Background
Citing concerns with the potential for foreign adversaries to exploit vulnerabilities in the BPS that supports the country’s national defense, as well as vital emergency services, critical infrastructure, economy, and way of life, President Trump declared a national emergency related to this threat and issued Executive Order 13920, “Securing the United States Bulk-Power System” (EO), on May 1, 2020.1 DOE, in a Request for Information (RFI) issued on July 8, 2020, identified the current list of foreign adversaries as the governments of (i) The People’s Republic of China; (ii) the Republic of Cuba; (iii) the Islamic Republic of Iran; (iv) the Democratic People’s Republic of Korea (North Korea); (v) the Russian Federation; and (vi) the Bolivarian Republic of Venezuela.2
Thereafter, on January 6, 2021, DOE, in light of its determination that the PRC is “equipped and actively planning to undermine the BPS,” issued a Prohibition Order prohibiting the acquisition, importation, transfer, or subsequent installation of BPS electric equipment or programmable components in certain sections of the BPS subject to China’s ownership, control, or influence.3
Prohibited transactions
The January 6, 2021 Prohibition Order prohibits a “Responsible Utility” – defined as “an electric utility that owns or operates Defense Critical Electric Infrastructure (DCEI), as defined by section 215A(a)(4) of the Federal Power Act (FPA), that actively serves a CDF, as designated by the Secretary under section 215A(c) of the FPA” – from “acquiring, importing, transferring, or installing BPS electric equipment identified in Attachment 1 (Regulated Equipment) that (i) has been manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC, and (ii) is for use by the Responsible Utility as a component of its DCEI serving the CDF at a service voltage level of 69 kV or higher, from the point of electrical interconnection (at a service voltage level of 69 kV of higher) with the CDF up to and including the next ‘upstream’ transmission substation” (emphasis added).
Attachment 1 of the Prohibition Order identifies Regulated Equipment as:
“1. Power transformers with low-side voltage rating of 69 thousand volts (kV) or higher and associated control and protection systems like load tap changer, cooling system, and Sudden Pressure relay.
2. Generator step up (GSU) transformers with high-side voltage rating of 69 kV or higher and the associated control and protection systems like load tap changer, cooling system, and Sudden Pressure relay.
3. Circuit breakers operating at 69 kV or higher.
4. Reactive power equipment (Reactors and Capacitors) 69 kV or higher.
5. Associated software and firmware installed in any equipment or used in the operation of items listed in 1 through 4.”
The Prohibition Order further explains that the term “Regulated Equipment” includes “software, firmware and digital components that control the operation of Regulated Equipment and are manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC.”4 Regulated Equipment is a subset of the “bulk-power system electric equipment” defined in the EO.5
Compliance and certifications
The Prohibition Order requires “each Responsible Utility” to “work with DOE to assist in the identification of DCEI and any load shedding and system restoration contingency planning required to assure the energy and missions of CDFs[,]” and directs “[e]ach Responsible Utility . . . to designate . . . each CDF as a priority load in the applicable load shedding and system restoration plans.”6
The Prohibition Order requires that by February 15, 2021, each Responsible Utility “shall file a certification with the Department, under penalty of perjury, that since the Effective Date: (a) It has designated (or taken all action reasonably available to it to cause the relevant regional entity to designate) each CDF as a priority load in the applicable system load shedding and restoration plans.” In addition, by March 17, 2021, and “once every three years thereafter for as long as this Prohibition Order is in effect,” each Responsible Utility “shall file a certification with the Department, under penalty of perjury, that since the Effective Date: (a) It has not entered into a Prohibited Transaction; and (b) It has established an internal monitoring process to accurately track future compliance with [the] Prohibition Order.”7
Waiver and petition for rehearing
In terms of relief from the Prohibition Order, the Secretary of DOE is authorized to waive any term of the Prohibition Order for “good cause shown.” Aggrieved parties may also petition the Secretary for a rehearing no later than March 2, 2021.
Penalties
Violations of the Prohibition Order are subject to civil penalties “not to exceed the greater of $250,000… or an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.” Criminal penalties include a fine of not more than $1 million, imprisonment for not more than 20 years, or both.8
Key takeaways
In light of the Prohibition Order, companies should immediately begin reviewing their supply chain to determine the impact the Prohibition Order may have on their business, if any (note that Responsible Utilities will be notified by DOE). Since there may not be an additional opportunity to comment on or seek relief from the Prohibition Order (outside of the waiver process available to Responsible Utilities), impacted companies should consider consulting with legal counsel to evaluate the possible bases for petitioning the Secretary for rehearing (petitions are due by March 2, 2021). Given the national security concerns implicated by this Prohibition Order, we do not anticipate any significant deviations or changes from these objectives under the Biden Administration.
- Section 4(d) of the EO defines “foreign adversary” as “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 United States persons.”
- See 85 Fed. Reg. 41023 (July 8, 2020).
- See 86 Fed. Reg. 533 (January 6, 2021).
- See supra n. 3.
- See section 4 of the EO.
- See supra n. 3.
- Id.
- Id.
Client Alert 2021-014
