Reported / Citable
Background
Texas’s Lone Star Infrastructure Protection Act bars governmental entities and critical-infrastructure businesses from making certain agreements with companies owned or controlled by citizens or governments of China, Russia, Iran, or North Korea when the agreements would provide access to or control of critical infrastructure. The Texas electric grid managed by the Electric Reliability Council of Texas is covered by the statute.
GH America Energy, a Texas LLC and subsidiary of a Chinese company, sought to connect the Blue Star Solar Project to the ERCOT grid. Its parent companies, Xinjiang Guanghui Industry Investment (Group) Company and GH America Investments Group, had previously acquired land in Val Verde County through subsidiary Texas LLCs and entered a federal mitigation agreement following review by the Committee on Foreign Investment in the United States. After GH America Energy disclosed its Chinese ownership, ERCOT determined that it did not comply with the Texas statute and canceled Blue Star’s interconnection application.
GH America Energy sued ERCOT-related officials and asserted several constitutional claims. The district court dismissed the case, and the company appealed only the ruling that the federal CFIUS regime did not preempt the Texas statute.
The Court’s Holding
The Fifth Circuit affirmed, holding that the CFIUS regime neither conflict-preempts nor field-preempts the Texas law. On conflict preemption, the court concluded that GH America Energy had not identified a conflict grounded in the text or structure of the federal statute. CFIUS has authority over specified categories of transactions, including certain acquisitions, investments, and real-estate transactions, while the Texas law regulates agreements providing access to critical infrastructure, including electric-grid interconnections.
The court also rejected the argument that Texas’s categorical restriction frustrated a federal policy favoring individualized review, mitigation, and executive flexibility. It reasoned that CFIUS’s statutory purpose is consistent with mitigating national-security risks and that Texas’s additional protection of its grid did not obstruct that purpose. The court distinguished cases involving state laws that directly conflicted with specific federal sanctions or immigration provisions.
Field preemption did not apply because Congress had not clearly and manifestly occupied the entire field of foreign-investment screening. The court characterized CFIUS’s authority as limited rather than all-encompassing and emphasized that congressional silence did not establish an intent to exclude compatible or related state regulation. Judge Haynes concurred in the judgment.
Key Takeaways
- CFIUS review does not, by itself, prevent a state from imposing additional restrictions on access to state critical infrastructure.
- A party asserting implied preemption must identify a conflict or exclusive federal occupation grounded in the federal statute’s text and structure, not merely a broad difference in regulatory approach.
- Texas’s regulation of interconnections to the intrastate ERCOT grid falls within an area traditionally associated with state police powers.
Why It Matters
The decision permits Texas to enforce its restrictions on agreements giving certain foreign-owned entities access to the ERCOT grid even when related investments have undergone federal national-security review or mitigation. It also signals that the Fifth Circuit will require concrete statutory evidence before treating CFIUS as displacing state regulation of critical infrastructure.
For foreign-owned energy developers, federal CFIUS clearance or mitigation may therefore be only one layer of regulatory review. Separate state restrictions can independently foreclose grid access unless Congress expressly or impliedly preempts them.