Does the Lone Star Infrastructure Protection Act stop a Texas utility from serving a factory owned by a Chinese company?

Plain-English summary

In 2021 the Texas Legislature passed the Lone Star Infrastructure Protection Act (Senate Bill 2116) to keep hostile foreign powers away from the state's critical infrastructure. The Act forbids a business entity (Business and Commerce Code chapter 113) or a governmental entity (Government Code chapter 2274) from entering an agreement relating to critical infrastructure with a company that would get "direct or remote access to or control of" that infrastructure, if the entity knows the company is owned or controlled by, or headquartered in, China, Iran, North Korea, Russia, or a designated country. "Critical infrastructure" is defined as a communication infrastructure system, a cybersecurity system, the electric grid, a hazardous waste treatment system, or a water treatment facility.

Representative Tracy King asked a practical question: does the Act stop a business or government entity from agreeing to provide utility service (electricity, sewer, waste treatment, internet, telecommunication, water) to a factory owned by a company that fits one of the Act's foreign-ownership criteria? The AG said no, not by itself. The key is the phrase "direct or remote access to or control of critical infrastructure." Delivering standard utility service does require the provider to use critical infrastructure: an electricity provider uses the electric grid, a water utility uses a water treatment facility. But the customer on the receiving end is just consuming the service. Receiving electricity over the grid is not the same as getting access to or control of the grid.

Because the Act is not defined to reach a customer's ordinary consumption of utilities, the AG concluded that providing standard utility service to the factory does not grant the kind of access or control the Act targets, so the agreement is not prohibited. The AG contrasted this with an earlier opinion, KP-0388 (2021), where a foreign-owned electricity generator sought an interconnection agreement to connect to and supply power into the grid; there the company would obtain the ability to connect to critical infrastructure, so the Act was implicated. The difference is the direction of the relationship: a generator plugging into the grid gains access, while a factory drawing service off the grid does not.

The Representative also asked about building new power lines, water pipes, and sewer pipes to serve such a factory. The AG concluded the Act does not prohibit constructing or maintaining new infrastructure to deliver additional utility service. That construction would only implicate the Act if the new infrastructure gave the factory itself direct or remote access to or control of critical infrastructure. As the AG cautioned (echoing KP-0388), the extent to which any specific agreement grants access or control "will depend in part on the terms of the contract at issue," so an unusual contract could still cross the line.

What this means for you

If you are a utility provider or a city utility

Based on this opinion, agreeing to provide standard utility service (electricity, water, sewer, waste treatment, internet, telecommunication) to a factory owned by a company tied to China, Iran, North Korea, Russia, or a designated country is not prohibited by the Act merely because of that ownership. The Act is triggered by an agreement that gives the foreign-owned company direct or remote access to or control of critical infrastructure, not by the company's ordinary consumption of the service. Review the actual contract terms; an unusual arrangement that hands the customer access to or control of the grid or a treatment facility could still fall within the Act.

If you are an economic-development official or local government

The opinion supports serving and recruiting foreign-owned manufacturing as utility customers without running afoul of the Act, and supports building the new power lines, water pipes, and sewer pipes that growth requires. The governmental-entity provisions in Government Code chapter 2274 mirror the business provisions, so the same analysis applies to your contracts.

If you operate a factory owned by a covered foreign company

The opinion means a Texas business or government entity is generally free to contract with you for standard utility service. What matters under the Act is whether your agreement gives you access to or control of critical infrastructure itself, not the fact that you consume utilities delivered over that infrastructure.

Common questions

Q: Does this Act ban Chinese-owned (or Russian, Iranian, North Korean) companies from operating in Texas?
A: No. The Act targets a narrow thing: agreements that give a covered foreign-owned company direct or remote access to or control of critical infrastructure (the electric grid, water treatment, hazardous waste treatment, communication, or cybersecurity systems). It is not a general ban on doing business.

Q: Is selling electricity or water to such a company illegal under the Act?
A: Not on its own. The AG concluded that providing standard utility service does not grant the customer access to or control of critical infrastructure, so the Act is not triggered just by serving the customer.

Q: Can a utility build new power lines or pipes to serve the factory?
A: Yes. The AG concluded nothing in the Act prohibits constructing or maintaining new infrastructure to deliver utility service, unless that new infrastructure gives the factory itself direct or remote access to or control of critical infrastructure.

Q: When would the Act actually apply?
A: When the agreement gives the covered company access to or control of the infrastructure, like the interconnection agreement in KP-0388 (2021), where a foreign-owned generator would connect to and supply power into the electric grid. The outcome turns on the specific contract terms.

Background and statutory framework

The Eighty-seventh Legislature enacted the Lone Star Infrastructure Protection Act in S.B. 2116 to prohibit "contracts or other agreements with certain foreign-owned companies in connection with critical infrastructure in this state." The Act added chapter 113 to the Business and Commerce Code for business entities and chapter 2274 to the Government Code for governmental entities. Section 113.002 (and the substantively identical Government Code section 2274.0102) bars an entity from entering an agreement relating to critical infrastructure with a company that, under the agreement, would be granted direct or remote access to or control of critical infrastructure (excluding access for product warranty and support), if the entity knows the company is owned or majority-controlled by citizens of, or directly controlled by the government of, China, Iran, North Korea, Russia, or a designated country, or is headquartered there. The prohibition applies whether or not the company's securities are publicly traded.

"Critical infrastructure" is defined as a communication infrastructure system, cybersecurity system, electric grid, hazardous waste treatment system, or water treatment facility (Business and Commerce Code section 113.001(2); Government Code section 2274.0101(2)). The Act does not define "access" or "control." Following the rule that undefined statutory words carry their common, ordinary meaning unless context dictates otherwise (Fort Worth Transp. Auth. v. Rodriguez), the AG looked to dictionaries: "access" means the means of approaching or entering a place, or the right or ability to enter or communicate; "control" means the ability to manage a machine or object.

Applying those meanings, the AG reasoned that a utility's use of critical infrastructure to deliver service to an end user does not give the end user access to that infrastructure. The AG distinguished KP-0388 (2021), where a foreign-owned generator's interconnection agreement would let it connect to and supply electricity into the grid, granting access the Act reaches. By contrast, a factory consuming utility service obtains no such access. New infrastructure built to provide service is not prohibited unless it gives the factory direct or remote access to or control of critical infrastructure, and whether any specific agreement does so depends in part on the contract's terms.

Citations and references

Statutes:

• Tex. Bus. & Com. Code § 113.002 (prohibited agreements with certain foreign-owned companies; "direct or remote access to or control of critical infrastructure")
• Tex. Bus. & Com. Code § 113.001 (definition of "critical infrastructure")
• Tex. Gov't Code § 2274.0102 (substantively identical prohibition for governmental entities)
• S.B. 2116, 87th Leg., R.S., ch. 975, 2021 Tex. Gen. Laws 2535 (Lone Star Infrastructure Protection Act)

Key authorities:

• Fort Worth Transp. Auth. v. Rodriguez, 547 S.W.3d 830 (Tex. 2018) (undefined words carry common, ordinary meaning; courts look first to dictionary definitions)
• Tex. Att'y Gen. Op. No. KP-0388 (2021) (foreign-owned generator's interconnection agreement to connect to the grid is "access" the Act reaches)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0410
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2022/kp-0410.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

June 6, 2022

The Honorable Tracy O. King
Chair, House Committee on Natural Resources
Texas House of Representatives
Post Office Box 2910
Austin, Texas 78768

Opinion No. KP-0410

Re: Whether the Lone Star Infrastructure Protection Act prohibits a business or government entity from entering into an agreement to provide utility service to a factory owned by a company that meets one of the criteria under the Act (RQ-0443-KP)

Dear Representative King:

You ask whether "the Lonestar Infrastructure Protection Act ("the Act") prohibits a business or government entity from entering into an agreement to provide utility services to a factory owned by a company that meets one of the criteria under the Act."¹

The Eighty-seventh Legislature adopted the Act to prohibit "contracts or other agreements with certain foreign-owned companies in connection with critical infrastructure in this state." Act of May 24, 2021, 87th Leg., R.S., ch. 975, 2021 Tex. Gen. Laws 2535 (S.B. 2116 preamble). The author's stated purpose of the bill was to block "foreign power access to our critical infrastructure."² The Act added chapter 113 to the Business and Commerce Code (applicable to business entities) and chapter 2274 to the Government Code (applicable to governmental entities).³ The Act prohibits certain types of contracts with companies under certain circumstances:

¹ Letter from Honorable Tracy O. King, Chair, House Comm. on Nat. Res., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Dec. 17, 2021), https://www2.texasattorneygeneral.gov/opinions/opinions/51paxton/rq/2021/pdf/RQ0443KP.pdf.

² Lone Star Infrastructure Protection Act: Hearings on Tex. S.B. 2116 Before the Senate Comm. on Bus. & Com., 87th Leg., R.S. (Apr. 20, 2021) (statement of Honorable Donna Campbell, Author, Senate Comm. on Bus. & Com.), available at https://tlcsenate.granicus.com/MediaPlayer.php?view_id=49&clip_id=15776.

³ Two other bills enacted during the Eighty-seventh legislative session also added chapter 113 to the Business and Commerce Code. See Act of May 22, 2021, 87th Leg., R.S., ch. 445, 2021 Tex. Gen. Laws 880 (H.B. 113) (codified at TEX. BUS. & COM. CODE §§ 113.0001-.0105) ("Peer-to-Peer Car Sharing Programs"); Act of May 25, 2021, 87th Leg., R.S., ch. 561, 2021 Tex. Gen. Laws 1126 (S.B. 398) (codified at TEX. BUS. & COM. CODE §§ 113.001-.005) ("Sales and Leasing of Distributed Renewable Generation Resources"). This opinion addresses only those provisions enacted pursuant to S.B. 2116.

(a) A business entity may not enter into an agreement relating to critical infrastructure in this state with a company:

(1) if, under the agreement, the company would be granted direct or remote access to or control of critical infrastructure in this state, excluding access specifically allowed by the business entity for product warranty and support purposes; and

(2) if the business entity knows that the company is:

(A) owned by or the majority of stock or other ownership interest of the company is held or controlled by:

(i) individuals who are citizens of China, Iran, North Korea, Russia, or a designated country; or

(ii) a company or other entity, including a governmental entity, that is owned or controlled by citizens of or is directly controlled by the government of China, Iran, North Korea, Russia, or a designated country; or

(B) headquartered in China, Iran, North Korea, Russia, or a designated country.

(b) The prohibition described by Subsection (a) applies regardless of whether:

(1) the company's or its parent company's securities are publicly traded; or

(2) the company or its parent company is listed on a public stock exchange as:

(A) a Chinese, Iranian, North Korean, or Russian company; or

(B) a company of a designated country.

TEX. BUS. & COM. CODE § 113.002; see also TEX. GOV'T CODE § 2274.0102 (substantively identical provision applicable to governmental entities).

Relevant to your question, for the Act to apply, the agreement at issue must give a company "direct or remote access to or control of critical infrastructure." TEX. BUS. & COM. CODE § 113.002(a)(1); TEX. GOV'T CODE § 2274.0102(a)(1). The Act defines "critical infrastructure" as "a communication infrastructure system, cybersecurity system, electric grid, hazardous waste treatment system, or water treatment facility." TEX. BUS. & COM. CODE § 113.001(2); TEX. GOV'T CODE § 2274.0101(2). The utility services at issue in your request, including "electricity, sewer, waste treatment, internet, telecommunication, culinary water and water treatment services," will require a utility provider to use critical infrastructure to provide services to a consumer, in this case the factory you ask about. Request Letter at 1, 2. An electricity provider will use the electric grid to transfer electricity to the factory, and a water utility will use a water treatment facility to purify water before passing the water to the factory. But the utilities' use of critical infrastructure to provide services to an end-user does not inherently result in the utility consumer itself obtaining access to the critical infrastructure.

The Act does not define "access" or "control." "Words not statutorily defined bear their common, ordinary meaning unless a more precise definition is apparent from the statutory context or the plain meaning yields an absurd result." Fort Worth Transp. Auth. v. Rodriguez, 547 S.W.3d 830, 838 (Tex. 2018). To determine a term's common, ordinary meaning, courts "typically look first to dictionary definitions." Id. The term "access" is commonly defined as "the means of approaching or entering a place." NEW OXFORD AMERICAN DICTIONARY 9 (3d ed. 2010); see also BLACK'S LAW DICTIONARY 16 (10th ed. 2014) (defining "access" as a "right, opportunity, or ability to enter, approach, pass to and from, or communicate with"). The term "control" is defined as "the ability to manage a machine, vehicle, or other moving object." NEW OXFORD AMERICAN DICTIONARY 378 (3d. ed. 2010).

A prior opinion of this office addressed whether the Act prohibited an interconnection agreement between a transmission service provider and an electricity generator that was a wholly or majority-owned subsidiary of a Chinese-headquartered corporation. See Tex. Att'y Gen. Op. No. KP-0388 (2021) at 3. The electricity generator in that scenario sought an interconnection agreement to transfer electricity to the electric grid. Id. The opinion concluded that because the electricity generator would obtain the ability to connect to and supply electricity to the electric grid, which the statute defines as critical infrastructure, the interconnection agreement gave the company "direct or remote access to critical infrastructure" and was therefore implicated by the Act. Id. at 3, 6.

In contrast, the scenario you describe does not appear to involve the factory's own use of critical infrastructure, but instead only the utility provider's use of that infrastructure to deliver utility services. See Request Letter at 1-2. Receiving utility services from critical infrastructure does not equate to gaining access or control, and the provision of standard utility services, by itself, does not grant an entity the ability to enter and use critical infrastructure or to manage it. "The extent to which any specific agreement grants direct or remote access to or control of critical infrastructure will depend in part on the terms of the contract at issue." Tex. Att'y Gen. Op. No. KP-0388 (2021) at 5. While it is possible that a specific contract for utility services could grant unique access to critical infrastructure, under normal circumstances, such service would not amount to access such that the Act would apply.

You also ask whether the construction and maintenance of new infrastructure such as additional power lines, water pipes, sewer pipes and other infrastructure to provide such services constitutes an agreement that grants the "'direct or remote access to or control of critical infrastructure in this state.'" Request Letter at 2 (quoting TEX. BUS. & COM. CODE § 113.002(a)(1)). Significant growth within a geographic area will likely require the construction of new infrastructure as you describe. Nothing in the Act prohibits construction or maintenance of new infrastructure to facilitate the provision of additional utility services. Such construction and maintenance of new infrastructure would not implicate the Act unless the new infrastructure provided a factory like that you describe with "direct or remote access to or control of critical infrastructure," as discussed above. TEX. BUS. & COM. CODE § 113.002(a)(1); TEX. GOV'T CODE § 2274.0102(a)(1).

S U M M A R Y

The Lone Star Infrastructure Protection Act prohibits contracts or other agreements with certain foreign-owned companies in certain circumstances in connection with critical infrastructure in this State. For the Act to apply, the agreement at issue must give a company direct or remote access to or control of critical infrastructure. An agreement to provide standard utility services, by itself, does not grant an entity the ability to access critical infrastructure as contemplated by the Act. The extent to which any specific agreement grants direct or remote access to or control of critical infrastructure will depend in part on the terms of the contract at issue.

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

LESLEY FRENCH
Chief of Staff

MURTAZA F. SUTARWALLA
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee