Category: Energy Law

Federal Energy Regulatory Commission (FERC) Orders $435 Million Civil Penalty to Barclays Bank and $1-15 Million to Four Traders

SchiffHardin-logo_4c_LLP_www

On July 16, 2013, the Federal Energy Regulatory Commission ordered Barclays Bank PLC to pay one of the largest civil penalties in its history — $435 million, 144 FERC ¶ 61.041 (2013). Four traders were also assessed penalties — $15M for trader Scott Connelly, and $1M each to traders Daniel Brin, Karen Levine and Ryan Smith. The Commission also found that Barclays should disgorge $34.9M, plus interest, in unjust profits. Barclays and the traders had elected FERC procedures that require FERC to assess the penalty without formal administrative adjudication, and then pursue enforcement of its assessment in an action in federal district court. The district court action includes a de novo review of the Commission’s findings. Early reports indicate that Barclays will fight the penalty in court.

These penalties were issued after FERC found that Barclays and its traders violated the Commission’s Anti-Manipulation Rule, 18 CFR §1c.2 (2012). The Commission found that Barclays and the traders manipulated California energy markets from November 2006 to December 2008 at the four most liquid trading points in the western U.S. — Mid-Columbia, Palo Verne, North Path 15 and South Path 15, Order at 2. Specifically, the Commission found that Barclays and the traders built a “significant volume of monthly index or fixed-price physical products” at a trading point “in a direction — long or short — opposite to fixed-for-floating financial swaps they held at that point.” The Commission noted that establishing these positions “had the effect of creating physical delivery or receipt obligations which Barclays was unable to meet in actual practice,” and that Barclays and the traders were able to “flatten” these positions (“achieve zero net physical obligations”) at the end of each day through the use of next-day fixed-price or cash physical products traded on the Intercontinental Exchange platform. FERC found that the trading activity at issue was “intended to move the Index rather than respond to market fundamentals and was generally uneconomic.” Order at 4.

The Commission further concluded that Barclays and the traders not only engaged in this manipulative trading scheme, but “they did so with the intent to commit fraud.” The Commission identified seven facts found during its investigation to support its conclusions:

  1. Barclays’ and the traders’ consistent pattern of building substantial positions directionally opposite their large swap positions and the subsequent flattening which would tend to move prices to benefit those swap positions;
  2. how the trading behavior in the “Manipulation Months” differed from months where there was no alleged manipulation;
  3. traders’ communications which discuss and describe the fraudulent scheme;
  4. Barclays and the traders responding to certain allegations, but completely failing to respond to FERC Office of Enforcement staff allegations regarding the building of positions as a manipulative scheme;
  5. the uneconomic nature of the trading;
  6. inconsistency in trader testimony and trader explanations presented in submissions;
  7. the failure of economic, statistical and legal analysis provided by Barclays and the traders to otherwise explain or defend the positions, swaps or trading.

In addition, FERC noted that it “considered various evidence to reach its conclusion concerning intent,” and provided examples of some of the compelling “speaking” evidence that it found demonstrates that the traders understood that they were making the trades to “drive price,” “protect” their positions and ”move” or “affect the Index.”

The parties have 30 days to pay the civil penalties assessed after which, the Commission can pursue enforcement of its assessment in federal district court. The parties continue to have the opportunity to settle the matter with the Commission. Absent a settlement, and unlike the DC Circuit’s decision in Hunter v. FERC, 711 F.3d 155 (D.C. Cir. 2013), this case may produce the first fully-adjudicated case on the merits of the Commission’s market manipulation theories.

Article By:

 of

On Heels of European Raids, Energy Companies Face U.S. Class Actions

McDermottLogo_2c_rgb

White Oaks Fund LP, an Illinois private placement fund, filed a class action suit last week against BP PLC, Royal Dutch Shell PLC and Statoil ASA in the Southern District of New York.  White Oaks Fund v. BP PLC, et al., case number 1:13-cv-04553.  The complaint alleges that the energy companies colluded to distort the price of crude oil by supplying false pricing information to Platts, a publisher of benchmark prices in the energy industry, in violation of the Sherman and Commodity Exchange Acts.  Plaintiffs claim that defendant companies are sophisticated market participants who knew that the incorrect information they provided to Platts would impact crude oil futures and derivative contracts prices traded in the U.S.

This action follows at least six civil litigations that have been filed against BP, Shell and Statoil after the European Commission (EC) and Norwegian Competition Authority raided the companies in May.  The London offices of Platts were also searched.  After the surprise raids, the EC has stated that it is investigating concerns that the companies conspired to manipulate benchmark rates for various oil and biofuel products and that the companies excluded other energy firms from the benchmarking process as part of the scheme.  In addition, at least one U.S. Senator has requested that the U.S. Department of Justice look into whether any of the alleged illegal behavior occurred in the U.S.

The private actions filed against these energy companies in the U.S. on the heels of an investigation by the European Commission are not uncommon.  Any company that transacts business in the U.S. and undergoes a raid or investigation by a foreign competition authority should prepare to face these civil litigations and defend itself against similar allegations.

Article By:

 of

Federal Energy Regulatory Commission (FERC) To Hold Technical Conference on Centralized Capacity Markets in Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs)

SchiffHardin-logo_4c_LLP_www

The Federal Energy Regulatory Commission (FERC) announced this week that it will hold a technical conference on centralized capacity markets in Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). The purpose of the technical conference is to consider how current centralized capacity market rules and structures are supporting the procurement and retention of resources necessary to meet future reliability and operational needs. In its Notice, FERC pointed out that since their establishment, centralized capacity markets have continued to evolve. Meanwhile, the mix of resources is also evolving in response to changing market conditions, including low natural gas prices, state and federal policies encouraging the entry of renewable resources and other specific technologies, and the retirement of aging generation resources. This changing resource mix, according to FERC, may result in future reliability and operational needs that are different than those of the past. In addition, some states have pursued individual resource adequacy policies to ensure the development of new resources in particular areas or with particular characteristics, and questions have been raised as to how those individual policies can be accommodated in centralized capacity markets.

FERC noted that it has addressed a number of these issues in specific cases, based on the facts and circumstances presented in a given case and the particular centralized capacity market design implemented by individual regions. This technical conference will provide an opportunity to review at a high level the centralized capacity market rules and structures, and will examine how these markets are accomplishing their intended goals and objectives through a competitive, market-based process. Recognizing and respecting differences across the markets, the technical conference will focus on the goals and objectives of existing centralized capacity markets (e.g., resource adequacy, long-term price signals, fixed-cost recovery, etc.) and examine how specific design elements are accomplishing existing and emerging goals and objectives (e.g., forward period, commitment period, product definition and specificity, market power mitigation, etc.).

The technical conference will take place at the Commission on September 25, 2013 from 9:00 a.m. to approximately 5:00 p.m. All interested persons are invited to participate and the conference will be broadcast free by webcast. A supplemental notice will be issued in Docket No. AD13-7-000 with further details regarding the agenda and information regarding interest in speaking at the technical conference.

Article By:

 of

California’s Future Uncertain as U.S. Bureau of Land Management (BLM) Postpones Oil and Gas Lease Auctions

AM logo with tagline

Recently, the U.S. Bureau of Land Management (BLM) announced that it would postpone all oil and gas lease auctions in California until at least October 2013.  The agency cited the toll of litigation and other costs as factors behind the decision.

Many attribute the postponement to an April 2013 federal district court ruling in Center for Biological Diversity, et al. v. Bureau of Land Management, et al., United States District Court for the Northern District of California, Case No. 11-06174 PSG, in which the court held that BLM violated the National Environmental Policy Act by failing to analyze potential environmental impacts of “fracking” on 2,700 acres of federal lands in Monterey and Fresno Counties before leasing the lands to oil companies.  Hydraulic fracturing, or fracking, involves injecting high-pressure mixtures of water, sand or gravel, and chemicals into rock to extract oil.  The technique has been used for decades in California, and is also used in other states to recover natural gas.  However, fracking has recently been under increased scrutiny, amid concerns that the practice could contaminate groundwater.

The court’s decision in Center for Biological Diversity does not void the leases that were the subject of the case, but requires BLM to go back and take a closer look at the potential impacts of fracking.  The ruling is largely limited to the specific facts that were before the court, and the case is unlikely to have sweeping application as a legal precedent, but it marks a victory for environmental groups attempting to stop, or at least delay, fracking in California.

BLM’s decision to postpone oil and gas lease auctions in California coming on the heels of the Center for Biological Diversity decision suggests that policy impacts of the case may be more widely felt.  BLM announced this month that it will put off a previously scheduled late May auction for leases to drill almost 1,300 acres of public lands near the Monterey Shale.  The Monterey Shale is one of the largest deposits of shale oil in the nation, containing an estimated 15.4 billion barrels of recoverable oil.  Another auction for about 2,000 acres in Colusa County was also put on hold.

“Our priority is processing permits to drill that are already in flight rather than work on new applications,” Interior Secretary Sally Jewell told reporters in Washington.  The decision to postpone leasing doesn’t mean that drilling on existing leases will stop, but it does raise questions about what BLM will do in the fall, when the postponement expires, and how the postponement decision will impact oil and gas production more broadly.

California accounts for 6 percent of the 247 million acres under BLM control, and oil and gas drilling on BLM lands has been on the rise as advances in horizontal drilling and fracking have made hard-to-reach deposits recoverable.  The impact of litigation such as the Center for Biological Diversity matter on BLM, and on the industry as a whole, is therefore significant.

For California at least, the future is uncertain.  “We want to get the greenhouse gas emissions down, but we also want to keep our economy going,” said Governor Jerry Brown (D, California), during a March 13 press conference.  “That’s the balance that is required.”  Amid budget concerns, financially strapped government agencies may be increasingly risk-averse when it comes to potential litigation, leading to decisions like the California postponement that have industry-wide implications.

As published in Oil & Gas Monitor.

Watt’s New? Michigan Energy Newsletter – May 2013

Varnum LLP

New DTE Electric PPAs for Wind Energy

Two 20-year power purchase agreements (PPAs) between DTE Electric and Pheasant Run Wind, LLC and Pheasant Run Wind II, LLC received ex parte approval from the Michigan Public Service Commission (MPSC) on May 15, 2013. Each PPA is for 74.8 MW of wind energy for projects in Michigan’s Thumb region. Also approved was an option agreement wherein DTE Electric can purchase the Pheasant Run Wind II project. This option expires on March 31, 2014. These contracts resulted from unsolicited proposals from Next Era Resources on a timetable which would qualify for production tax credit benefits. The price in each PPA is “up to” $49.25 per MW hour (4.925¢ kWh). The average net capacity factor is estimated to be 43%. Geronimo Energy LLC attempted to intervene at the MPSC, arguing that its 100 MW Apple Blossom Wind Project in Huron County was a competing proposal that would pass through the same tax benefit. Its request that DTE Electric be made to undertake a competitive bidding process was rejected and its petition was denied.

Five Ethanol Plants in Michigan

Michigan has five corn ethanol refineries. In 2008 it appeared there would be six more, but ultimately the demand for ethanol in Michigan did not justify 11 facilities. The operating plants are in Riga Township, Albion, Caro, Marysville, and Lake Odessa. Generally they have 40-50 employees, each with a capacity between 50-60 million gallons per year. Total ethanol production in the state is approximately 240 million gallons per year.

Offshore Team Sails to Cleveland

Muskegon-based Andrie Inc. has been hired to assist in the development of an offshore wind energy project in Lake Erie. The company’s 90’ by 50’ jack-up barge recently traveled to Cleveland to assist in lake bottom sediment testing seven to nine miles offshore. A jack-up barge is a floating platform with long poles in each of the four corners that can be lowered into the water down to the lake bottom to secure the platform above the water surface. LEEDCo, a public-private partnership, is developing a 27 MW, five to nine turbine offshore project.

Energy Forum Update

Initial review and gap analysis of the information presented at the seven energy forums and on line is now being conducted. It is expected that the gap analysis will be complete by the end of May. The month of June will see an effort to fill in the gaps. By the end of June it is expected everything needed for reports will be in hand. Draft reports are targeted for the end of September, with public comment beginning as early as mid-October.

Nuclear Plant Off-Line Again

The Palisades Nuclear Power Plant in Covert has been shut down due to a water leakage issue in the Safety Injection Refueling Water Tank. The leak was estimated to be 34 gallons per day, with 79 gallons of slightly radioactive water having drained into Lake Michigan. A half-inch crack about the width of a thumbnail is believed to have been the source of the leak. Entergy Corporation, a New Orleans-based company, owns and operates the Palisades facility and has a 15-year power purchase agreement with Consumers Energy that will expire in 2021.

43 Degrees North @ Muskegon

The Michigan Energy and Technology Center has been formed by a consortium of companies to generate economic activity in the state. The founding members of the group include Consumers Energy, Energetx Composites LLC, Rockford Berge, Sand Products Co., and Verplank Dock Co. Initial affiliate members are Astraeus Wind Energy Inc. and Ventower Industries. The group will initially focus on two projects. The first is to enhance the infrastructure at the Port of Muskegon, the only deep water port on the Michigan side of Lake Michigan. In support of this project, Consumers Energy has made a commitment to allow access to its coal port at the Cobb generating plant, which will be idled within the next three years. The second project is a pilot program by Michigan State University to develop a virtual clean technology and logistics research center [MTEC @ MSU] to assist in developing clean energy technology, scaling up manufacturing, and transporting products.

Michigan Energy Fair Returns

The Great Lakes Renewable Energy Association will conduct the 13th annual Michigan Energy Fair in Ludington on June 7-8. The event will take place at the Mason County Fairgrounds. The program on Friday is intended for energy professionals, facility managers, and educators and will run from noon to 5 p.m. There is a $25 charge for the workshops. The Saturday events begin at 9 a.m., will be more oriented toward the general public, and are free. Energy Fair exhibits will provide information on solar, wind, energy efficiency, and other energy related topics.

Michigan Shorts

NextEra has ordered 59 1.7 MW wind turbines from General Electric for its Tuscola II project scheduled to be complete by the end of the year.  Tecogen has purchased the proprietary 5300 permanent magnet generation line as part of the liquidation of Danotek Motion Technologies of Canton.  The Great Lakes Renewable Energy Association has been awarded a $33,304 grant from the Michigan Energy Office to conduct a feasibility study of community solar in Michigan.  Ornicept, a startup with technology to study bird migration issues associated with wind turbines, has relocated to Ann Arbor.  Muskegon’s Wastewater Management System director has reported that six months of meteorological testing by Gamea Energy has confirmed average wind speeds are sufficient to support a viable wind energy project Ω The Michigan Public Service Commission has approved an opt out option for residential smart meters consisting of an initial fee of $67.20 and a $9.80 monthly fee.  NextEra has selected General Electric’s new 1.7-100 brillant wind turbine for its new Michigan wind farm project.  WindTronics LLC of Muskegon has ceased manufacturing its gearless wind turbine and ended operations.  Nexteers Sunsteer solar tracking system is manufactured in Michigan with 90 percent U.S. content and 50 percent Michigan content.

Article By:

 of

Department of Energy Approves Liquefied Natural Gas (LNG) Export Authorization for Freeport LNG – A Win for LNG Exports?

Bracewell & Giuliani Logo

The Department of Energy recently authorized Freeport LNG Expansion, L.P. (“FLEX”) to export LNG to non-Free Trade Agreement countries. Importantly, this is the first order on LNG exports issued by the DOE since it collected comments on its two-part LNG Export Study and likely represents the analysis DOE will use in reviewing the queue of pending LNG export applications.

FLEX proposes to export 1.4 Bcf/day from the Freeport LNG terminal, which is situated on the Gulf Coast in Texas. After filing its export application, FLEX secured long-term contracts with three entities for 88 percent of the requested export capacity; most of the gas for export would be sourced from Texas, and in particular, the Eagle Ford Shale.

By way of background, as the domestic natural gas markets shifted to favoring LNG exports in recent years, numerous applications were filed with the DOE for authorization to export LNG. In response to this onslaught, DOE commissioned a two-part study, consisting of (1) an Energy Information Administration study on the effects on increased natural gas exports on domestic energy markets; and (2) a NERA Economic Consulting study on the macroeconomic imports of LNG exports (together, the “LNG Export Study”). The NERA study has recently been the subject of substantial debate as DOE noted that it received over 188,000 comments and 2,700 reply comments, though DOE admits the majority of such comments were nearly identical form letters. Substantive and unique comments numbered nearly 800, with 11 different economic studies prepared by commenters.

In general, the FLEX order is a positive development for LNG exporters for two main reasons:  (1) DOE found the LNG Export Study to be sufficiently reliable and supportive of LNG exports; and (2) DOE strongly suggested that it would let market forces govern LNG exports (while being closely monitored by DOE). The FLEX order tracks with and builds upon DOE’s last order granting authorization for LNG exports to non-FTA countries, Sabine Pass, issued nearly two years ago. In approving the application as “not inconsistent with the public interest,” DOE considered the same public interest factors relied upon in its earlier Sabine Pass order, namely, the economic impacts, international impacts, and security of natural gas supply. DOE continued to consider the factors identified in its now-expired 1984 policy guidelines, including whether the arrangement is consistent with DOE’s policy of promoting market competition.

While at first glance the FLEX order appears to represent a big win for the LNG export industry, there are several conclusions worth attention. Arguably, the order is a broad endorsement of free-market principles as DOE determined the competitive market to be the proper mechanism for allocating a scare resource like natural gas. However, although DOE did not state it would impose limits or caps on LNG exports, DOE did indicate that it will take a “measured approach” in reviewing other pending LNG export applications. “Specifically, DOE/FE will assess the cumulative impacts of each succeeding request for export authorization on the public interest with due regard to the effect on domestic natural gas supply and demand fundamentals.” This approach suggests lower-queued applications may face a higher hurdle due to the cumulative impacts of the preceding applications and possibly suggests that DOE has a “cap” in mind. Third, DOE confirmed that the Federal Energy Regulatory Commission will conduct the environmental review, subject to independent review by DOE. Fourth, DOE found that the net economic benefits to the U.S. from LNG exports outweigh potential harms. Fifth, DOE continued to caution LNG export applicants that it will monitor the market and the impact of LNG exports and “may issue, make, amend, and rescind such orders . . . as it may find necessary . . . .” Such statements continue to inject some uncertainty into the contracting process. Finally, DOE suggested that local and regional benefits in terms of employment and income may be important in deciding whether to grant specific applications. Moreover, with respect to FLEX project, DOE noted that no one challenged the data provided by applicant in this regard.

A significant issue raised by commenters on the LNG Export Study was to what extent LNG exports would raise natural gas prices, how natural gas production would react to increased demand, and whether the net economic benefits accruing from LNG exports would outweigh negative impacts for higher domestic natural gas prices. As discussed in the FLEX order, DOE is clearly concerned about these issues, but it found arguments persuasive that the U.S. had a substantial oversupply of natural gas that would mitigate the preceding concerns. DOE cautioned that it would closely monitor the domestic natural gas markets and reiterated its authority to revise or rescind LNG export authorizations should the public interest require it. DOE did not indicate what market conditions would trigger such action, but changes in the domestic natural gas oversupply condition could be pivotal in subsequent approvals of LNG export applications or in rescinding/amending already issued export authorizations.

DOE imposed numerous conditions on the export authorization, including a requirement that FLEX must file publicly with DOE (a) all executed long-term contracts associated with the long-term export of LNG; and (b) all executed long-term contracts associated with the long-term supply of natural gas to the terminal. DOE noted that commercially sensitive provisions may be redacted. DOE also reduced the duration of FLEX’s requested 25-year export authorization and approved only a 20-year authorization.

Overall, our sense is that the FLEX order is a step in the right direction for the LNG exports industry and is a sign that, after a two-year study period, DOE once again will begin its process of issuing non-FTA export authorizations. As previously rumored, we expect that those projects that are further along in the development process (e.g., those that have completed FERC’s pre-filing process and have commercial arrangements in place for a sizable portion of the terminal capacity) will receive priority processing regardless of the project’s place in DOE’s queue. As a result, less developed projects will face greater uncertainty, especially if DOE has a “cap” in mind. Further, project sponsors should continue to include provisions in their contracts that address the possibility that DOE would modify or revoke a non-FTA authorization in the event of changes to the current domestic natural gas oversupply condition.

Article By:

Two Polar Bear Decisions in Two Weeks: Their significance for Climate Change, Endangered Species and Project Development

The National Law Review recently published an article by Lowell M. Rothschild with Bracewell & Giuliani LLP titled, Two Polar Bear Decisions in Two Weeks: Their significance for Climate Change, Endangered Species and Project Development:

Bracewell & Giuliani Logo

 

The end of February saw a flurry of news regarding the status of the Polar Bear under the Endangered Species Act.  On February 20, the US Fish and Wildlife Service reissued its so-called “4(d)” rule regarding the Bear, outlining the rules “necessary and advisable” to protect it.  Nine days later, the U.S. Court of Appeals for the DC Circuit upheld FWS’s listing of the Polar Bear as a “threatened” species under the ESA.   Each development is significant in its own right; together, they offer solid guidance as to where FWS is heading on using the ESA to address climate change and how climate change is affecting the listing of potentially endangered species.

Endangered v. Threatened

The latter question was at the heart of the litigation decided by the DC Circuit.  There, the court faced the question of whether FWS correctly identified the Polar Bear as “Threatened”, rather than “Endangered”.  Under the ESA, the difference between the two is essentially whether the species is currently in danger of extinction (Endangered) or whether it is likely to become endangered in the foreseeable future (Threatened).

The Polar Bear’s Listing

The Polar Bear is heavily dependent on sea ice, and climate change is decreasing the amount of arctic sea ice.  FWS’s decision that the Bear was Threatened, rather than Endangered, was based, essentially, on the Service’s view of how quickly climate change was causing arctic sea ice to melt.  If it is happening “quickly,” FWS would list the Bear as Endangered.  If it is happening very slowly, FWS wouldn’t list the Bear at all.  FWS took the middle path, deciding that climate change is happening fast enough that those species face the threat of extinction in the foreseeable future.  Given the limitations of climate science, FWS chose 45 years as the “foreseeable” future and the Court upheld FWS’s use of this timeframe.

What the Listing Shows about FWS’s View of Climate Change’s Impact on Species

The Court upheld FWS’s listing decision, doing so in the face of challenges on both sides of the decision –  some argued that the Bear shouldn’t be listed at all and others argued that it faces an imminent risk of extinction and should be considered Endangered, not just Threatened.   The takeaways from FWS’s listing decision and the court’s refusal to strike it down are that, at least for the ESA:

  • climate change is occurring
  • it will have significant adverse impacts to species in the foreseeable future
  • those impacts are still reversible

The 4(d) Decision

So, since FWS has determined that climate change is adversely affecting species, will it use the ESA to regulate climate change?  That question was at the heart of the other major development: FWS’s issuance of the “4(d)” rule for the Polar Bear.  At a very high level, a 4(d) rule outlines the steps FWS believes are necessary and advisable to protect a Threatened species.  These steps can include either restrictions on public action, such as limitations on development in the species’ habitat, or the allowance of otherwise prohibited activity, such as permitting certain specified, limited adverse impacts to the species.

What the Polar bear 4(d) Decision Means for Using the ESA to Regulate Climate Change

For the Polar Bear’s 4(d) rule, the main public policy question was how to address activities outside of the Bear’s range that increased the potential for climate change.  Since we know the Polar Bear needs sea ice to survive and that climate change is reducing arctic sea ice, would FWS’s 4(d) rule attempt to protect the Bear from further reductions in sea ice by addressing activities that affect the climate change? Boiled down to its core, would the 4(d) rule require greenhouse gas-emitting projects far from the Polar Bear’s range to obtain an ESA permit for those emissions?  FWS’s rule says no.

The Takeaways

The rule is consistent with FWS’s prior 4(d) rule for the Polar Bear, issued in 2008 and struck down by US District Court for the District of Columbia in 2011.  The rule is also consistent with Bush Administration guidance addressing how FWS should examine the ESA impacts of GHG emissions.  It is therefore a reliable and useful marker as to FWS’s view of the ESA.  The new 4(d) rule is more likely to be upheld than the prior one – the prior one was struck down for largely procedural reasons and for a few inadequate findings which FWS appears to have since corrected.

The takeaway here is that FWS has taken a consistent position over time on the use of the Act to regulate GHGs. The Service has used and will continue to use the Act to protect species affected by climate change, but only from actions taken against them directly or in their range – it will not use the ESA to regulate GHGs on a national or global level.

© 2013 Bracewell & Giuliani LLP

Biotech’s Public Relations Problems Continue

The National Law Review recently featured an article, Biotech’s Public Relations Problems Continue, written by Warren Woessner with Schwegman, Lundberg & Woessner, P.A.:

Schwegman Lundberg Woessner

 

Maybe “fish gotta swim” but the FDA has extended the approval period for transgenic Salmon genetically engineered to reach market weight sooner. No evidence at all has been presented that filets from these fish would present a danger human consumers – and may well provide a benefit to an increasingly hungry world.

This report once again reminded me how far scientific advances in biotech have exceeded the industry’s attempts to explain their benefits to the consuming public. As biotech companies wisely sold the advantages of herbicide resistant corn, cotton and soybeans to farmers well prior to their “launch”. Farmers were tired of using herbicides that could kill their human handlers. By the time the Supreme Court decided that plants were patentable (in 2002), about 65% of U.S. corn was transgenic (and patented as well). However, the EU countries don’t grow much corn, and the lack of lobbying there contributed to the general ban on imports of genetically engineered crops and sandwich shops that advertise that their snacks have no GMO’s.

Now the Supreme Court will be answering the not-so-simple question “Are human genes patentable?” Will it be long before a stem cell suit comes before the Justices? When it does, I hope that they don’t recall last week’s episode of the TV series “Nikita” (loosely based on the “Femme Nikita” films). Nikita learns that an Eastern Europe dictator who lost a leg in an assassination attempt has been able to replace it with the help of a secret group of scientists who can grow new limbs using “pluripotent stem cells.” Nikita is about to kidnap their sales rep when he comes to visit the dictator, to get the scientists to replace the missing hand of her fiancé – the bionic one is not working well. At the last minute, she sees that the rep’s plane is full of children from orphanages that the scientists plan to use as experimental subjects. In the ensuing confusion, she shoots the rep, thus ruining her chance to find the lab.

Could you design a more effective story to illustrate the evils of biotechnology in general and stem cell research in particular? Right now, most U.S. stem cell research is funded only due to executive order. BIO and other organizations will have to fight harder than ever to win the war against science that is advancing on multiple fronts.

© 2013 Schwegman, Lundberg & Woessner, P.A.

Fiscal Cliff Legislation Extends Production and Investment Tax Credits

The National Law Review recently published an article, Fiscal Cliff Legislation Extends Production and Investment Tax Credits, written by Alexander W. Jones of Bracewell & Giuliani LLP:

Bracewell & Giuliani Logo

 

The fiscal cliff legislation temporarily ends the uncertainty surrounding the extension of tax credits related to wind facilities that generate electricity. Under current law, the production tax credit (the “PTC”) applied to wind facilities that were operational by the end of 2012. The legislation amends the Code and provides that such PTC is available for wind facilities “the construction of which begins before January 1, 2014.” A wind facility typically cannot be planned and constructed within a calendar year, thus, the amended language could significantly increase the amount of facilities that are eligible to qualify for the PTC and cause an even greater demand in 2013 for wind turbines and other equipment necessary to generate electricity.

In addition, the fiscal cliff legislation extends the provision that allows developers and investors involved with wind facilities to elect to receive the investment tax credit (the “ITC”) in lieu of the PTC. The existing ITC provides for an immediate 30% tax credit in the year the facility is placed into service instead of the 2.2 cents per kilowatt hour PTC that is available for the 10 year period commencing when the wind facility is operational. The ability to elect to receive the ITC instead of the PTC will apply to most wind facilities that commence construction prior to January 1, 2014. The extension of such election should cause an increased amount of wind facility transactions to be partially financed by tax equity investors that prefer to take into account the ITC when the facility is completed.

The extension of the PTC and the amendment expanding the scope of wind facilities that are eligible to qualify for the PTC will be welcome by wind developers and investors and may result in increased investment in wind electricity in 2013. However, because the extension applies only for one year, there remains little certainty that the PTC will continue to be available for wind facilities the construction of which begins after 2013.

© 2012 Bracewell & Giuliani LLP

The Fiscal Cliff Deal’s Impact on Clean Energy

MintzLogo2010_Black

Contains key tax provisions for renewable energy but funding for USDA energy programs is left out

Capping weeks of intense negotiations between the Obama Administration and Congressional leaders to avert the fiscal cliff, the House of Representatives late on the night of Jan. 1 passed HR 8, the American Taxpayer Relief Act, on vote of 257-167. The Act was passed by the Senate, 89-8, in a similar late night vote on Dec. 31, so it now goes to President Obama for his signature.

The Act is not a “grand bargain” or a comprehensive solution: sequestration—the automatic spending cuts Congress imposed on itself–has been postponed for only two months to give time for further negotiations. The Act allows federal tax rates to rise on those making over $400,000 ($450,000 for married couples) but also limits the impact of the Alternative Minimum Tax on 4 million taxpayers. The Act also includes a one-year extension of emergency unemployment benefits and a one-year extension of provisions to prevent doctors’ payments from Medicare from being cut.

The Act is a mixed bag for the clean energy industry but contains some significant wins on tax policy. The Act extends $46 billion in tax cuts for individuals and businesses—the so called tax extenders.Many of these tax extenders target the renewable energy and energy efficiency industries. For example, a tweak to the Section 45 production tax credit will allow projects that begin construction before Jan. 1, 2014 to take advantage of the credit. However, the Act is a disappointment for those depending on USDA Energy Title Programs as no mandatory funding was contained in the ninemonth reauthorization of Farm Bill programs included as part of the package.

Below is a summary of key clean energy provisions in the American Taxpayer Relief Act.

Tax extenders

  • Extension and modification of incentives for Sec. 45 renewable electricity property production tax credit.  Under current law, taxpayers can claim either a 1.1 or 2.2 cent per kilowatt hour tax credit for electricity produced for a 10-year period from eligible facilities placed-in-service by the end of 2012 (wind) or 2013 (closed-loop biomass, open-loop biomass, landfill gas, or municipal solid waste facilities). The provision modifies section 45 to allow eligible renewable energy facilities that begin construction before the end of 2013 to claim the 10-year credit.
  • Extension of investment tax credit in lieu of production tax credit. The Act would allow facilities qualifying for the section 45 production tax credit to elect to take a 30% investment tax credit in lieu of the production tax credit for facilities that begin construction by the end of 2013.
  • Extension of alternative fuel vehicle refueling property credit (non-hydrogen refueling property). The Act extends for two years, through 2013, the 30% investment tax credit for alternative vehicle refueling property.
  • Extension of incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen). The Act extends through 2013 the $0.50 per gallon alternative fuel tax credit and alternative fuel mixture tax credit. This credit can be claimed as a nonrefundable excise tax credit or a refundable income tax credit. Due to claims of abuse in the alternative mixture tax credit, taxpayers can no longer claim the refundable portion of the alternative fuel mixture tax credit.
  • 25C Credit for certain nonbusiness energy property.  The Section 25C credit for energyefficient improvements to existing homes is extended for two years, through 2013. This reinstates the credit as it existed before passage of the American Recovery and Reinvestment Act.
  • Plug-in electric motorcycles and highway vehicles.  The Act reforms and extends for two years, through 2013, the individual income tax credit for highway-capable plug-in motorcycles and 3-wheeled vehicles. It also makes golf carts and other low-speed vehicles ineligible for the credit.
  • Cellulosic biofuels producer tax credit. The Act extends the $1.01 per gallon production tax credit on cellulosic biofuel produced before the end of 2013. The definition of qualified cellulosic biofuel production is expanded to include algae-based fuel.
  • Biodiesel and renewable diesel credits.  The Act extends through 2013 the $1.00 per gallon tax credit for biodiesel, as well as the $.10 per gallon small agri-biodiesel producer credit.  The Act also renews through 2013 the $1.00 per gallon tax credit for diesel fuel created from biomass.
  • Credit for construction of new energy efficient homes.  The tax credit for the construction of energy-efficient new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption is extended for two years, through 2013.
  • Energy efficient appliance credit.  The Act extends for two years, through 2013, a tax credit to US-based companies that manufacture energy-efficient clothes washers, dishwashers and refrigerators.
  • Cellulosic biofuels bonus depreciation.  The 2008 Farm Bill allowed cellulosic biofuel facilities placed-in-service before the end of 2012 to expense half of their eligible capital costs in the first year of operation. The Act extends this bonus depreciation for one additional year for facilities placed-in-service before the end of 2013 and allows algae-based fuel to qualify for bonus depreciation.
  • Special rule for sales of transmission property.  The Act extends the present law deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC approved independent transmission companies. The Act allows gain on such sales prior to January 1, 2014 to be recognized ratably over an eight-year period.
  • Extension of New Markets Tax Credit.  The federal government leverages New Markets Tax Credits (NMTCs) to encourage significant private investment in businesses in low-income communities. The program provides a 39 percent tax credit spread over 7 years.  The Act extends NMTCs for two years, permitting a maximum annual amount of qualified equity investments of $3.5 billion each year.
  • Extension of bonus depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Starting in 2008, Congress allowed businesses to take an additional depreciation deduction allowance in the first year.  The Act extends the 50 percent accelerated expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longer-lived and transportation assets).

Bioenergy funding

The Act also extends the 2008 Farm Act for nine-months (until the end of fiscal year 2013). A short term extension was necessary after the House refused to vote on a five-year reauthorization. The Act reauthorizes funding for US Department of Agriculture (USDA) Energy Title programs but does not provide mandatory funding. Despite hopeful signals that mandatory funding was included in an agreement between the Agriculture Committees’ leadership, it was not included in the final deal between Senate Minority Leader McConnell and the Obama Administration.

By comparison, the Senate Farm Bill passed last year contained approximately $800 billion over 10 years for USDA energy programs. It also would have expanded eligibility under certain programs to renewable chemicals. These USDA programs provide grants, loans, and loan guarantees to renewable energy and advanced biofuel projects; promote cultivation of cellulosic feedstocks; and provide research funding. Work on a new five-year Farm Act will now have to start again, though much of the groundwork has already been done by the committees.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.