Does Texas Order Keeping Natural Gas In State Violate the Dormant Commerce Clause?

 by Michael C. Dorf

The ongoing crisis in Texas and other states that have experienced atypically wintry weather is first and foremost a humanitarian challenge for the people affected. I feel nothing but concern for those suffering from cold, power outages, unsafe drinking water, and the associated ills. I urge readers who share that concern to donate to one or more relief organizations providing direct aid. I also hope that no one will mistake the following analysis of legal issues raised by one aspect of the response to the crisis for callousness or insensitivity.

As was widely reported, yesterday Texas Governor Greg Abbott ordered that natural gas slated for delivery out of state be offered first to in-state power operators. In a moment I'll turn to the question that titles today's essay, but I want to begin with some procedural complexities. The story just linked refers to "a copy of Abbott’s order seen by Bloomberg" News. Likewise, a press release issued by Governor Abbott states that he "has ordered natural gas producers not to export product out of state until February 21st and instead sell it to providers within Texas." However, neither the Bloomberg story, the press release, nor any source I could find links to an actual order of the Governor. Instead, there are multiple references to a letter that Abbott sent to the Texas Railroad Commission--which, despite its name, has long had authority to regulate the energy sector in Texas. That letter apparently states:

I hereby mandate that all sourced natural gas be made available for sale to local power generation opportunities before leaving the state of Texas, effective through February 21, 2021. . . . I ask that you immediately take all reasonable and necessary steps to ensure that this mandate is carried out.

It is not clear whether there is a separate order that Governor Abbott issued or whether the letter itself is the order (as its use of "hereby mandate" suggests). In any event, nothing in my ensuing analysis turns on whether there is a stand-alone order as well as the letter or only the letter. The two key points I wish to raise are (1) it is unclear whether the Governor of Texas has the authority under state law to mandate the diversion of natural gas or whether that authority, if it exists anywhere in Texas, is lodged with the Railroad Commission; and (2) assuming that the Governor has the authority under state law or that if he doesn't, the Railroad Commission adopts the same order, the substance of the order could violate the dormant Commerce Clause of the U.S. Constitution. Below I'll explain why the uncertainty of issue (1) could actually aid Texas in evading review of issue (2).

Let's begin with what I've called issue (2). Article I, Section 8 of the U.S. Constitution gives to Congress the power to regulate interstate and foreign commerce (as well as commerce with Indian tribes), but the Supreme Court has long construed the Commerce Clause as not merely a grant of power to Congress but also a limit on state regulatory authority even when Congress does not enact legislation. Under modern doctrine, the so-called "dormant" Commerce Clause forbids states from discriminating against interstate commerce and from imposing non-discriminatory restrictions that unduly burden interstate commerce. (The cases almost all involve interstate rather than foreign, much less Indian, commerce, so I'll somewhat oversimplify by referring only to interstate commerce.)

The Abbott restriction facially discriminates against interstate commerce. It is therefore subject to what the Supreme Court has repeatedly called (e.g., in this 1994 case) a "virtually per se rule of invalidity." What does that mean? At various points (including the case just linked and ones quoted therein) the Court has further described the virtually per se rule as the "strictest scrutiny," which calls to mind the exacting standard applicable to race discrimination and content-based restrictions on speech. At least in the context of laws disadvantaging racial minorities, the late Professor Gerald Gunther famously referred to the strict scrutiny standard as "strict in theory, but fatal in fact." That sounds quite a lot like a virtually per se rule of invalidity.

And indeed, the Supreme Court's dormant Commerce Clause cases nearly always turn on a threshold determination. Parties challenging state regulations argue that they discriminate, whereas state regulators typically defend their laws by arguing that even those that might at first appear to be discriminatory are not in fact protectionist measures and thus subject only to the much more forgiving balancing test.

Meanwhile, the further articulation of the "virtually per se rule"/strictest-scrutiny test is highly confusing. Here's how the Court has gone on to characterize it: the test requires that in order to be sustained, a state law that discriminates against interstate commerce must "advance[] a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." Students and scholars of constitutional law will find that language perplexing. Merely "legitimate" purposes are the stuff of the lowest level of judicial scrutiny, so-called rational-basis scrutiny. Strict scrutiny in the equal protection and free speech contexts require a compelling interest, not a mere legitimate one.

What explains the substitution of the flabby term "legitimate" for "compelling" in the dormant Commerce context? I suspect the answer is simply that the dormant Commerce Clause jurisprudence developed along its own path, with older cases using the term "legitimate" long before the Court mashed the tests together. If so, then "legitimate" is something of an artifact.

No matter, though. Regulation is almost never struck down on the ground that the government's interest is insufficiently important--whether under strict scrutiny or something less exacting. Instead, the government can almost always articulate a sufficiently weighty interest. The real action then focuses on whether the means chosen adequately advance that interest. And here the dormant Commerce test seems roughly to approximate the requirement of "narrow tailoring" or "least restrictive means" that one sees in the equal protection and free speech contexts.

All of that is a somewhat circuitous way of saying that whether Governor Abbott's restriction on out-of-state shipments of natural gas absent a right of first refusal for in-state power generators passes constitutional muster will depend on whether Texas could achieve its admittedly legitimate, indeed compelling, interest in preventing its people from freezing to death by other means. Could it?

I do not know nearly enough about energy markets, disruptions of supply, and the other relevant factors to  answer that question. But here's the thing: Neither do any of the judges before whom a challenge to the Governor's order would likely end up--at least not without some substantial presentation of evidence. All of that would take time, of course. And given that the Governor's order by its terms expires in three days, it seems impossible to develop a record that would allow a judge to make an informed ruling on the necessity question before the case for an injunction becomes moot.

Hold on! The government bears the burden of justifying regulations that trigger strict scrutiny. If there is uncertainty about whether Texas has other means of providing power to its citizens over the next few days, doesn't that mean that the uncertainty should be resolved against the state, unless and until it provides evidence that the Governor's order is truly necessary?

Maybe in theory, but not in reality, because of the pace of litigation. If, say, an out-of-state purchaser of natural gas were to go to federal court today seeking to block the Governor's order, or an in-state producer were to do the same in order to be able to ship its natural gas out of state, the plaintiff would be seeking a temporary restraining order or a preliminary injunction--either of which would require the plaintiff to establish both a likely substantive entitlement to relief and that the balance of equities favor the plaintiff. As a practical matter, a judge would not block the Governor's order without some evidentiary showing by the plaintiff that it is not necessary.

There is a further procedural obstacle to blocking the Governor's order in a timely fashion. If I were representing Texas in defending against a federal court lawsuit seeking to invalidate the Governor's order on dormant Commerce Clause grounds, I would urge the judge to abstain from issuing any equitable relief under a doctrine that, interestingly enough, is most closely associated with . . . wait for it . . . the Texas Railroad Commission. That's right, in the 1941 SCOTUS case of Railroad Comm'n of Texas v. Pullman, Justice Felix Frankfurter wrote for a majority that federal courts should stay their hand and not enjoin allegedly unconstitutional state action where there is uncertainty over whether the challenged action is even authorized by state law. Under what has come to be known as Pullman abstention, the federal court should dismiss such an action, and the plaintiffs should file any objection in state court. Here, as in Pullman itself, the state courts can figure out the lines of authority under Texas law.

There is some irony here. If Governor Abbott clearly had state law authority to order Texas sources of natural gas to give in-state power producers the right of first refusal, then a federal court action could proceed. The fact that his order is doubly rather than singly dubious--possibly violating state as well as federal constitutional law--keeps the case out of federal court and thus ensures that it is evaluated by a likely friendlier state court judge. To be sure, it is possible that a state court judge will rule against the Governor, but it seems a safer bet that the order will expire of its own terms before any such order.

Finally, I should acknowledge that expiration of the order in three days will moot a request for injunctive relief but not necessarily all litigation. Even if no natural gas shipments are directly impacted, the order has already had an impact on energy markets. While the state of Texas may be able to assert state sovereign immunity in any retrospective suit for damages after the crisis passes, it is possible to imagine the dormant Commerce Clause issue arising in a lawsuit between private parties. If it does, perhaps I'll write a sequel to today's entry.