Power & Pipes

FERC, CFTC, and State Energy Law Developments

President Donald Trump signed an executive order on May 1 declaring that the use of bulk-power system equipment supplied by companies controlled by certain foreign nations poses an extraordinary threat to the US power grid. The order observes that the bulk-power system is a valuable target for malicious actors, and any attack on that system could pose serious risks to the economy, public health and safety, and national security.

In light of those risks, the executive order declares a national emergency with respect to the power grid and moves to ban the unrestricted import or use of bulk-power system electric equipment from foreign adversaries. Although the order calls for coordination among multiple executive branch heads, including the Director of National Intelligence and the Secretary of Homeland Security, it primarily tasks the Secretary of Energy with fulfilling the President’s directives.

Specifically, the executive order:

  1. Prohibits the import and use of bulk-power system equipment identified by the Secretary of Energy as provided by a foreign adversary, where the use of such equipment would pose an undue risk to the bulk-power system;
  2. Directs the Secretary of Energy to issue rules and regulations within 150 days that identify the countries, persons, and equipment covered by the restrictions and that provide a process for approving transactions that would otherwise be prohibited;
  3. Directs the Secretary of Energy to identify, as soon as practicable, equipment provided by a foreign adversary where the existing use poses an undue risk to the bulk-power system and provide recommendations for isolating and potentially removing that equipment; and
  4. Creates a Task Force on Federal Energy Infrastructure Procurement Policies Related to National Security (Task Force) to develop and submit recommendations on these issues to the Federal Acquisition Regulatory Council (FAR Council).

The importation restrictions on bulk-power system will apply prospectively to transactions initiated after today. While the focus of the executive order is on preventing bulk-power system attacks, the order also recognizes that such attacks can occur on the distribution system. Therefore, the executive order directs the Task Force to explore those risks further with distribution system industry groups.

Notably, the definition of “bulk-power system” and “bulk-power system equipment” are exceptionally broad, demonstrating the breadth of the potential restrictions.

“Bulk-power system” is broader than the definition traditionally employed by FERC and NERC. Under the executive order it is defined as:

(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 purpose of this order, this definition includes transmission lines rated at 69,000 volts (69 kV) or more, but does not include facilities used in the local distribution of electric energy.

“Bulk-power system equipment” is also broader than only operational technology and information technology encompassing any:

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.

Because the order is immediately effective even though the “foreign adversaries” and the equipment at issue have not been publicly identified, companies relying on equipment for ongoing and future projects that are coming from countries likely to be deemed problematic and companies controlled by such countries should be cautious in their contracting and consider plans for backups. In addition, because the executive order draws on the authority granted to the president by the International Emergency Economic Powers Act, companies should ensure they have documentation supporting the origin of their imported components and the law empowers the president to require the production of such documentation in carrying out the statute.

Read the executive order.