Municipal Corner

The Lone Star Infrastructure Protection Act prohibits contracts and other agreements with certain foreign-owned companies in certain circumstances in connection with critical infrastructure in this State. Tex. Att’y Gen. Op. No. KP-410 (2022).

In a recent opinion, the Office of the Attorney General addressed whether the Lone Star Infrastructure Act (the “Act”) prohibits a business or government 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. The Office of the Attorney General concluded such an agreement would fall under the scope of the Act depending on the terms of the agreement, including whether the company would gain direct or remote access to critical infrastructure.

The 87th Legislature adopted the Act to prohibit “contracts or other agreements with certain foreign-owned companies in connection with critical infrastructure of this state.” Act of May 24, 2021, 87th Leg., R.S., ch. 975, 2021, Tex. Gen. Laws 2535 (S.B. 2116 preamble). The Act was added to both the Business & Commerce and Government Codes as applicable to business and governmental entities.

The Act prohibits an entity from entering into an agreement relating to critical infrastructure if the company involved would be granted direct or remote access to or control of critical infrastructure in this state, and if the entity knows that the company is owned or controlled by individuals who are citizens of or a company controlled by citizens or the governments of China, Iran, North Korea, Russia, or a country designated by the Governor, or headquartered in China, Iran, North Korea, Russia, or another country designated by the Governor. TEX. BUS. & COM. CODE § 113.002; see also TEX. GOV’T CODE § 2274.0102.

The Opinion noted the relevant question at issue revolved around whether the company party to the agreement with the governmental entity would have direct or remote access to or control of critical infrastructure. Under the Act, critical infrastructure consists of “a communication infrastructure system, cybersecurity system, electric grid, hazardous waste treatment system, or water treatment facility.” Id. The utility service at issue in the request would require a utility provider to use critical infrastructure to provide services to a consumer, in this case a factory owned by a company that meets certain criteria under the Act. The Attorney General concluded that while 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, this use of critical infrastructure to provide services to an end-use would not inherently result in the utility consumer itself obtaining access to the critical infrastructure prohibited by the Act.

The Attorney General further noted that the Act does not define “access” or “control,” and that such terms should be defined based on their common, ordinary meaning. The Opinion relied on the definitions provided in the New Oxford American Dictionary and Black’s Law Dictionary for its analysis. The Opinion then referenced a previous determination by the Attorney General addressing 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. There, the Attorney General concluded that because the electricity generator would obtain the ability to connect to and supply electricity to the electric grid, such an agreement would therefore be implicated by the Act. The Attorney General contrasted the previous Opinion with the agreement at issue and stated that based on the terms of the agreement, the service rendered would not amount to access such that the Act would apply.

Additionally, the Attorney General addressed whether the construction and maintenance of new infrastructure, including power lines, waterlines, sewer lines, and other infrastructure to provide such services, constitute an agreement that grants direct or remote access to or control of critical infrastructure. The Attorney General concluded that nothing in the Act prohibits construction or maintenance of new infrastructure to facilitate the provision of additional utility services. The Act would only be implicated if the new infrastructure provided a factory as described in the request at issue with direct or remote access or control of critical infrastructure as described above.

The Attorney General concluded that the 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 Attorney General noted that 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, did 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. This Opinion may be useful for other similarly situated entities when determining whether any agreements to which they are a party would fall under the Act.

A court would likely conclude that the common-law incompatibility doctrine and conflict-of-interest laws do not bar a Nueces County Commissioner from simultaneously serving as the general manager of the South Texas Water Authority. Tex. Att’y Gen. Op. No. KP-407 (2022).

In a recent opinion, the Office of the Attorney General addressed whether the doctrine of incompatibility or conflict-of-interest laws prevent simultaneous service as a county commissioner and general manager of a water authority. The Office of the Attorney General concluded such a court would likely hold the common-law incompatibility doctrine and conflict-of-interest laws would not bar such simultaneous service.

First, the Attorney General addressed the incompatibility doctrine, which prohibits dual public service in cases of self-appointment, self-employment, and conflicting loyalties. See Ehlinger v. Clark, 8 S.W.2d 666, 674 (Tex. 1928). The Attorney General noted that self-appointment and self-employment conflicts were not at issue, and conflicting-loyalties incompatibility would only apply if both positions are public offices. See Tex. Att’y Gen. Op. No. KP-0369 (2021) at 3. The Attorney General referenced a previous decision where the Attorney General concluded that a general manager of a water district did not occupy a public office. See Tex. Att’y Gen. Op. No. GA-0849 (2011) at 2. Accordingly, the conflicting-loyalties incompatibility doctrine would not prohibit a county commissioner from also serving as general manager of the Authority.

Next, the Opinion addressed conflict-of-interest law questions concerning the Authority’s execution of a management service agreement with a corporation, for which the Nueces County Commissioner is president. Under the management services agreement, the Nueces County Commissioner would serve as the general manager of the Authority. Section 81.002(a) of the Local Government Code requires a county commissioner to take an “official oath and swear in writing that the person will not be interested, directly or indirectly, in a contract with or claim against the county.” TEX. LOC. GOV’T CODE § 81.002(a). The Attorney General concluded that Section 81.002 is not applicable because the management service agreement between the Authority and the corporation is not a “contract with or claim against the county.” Id.

Finally, the Attorney General addressed whether Chapter 171 of the Local Government Code, which prohibits a local public official from participating in a vote or decision involving a business entity in which the official has a substantial interest, had been violated. In a previous opinion, the Attorney General determined the prohibition “applies only to a local public official who may participate in a vote or decision of the governmental entity that will result in a special economic effect on the official’s business.” See Tex. Att’y Gen. Op. No. KP-0244 (2019) at 2. While the individual at issue is a local public official, the Attorney General concluded that neither state statute nor the facts at issue provide that the individual, as county commissioner or general manager, participates in the vote or decision of the Authority to approve the management service agreement, which is the responsibility of the Authority’s board. Therefore, a court would likely conclude that the Authority’s vote to approve the management service agreement with the corporation does not constitute a vote or decision requiring the individual, as county commissioner or general manager, to comply with the conflict-of-interest procedures under Section 171.004. Tex. Att’y Gen. Op. Nos. KP0376 (2021)
at 5, KP-0244 (2019) at 4, DM-0244 (1993) at 3.

Municipalities, utility providers, and other governmental or business entities may utilize this Opinion to determine whether issues exist involving the incompatibility doctrine or conflict-of-interest laws.

“Municipal Corner” is prepared by Kathryn Thiel. Kathryn is an Associate in the Firm’s Districts Practice Group. If you would like additional information or have questions related to these or other matters, please contact Kathryn at 512.322.5839 or kthiel@lglawfirm.com.