FILED August 30, 2022 No. 20-50160 Lyle W. Cayce Clerk NextEra Energy Capital Holdings, Incorporated; NextEra Energy Transmission, L.L.C.; NextEra Energy Transmission Midwest, L.L.C.; Lone Star Transmission, L.L.C.; NextEra Energy Transmission Southwest, L.L.C.,

Plaintiffs—Appellants,

versus Chairman Peter Lake, Public Utility Commission of Texas, in his official capacity, Commissioner Lois Cobos, Public Utility Commission of Texas, in her official capacity; Commissioner Jimmy Glotfelty, Public Utility Commission of Texas, in his official capacity; Commissioner Kathleen Jackson, Public Utility Commission of Texas, in her official capacity; and Commissioner Will McAdams, Public Utility Commission of Texas, in his official capacity,

Defendants—Appellees.

Appeal from the United States District Court for the Western District of Texas USDC No. 1:19-CV-626 No. 20-50160

Before Dennis, Elrod, and Costa, Circuit Judges. Gregg Costa, Circuit Judge: Imagine if Texas—a state that prides itself on promoting free enter- prise—passed a law saying that only those with existing oil wells in the state could drill new wells. It would be hard to believe. It would also raise signifi- cant questions under the dormant Commerce Clause. Cf. Granholm v. Heald, 544 U.S. 460, 465–66 (2005) (holding unconstitutional two state laws that allowed only wineries with an in-state physical presence to ship wine to state residents). Texas recently enacted such a ban on new entrants in a market with a more direct connection to interstate commerce than the drilling of oil wells: the building of transmission lines that are part of multistate electricity grids. A 2019 law says that the ability to build, own, or operate new lines “that directly [connect] with an existing utility facility . . . may be granted only to the owner of that existing facility.” TEX. UTIL. CODE § 37.056(e). The law applies not just to transmission lines that are part of Texas’s intrastate electricity market, but also to lines that are part of interstate transmission networks. Those lines that carry electricity through multiple states are classic instrumentalities of interstate commerce. The operator of one such multistate grid awarded Plaintiff NextEra Energy Capital Holdings, Inc. the right to build new transmission lines in an area of east Texas that is part of an interstate grid. The grid operator determined that NextEra’s bid offered an “outstanding combination of low cost and high value” and would produce “substantial benefits to ratepayers over time.” But before NextEra obtained the necessary construction certificate from the Public Utilities Commission of Texas, the state enacted the law that bars new entrants from building transmission lines.

2 No. 20-50160

NextEra challenges the new law, as it applies to the interstate electricity networks in Texas (but not the intrastate ERCOT network), on dormant Commerce Clause grounds. It also argues that the law violates the Contracts Clause by upsetting its contractual expectation that it would be allowed to build the new lines. Once we wade through the thicket of electricity regulation, the ban’s interference with interstate commerce becomes as clear as it is for the oil well hypothetical. We thus conclude that the dormant Commerce Clause claims should proceed past the pleading stage. But the Contracts Clause claim fails as a matter of law under the modern, narrow reading of that provision.