. If a brand new transmission facility will instantly interconnect with amenities owned by totally different electrical utilities or municipally owned utilities, every entity shall be certificated to construct, personal, or function the brand new facility in separate and discrete equal components until they agree in any other case.

Current, Associated FERC Motion on ROFRs

The Fifth Circuit’s determination comes at a time when FERC has been contemplating making vital modifications to its remedy of ROFRs. In its April 21, 2022 Discover of Proposed Rulemaking on transmission planning (“Transmission NOPR”) in Docket No. RM21-17-000,¹ FERC seems to concede that its earlier elimination of the federal ROFR in Order No. 1000 might have been counterproductive and served to cut back funding occurring by the regional planning course of. Because of this, the Transmission NOPR proposes to permit incumbent transmission suppliers to retain a federal ROFR conditioned on an illustration that the incumbent has established a qualifying joint possession association with an unaffiliated non-incumbent transmission developer or different unaffiliated entity. The deadline for preliminary feedback within the Transmission NOPR continuing was August 17, 2022. The ROFR proposal particularly attracted vital consideration from commenters, together with many supporting the proposal and plenty of opposing the proposal. Amongst opponents included the U.S. Division of Justice and Federal Commerce Fee (the “Businesses”). The Businesses submitted joint feedback and expressed concern concerning the proposed reinstatement of a federal ROFR: “By its nature, a ROFR, conditional or in any other case, limits who can construct transmission initiatives and is thus a regulatory barrier to entry. Though presently competitors might not be possible in transmission planning as a result of distinctive traits of the business, current expertise in some RTOs underscores that competitors within the design and development of particular initiatives can work and advantages clients.” Businesses Feedback at p. 11(Aug. 17, 2022). Reply feedback within the continuing are due on or earlier than September 19, 2022.