Fifth Circuit Upholds Texas Law Keeping Chinese-Owned Company Off the Grid

A federal appeals court has upheld the Texas law that bars companies tied to China from connecting to the state’s power grid, ruling that federal foreign-investment review does not override it.

“Where Congress has been silent, and where we do not see any clear conflict or field preemption, Texas has a free lane to enact and enforce LSIPA,” Judge Jerry E. Smith wrote for a panel of the Fifth Circuit Court of Appeals in an opinion filed October 16. “The judgment is AFFIRMED.”

The law and the company

The Lone Star Infrastructure Protection Act, passed by the Legislature in 2021 as Senate Bill 2116, prohibits certain agreements with a company owned or controlled by Chinese citizens or the Chinese government, or headquartered in China, if the agreement would give it “direct or remote access to or control of critical infrastructure in this state.” The Texas grid run by the Electric Reliability Council of Texas counts as critical infrastructure.

GH America Energy is a Texas company owned by China’s Xinjiang Guanghui Industry Investment Group, whose affiliates bought 131,290 acres in Val Verde County, according to the opinion. In 2022, under the new law, the grid operator refused to connect the company’s proposed Blue Star solar project. The opinion notes that the U.S. Department of Defense had earlier objected to some of the company’s renewable energy projects because they were near Laughlin Air Force Base.

The argument that failed

The company argued that the federal Committee on Foreign Investment in the United States, which reviews foreign purchases for national security risks, already covers the ground and leaves no room for a state law. A federal district court in Austin dismissed the company’s claims, and on appeal the only question left was whether the federal review process preempts the Texas law.

The panel held that it does not. The company, the court wrote, failed “to identify any conflict between LSIPA and the statutory text authorizing CFIUS,” and the Texas law “is in purposive harmony with CFIUS and, if anything, provides even greater protection as a positive upward variance for Texan security.” Judges Haynes and Engelhardt sat on the panel; Haynes concurred in the judgment only.

What it means

The ruling leaves in place the state’s power to decide which foreign-controlled companies may plug into the Texas grid, a decision the court found Washington had left to Texas.