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Declaring National Emergency, President Trump Orders Restrictions on Electrical Equipment Supplied By “Foreign Adversaries”

In an Executive Order issued on May 1, 2020, President Trump declared that the unrestricted supply of electrical equipment from foreign countries represents an “unusual and extraordinary threat to the national security, foreign policy, and economy of the United States” because foreign adversaries may use such equipment to sabotage the nation’s electric power supply. While the scope of the order will not be clear until rules to carry it out are put in place, the order could prove disruptive to the supply chains for substations, transformers, and other equipment essential to operation of the nation’s electric power system, as well as to a new generation of “smart grid” devices that are transforming the electric grid, especially for devices that are manufactured in China.

The vulnerability of the electric system to malicious software and other threats embedded in equipment or components manufactured in the territory of hostile powers has long been recognized as a potential problem. In fact, the North American Electric Reliability Corporation, the entity responsible for promulgating and enforcing mandatory electric reliability standards, has developed a reliability standard (CIP-013-1) governing “Supply Chain Risk Management,” although the effective date for the standard was recently delayed by the Federal Energy Regulatory Commission due to the COVID-19 crisis.

In contrast to CIP-013-1, which requires each entity subject to the standard to develop its own plan for ensuring that relevant supply chains are free from cybersecurity risks, the new Executive Order contemplates a top-down approach, in which certain “foreign adversaries” would be identified and imports from those “adversaries” would be prohibited, although transactions with certain vendors would be allowed if they are on a “pre-approval” list. Notably, the Executive Order applies “notwithstanding any contract entered into or any license or permit granted prior to the date of this order” and authorizes the Secretary of Energy to act against “pending transactions” that might violate the order. Hence, the Executive Order could be applied retroactively, particularly to transactions that are now in process.

This aspect of the Executive Order is particularly troubling because it is likely to be at least several months before the exact reach of the Order is known. The Order directs the Secretary of Energy, in cooperation with other federal departments, to promulgate rules carrying out the Executive Order within 150 days. It is likely that the list of “foreign adversaries” will include China, which is an important link in the supply chain for many companies, as well as Russia, Iran, and North Korea. But that remains an unknown, as does the list of suppliers that might be included on the pre-approved list. The Executive Order is limited to the “bulk electric system”—high voltage transmission lines, substations, and related equipment – but contains a provision that could expand its reach to electric distribution systems, an area generally left to state regulation, based on recommendations from a security task force to be formed under the Executive Order.

The Executive Order creates new and potentially serious regulatory, contractual, and supply chain management issues for companies engaged in operation of the bulk electric system, in the manufacture of equipment necessary for operating the bulk electric system, and for emerging “smart grid” technologies that promise to improve the operation and efficiency of the bulk electric system.

© 2020 Beveridge & Diamond PC National Law Review, Volume X, Number 132

TRENDING LEGAL ANALYSIS


About this Author

Eric Christensen Energy & Natural Resources Attorney
Of Counsel

Eric is a leading energy and natural resources attorney in the Pacific Northwest.

He assists renewable and traditional energy companies, as well as major energy consumers, to navigate the complex legal and regulatory systems governing the nation’s energy industry. With more than 30 years of experience, Eric has successfully represented clients in litigation and regulatory matters, ranging from the U.S. Supreme Court to proceedings before federal and state agencies. Before entering private practice, Eric served as Assistant General Counsel at Snohomish County (WA)...

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Lauren A. Hopkins Consumer Products Attorney Beveridge & Diamond San Francisco, CA
Office Managing Principal

Lauren’s practice focuses primarily on global product stewardship, responsible sourcing, and corporate sustainability.

She advises clients across a range of industry sectors on environmental, social and governance (ESG) disclosures, responsible sourcing of raw materials including “conflict minerals” and forest products, as well as human rights and labor issues in corporate operations and supply chains. She advises on issues including interpretation and implementation of the U.S. Securities and Exchange Commission’s conflict minerals rule, supply chain due diligence, and the preparation of conflict minerals disclosures. She also assists clients with supplier outreach and engagement and coordination with industry groups on conflict minerals requirements.

Lauren also provides strategic counseling to clients on corporate sustainability-related goals and initiatives, new products with environmental attributes, and submissions to sustainability ratings and rankings organizations. She advises on corporate social responsibility and supply chain environmental requirements more broadly including voluntary environmental reporting, paper sourcing and Lacey Act compliance, and human rights and labor issues in the supply chain. Her practice also extends to product-related environmental requirements such as material restrictions in the U.S. and Europe, worldwide product safety regulations, and product take-back and recycling. She is well-versed in California state-specific product issues, particularly those related to Proposition 65 and California Safer Consumer Products regulations.

Lauren has significant experience advising on federal, state and international regulation of environmental marketing and advertising claims. She regularly reviews marketing and advertising materials for the Firm’s clients in a variety of sectors, with particular emphasis on environmental claims relating to electronic products such as energy efficiency, design for recycling, reduced use of substances of concern, and product packaging and logistics. She also advises clients on the development of internal procedures and guidance documents for environmental claims and provides training on compliance with U.S. and worldwide environmental marketing restrictions.

Lauren has participated in several legal secondment arrangements, including for a Fortune 50 technology company, where she served in an “in-house” capacity advising daily on environmental regulatory compliance and litigation activities.

While attending law school at Vermont Law School, Lauren interned with the Vermont Agency of Natural Resources. At Yale University, Lauren wrote her master’s project on Kyoto Protocol implementation in Russia and participated in clinical projects with the Natural Resources Defense Council, Environmental Protection Agency, Defenders of Wildlife, and Connecticut Farmland Trust. 

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