US moves to secure the bulk-power system against ‘foreign adversary’ threats

December 2020  |  SPOTLIGHT  |  GLOBAL TRADE

Financier Worldwide Magazine

December 2020 Issue

On 1 May 2020, president Donald J. Trump issued ‘Executive Order 13920 on Securing the US Bulk-Power System’, which prohibits certain transactions involving bulk-power system electric equipment with any entity owned or controlled by, or subject to the jurisdiction or direction of, a ‘foreign adversary’.

Given the broad definitions and ambiguous terms of the Executive Order, the implications for renewable energy projects in the US remains uncertain pending the issuance of further guidance and regulations by the secretary of energy of the US. According to the deadline in the Executive Order, proposed rules were expected to be published by the energy secretary on or before 28 September 2020 but have not yet been released.

The Executive Order prohibits the acquisition, importation, transfer or installation of any bulk-power system electric equipment by any person or with respect to any property subject to the jurisdiction of the US, where: (i) the transaction involves any property in which a foreign country or national thereof has any interest; and (ii) the energy secretary – in coordination with the director of the office of management and budget and in consultation with the secretary of defense, the secretary of homeland security, the director of national intelligence, and the heads of other departments or agencies, as appropriate – has determined the following.

First, if such bulk-power system, electric equipment was designed, developed, manufactured or supplied by persons owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary.

Second, if the transaction poses an undue risk of sabotage to or subversion of the bulk-power system in the US, of catastrophic effects on the security or resiliency of the US critical infrastructure or the economy of the US, or otherwise poses an unacceptable risk to the national security of the US or the security and safety of US persons.

The Executive Order defines ‘bulk-power system’ as the facilities and control systems necessary for operating an interconnected electric energy transmission network, and electric energy from generation facilities needed to maintain transmission reliability, including transmission lines rated at 69kV or more. ‘Bulk-power system electric equipment’ includes a wide array of equipment used in the construction and operation of substations, control rooms and power generating stations, including capacitors, substation transformers, generators, substation voltage regulators, circuit breakers and metering equipment.

The Executive Order bans transactions where bulk-power system electric equipment is designed, developed, manufactured or supplied by persons controlled by or subject to the jurisdiction of foreign adversaries. These broad and vague criteria give the energy secretary a great deal of discretion in both determining which countries are considered ‘foreign adversaries’ and which transactions would be considered transactions with persons subject to the jurisdiction of such foreign adversaries. The Executive Order gives the energy secretary the authority to designate foreign adversaries. In its request for public comment, the Department of Energy (DOE) indicates that the current list of foreign adversaries for purposes of the Executive Order consists of China, Cuba, Iran, North Korea, Russia and Venezuela.

The Executive Order permits the energy secretary to preapprove suppliers and equipment that would otherwise be prohibited by the Executive Order. The energy secretary has not yet given an indication of whether or not it will do so, or, if it does, which companies and equipment might be included on the preapproved list.

It is unclear from the Executive Order how far up the supply chain restrictions and prohibitions are intended to apply, but in its request for public comment on 8 July 2020 (DOE RFI), the DOE requested comment on certain transformers, reactive power equipment, circuit breakers and generation, as well as the hardware and electronics associated with equipment monitoring, intelligent control and relay protection.

The Executive Order applies to any transaction initiated after 1 May 2020, and gives the energy secretary the authority to “direct the timing and manner of the cessation of pending and future transactions”, which means that even if contracts are executed prior to the energy secretary’s issuance of rules and regulations to implement the Executive Order, the energy secretary could direct performance under such contracts to cease. Because in the Executive Order, “transaction” refers not only to the execution of a contract or the procurement of equipment, but also the installation of equipment, there is a risk that the energy secretary could prevent not only the delivery of equipment, but also the installation of equipment that has already been procured and delivered. However, both DOE RFI and a transcript of the stakeholder call, suggest that the energy secretary is not likely to take such drastic actions.

In addition to issues surrounding the opacity of the definitions and scope of the Executive Order, stakeholders have expressed concern about overlap and potential conflict with regulations promulgated by the Federal Energy Regulatory Commission (FERC) and standards adopted by the North American Electric Reliability Corporation (NERC). While FERC is not mentioned in the Executive Order, there is a call for the energy secretary to coordinate with other agencies as necessary. FERC issued a request for comments on the potential risks to the bulk electric system, which addresses the Executive Order as well as the 15 May 2019 ‘Executive Order 13,873 on Securing the Information and Communications Technology and Services Supply Chain’. The initial comment period closes on 23 November 2020.

Neither the DOE, FERC nor NERC has outlined the extent of their coordination in implementing the Executive Order, but Bruce Walker, assistant secretary of the DOE, noted on the stakeholder call that the DOE intends to implement the Executive Order “very surgically and very thoughtfully, in a way that comports with the knowledge that we collectively bring together through FERC, NERC and the DOE”.

 

Judith Alison Lee is a partner and Candis L. Davis is an associate attorney at Gibson Dunn. Ms Lee can be contacted on +1 (202) 887 3591 or by email: jalee@gibsondunn.com. Ms Davis can be contacted on +1 (212) 351 2471 or by email: cldavis@gibsondunn.com.

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Judith Alison Lee and Candis L. Davis

Gibson Dunn

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