The U.S. Supreme Court will not hear an appeal by Texas officials of a lower court decision that struck down a state law allowing only existing utilities to build transmission lines there that are part of an interstate network—a statute opponents say is anti-competitive.

The high court action keeps in place a 2022 ruling by the U.S. appeals court in New Orleans that the Texas law is unconstitutional because it barred outside developers of federally approved regional transmission lines, which were termed “classic instruments of interstate commerce.”

Texas is not the only state with a law that gives utilities the “right of first refusal” (ROFR) to build transmission in its service territory, but it is an extreme example, Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative, told ENR. 

He said state officials now must show a federal district court in the state that its law has a legitimate public policy purpose and there are no other ways to avoid the economic protectionism. “The odds are stacked against Texas,” the transmission policy expert said.

The Texas ruling follows a similar recent high court decision not to review a lower court approval of Minnesota’s ROFR, which a developer had challenged, as well as a recent Iowa high court decision that the legislative process to enact the state’s similar law in 2020 was unconstitutional and can’t be enforced. Peskow predicted the rulings “may stop the spread of these laws.” 

Few large regional transmission lines have been built since the Federal Energy Regulatory Commission opened their development and construction to competition in 2011 to more quickly expand infrastructure to connect growing renewable energy sources. But primarily smaller projects and refurbished lines have been built, Peskoe says, noting that the utility industry wants to control construction decisions and financing.

“Transmission owners have an incentive to build and operate their own investments,” he said.

FERC rules require competitive regional development, either by bidding out specific projects or defining a need and asking developers to propose solutions. “Utilities lose control,” Peskoe said. 

Texas had claimed in a Supreme Court brief that its regulation of public utilities makes it reasonable that regulators prefer those with an existing state footprint. Attorney General Ken Paxton did not comment on the latest court decision nor did utility or developer representatives.

But in court-requested comments, Solicitor General Elizabeth Prelogar said states “have no authority to grant monopolies in the interstate electric transmission markets,” and urged justices to skip the review. She said a ruling could complicate potential ROFR changes by FERC that are in a pending transmission planning overhaul.

Peskoe said that with only 7 GW of regional transmission underway in the U.S., the country needs a national vision for building the large projects. He cites the Big Wires Act, proposed in September by Sen. John Hickenlooper (D-Colo.), and Rep. Scott Peters (D-Calif.), as possibly the best solution. Specifically, it would require each FERC transmission planning region to be able to transfer 30% of its peak electric loads to neighboring regions to close gaps in the nation’s grid network. Regions would decide projects to build, as well as developers and cost allocation approaches. 

But in finalizing the transmission planning rule that will consider long-term changes in U.S. power supply and demand, observers say FERC could amend its earlier order and allow a federal right of first refusal for some large projects, within certain parameters.  

A group of large utilities, environmental groups and the electrical workers union asked FERC commissioners in a Dec. 7 letter to issue final rules as soon as possible next year that include a right of first refusal, which they claim would “facilitate timely development of needed transmission infrastructure … and clear benefits to customers.”  

U.S. power demand is growing faster than forecast, according to a new report by sector consultant Grid Strategies, which says the domestic grid "is not prepared for significant load growth.” Over the past year, grid planners nearly doubled the forecast five-year U.S. load growth from 2.6% to 4.7%, as reflected in 2023 filings to FERC. Planners predict peak demand growth of 38 GW through 2028, requiring rapid planning and construction of new generation and transmission.

“This is likely an underestimate, with several more recent updates adding additional GWs to that forecast," said Grid Strategies. "Next year’s forecast is likely to show an even higher nationwide growth rate.”