Trump Administration Must Empower Markets as Path to Grid Security
The infusion of national security policy into civilian energy policy is a precarious business. On May 1, President Trump issued an executive order aimed at securing the U.S. electricity system. It calls for a ban on high-risk grid equipment from foreign adversaries.
The security concern is justified. Some countries pursue espionage and tamper with the cyber and physical operations of the U.S. bulk electric system. However, it’s imperative that implementation of the order address legitimate threats and make the system more secure at reasonable cost. It should not serve as a tool for backdoor protectionist trade policy or to pick favorites among domestic industry. In addition, policymakers must be vigilant lest it devolve into a misguided expansion of government with limited security benefit.
At first glance, the order raises as many questions as it answers. It does not specify what countries, companies or specific equipment the ban applies to. Rather, it leaves this task to the Secretary of Energy.
Although ambiguity reigns, it’s clear that the role of government will expand markedly. Despite relatively polite public posturing, a common industry sentiment is that the security concern is valid but confidence in the administration to implement this effectively and within scope is low.
Recall, this administration has used national security quite liberally – to put it mildly – to advance an agenda that undermines the economic and security benefits of open trade. In the energy sector, the security argument has often served as an excuse to pursue an industrial policy agenda that plays favorites rather than letting markets work. And it doesn’t help that the institution tasked with implementing the order – the Energy Department – has become more politicized under this administration than ever.
Before this trend becomes entrenched, there’s still time to identify root causes and appropriate remedies. The private sector will only fail to make proper investments if it lacks information or fails to internalize risk. Efforts to disseminate information from the intelligence community to the private sector have made major strides under this administration and should continue. More progress should be made to pivot critical infrastructure protection standards to flexible, risk-based approaches rather than prescriptive, retrospective ones that have proven costly and slow to adapt to industry changes.
This can be done within the confines of the order. But the order can also be used to pursue side agendas and systematically replace individual choice with collective choice. In other words, is government capable of identifying what cost and level of security is best for each utility across the country?
The private sector’s public reaction is far calmer than the undercurrent of reality. This administration has failed to earn the trust of many energy industry stakeholders, who remain wary from previous battles under the security banner. The administration’s proposed coal bailout in the false name of resilience and security remains a source of lingering distrust. The administration would be wise to dispel such suspicions by proceeding in a manner consistent with good governance principles.
For starters, the administration should prioritize providing clarity, transparency and an opportunity for stakeholder feedback. Additional guidance from the Department of Energy would help settle markets, which is especially important as the pandemic rattles global supply chains. Guidance would also help regulators who oversee utility procurement to gauge the prudency of investments.
The Department should focus on protecting America’s grid and the private sector’s procurement role, while refraining from punishing other countries. Order implementation should clarify limiting principles and use technical criteria to determine which countries, companies and equipment the order applies to. This is critical for reducing investment risk and achieving security objectives. It is even more important to restore public trust.
Devin Hartman is director of Energy and Environmental Policy at the R Street Institute. He is the former president and CEO of the Electricity Consumers Resource Council (ELCON) and is an active member and past council member of his local chapter of the U.S. Association for Energy Economics.