The law in question, SB 1938, enacted in 2019 by Texas lawmakers, had restricted power companies lacking existing transmission facilities in Texas from obtaining necessary approvals to construct new lines. This restriction interfered with multistate electricity grids, hampering the ability of out-of-state companies to compete for transmission projects in Texas.
Judge Pitman ruled in favor of Florida-based NextEra Energy and New York-based LS Power, noting that the Texas law violated the Commerce Clause of the U.S. Constitution. Prior to SB 1938, the Public Utility Commission of Texas had allowed utilities without a presence in Texas to build transmission lines in areas governed by regional grid operators, including the Midcontinent Independent System Operator and the Southwest Power Pool.
In his ruling, Judge Pitman highlighted that while some states provide incumbent companies with preferential treatment, Texas’s outright ban on new entrants was unprecedentedly restrictive. He referenced a prior decision from the 5th U.S. Circuit Court of Appeals, which had found that the language of SB 1938 was discriminatory against interstate commerce.
The judge evaluated the state’s justifications for the law and determined that Texas had failed to demonstrate a legitimate interest in implementing such strict regulations. He dismissed several of the state’s claims as either misleading or insufficiently compelling, stating that they did not support the need for the law.
As a result of this ruling, Judge Pitman issued a permanent injunction against the Public Utility Commission of Texas, prohibiting the enforcement of the law within regions covered by the two regional grid operators. This decision opens the door for greater competition and investment in Texas’s energy infrastructure, which could benefit consumers and enhance grid reliability.
Representatives from NextEra Energy, which owns extensive transmission networks in other states but none in Texas, initially challenged the law after being barred from constructing a segment of an interstate transmission line near the Texas-Louisiana border. LS Power also joined the challenge, advocating for the rights of new entrants in the energy market.
While two Texas-based power companies, subsidiaries of Xcel Energy and Entergy, intervened to defend the law, Xcel expressed disappointment with the ruling. A spokesperson stated, “We are evaluating our next steps and remain committed to advocating for rights of first refusal in transmission development, as these rights benefit customers through reduced delays and enhanced oversight.”
The case, officially titled NextEra Energy Capital Holdings v. Paxton, highlights ongoing tensions in the energy sector concerning regulation and market access.
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