On December 17, 2020, the U.S. Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) took action to protect the bulk power system from foreign adversaries and malicious actors. DOE has reason to believe China is equipped and actively planning to undermine the electric power grid serving critical defense facilities.

This follows an assessment by the National Security Agency 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.”

The Secretary of Energy has issued an order prohibiting utilities that own or operate defense critical infrastructure, and who serve critical defense facilities, from acquiring or using certain equipment (including software) manufactured by China or its agents. The effective date of the Secretary’s order is January 16, 2021 and there are civil and criminal penalties for non-compliance, including fines of up to $1 million and imprisonment for up to 20 years upon conviction.

FERC proposed an incentive-based framework to encourage utilities to invest in cybersecurity measures. FERC’s proposal recognizes that the energy sector faces numerous and complex cybersecurity challenges and the risks of cyber exploitation are increasing.

If finalized, the proposal would enable utilities to seek FERC approval of incentives that would allow for a greater return on equity or deferred cost recovery. The incentives would be available for investments that go above and beyond mandatory Critical Infrastructure Protection Reliability Standards.

Comments on FERC’s proposal will be due 60 days after publication in the Federal Register.

Baker Botts is advising clients on the implications of these actions and will provide updates as developments unfold.

ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.