President Trump’s May 1, 2020 Executive Order prohibiting certain transactions involving bulk-power system electric equipment developed, manufactured or supplied by a foreign adversary could have far-reaching implications for both the renewable and conventional power industries. It has also raised a high level of uncertainty and risk while the industry awaits the actual implementation of the Executive Order. This interim period, as well as the breadth of the Executive Order, raises key questions and concerns for sponsors and developers of energy projects, construction contractors and energy project investors. Read our latest On the Subject for more in-depth information.
Yesterday, after the Department of Energy’s stakeholder call, we hosted a webinar that addressed important considerations as to how the Executive Order may impact your business. In particular, our hosts provided a step-by-step framework on navigating the Executive Order based on their prior US Government experience in this area and current “boots on the ground” in Washington, DC on this issue.
Five takeaways from this week’s webinar below:
- 1. The Bulk Power System is defined broadly as the system necessary to maintain interconnected transmission systems and to maintain reliability. Bulk Power System electrical equipment, in turn, is an enumerated list of 20 types of equipment mentioned in the Executive Order that are used in the bulk power system. Even if a piece of equipment fits within the defined terms, though, the equipment needs to be sourced from a foreign adversary and cause an “undue risk” to US national security, US critical infrastructure, or US persons to be subject to the Executive Order’s implementing regulations.
- 2. There are a number of questions about what types of equipment are included under the Executive Order. The Executive Order does not apply to distributed generation facilities (such as residential solar). However, the Executive Order’s use of the undefined terms “generating power stations” and “large generators” raises questions about the inclusion of utility scale solar, wind and battery storage equipment and projects. The Department of Energy has stated that for equipment already incorporated in the bulk-power system, there is nothing owners or operators need to do at this time, but for new orders of bulk-power equipment, the industry must navigate the interim period between the Executive Order and the implementing regulations to be issued at the end of September.
- 3. As a risk mitigation strategy for new orders of bulk-power system equipment, whether specifically cited in the Executive Order or omitted, it is important to do a holistic analysis of the equipment to determine whether the components are captured by the Executive Order and, if so, whether such equipment or project as a whole is sourced or travels through a foreign adversary (which many consider to be China and Russia, amongst potentially others). This analysis must be completed within a matrix of risk factors and across a spectrum of risk levels to ensure you can show a good faith effort not to cause an “undue risk” to US national security, US critical infrastructure, or US persons.
- 4. Despite the temporal connection between the Department of Commerce Section 232 investigation on imported electrical transformers and certain components of transformers, the Department of Energy has emphasized in a number of forums that the Executive Order was issued to address cybersecurity risks.
- 5. Tax rules are clear that for projects that intend to usesafe harbor/physical work equipment that is later prevented from being installed in a project by reason of the Executive Order, taxpayers will not be able to rely on such equipment for the beginning of construction rules. Tax rules are unclear as to the implications for equipment that has already been placed in service, but which must later be removed.
Have follow-up questions?
“Off the Clock” Discussion: We are working with our clients on risk assessments and strategies to address the issues presented by the Executive Order. If you would like to discuss your particular equipment, project or transaction, we would be happy to arrange a 20-minute discussion with our team. Request a meeting.
Commenting Period: We are working with others on a strategy and framework for providing comments during the Order’s comment period. If you would like to discuss joining a group of like-minded individuals in this endeavor, we would welcome speaking with you. Request a meeting.
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