Department of Energy Speaks on Bulk-Power System Executive Order

June 17, 2020

As discussed in detail in a previous McGuireWoods alert, on May 1, 2020, President Trump issued Executive Order 13920 (EO) prohibiting the acquisition, importation, transfer or installation of certain equipment tied to a “foreign adversary” in the U.S. power grid. However, the EO did not provide the clarity needed to guide stakeholder action.

Since President Trump’s issuance of the EO, stakeholders have been searching for answers to questions it raises. Throughout the month of May, the Department of Energy issued guidance on the EO as stakeholders anxiously await the secretary of the Department of Energy’s forthcoming rules and regulations — which are required to be published by late September.

Two main takeaways came out of these conversations — first, Department of Energy Assistant Secretary Bruce Walker confirmed that while stakeholders are waiting for guidance, the agency will work with them to help them focus on those bulk power system components that concern the agency the most; and second, that the agency is not approaching this as a “rip and replace” directive for equipment currently in operation. However, the formal rules and regulations promulgated by the agency will be key to gaining definitive answers. For instance, would sales of existing projects utilizing problematic equipment be free from scrutiny?

While helpful in many instances, the Department of Energy’s remarks since the issuance of the EO did not answer many of the fundamental questions initially raised by the EO, including the following:

  1. How will the secretary of the Department of Energy determine that a transaction runs afoul of the prohibitions in the EO? Will parties need to submit prospective transactions for review, similar to existing CFIUS or FTC/DOJ review procedures? How will the secretary of the Department of Energy determine if a transaction (i) poses an “undue risk” of either “sabotage to or subversion of the bulk-power system in the United States” or “catastrophic effects on the security or resiliency of the U.S. critical infrastructure or the economy of the United States”; or (ii) “otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons”?

  2. When is the prohibition effective? Section 1(a) of the EO limits the prohibition to transactions that were “initiated after” May 1, 2020, but Section 1(c) states that the prohibitions in Section 1(a) “apply … notwithstanding any contract entered into or any license or permit granted prior to the date of this order.”

  3. Which countries are considered “foreign adversaries” for purposes of this order?

Again, determinations on how stakeholders should operate or transact while waiting for the secretary of the Department of Energy to publish the rules and regulations implementing the EO will be very fact-specific. Affected stakeholders should prepare now for adjustments that may need to be made following publication of the implementing rules and regulations. Please contact any of the authors of this alert to learn more about this executive order and its potential impact on your business or the industry as a whole. McGuireWoods will continue tracking the EO, the implementing rules and regulations, and the industry response.