Recent courtroom wins for advocates of a more competitive process for approving interstate electric transmission lines could help clear the way for greater access to clean energy for Americans in the long run.
On Monday, the Supreme Court declined to hear Texas’ defense of its “right of first refusal,” or ROFR, law that gave preference for certain utilities to build new power lines across state borders. The law was struck down by a lower bench last year.
The justices’ order, which keeps Texas’ law off the books, could serve as a check against adoption of similarly restrictive laws in other states, said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School.
“If utilities had pushed that model across the country, that really would have solidified utility dominance over our transmission systems,” Peskoe said. “The Supreme Court’s decision … should at least prevent that sort of scenario from playing out.”
Critics of the 2019 law, S.B. 1938, said the Lone Star State had gone much further than the nearly dozen other states with ROFR laws by only allowing utilities that already had an in-state presence to build new transmission lines.
The Supreme Court’s order comes a week after an Iowa judge ruled that the legislative process for passing the state’s 2020 ROFR law was unconstitutional, but did not decide on the substance of the statute. The Iowa Supreme Court had already blocked enforcement of the law earlier this year, labeling it “anti-competitive.”
The Texas and Iowa cases are part of years of legal wrangling over whether states and the federal government should make the approval process for new electric transmission lines more competitive — or allow existing utilities to get preference to build new interstate power lines.
States began enacting ROFR laws about a decade ago, after the Federal Energy Regulatory Commission passed Order 1000, requiring competitive development for public transmission providers. The agency is now considering proposed rulemaking that could walk back at least part of that order.
The question at stake has been “whether investor-owned utilities are going to be the only entities planning and building our transmission,” said Peskoe.
The issue is an important one as the Biden administration aims to pour billions of dollars into new regional transmission development to increase the nation’s access to clean energy sources like wind and solar power. Supporters of more competition say the process will help more transmission projects get built.
“If there are ROFRs in place,” said Peskoe, “that’s really going to give the utilities some legal entitlement to be the only companies that can build it and therefore be the only companies that have any incentive to participate in the planning and development process.”
The outcome of the ROFR cases will determine whether the country will implement transmission solutions preferred by utilities — or if other companies will be able to participate in the process, Peskoe added.
Nicole Huang, a research analyst at ClearView Energy Partners, said states that have adopted ROFR laws have said they wanted to maintain the status quo and avoid the uncertainty of a new process for selecting who builds transmission lines across their states.
“The status quo being, these utilities and incumbents have been able to operate the system, providing reliable and affordable electricity over the years,” she said.
One concern is that introducing a competitive bidding process would result in “inexperienced winners,” Huang said.
ROFR laws in the states
Texas wanted the Supreme Court to weigh in after the 5th U.S. Circuit Court of Appeals struck down the state’s ROFR law in 2022, finding it violated constitutional protections for interstate commerce.
NextEra Energy brought Texas to court after passage of the law prevented the company from building the Hartburg-Sabine transmission project in the state. The project was later canceled due to the ongoing litigation.
The case now goes back to the U.S. District Court for the Western District of Texas to decide if NextEra is entitled to a preliminary injunction, or if Texas had the right to pass a discriminatory law under the dormant commerce clause. The legal doctrine inferred from the Constitution’s commerce clause bars passage of state laws that harm interstate commerce, but allows states to pass discriminatory measures when it can show it is for a “legitimate local purpose.”
It’s unclear if the Hartburg-Sabine project could be revived following a decision from the Western District of Texas. NextEra and the Texas attorney general’s office could not be reached for comment.
The 5th Circuit ruling is a departure from an earlier decision by the 8th U.S. Circuit Court of Appeals in 2020 that upheld Minnesota’s ROFR law.
The 8th Circuit rejected the argument from the utility LSP Transmission Holdings, or LS Power, that Minnesota’s 2012 law was too “protectionist.” The company appealed the decision to the Supreme Court in 2021, but the justices also declined to take up that case.
In Iowa, the state court ruling last week may not be the end of the road for the Hawkeye State’s ROFR law, said Peskoe.
A state judge had rejected the law because it passed as part of an omnibus amendment to an appropriations bill. But the courts may allow Iowa lawmakers to pass a ROFR law through the normal legislative process, Peskoe said.
FERC rule
While states press on with their ROFR laws, FERC is working on a rulemaking that could make the transmission approval process less competitive.
In a notice of proposed rulemaking last year, the agency said it could condition the use of right of first refusal for large regional projects if the incumbent transmission provider or utility co-owns it with another party, said Huang.
That condition is different from what has been introduced at the state level, and it could be altered in a final rule, she said.
It’s a possible change that concerns Paul Cicio, president and CEO of the nonpartisan Industrial Energy Consumers of America. He called ROFR laws anti-competitive and anti-consumer.
“It’s against everything that made this country great,” Cicio said.
The problem FERC is trying to address is that more than a decade after passing Order 1000, very few regional transmission projects have been competitively bid, he said.
Cicio blamed FERC’s lack of enforcement and said that utilities have found ways to skirt the order by building smaller supplemental projects that don’t have to be competitively bid, instead of developing regionally planned projects.
The coalition argues that allowing more companies to build projects will lead to lower electricity costs and more reliability for ratepayers.
“The amount of money that’s going to be spent on transmission projects is very significant,” Cicio said. “We support building transmission lines that we need. We just want them to be competitively bid.”
