[Federal Register Volume 86, Number 3 (Wednesday, January 6, 2021)]
[Notices]
[Pages 533-536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28773]


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DEPARTMENT OF ENERGY


Prohibition Order Securing Critical Defense Facilities

AGENCY: Office of Electricity, Department of Energy.

ACTION: Prohibition Order.

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SUMMARY: The U.S. Department of Energy (Department or DOE) gives notice 
of this Prohibition Order prohibiting the acquisition, importation, 
transfer, or installation of specified bulk-power system (BPS) electric 
equipment that directly serves Critical Defense Facilities (CDFs), 
pursuant to Executive Order 13920.

DATES: The effective date of this Prohibition Order (Effective Date) is 
January 16, 2021. This Prohibition Order shall apply to any Prohibited 
Transaction initiated on or after the Effective Date. The Department 
shall notify each Responsible Utility of the applicability of this 
Prohibition Order no later than five (5) business days after the 
issuance of this Prohibition Order. Notice under this section shall be 
deemed made when personally delivered or when mailed, three (3) 
calendar days after deposit in the U.S. Mail, first class postage 
prepaid and addressed to the Responsible Utility at its applicable 
address. Actual notice shall be deemed adequate notice on the date 
actual notice occurred, regardless of the method of service.

FOR FURTHER INFORMATION CONTACT: Mr. Charles Kosak, Deputy Assistant 
Secretary, Energy Resilience Division, U.S. Department of Energy, 
Office of Electricity, Mailstop OE-20, Room 8G-042, 1000 Independence 
Avenue SW, Washington, DC 20585; (202) 586-2036; or 
[email protected].

SUPPLEMENTARY INFORMATION: 
    Rationale for the Order: Executive Order No. 13920 of May 1, 2020, 
Securing the United States Bulk-Power System (85 FR 26595 (May 4, 
2020)) (E.O. 13920) declares that threats by foreign adversaries \1\ to 
the security of the BPS constitute a national emergency. A current list 
of such adversaries is provided in a Request for Information (RFI), 
issued by the Department of Energy (Department or DOE) on July 8, 
2020,\2\ seeking public input to aid in its implementation of E.O. 
13920. The Department has reason to believe, as detailed below, that 
the government of the People's Republic of China (PRC or China), one of 
the listed adversaries, is equipped and actively planning to undermine 
the BPS. The Department has thus determined that certain BPS electric 
equipment or programmable components subject to China's ownership, 
control, or influence, constitute undue risk to the security of the BPS 
and to U.S. national security. The purpose of this Order is to prohibit 
the acquisition, importation, transfer, or subsequent installation of 
such BPS electric equipment or programmable components in certain 
sections of the BPS.
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    \1\ Section 4(d) of E.O. 13920 defines ``foreign adversary'' to 
mean ``any foreign government or foreign non-government person 
engaged in a long-term pattern of serious instances of conduct 
significantly adverse to the national security of the United States 
or its allies or the security and safety of United States persons.''
    \2\ 85 FR 41023, https://www.govinfo.gov/content/pkg/FR-2020-07-08/pdf/2020-14668.pdf.
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    The PRC has a military rationale for its disruption capabilities. 
Broadly speaking, it is targeting operational systems that can be 
undermined as a way to degrade an opponent's capabilities or to coerce 
an opponent's decision-making or political will. China calls this 
``system destruction warfare''--a way to cripple an opponent at the 
outset of conflict, by deploying sophisticated electronic warfare, 
counter-space, and cyber-capabilities to disrupt what are known as 
C4ISR networks (command, control, communications, computers, 
intelligence, surveillance, and reconnaissance), thereby disrupting 
U.S. military logistics required to defend the homeland, support Allies 
and partners, and protect key U.S. national security interests.\3\
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    \3\ Chairman of the Joint Chiefs of Staff Instruction, 
Responsibilities for the Joint Tactical Operations Interface 
Training Program (Aug. 13, 2012), https://www.jcs.mil/Portals/36/Documents/Library/Instructions/6240_01.pdf.
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    Such attacks are most likely during crises abroad where Chinese 
military planning envisions early cyberattacks against the electric 
power grids around CDFs in the U.S. to prevent the deployment of 
military forces and to incur domestic turmoil. Underscoring this, the 
Department of Defense's 2018 National Defense Strategy assessment is 
that the homeland is no longer a sanctuary and that malicious cyber 
activity against personal, commercial, or government infrastructure is 
growing

[[Page 534]]

significantly, ``while increasing digital connectivity of all aspects 
of life, business, government, and military creates significant 
vulnerabilities.'' \4\
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    \4\ U.S. Dep't of Defense, Summary of the 2018 National Defense 
Strategy of the United States of America, at 3, https://dod.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf.
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    U.S. intelligence analyses validate this growing threat from China, 
concluding that ``China presents a persistent cyber espionage threat 
and a growing attack threat to our core military and critical 
infrastructure systems,'' and ``has the ability to launch cyberattacks 
that cause localized, temporary disruptive effects on critical 
infrastructure--such as disruption of a natural gas pipeline for days 
to weeks--in the United States.'' \5\ Indeed, according to the 
Department of Homeland Security's Cybersecurity and Infrastructure 
Security Agency, open-source reporting indicates that ``offensive cyber 
operations attributed to the Chinese government targeted, and continue 
to target, a variety of industries and organizations in the United 
States,'' including energy firms.\6\ The National Security Agency has 
determined that ``one of the greatest threats to U.S. National Security 
Systems, the U.S. Defense Industrial Base, and Department of Defense 
information networks is Chinese state-sponsored malicious cyber 
activity.'' \7\
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    \5\ Coats, Daniel R., Statement for the Record, Worldwide Threat 
Assessment of the U.S. Intelligence Community, at 5 (Jan. 29, 2019), 
https://www.dni.gov/files/ODNI/documents/2019-ATA-SFR_-SSCI.pdf.
    \6\ U.S. Dep't of Homeland Security, Cybersecurity and 
Infrastructure Security Agency, ``Potential for China Cyber Response 
to Heightened U.S.-China Tensions,'' Alert AA20-275A (Oct. 20, 
2020), available at https://us-cert.cisa.gov/ncas/alerts/aa20-275a.
    \7\ U.S. Dep't of Defense, National Security Agency, 
Cybersecurity Advisory: ``Chinese State-Sponsored Actors Exploit 
Publicly Known Vulnerabilities'' (Oct. 20, 2020), https://media.defense.gov/2020/Oct/20/2002519884/-1/-1/0/CSA_CHINESE_EXPLOIT_VULNERABILITIES_UOO179811.PDF.
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    Furthermore, China's laws, specifically the National Intelligence 
Law and the National Cybersecurity Law, authorize government officials 
to exercise control over individuals and companies to conduct national 
intelligence work and access private company data, which provide 
opportunities for China to identify and exploit vulnerabilities in 
Chinese-manufactured or supplied equipment that are used in U.S. 
critical infrastructure that rely on these sources.
    For example, the National Intelligence Law compels individuals and 
organizations to comply with and assist PRC officials in carrying out 
intelligence and national security objectives. Specifically, Article 7 
requires organizations and citizens to support, assist, and cooperate 
with the state intelligence work in accordance with the law and to keep 
confidential the national intelligence work known to them. Article 14 
gives authority to state intelligence agencies to require citizens and 
organizations to support, assist, and cooperate in intelligence work. 
Article 16 authorizes government officials to ``enter the relevant 
areas and places that restrict access,'' where they can examine and 
retrieve files, materials, and articles related to intelligence work, 
potentially including sensitive information. Finally, Article 17 allows 
Chinese intelligence agencies to assume control over an individual or 
organization's means of transport, communication tools, sites, and 
buildings and to set up workplaces and equipment in those facilities. 
In sum, Chinese entities providing goods in critical supply chains may 
be compelled to conduct intelligence work on behalf of the PRC and 
provide sensitive information to PRC officials related to the security 
of U.S. critical infrastructure that rely on these sources.
    In addition, the National Cybersecurity Law requires cybersecurity 
protection measures for critical information infrastructure and compels 
companies to report and provide assistance to the PRC state security 
and intelligence services. Article 31 identifies power and water 
resources, among other sectors, as critical information infrastructure. 
Article 38 requires critical information infrastructure operators to 
conduct an inspection and assessment of their networks' security and 
risks that might exist and submit a cybersecurity report on the 
circumstances. Additionally, Article 39 requires state cybersecurity 
and information departments to conduct spot testing of critical 
information infrastructure security risks and promote cybersecurity 
information sharing among relevant departments, critical information 
infrastructure operators, and also relevant research institutions and 
cybersecurity services organizations. Finally, Article 28 requires 
network operators to provide ``technical support and assistance to 
public security organs and national security organs that are 
safeguarding national security and investigating criminal activities in 
accordance with the law.'' Thus, provisions within this law provide PRC 
officials access to information on cyber vulnerabilities across a 
number of sectors and thus the opportunity to obtain data potentially 
impacting the security of U.S. critical infrastructure companies.

Authority and Determinations

Order of the Secretary

    Under authority delegated to the Secretary of the U.S. Department 
of Energy by the President in E.O. 13920, I adopt the findings in this 
Prohibition Order and order and direct the following:

Prohibited Transactions

    A Responsible Utility under this Prohibition Order is an electric 
utility that owns or operates Defense Critical Electric Infrastructure 
(DCEI), as defined by section 215A(a)(4) of the Federal Power Act 
(FPA), that actively serves a CDF, as designated by the Secretary under 
section 215A(c) of the FPA. Each Responsible Utility is hereby 
prohibited from acquiring, importing, transferring, or installing BPS 
electric equipment identified in Attachment 1 (Regulated Equipment) 
that (i) has been manufactured or supplied by persons owned by, 
controlled by, or subject to the jurisdiction or direction of the PRC, 
and (ii) is for use by the Responsible Utility as a component of its 
DCEI serving the CDF at a service voltage level of 69 kV or higher, 
from the point of electrical interconnection (at a service voltage 
level of 69 kV of higher) with the CDF up to and including the next 
``upstream'' transmission substation. A transaction that meets the 
conditions set forth in the preceding sentence is referred to herein as 
a Prohibited Transaction.
    The term Regulated Equipment includes software, firmware and 
digital components that control the operation of Regulated Equipment 
and are manufactured or supplied by persons owned by, controlled by, or 
subject to the jurisdiction or direction of the PRC.

Priority Loads, Load Shedding, and System Restoration Plans

    By this Prohibition Order, each Responsible Utility shall work with 
DOE to assist in the identification of DCEI and any load shedding and 
system restoration contingency planning required to assure the energy 
and missions of CDFs.
    Each Responsible Utility is hereby directed to designate (or to 
take all action reasonably available to it to cause the relevant 
regional entity to designate) each CDF as a priority load in the 
applicable load shedding and system restoration plans. The term 
``regional entity'' is defined at section 215(a)(7) of the FPA.

Effective Date

    The effective date of this Prohibition Order (Effective Date) is 
January 16,

[[Page 535]]

2021. This Prohibition Order shall apply to any Prohibited Transaction 
initiated on or after the Effective Date. The Department shall notify 
each Responsible Utility of the applicability of this Prohibition Order 
no later than five (5) business days after the date of issuance of this 
Prohibition Order. Notice under this section shall be deemed made when 
personally delivered or when mailed, three (3) calendar days after 
deposit in the U.S. Mail, first class postage prepaid and addressed to 
the Responsible Utility at its applicable address. Actual notice shall 
be deemed adequate notice on the date actual notice occurred, 
regardless of the method of service.

Executive Order 13920

    On May 1, 2020, the President issued E.O. 13920. Actions authorized 
under E.O. 13920 are rooted in its finding that ``unrestricted 
acquisition or use in the United States of bulk-power system electric 
equipment designed, developed, manufactured, or supplied by persons 
owned by, controlled by, or subject to the jurisdiction or direction of 
foreign adversaries augments the ability of foreign adversaries to 
create and exploit vulnerabilities in bulk-power system electric 
equipment,'' and that ``the unrestricted foreign supply of bulk-power 
system electric equipment [therefore] constitutes an unusual and 
extraordinary threat to the national security, foreign policy, and 
economy of the United States.'' By declaring a ``national emergency 
with respect to the threat to the United States bulk-power system'' in 
the E.O. and under the National Emergencies Act, E.O. 13920 invokes the 
President's authority under the International Emergency Economic Powers 
Act (IEEPA) to direct responsive measures.
    Section 1 of E.O. 13920 authorizes the Secretary of Energy 
(Secretary) to prohibit any 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 May 1, 2020, and where the Secretary, 
in coordination with the Director of the Office of Management and 
Budget and in consultation with the Secretary of Defense, the Secretary 
of Homeland Security, the Director of National Intelligence, and, as 
appropriate, the heads of other relevant agencies, has determined that:
    (a) The transaction involves BPS electric equipment designed, 
developed, manufactured, or supplied, by persons owned by, controlled 
by, or subject to the jurisdiction or direction of a foreign adversary; 
and
    (b) The transaction:
    (i) Poses an undue risk of sabotage to or subversion of the design, 
integrity, manufacturing, production, distribution, installation, 
operation, or maintenance of the BPS in the United States;
    (ii) Poses an undue risk of catastrophic effects on the security or 
resiliency of United States critical infrastructure or the economy of 
the United States; or
    (iii) Otherwise poses an unacceptable risk to the national security 
of the United States or the security and safety of United States 
persons.
    Section 2(a) of E.O. 13920 authorizes the Secretary ``to take such 
actions, including directing the timing and manner of the cessation of 
pending and future transactions prohibited pursuant to section 1 of 
this order.'' Section 2(a) of E.O. 13920 also authorizes the Secretary 
to ``adopt appropriate rules and regulations'' to implement E.O. 13920, 
and DOE has initiated rulemaking proceedings. Notwithstanding the 
pendency of such a rulemaking or the adoption of any such regulations, 
the Secretary has the authority at any time to prohibit transactions in 
order to effectuate the purposes of E.O. 13920.
    For the reasons noted above, the Secretary has determined that this 
Prohibition Order is reasonably necessary to address the threat posed 
to the BPS by the PRC as a foreign adversary within the meaning of E.O. 
13920. Because the equipment identified in this Prohibition Order as 
Regulated Equipment could serve as instruments or tools to threaten the 
BPS and the national security of the U.S., the Secretary is taking the 
protective action set forth herein to prevent Prohibited Transactions.
    This Prohibition Order is in addition to other action that the 
Secretary may undertake pursuant to E.O. 13920, including, but not 
limited to, rulemaking and further orders of the Secretary.

BPS Electric Equipment Subject to This Prohibition Order

    This order addresses a subset of E.O. 13920 BPS electric equipment 
(listed in Attachment 1) identified by the North American Electric 
Reliability Corporation (NERC) in its Recommendation to Industry.\8\ 
The Regulated Equipment falls within the definition of ``bulk-power 
system electric equipment'' set forth in Section 4(b) of E.O. 13920:
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    \8\ NERC Alert ID R-2020-07-08-01 (July 8, 2020) (NERC Alert).

    Items used in 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 capacitor potential devices [expressed in the 
E.O. as current coupling capacitors and coupling capacity voltage 
transformers], protective relaying, metering equipment, high voltage 
circuit breakers, generation turbines, industrial control systems, 
distributed control systems, and safety instrumented systems. Items 
not included in the preceding list and that have broader application 
of use beyond the bulk-power system are outside the scope of [E.O. 
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13920].

    Section 4(a) of E.O. 13920 defines ``bulk-power system'' as

    (i) Facilities and control systems necessary for operating an 
interconnected electric energy transmission network (or any portion 
thereof); and
    (ii) Electric energy from generation facilities needed to 
maintain transmission reliability. For purposes of [E.O. 13920], 
this definition includes transmission lines rated at 69,000 volts 
(69 kV) or more, but does not include facilities used in the local 
distribution of electric energy.

Certification by Responsible Utility

    Not later than March 17, 2021 and once every three years thereafter 
for as long as this Prohibition Order is in effect, each Responsible 
Utility shall file a certification with the Department, under penalty 
of perjury, that since the Effective Date:
    (a) It has not entered into a Prohibited Transaction; and
    (b) It has established an internal monitoring process to accurately 
track future compliance with this Prohibition Order.
    Not later than February 15, 2021, each Responsible Utility shall 
file a certification with the Department, under penalty of perjury, 
that since the Effective Date:

    (a) It has designated (or taken all action reasonably available 
to it to cause the relevant regional entity to designate) each CDF 
as a priority load in the applicable system load shedding and 
restoration plans.

    Certifications may be delivered to: Charles Kosak, Deputy Assistant 
Secretary, Energy Resilience Division, U.S. Department of Energy, 
Office of Electricity, Mailstop OE-20, Room 8G-042, 1000 Independence 
Avenue SW, Washington, DC 20585; (202) 586-2036; or 
[email protected].

[[Page 536]]

Individual Waiver

    The Secretary may waive any term of this Prohibition Order with 
respect to a Responsible Utility for good cause shown.

Penalties

    (a) Penalties.
    (1) Civil Penalty. A civil penalty not to exceed the amount set 
forth in Section 206(b) of IEEPA may be imposed on any person who 
violates, attempts to violate, conspires to violate, or causes any 
knowing violation of this Order. IEEPA provides for a maximum civil 
penalty not to exceed the greater of $250,000 (subject to adjustment 
under the Federal Civil Penalties Inflation Adjustment Act of 1990, as 
amended) or an amount that is twice the amount of the transaction that 
is the basis of the violation with respect to which the penalty is 
imposed.
    Notice of the penalty, including a written explanation of the 
penalized conduct and the amount of the proposed penalty, and notifying 
the recipient of a right to make a written petition within thirty (30) 
calendar days as to why a penalty should not be imposed, shall be 
served on the party or parties that the Secretary has determined to be 
in violation hereunder.
    The Secretary shall review any presentation and issue a final 
administrative decision within thirty (30) calendar days of receipt of 
the petition.
    (2) Criminal Penalty. A person who willfully commits, willfully 
attempts to commit, or willfully conspires to commit, or aids and abets 
in the commission of a violation of this Order--and thereby a violation 
of IEEPA--shall, upon conviction thereof, be fined not more than 
$1,000,000, or if a natural person, may be imprisoned for not more than 
twenty (20) years, or both.
    (b) Adjustments to penalty amounts.
    (1) The civil penalties provided in IEEPA are subject to adjustment 
pursuant to the Federal Civil Penalties Inflation Adjustment Act of 
1990 (Pub. L. 101-410, as amended, 28 U.S.C. 2461 note).
    (2) The criminal penalties provided in IEEPA are subject to 
adjustment pursuant to 18 U.S.C. 3571.
    (c) The penalties available under this section are without 
prejudice to other penalties, civil or criminal, available under law. 
Attention is directed to 18 U.S.C. 1001, which provides that whoever, 
in any matter within the jurisdiction of any department or agency in 
the U.S., knowingly and willfully falsifies, conceals, or covers up by 
any trick, scheme, or device a material fact, or makes any false, 
fictitious, or fraudulent statements or representations, or makes or 
uses any false writing or document knowing the same to contain any 
false, fictitious, or fraudulent statement or entry, shall be fined 
under title 18, U.S. Code, or imprisoned not more than five (5) years, 
or both.

Rehearing

    Any person aggrieved by this Prohibition Order may petition the 
Secretary for a rehearing no later than March 2, 2021. The application 
for rehearing shall set forth specifically the ground or grounds upon 
which such application is based. Upon such application, the Secretary 
shall have power to grant or deny rehearing or to abrogate or modify 
this Prohibition Order without further hearing. Unless the Secretary 
acts upon the application for rehearing within thirty (30) calendar 
days after it is filed, such application may be deemed to be denied. 
Until the record in a proceeding seeking rehearing of this Prohibition 
Order shall have been filed for judicial review in a court of competent 
jurisdiction, the Secretary may at any time, upon reasonable notice and 
in such manner as it shall deem proper, modify or set aside, in whole 
or in part, any findings or this Prohibition Order.

Signing Authority

    This document of the Department of Energy was signed on December 
17, 2020, by Dan Brouillette, Secretary of Energy. That document with 
the original signature and date is maintained by DOE. For 
administrative purposes only, and in compliance with requirements of 
the Office of the Federal Register, the undersigned DOE Federal 
Register Liaison Officer has been authorized to sign and submit the 
document in electronic format for publication, as an official document 
of the Department of Energy. This administrative process in no way 
alters the legal effect of this document upon publication in the 
Federal Register.

    Signed in Washington, DC, on December 22, 2020.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.

Attachment 1--Regulated Equipment

    1. Power transformers with low-side voltage rating of 69 thousand 
volts (kV) or higher and associated control and protection systems like 
load tap changer, cooling system, and Sudden Pressure relay.
    2. Generator step up (GSU) transformers with high-side voltage 
rating of 69 kV or higher and associated control and protection systems 
like load tap changer, cooling system, and Sudden Pressure relay.
    3. Circuit breakers operating at 69 kV or higher.
    4. Reactive power equipment (Reactors and Capacitors) 69 kV or 
higher.
    5. Associated software and firmware installed in any equipment or 
used in the operation of items listed in 1 through 4.

[FR Doc. 2020-28773 Filed 1-5-21; 8:45 am]
BILLING CODE 6450-01-P