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Procurement

U.S. DOE Prohibits Procurement of Certain Grid Equipment from China

On December 17, 2020, the U.S. Department of Energy (“DOE”) issued an order (“Prohibition Order”)[1] that prohibits certain utilities from procuring specific bulk power equipment from China. The Prohibition Order is part of the U.S. government’s actions under the May 1, 2020, Executive Order on Securing the U.S. Bulk-Power System (“Bulk Power System EO”).[2] The Prohibition Order is a substantive follow-up to the broadly-worded Bulk Power System EO, but the Prohibition Order has narrow application to the electric power sector. Specifically, the Prohibition Order only applies to certain utilities that own or operate Defense Critical Electric Infrastructure (“DCEI”) and actively provide service to designated Critical Defense Facilities (“CDF”) at a voltage of 69 kV or above. Additionally, the equipment that is subject to the Prohibition Order is a limited subset of the broadly-defined “bulk-power system electric equipment” found in the Bulk Power System EO and does not include large generators, metering equipment, or generation turbines. According to the order, the DOE will notify each utility that is subject to the restrictions of the Prohibition Order within five business days after the order’s issuance. The Prohibition Order becomes effective on January 16, 2021.

Prohibited Transactions

Under the Prohibition Order, “Responsible Utilities” are those that own or operate DCEI and actively serve CDFs at a voltage of 69 kV or above.[3] Responsible Utilities are barred from transactions that include “acquiring, importing, transferring, or installing [Bulk Power System] electric equipment” supplied by Chinese entities. The regulated equipment covered by the Prohibition Order is a limited subset of the electric equipment that was previously identified in the Bulk Power System EO. Specifically, the following equipment supplied by Chinese entities to Responsible Utilities falls within the scope of the Prohibition Order:[4]

  • Power transformers with low-side voltage rating of 69 kV or higher and associated control and protection systems;
  • Generator step up transformers with high-side voltage rating of 69 kV or higher and associated control and protection systems;
  • Circuit breakers operating at 69 kV or higher;
  • Reactive power equipment (Reactors and Capacitors) rated at 69 kV or higher; and
  • Associated software, firmware, and digital components used in the operation of these items.

Compliance Requirements for Responsible Utilities

The Prohibition Order directs each Responsible Utility to file a certification with the DOE by February 15, 2021, that the Responsible Utility has designated (or caused the relevant regional entity to designate) “each CDF as a priority load in the applicable system load shedding and restoration plans.”[5] Additionally, by March 17, 2021, and every three years afterwards, each Responsible Utility is directed to certify that it has not entered into a prohibited transaction and that it has established an internal monitoring process to accurately track future compliance under the Prohibition Order.[6] Violations of the Prohibition Order are subject to civil and criminal penalties.

Responsible Utilities covered by the Prohibition Order have material compliance obligations and significant new supply chains restrictions. However, for the many unaffected utilities and other industry participants that are not directly affected by the Prohibition Order, the narrow prohibitions indicate a more limited focus by DOE in the way it presently applies the broadly‑worded Bulk Power System EO. Nevertheless, the Prohibition Order makes clear that DOE may take further action in the future under the Bulk Power System EO, including formal rulemakings and further orders.[7]

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