Reed Smith Client Alerts

On May 1, 2020, President Trump issued an executive order designed to further secure the U.S. bulk-power system from malicious acts by foreign adversaries. The executive order prohibits, from the date of the order, certain transactions by any U.S. person or with respect to any property subject to U.S. jurisdiction, involving bulk-power equipment designed, developed, manufactured, or supplied by certain foreign persons and deemed by the Secretary of Energy to pose a risk to the national security of the United States. The executive order establishes a framework that empowers the Secretary of Energy to determine which transactions pose undue or unacceptable risks and to adopt rules and regulations necessary to implement the executive order within 150 days. Although the manner of implementation is uncertain, the executive order sets the stage for a potentially significant impact on the supply chain supporting this component of U.S. critical infrastructure.

Auteurs: Michael J. Lowell Sarah S. Wronsky Manasi Venkatesh William T. Kirkwood

Summary:

Citing concerns with the potential for foreign adversaries to exploit vulnerabilities in the U.S. bulk-power system1 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 to the U.S. bulk-power system and issued an executive order that may have a dramatic effect on the equipment authorized for use to support the U.S. infrastructure.

The Executive Order on Securing the United States Bulk-Power System (EO) issued on May 1, 2020, was issued under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) and other authorities and seeks to balance the Trump administration’s commitment to an “open investment climate” in bulk-power system electrical equipment, with a “critical national security threat.” Accordingly, the EO prohibits, from the date of the order, “any acquisition, importation, transfer, or installation of bulk-power system electric equipment by any person or with respect to any property subject to the jurisdiction of the United States,” where the transaction involves any property in which a foreign person has an interest (including an interest through a contract) and where the Secretary of Energy (Secretary), in consultation with other agencies, has determined that the transaction presents certain national security risks. Specifically, the transaction will be prohibited where the Secretary has determined that it involves “bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the direction of a foreign adversary,”2 and where the transaction poses an undue or unacceptable risk to the bulk-power system, the critical infrastructure system, the economy, or the national security of the United States.

The EO highlights an increasingly sensitive area of U.S. national security and follows at the heels of the recently implemented authority of the Committee on Foreign Investment in the United States (CFIUS) to review foreign investment in U.S. critical infrastructure related to, among other things, the bulk-power grid. Effective February 13, 2020, the authority of CFIUS to review inbound foreign investment was broadened to include review of certain investments in U.S. businesses that own or operate any system for the generation, transmission, distribution, or storage of electric energy comprising the bulk-power system, or any electric resource connected to the bulk-power system, including facilities and systems that serve the U.S. military. The EO adds an additional layer in the securement of the bulk-power system by addressing threats arising from foreign equipment used or installed at such facilities.