Appeals court upholds Texas law that kept a Chinese-owned developer's solar project off the state power grid

A federal appeals court has ruled that Texas can keep companies controlled from China off its power grid, rejecting an energy developer's argument that federal national security reviews leave no room for the state law.

The opinion from the U.S. Court of Appeals for the Fifth Circuit, filed Friday, Oct. 16, affirms a lower court's dismissal of a lawsuit by GH America Energy, a Texas company whose parent is headquartered in China. Texas Scorecard reported on the ruling Wednesday.

The law and the solar project

The 2021 Lone Star Infrastructure Protection Act bars government bodies and critical infrastructure businesses from agreements that would give companies owned or controlled by Chinese citizens or the Chinese government, or headquartered in China, access to or control of critical infrastructure, including the grid run by the Electric Reliability Council of Texas. The law also covers Russia, Iran and North Korea.

In 2023 lawmakers added a requirement that ERCOT not connect a business unless it attests that it complies.

According to the opinion, the company's affiliates bought 131,290 acres in Val Verde County between 2016 and 2018 and then set up the developer to pursue wind and solar projects. The Defense Department objected to some of them because they were close to Laughlin Air Force Base, and a federal mitigation agreement was expanded.

In October 2022, ERCOT's assistant general counsel told the company it was out of compliance with the state law and canceled the interconnection application for its proposed Blue Star Solar Project. The company says it then had to sell two other renewable projects at a substantial loss.

The two sides

The developer argued the Texas law is really a restriction on foreign investment, a field it said belongs to the federal Committee on Foreign Investment in the United States. Texas, which intervened through Attorney General Ken Paxton's office, described the law as regulation of an energy utility, a core state power.

Judge Jerry E. Smith, writing for the panel, found no conflict with the federal statute and said the federal review process is not so sweeping that it shuts out state rules. "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," he wrote.

The opinion acknowledges that people may see benefits in foreign investment but says weighing those against grid security is a policy choice for others, not the courts.

Judge Catharina Haynes concurred in the judgment. Judge Kurt Engelhardt was the third member of the panel.

The company had appealed only the preemption question; its other claims were dropped or dismissed earlier.

Sources

govinfo.gov

texasscorecard.com