President Trump issued an executive order on May 1 banning the “acquisition, importation, transfer, or installation” of transmission and electric generating equipment designed, manufactured or supplied by any company that is “subject to the jurisdiction” of a country the US considers a “foreign adversary.”

The order is broadly written and would rule out not only buying such equipment, but also transferring any projects that use it.

The order leaves more questions than it answers.

There are four broad questions.

One is who are the foreign adversaries. The order seems directed at China.  Russia, North Korea and Iran are not large suppliers of equipment for the US power sector.

Another question is which power projects are affected. It arguably does not apply to equipment for wind and solar projects. It applies only to equipment used in the “bulk power system,” defined as not only “facilities and control systems necessary for operating” the transmission grid, but also “generation facilities that are necessary for system reliability.” The Trump administration has been trying to protect coal and nuclear power plants after arguing that they are needed for system reliability. The president has spoken at rallies about how skittish television service would be if people had to rely on intermittent renewable energy like wind power. 

The order does not apply to distributed energy or distribution system equipment. 

It is unclear whether it applies to standalone storage.

A third broad question is how the ban is supposed to work in practice. The US Department of Energy must determine one of three things about a transaction before the prohibition applies. The transaction must either pose an “undue risk” of “sabotage or subversion of” the US bulk power system or of “catastrophic effects” to critical US infrastructure or the US economy or pose simply an “unacceptable risk” to US national security. Given how broadly the Trump administration has invoked national security concerns in other contexts, this does not draw a very clear line for the market. 

The order appears to require running potentially affected transactions by the US Department of Energy.

Finally, the effective date of the ban is confusing. The order says in one place that the order applies “where the transaction is initiated after the effective date of this order.” It says in another place that the prohibitions in the order apply “notwithstanding any contract entered into or any license or permit granted prior to the date of this order.”

Context

US intelligence agencies have warned in the past that the US electric system is vulnerable to attack. The executive order says that “foreign adversaries are increasingly creating and exploiting vulnerabilities” in it, including through cyber activities. 

The government is concerned about the threat posed by using equipment supplied by foreign adversaries. 

The order imposes a broadly worded ban, but it should be interpreted in light of the aim to safeguard the part of the US electricity supply that moves through the bulk power system.

It says the following actions are prohibited:

any acquisition, importation, transfer, or installation of any bulk-power system electric equipment (transaction) by any person, or with respect to any property, subject to the jurisdiction of the United States, where the transaction involves any property in which any foreign country or a national thereof has any interest (including through an interest in a contract for the provision of the equipment), where the transaction was initiated after the date of this order.

However, actions are prohibited only where the US Department of Energy decides a transaction poses one of three risks described earlier, including to US national security.

The order applies not only to projects in the United States, but apparently also to projects outside the United States undertaken by US persons. It applies to a transaction “by any person . . . subject to the jurisdiction of the United States.”

The Department of Energy can propose measures that would mitigate the national security concerns in order to let a transaction move forward. 

Sales of projects into tax equity vehicles are potentially affected to the extent the order covers renewable energy. The order bans any “transfer . . . of any [proscribed] bulk-power system electric equipment (transaction).” Read literally, it applies to purchases of development rights to projects where a foreign adversary company has signed a contract to supply equipment.

The Department of Energy may publish a list of pre-approved equipment or vendors.

It is also supposed to identify equipment that is potentially a problem “as soon as practicable” and make recommendations for how to “identify, isolate, monitor, or replace” such equipment in the US power system. This creates risk that the government might require replacing any equipment in the future that it identifies as a potential threat.

The order also directs the Department of Energy to set up an inter-agency task force that will report within a year on model procurement policies for federal agencies to follow in the broader US energy sector to address national security concerns. The task force will also focus, among other things, on the potential for attacks on the electricity supply to originate through the distribution system and will engage distribution system industry groups in that effort.