The nation’s electric grid depends heavily on foreign-made equipment, much of it from China. Depending on how the Dept. of Energy (DOE) chooses to implement Executive Order 14421 through its pending rulemaking for national security purposes, it has the potential to prohibit fully any Chinese-made equipment on the transmission grid.
COMMENTARY
The significance of Executive Order 14421 cannot be overstated. For owners, operators, lenders, and builders, the question now is how to manage the risk while the rules take shape. That could be disastrous for efforts to maintain and build out the system, not only for load growth but for existing load.
A Rule is Coming, But Its Scope is Unknown
Signed Aug. 26, 2026, the Executive Order invokes the International Emergency Economic Powers Act to declare a national emergency over the foreign supply of bulk-power system (a k a transmission) equipment and allows the Secretary of Energy to prohibit the acquisition, importation, transfer, or installation of foreign-produced equipment tied to a “Covered Foreign Entity.”
That category at its core includes Chinese entities. The prohibition applies notwithstanding existing contracts, licenses, or permits. Covered equipment is defined broadly to include items in substations, control rooms, and generating stations, as well as transmission level transformers, breakers, turbines, generators, relays, industrial control systems, grid-connected inverters, and battery storage.
Nothing is prohibited until the acts. Its implementing rules are due by Dec. 24, 2026, and will determine which equipment and manufacturers are covered and what licensing path exists. Until then, the industry is managing a risk with no defined edges. Here’s where we believe potential exposure sits:
- Supply chain and schedule risk. Long-lead equipment is already hard to source. A prohibition without a workable transition could strand orders and delay interconnection and commercial operation, triggering delay damages, change-in-law disputes, and covenant pressure.
- Installed-base risk. The DOE may impose conditions on equipment already in service, from monitoring and isolation through replacement or removal, after weighing reliability and the availability of secure replacements. For operators, that is an operational question as much as a compliance one.
- Contract and financing risk. Because the Executive Order can override existing agreements, supply contracts, EPC agreements, and financing documents should be reviewed for how they allocate regulatory risk. Who bears the cost if a covered item cannot be delivered or installed? Do representations, covenants, and conditions precedent account for that possibility?
- Enforcement risk. IEEPA civil penalties can reach the greater of an inflation-adjusted amount exceeding $375,000 per violation or twice the transaction value, and willful violations carry criminal exposure. The Executive Order also prohibits evasion. Diligence must look past the manufacturer’s nameplate to subcomponents, software, and remote-access capabilities.
The Executive Order does include an important qualification, the breadth of which is currently unclear. Equipment produced, manufactured or assembled in the U.S., even if the manufacturer has a Chinese parent, falls outside the scope of the Executive Order—but it’s not clear how broadly or narrowly this qualification will be interpreted. It also contemplates mitigation agreements, which may resemble those used in CFIUS reviews. Companies that engage early and can anticipate potential mitigation measures will be better positioned.
What To Do Now
The Executive Order’s scope will not be known until DOE acts, but the exposure it addresses is knowable today. The right first step depends on where you sit. Owners and operators should inventory installed and ordered equipment, identify assets within scope of the Executive Order, which would be hardest to isolate or replace without affecting reliability, and potential mitigation measures in the event an installed item or item on order is designated.
Lenders and investors should conduct diligence that reaches subcomponents and software, and ensure that loan and acquisition documents address regulatory changes in either force majeure or change-in-law provisions. Contractors and developers should review delivery obligations, change-in-law provisions, and substitution rights before any items get designated and delay a project schedule.
—Jeffrey Jakubiak is a partner at Vinson & Elkins advising clients on FERC and energy regulatory matters from the firm’s New York and Washington, D.C., offices. Randall V. Johnston is a partner at Vinson & Elkins in Washington, D.C., who leads the firm’s CFIUS practice and advises on national security matters.
