On May 1, 2020, President Trump declared a state of emergency with respect to the threat to the U.S. bulk-power system and issued the “Executive Order on Securing the United States Bulk-Power System.” This order prohibits the acquisition, importation, transfer or installation of certain equipment tied to a “foreign adversary” in the U.S. power grid. While the goal of protecting U.S. energy infrastructure from cyberattack and other nefarious manipulation is, of course, a good and important one, this order does not come with the clarity needed to guide stakeholder action to change or adopt practices so as to comply with its terms.
Since this prohibition was announced by executive order and gave the secretary of the Department of Energy 150 days to publish rules and regulations implementing such order — but made the order effective immediately — this uncertainty will continue for some time. For now, businesses will need to account for this uncertainty in the pricing and conditions of some transactions involving generation or transmission assets and consider plans and contingencies to implement required changes to existing operating assets in case such requirements result from the forthcoming rules and regulations.
Section 1(a) of the executive order specifically prohibits certain transactions where the secretary of the Department of Energy (in coordination with various other executive departments and agencies) has determined both of the following:
- Such transaction involves “bulk-power system electric equipment designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary.”
- Such transaction poses (i) an “undue risk” of either “sabotage to or subversion of the bulk-power system in the United States” or “catastrophic effects on the security or resiliency of the U.S. critical infrastructure or the economy of the United States”; or (ii) “otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.”
The secretary of the Department of Energy must identify the bulk-power system electric equipment to be governed by the executive order as soon as practicable. In the meantime, the executive order’s definitions of “bulk-power system” and “bulk-power system electrical equipment” are defined broadly. The definition of “bulk-power system” tracks somewhat closely with that contained in Section 215 of the Federal Power Act, but this definition is broader than the North American Electric Reliability Corporation’s definition of “Bulk Electric System.” Bulk-power system includes “(i) facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof); and (ii) electric energy from generation facilities needed to maintain transmission reliability.” However, bulk-power system expressly excludes local electrical distribution facilities. Bulk-power system electric equipment is defined to mean “items used in bulk-power system substations, control rooms, or power generating stations,” but excludes items that “have broader application of use beyond the bulk-power system.”
Many questions remain regarding the true scope and applicability of President Trump’s order:
- How will the secretary of the Department of Energy determine that a transaction runs afoul of the prohibitions in this order? Will parties need to submit prospective transactions for review, similar to existing review procedures by the Committee on Foreign Investment in the United States or the U.S. Federal Trade Commission/Department of Justice? In addition, Section 2(d)(ii) requires that the secretary of the Department of Energy “develop recommendations” on how to “identify, isolate, monitor, or replace” now-prohibited equipment that is already in use — what onus will be put on stakeholders to act upon such recommendations?
- When is the prohibition effective? Section 1(a) limits the prohibition to transactions that were “initiated after [May 1, 2020,]” but Section 1(c) states that the prohibitions in Section 1(a) “apply … notwithstanding any contract entered into or any license or permit granted prior to the date of this order.”
- Which countries are considered “foreign adversaries” for purposes of this order? While this appears to target China, ostensibly other countries could be included.
- How will the definitions of “bulk-power system” and “bulk-power system electric equipment” be interpreted in practice? Will load specifics impact this calculus? For example, there are certain scenarios where a standalone storage facility is “needed to maintain transmission reliability,” but others where it is not.
- How will the requirements imposed under this order mesh with the ongoing efforts of “Bulk Electric System” owners and operators to comply with the North American Electric Reliability Corporation’s new CIP-013 Supply Chain Management Standard, compliance with which is now due Oct. 1, 2020 (the new extended compliance date, recently set by the Federal Energy Regulatory Commission due to coronavirus matters)?
Particular guidance on how stakeholders should operate or transact while waiting for the secretary of the Department of Energy to publish the rules and regulations implementing this order will be very fact-specific. Please contact any of the authors to learn more about this executive order and its potential impact on your business or the industry as a whole. McGuireWoods will continue tracking this executive order and its effects on the industry.