Summary

On May 1, 2020, President Donald Trump issued an Executive Order on Securing the United States Bulk-Power System (“EO”) declaring threats to the U.S. bulk-power system a national emergency.  The President determined that “unrestricted foreign supply of bulk-power system electric equipment constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States . . .”  As reported by the Wall Street Journal, the EO “reflects a consensus among senior intelligence officials that foreign adversaries including Russia and China have secured hidden footholds in the electric system and could use that access to cause blackouts at some future date.” 

To address this threat, the EO prohibits the acquisition and installation of bulk-power system electric equipment designed, developed, manufactured, or supplied by foreign adversaries and  initiates a process to identify, isolate, monitor, or replace existing bulk-power system assets.  Substantial authority is delegated to the Secretary of Energy(“Secretary”) to implement the EO, and regulations will be issued by the Department of Energy on or before September 28, 2020.  While the EO is expected to mitigate threats to electric infrastructure and enhance grid resiliency, it could impose additional burdens and costs on electric utilities and electric equipment suppliers.   

A copy of the EO is available here.

Prohibitions and Mitigation Measures

The EO, issued pursuant to the President’s authority under the Constitution, the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.), the National Emergencies Act (50 U.S.C. § 1601 et seq.), and 3 U.S.C. § 301, prohibits any acquisition, importation, transfer, or installation of any bulk-power system electric equipment by any person, or with respect to any property, subject to U.S. jurisdiction, where the transaction involves property in which any foreign country or national has an interest (including through a contract for the provision of the equipment).  To fall within the scope of this prohibition, the Secretary, in coordination and consultation with certain other federal agencies, must determine that the proposed 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 (i.e., any foreign government or foreign non-government person engaged in a long‑term pattern or serious instances of conduct significantly adverse to the national security of the United States or its allies or the security and safety of U.S. persons); and

• (1) poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of the bulk-power system in the U.S.; (2) poses an undue risk of catastrophic effects on the security or resiliency of U.S. critical infrastructure or the U.S. economy; or (3) otherwise poses an unacceptable risk to U.S. national security or the security and safety of U.S. persons.

“Bulk-power system” is defined to include: (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.  For the purposes of the EO, this definition includes transmission lines rated at 69 kV or more, but does not include facilities used in the local distribution of electric energy.

“Bulk-power system electric equipment” means items used in bulk-power system substations, control rooms, or power generating stations, including reactors, capacitors, substation transformers, current coupling capacitors, large generators, backup generators, substation voltage regulators, shunt capacitor equipment, automatic circuit reclosers, instrument transformers, coupling capacity voltage transformers, protective relaying, metering equipment, high voltage circuit breakers, generation turbines, industrial control systems, distributed control systems, and safety instrumented systems.  Items not included in the preceding list and that have broader application of use beyond the bulk-power system are outside the scope of the EO.

The EO explains that the Secretary has discretion to design or negotiate measures to serve as a precondition to the approval of a proposed transaction or a class of transactions that would otherwise be prohibited pursuant to the EO.  The Secretary, in consultation with the heads of other agencies as appropriate, also may establish a list of pre-qualified equipment and vendors.  Notably, the restrictions identified in the EO apply notwithstanding any contract entered into or any license or permit granted prior to the date of the EO.

DOE’s Implementation Authority

To implement these authorities, the Secretary is authorized to direct the timing and manner of the cessation of pending and future transactions prohibited under the EO, adopt appropriate rules and regulations, and employ all other powers granted to the President as may be necessary.  Rules and regulations may, among other things:

• determine that particular countries or persons are foreign adversaries exclusively for the purposes of the EO;

• identify persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries exclusively for the purposes of the EO;

• identify particular equipment or countries that warrant particular scrutiny under the provisions of the EO;

• establish procedures to license transactions otherwise prohibited pursuant to the EO; and

• identify a mechanism and relevant factors for the negotiation of agreements to mitigate concerns raised in connection with the EO.

Beyond the authorities identified above, the EO also establishes a Task Force on Federal Energy Infrastructure Procurement Policies Related to National Security (“Task Force”).  The Task Force will coordinate the federal government’s procurement of energy infrastructure and the sharing of risk information and risk management practices.  Among other duties, the Task Force is required to develop a recommended consistent set of energy infrastructure procurement policies and procedures for all federal agencies. 

Baker Botts will provide subsequent updates as the Secretary implements the EO.   

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.