On May 1, 2020, President Trump issued an Executive Order prohibiting the acquisition, importation, transfer, or installation of certain “bulk-power system electric equipment” where the transaction involves property in which a foreign country or national has any interest and the Secretary of Energy determines that the transaction poses risks to the U.S. bulk-power system, critical infrastructure, or national security. The President issued the Order pursuant to the International Emergency Economic Powers Act of 1977 (IEEPA), 19 U.S.C. § 1701-1707, which authorizes the President to regulate international commerce with the United States and to freeze assets within U.S. jurisdiction, in order to address “national emergencies” that the President declares pursuant to the National Emergencies Act (NEA, 50 U.S.C. § 1601 et seq.) The Order is effective immediately, but its precise scope and operation will be determined by implementing regulations that have not yet been issued. The Order directs the Secretary of Energy to issue such regulations within 150 days, and to establish procedures to license transactions that otherwise would be prohibited by the Order, though such licenses may be contingent upon the adoption of “mitigation” measures. We provide an overview of the Order below.
Declaration of National Emergency and Invocation of IEEPA
The Order declares a national emergency pursuant to the NEA “with respect to the threat to the United States bulk-power system.” This alleged threat arises from “the unrestricted acquisition or use in the United States of bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries[.]” According to the Order, such “unrestricted” acquisition and use “augments the ability of foreign adversaries to create and exploit vulnerabilities in bulk-power system electric equipment, with potentially catastrophic effects.” Accordingly, the Order sets forth the President’s determination that “the 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, which has its source in whole or in substantial part outside the United States” (a prerequisite for action under IEEPA).
The Order does not identify with specificity any recent actions or threats to the U.S. electrical grid that constitute a “national emergency.” Rather, it generally asserts, without identifying specific countries, that “[t]he bulk-power system is a target of those seeking to commit malicious acts against the United States and its people, including malicious cyber activities, because a successful attack on our bulk-power system would present significant risks to our economy, human health and safety, and would render the United States less capable of acting in defense of itself and its allies.” However, in describing the impetus for the order, U.S. government officials reportedly have cited past findings by the U.S. intelligence community that the governments of Russia and China have allegedly sought to exploit vulnerabilities in the U.S. electrical grid.
Scope of the Order
The merchandise covered by the Order is “bulk-power system electric equipment,” which the Order defines as follows:
The term “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 this order.
The Order provides no further details on the merchandise that is subject to the prohibition. At this time, however, it appears that Order does not apply to the energy sources used to generate electricity (e.g., fossil or nuclear fuels). The Order directs the Secretary of Energy to issue regulations implementing the prohibition within 150 days, and these regulations might further clarify the scope of the Order. The implementing regulations envisioned in the Order are described in more detail below.
Prohibition on Certain Bulk-Power System Electric Equipment
Section 1 of the Order prohibits “any acquisition, importation, transfer, or installation of any bulk-power system electric equipment (transaction) by any person, or with respect to any property, subject to the jurisdiction of the United States,” where the following conditions are met:
- The transaction involves any property in which any foreign country or a national thereof has any interest (including through an interest in a contract for the provision of the equipment),
- The transaction was initiated after the date of the Order, an
- The Secretary of Energy, 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, as appropriate, the heads of other executive departments and agencies, has determined that:
- The 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”; and
- The transaction: (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 United States; (2) poses an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the economy of the United States; or (3) otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.
The prohibition described above will apply “except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the date of this order.”
Implementation of the Order
The Order delegates to the Secretary of Energy the authority “to take such actions, including directing the timing and manner of the cessation of pending and future transactions prohibited pursuant to section 1 of this order, adopting appropriate rules and regulations, and employing all other powers granted to the President by IEEPA as may be necessary to implement this order.” The Order further specifies that, within 150 days (i.e., by September 28), the Secretary must issue “rules or regulations implementing the authorities delegated to the Secretary by this order.” Such regulations “may”:
- Determine that particular countries or persons “are foreign adversaries exclusively for the purposes of this order”; and identify “persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries exclusively for the purposes of this order;”
- Identify particular equipment or countries with respect to which transactions involving bulk-power system electric equipment “warrant particular scrutiny under the provisions of this order;”
- Establish procedures to license transactions otherwise prohibited pursuant to the Order; and
- Identify “a mechanism and relevant factors for the negotiation of agreements to mitigate [the economic and national security concerns described in the Order.]”
The Order provides the following additional authorities and directives to the Secretary of Energy:
- Mitigation measures. The Order expressly authorizes the Secretary to “design or negotiate measures to mitigate” the economic and national security concerns identified in the Order, and provides that “[s]uch measures may serve as a precondition to the approval by the Secretary of a transaction or of a class of transactions that would otherwise be prohibited pursuant to this order.”
- Prequalification of equipment and vendors. The Secretary, in consultation with the heads of other agencies as appropriate, “may establish and publish criteria for recognizing particular equipment and particular vendors in the bulk-power system electric equipment market as pre-qualified for future transactions; and may apply these criteria to establish and publish a list of pre-qualified equipment and vendors.”
- Identification of equipment posing “undue risks”. “As soon as practicable,” the Secretary must identify bulk-power system electric equipment that is “designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” that:
- 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 United States;
- Poses an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the economy of the United States; or
- Otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.
“As soon as practicable,” the Secretary must develop recommendations “on ways to identify, isolate, monitor, or replace such items as soon as practicable, taking into consideration overall risk to the bulk-power system.”
The Order establishes the legal framework for a broad prohibition on transactions involving certain foreign-origin bulk-power system electric equipment, but the extent of the prohibition will depend largely on the implementing regulations promulgated by the Department of Energy (DOE), the timing of which is unclear. As indicated above, the Order delegates broad authority to the Secretary of Energy to determine, among other things, which countries and persons are considered “foreign adversaries” for purposes of the Order, which transactions pose risks and must therefore be prohibited, and which entities and equipment will be prequalified or otherwise exempted from the prohibition through licenses or other measures. Interested parties should therefore evaluate closely the implementing regulations and any other guidance from DOE regarding the scope and operation of the Order.
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