On May 1, President Trump signed an executive order on “Securing the United States Bulk-Power System” (the “Order”) that gives the Department of Energy new authorities under the International Emergency Economic Powers Act to block or mitigate certain transactions involving bulk-power system electric equipment designed, developed, manufactured or supplied by a “foreign adversary.”  The Order declares a national emergency with respect to “the unrestricted foreign supply of bulk-power system electric equipment” and asserts federal oversight over private utility purchases of certain equipment from suppliers deemed to be controlled or influenced by foreign adversaries.

The Order represents the first broad attempt by the U.S. government to regulate the entire U.S. supply chain for the bulk-power system based on national security risk considerations.  The scope of the authority conferred on the Department of Energy is potentially quite broad, and the implications of the Order will not be fully known until the Secretary of Energy issues implementing regulations and begins to use the authority.

The issuance of the Order should be of interest to utilities and other electricity suppliers, as well as other firms that purchase equipment used on, or that connect with, the U.S. bulk power system.

Principal Elements of the Order

The Order 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 bulk-power equipment designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary,” and
  • “Poses an undue risk” to the bulk-power system in the United States; “poses an undue risk of catastrophic effects on the security or resiliency of” U.S. critical infrastructure or the economy;” or “otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.”

These determinations are to be made by the Secretary of Energy in consultation with the heads of other agencies including the Secretary of Defense, Secretary of Homeland Security, Director of National Intelligence, and others.

The Order also grants certain authorities to the Secretary of Energy and establishes a Task Force on Federal Energy Infrastructure Procurement Policies Related to National Security.

Additional Secretary of Energy Authorities

The Order also gives the Secretary of Energy the authority to:

  • Establish criteria for recognizing equipment and vendors in the bulk-power system electric equipment market as pre-qualified for future transactions, and apply these criteria to establish a list of pre-qualified equipment and vendors.
  • Design or negotiate measures to mitigate concerns related to transactions covered by the Order. These mitigation measures may function as preconditions for parties to secure approval for a transaction or class of transactions.

The Order directs the Secretary of Energy, through the interagency consultation process, to identify prohibited equipment already in use within the bulk power system and work with asset owners to identify, isolate, monitor, and replace this equipment, as appropriate.

The Order also directs the Secretary of Energy to publish rules or regulations implementing the new authorities within 150 days that may, among other things:

  • Identify countries or persons as “foreign adversaries;”
  • Identify persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries;
  • Identify equipment or countries that “warrant particular scrutiny;”
  • Establish procedures to license transactions otherwise prohibited by the Order; and
  • Identify a mechanism and relevant factors for the negotiation of agreements to “mitigate concerns” under the Order.

Task Force on Federal Energy Infrastructure Procurement Policies Related to National Security

The Task Force will:

  • Develop energy infrastructure procurement policies and procedures for U.S. government agencies and submit those recommendations to the Federal Acquisition Regulatory Council;
  • Evaluate methods and criteria used to incorporate national security considerations into energy security and cybersecurity policymaking;
  • Consult with the Electricity Subsector Coordinating Council and the Oil and Natural Gas Subsector Coordinating Council in developing the Task Force’s recommendations and evaluations;
  • Engage with electric distribution system industry groups; and
  • Conduct other studies and develop other recommendations for submission to the President.
Tags: Electric equipment, National security
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Photo of David Fagan David Fagan

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers…

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers Global for his leading expertise on bet-the-company CFIUS matters and has received multiple accolades for his work in this area, including twice being named Dealmaker of the Year by The American Lawyer. Clients laud him for “[seeing] far more matters than many other lawyers,” his “incredible insight,” and “know[ing] how to structure deals to facilitate regulatory reviews” (Chambers USA).

David’s practice covers representations of both foreign and domestic companies before CFIUS and related national security regulators. The representations encompass matters in which the principal assets are in the United States, as well as those in which there is a smaller U.S. nexus but where solving for the CFIUS issues—including through proactive mitigation and carve-outs—is a critical path for the transaction. David has handled transactions for clients across every sector subject to CFIUS review, including some of the most sensitive and complex matters that have set the template for CFIUS compliance and security agreements in their respective industries. He is also routinely called upon to rescue transactions that have run into challenges in CFIUS, and to negotiate solutions with the U.S. government that protect national security interests, while preserving shareholder and U.S. business interests.

Reflecting his work on U.S.-China investment issues and his experience on complex U.S. national security matters intersecting with China, David is regularly engaged by the world’s leading multi-national companies across a range of industries to advise on strategic legal projects, including supply chain matters, related to their positioning in the emerging competition between the U.S. and China, as well as on emerging legal issues such as outbound investment restrictions and regulations governing information and communications technologies and services (ICTS). David also has testified before a congressional commission regarding U.S. national security, trade, and investment matters with China.

In addition, in the foreign investment and national security area, David is known for his work on matters requiring the mitigation of foreign ownership, control or influence (FOCI) under applicable national industrial security regulations, including for many of the world’s leading aerospace and defense companies and private equity firms, as well as telecommunications transactions that undergo a public safety, law enforcement, and national security review by the group of agencies known as “Team Telecom.”

In his cybersecurity practice, David has counseled companies on responding to some of the most sophisticated documented cyber-based attacks on their networks and information, including the largest documented infrastructure attacks, as well as data security incidents involving millions of affected consumers. He has been engaged by boards of directors of Fortune 500 companies to counsel them on cyber risk and to lead investigations into cyber attacks, and he has responded to investigations and enforcement actions from the Federal Trade Commission (FTC) and state attorneys general. David has also helped clients respond to ransomware attacks, insider theft, vendor breaches, hacktivists, state-sponsored attacks affecting personal data and trade secrets, and criminal organization attacks directed at stealing personal data, among other matters.

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