Imports of Power Plant Equipment to Be Curtailed Under IEEPA
The administration plans to restrict the import of equipment used for 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, the White House announced May 1.
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“Although maintaining an open investment climate in bulk-power system electric equipment, and in the United States economy more generally, is important for the overall growth and prosperity of the United States, such openness must be balanced with the need to protect our Nation against a critical national security threat,” the executive order said.
The order defines bulk power as stations or substations that use transmission lines rated at 69,000 volts or more, but not facilities used in the local distribution of electric energy.
The president invoked the International Emergency Economic Powers Act, or IEEPA, in the order. Because IEEPA is used for sanctions, this is not different in kind, because purchases are barred from designated individuals. But the language of the order would allow the ban to be very broad, on any company in a country deemed an adversary.
Regulations will follow from the Department of Energy within 150 days, but the order said that any “acquisition importation, transfer, or installation of any bulk-power system electric equipment” where the transaction was initiated after the date of this order can be banned if the Energy Secretary and other departments determine that the goods were made in a country the administration deems a “foreign adversary” and that the equipment “poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of the bulk-power system in the United States.” It also says the administration may decide the purchase poses an “unacceptable risk” for reasons other than resiliency or sabotage.
It is not clear how purchases initiated before May 1, where the importation has not happened yet, will be treated before regulations are promulgated. But it does give the Energy Department the discretion to “negotiate measures to mitigate concerns” about the imports instead of a mandatory ban.
University of Miami Law Professor Kathleen Claussen, a scholar of IEEPA, said the question of how imports would be restricted before regulations are promulgated is one of the questions this order raises in her mind. “This is meant to be in effect now,” she said. While one of the sections seems to imply that a transaction already initiated, but the import has not been completed, could still enter, she noted that another section gives the Energy secretary the ability to halt pending transactions. She asked: “What does pending mean, especially for an import?”
She said in a telephone interview that we don't know what this tool is going to look like. “Is it going to be a designation process like Treasury sanctions? It kind of sounds like that’s what that’s setting up.”
Claussen said she thinks there probably is a problem of electrical grid vulnerabilities, particularly the possibility of security intrusions through software. She asked, however, “Is this the right tool?”
She said the Energy secretary has an amount of discretion similar to the Commerce secretary in deciding who's an adversary. She hopes that Canada is not designated as one, but noted that it was, for a time, under Section 232.
It is unusual that the time to bring forth the regulations is 150 days rather than 180 days -- that takes it to October, in time for the presidential election.
The regulations are to identify which countries are the foreign adversaries, identify particular equipment that warrants particular scrutiny, establish licensing procedures, and identify what should be weighed when negotiating mitigation. The Energy Department will consult with the Pentagon, Homeland Security and intelligence agencies to write the regulations.
The trade group that represents publicly traded electrical utilities, the Edison Electric Institute, issued a statement from its president that said EEI's member companies appreciate the executive order. “We have long maintained that grid security is a shared responsibility, and addressing dynamic threats to the grid requires vigilance and coordination that leverages both government and industry resources,” Tom Kuhn said. “EEI’s members, through the CEO-led Electricity Subsector Coordinating Council, work closely with the Department of Energy (DOE) to address underlying threats to supply chain security. This EO reflects this ongoing collaboration with the federal government and provides new ways to mitigate threats to electric-sector critical infrastructure.”
Kuhn added, “We will continue to ensure that we are sourcing critical equipment from reputable manufacturers.”
The trade group that represents municipal power utilities, the American Public Power Association, said it is still studying the order's implications.
“APPA will continue to engage with our industry and government partners and participate in ongoing activities through the Electricity Subsector Coordinating Council to identify and mitigate threats to our interstate power grids -- including the supply-chain threats identified in the May 1 Executive Order,” APPA CEO Joy Ditto said. “We will work with the Department of Energy to implement this order to ensure that we can continue to reliably power our communities while providing affordable and safe electricity.”
Gary Clyde Hufbauer, a scholar of IEEPA with the Peterson Institute for International Economics, said it's not that surprising that utilities aren't complaining, because as local monopolies, they can just pass higher costs to the ratepayers.
“Obviously it means China, it probably also means Russia and some smaller countries as well,” Hufbauer said in a phone interview.
Hufbauer said he thinks if a utility has a contract with a Chinese firm to buy any of the equipment on this list, it will argue force majeure and not pay the rest that is due, but will also lose the money it has already put down on the purchase.
He said that if the administration only applied it to computer systems that control the grid, that would be reasonable, but he said that the list makes clear it will apply more broadly.
“I see this as one more step in this decoupling [with China]. And it’s a step that’s attractive to the President and his principal mercantilist adviser Peter Navarro.”
Given that the Commerce secretary announced a new Section 232 investigation on steel used in electrical equipment on May 4 (see 2005040059), Hufbauer said the administration is looking at a “belt and suspenders action” to protect the domestic producer of grain oriented steel. That company, AK Steel, did not return a request for comment.
Hufbauer predicted this will not be the last ban on Chinese imports under the guise of national security, and suggested that cell phones could follow.
If Joe Biden wins in November, Hufbauer said, he doesn't think this action will be reversed. “It will be a little bit hard to revoke because those who benefit from these restrictions, which is the suppliers of the products here in the U.S., will cry national security.”