January 04, 2021
Energy Law Alert
In its first order implementing President Trump’s Executive Order 13920, the Department of Energy, on December 17, 2020, issued an order (the “DOE Order”) prohibiting utilities that directly serve critical defense facilities from acquiring, importing, transferring, or installing certain bulk power system equipment from the PRC (“Regulated Equipment”).
Updated February 3, 2021: President Trump's Executive Order 13920, which banned grid equipment sourced from foreign nations deemed a security risk, has been frozen by the Biden administration.
On December 17, 2020, the Department of Energy (DOE) issued “Prohibition Order Securing Critical Defense Facilities” (the “Prohibition Order”) pursuant to President Trump’s May 1, 2020, Executive Order 13920 (the “EO”).  The Prohibition Order, effective as of January 16, 2021 (the “Effective Date”), the first DOE order implementing the EO, prohibits “Responsible Utilities” directly serving critical defense facilities from acquiring, importing, transferring, or installing certain Bulk Power System Equipment (as defined in the EO) from the People’s Republic of China (“PRC”).  The DOE hosted a webinar in October addressing this issue.  Pursuant to the Prohibition Order, the DOE will notify each Responsible Utility, which may be via mail, of the applicability thereof no later than five (5) business days after December 17, 2020.
A “Responsible Utility” as defined in the Prohibition Order is 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.  Pursuant to the Prohibition Order, each Responsible Utility is prohibited from acquiring, importing, transferring, or installing “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. A transaction that meets the conditions set forth in the preceding sentence is referred to as a “Prohibited Transaction.” 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. Regulated Equipment is defined as:
Pursuant to the DOE Order, Responsible Utilities are required to file a certification with the DOE, under penalty of perjury, not later than March 17, 2021, and once every three years thereafter for as long as this Prohibition Order is in effect, stating 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 this Prohibition Order.”
In addition, not later than 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.
Any person that violates, attempts to violate, conspires to violate, or causes any knowing violation with the Prohibition Order may be subject to civil penalties. Any person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids and abets in the commission of a violation of the Prohibition Order, if convicted, may be subject to criminal penalties and imprisonment for up to 20 years.
The DOE updated its responses to Frequently Asked Questions with respect to the EO on December 17, 2020.  In responding to whether a utility which has regulated equipment listed in the Prohibition Order may continue to use such equipment and/or is required to replace it, the DOE stated that it “is taking a phased approach based on reducing risk to the bulk power system. We understand some equipment has long procurement lead times and that utilities are aware of supply chain risks. The Prohibition Order does not apply to transactions prior to May 1, 2020. The Prohibition Order is effective January 16, 2021.” It would appear that equipment acquired and installed prior to May 1, 2020, may continue to be used without violating the EO or the Prohibition Order.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.