FR 2020-28773

The U.S. Department of Energy (DOE) recently issued a Prohibition Order focusing on securing Critical Defense Facilities (CDFs). This order stems from suspicions about certain bulk-power system (BPS) electric equipment imported from China, which may pose a national security risk. Let's break down what this order encompasses and its potential implications for various stakeholders.

General Summary

The core of the order centers on restricting the importation, acquisition, and use of specific electrical equipment, such as transformers and circuit breakers, that are used in systems critical to U.S. defense. This equipment cannot be sourced from entities under the influence or control of the People's Republic of China (PRC). The perceived risk is that such equipment could be compromised or manipulated, leading to security threats at strategic facilities.

The Executive Order 13920, signed earlier in 2020, sets the foundation by acknowledging foreign vulnerabilities within the U.S. power system as a national emergency. The DOE has subsequently identified equipment from China as particularly risky, prompting this prohibitive action.

Significant Issues and Concerns

Several notable issues arise from this prohibition:

• Technical and Legal Complexity: The document includes complex technical jargon which may not be easily grasped by the general public. Understanding specific terms such as "BPS" or "DCEI" could be daunting without context or background.

• Regulatory Ambiguity: While the document refers to Chinese laws like the National Intelligence Law, which heightens concern about foreign equipment, it does not fully explain these laws to readers. Such an explanation might have provided better clarity on the nature of the perceived threats.

• Identification of Utilities: The document lacks clear instructions on how the utilities that need to comply will be identified or notified. This could lead to confusion within the industry about who needs to take action.

• Penalty Clarity: Significant penalties, both civil and criminal, are outlined for violations; however, these are tied to legal codes which may require further legal expertise to decode fully. This could cause apprehension among utilities unaccustomed to navigating such legal details.

• Waiver Process: The ability for utilities to apply for exemptions from the order (Individual Waiver) lacks detailed criteria or process information, leaving utilities unsure about the potential for waivers.

Public Impact

For the general public, this order aims to safeguard against potential disruptions in electric infrastructure, especially those critical to national defense. By preemptively addressing these vulnerabilities, the DOE seeks to ensure that essential services remain secure and reliable, even in times of international tension.

Impact on Specific Stakeholders

• Electric Utilities: Operators of electric utilities serving defense facilities might find themselves directly impacted by these restrictions. This may involve increased compliance costs to verify their supply chains or potentially higher expenses for sourcing alternative equipment not linked to China.

• Manufacturers and Suppliers: Companies supplying electric equipment that fall under this prohibition might experience direct negative consequences. If they are directly or indirectly linked to the PRC, they will lose access to a significant market segment.

• National Security Advocates: On a positive note, national security stakeholders may view the order as a necessary and commendable step towards safeguarding critical infrastructure from foreign threats.

This Prohibition Order represents a significant step by the DOE to address potential national security threats concerning the power grid. However, to make this initiative effective and minimize operational disruptions, further clarification and communication with affected utilities and stakeholders will be paramount.

The Federal Register document titled "Prohibition Order Securing Critical Defense Facilities" contains significant financial references related to penalties for violations of the order. Below is a detailed examination of these references and their implications.

Financial Penalties and Implications

The document provides for civil and criminal penalties that may be imposed on any person or entity that violates the Prohibition Order. The monetary fines are derived from the International Emergency Economic Powers Act (IEEPA), which sets the framework for the financial implications of breaching this order.

Civil Penalties

The IEEPA establishes a maximum civil penalty of the greater of $250,000 or an amount that is twice the value of the transaction that resulted in the violation. It's important to note that this sum is subject to adjustment in accordance with the Federal Civil Penalties Inflation Adjustment Act. This aspect could potentially increase the financial burden on violators over time, aligning penalties with inflation and ensuring they continue to serve as effective deterrents.

The civil penalties are particularly relevant in this document as they illustrate the financial risks that companies might face if they inadvertently engage in prohibited transactions involving bulk-power system electric equipment. This is critical because the document does not lay out clear criteria for why equipment from the People’s Republic of China (PRC) poses an undue risk, leaving potential for misunderstanding or missteps by industry players.

Criminal Penalties

The document states that any person who willfully violates the order could face a criminal fine of up to $1,000,000. Additionally, a natural person convicted could be imprisoned for up to twenty years. This signifies a severe financial and personal risk for individuals and emphasizes the seriousness of compliance with the Prohibition Order.

More indirectly, these criminal penalties reflect the significant emphasis placed on national security considerations in this document. The government's preparedness to levy such substantial penalties underscores the perceived threats associated with foreign involvement, particularly from the PRC. Given the order's reliance on military and intelligence assessments that are not publicly transparent, these penalties could be viewed as extrinsic motivations for compliance amid uncertainty over the criteria for what constitutes undue risk.

Lack of Clarity and Financial Risks

One of the document's issues is a lack of transparency in how Responsible Utilities are identified or notified. This could lead to confusion among electric utilities, who may not be aware if they are affected by the Prohibition Order and thus potentially exposed to the aforementioned financial penalties.

Furthermore, the penalties are described alongside references to U.S. legal codes, which could be complex for even knowledgeable parties to fully interpret without legal expertise. This complexity adds another layer of financial risk due to the potential for unintentional non-compliance.

Conclusion

The financial penalties outlined in this document are severe and reflect the high stakes involved in maintaining the security of the United States' bulk-power system. Given these stakes, the document imposes significant financial and legal consequences to ensure compliance, rooted in national security priorities. However, the lack of clear criteria and the technical complexity of the document may pose additional challenges and risks to those required to navigate these regulations.