Thursday, March 1, 2018

FERC Issues Final Rule Requiring RTOs to Provide for Participation of Electric Storage Resources in Organized Markets

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 841, Electric Storage in Markets Operated by Regional Transmission Organizations and Independent System Operators. Order No. 841 requires tariff reforms in order to facilitate the participation of electric storage resources in capacity, energy, and ancillary services markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).

After soliciting public input on its Notice of Proposed Rulemaking (“NOPR”), FERC concluded that existing market rules designed for traditional generation resources create barriers to entry for many electric storage resources. Order No. 841 requires each RTO and ISO to propose tariff revisions (the “participation model”) that properly recognize the physical and operational characteristics of electric storage resources, and to allow those resources to participate in organized markets.

Each tariff’s participation model must ensure that a resource using the model: (1) is eligible to provide all capacity, energy, and ancillary services that it is technically capable of providing; (2) can be dispatched and is a price maker in the wholesale market as both a seller and buyer, consistent with existing market rules; (3) accounts for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and, (4) establishes a minimum size requirement, which may not exceed 100 kilowatts. The Final Rule also requires that the sale of electric energy from the wholesale electricity market to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price.

In its NOPR, FERC also had proposed reforms related to distributed energy resource aggregation. However, in issuing Order No. 841, FERC concluded that it had insufficient information to proceed with those proposed reforms. Instead, the Commission scheduled a Technical Conference in RM18-9-000 for April 10-11, 2018 to gather additional information on distributed energy resource aggregation. This Technical Conference will also provide an opportunity to discuss other impacts of distributed generation on the bulk power system. Attendance is open to all interested persons, but those wishing to participate in the conference must submit a nomination by March 15, 2018.

Order No. 841 will take effect 90 days after publication in the Federal Register. Compliance filings by RTOs and ISOs are due 270 days after the effective date. The RTOs and ISOs then will have an additional 365 days to implement the tariff revisions.

(FERC Docket Nos. RM16-23-000 | RM18-9-000 | AD16-20-000)

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C.

Debra Roby –
Andrea Sarmentero Garzon –
Joel Greene –
Gerit Hull –
Gary Newell –
Alan I. Robbins –
Matt Ross –
Debbie Swanstrom –
Omar Bustami –

Wednesday, February 28, 2018

Contingency Fees in Arizona: Paper is Worth its Weight in Gold

By J. Scott Rhodes, Member, and Ashley M. Mahoney, Legal Intern, Jennings Strouss

Attention Arizona attorneys: to receive compensation for your contingent fee work, make sure your fee agreement is in writing and signed by the client – or, you might not get paid at all. This is the message from the Arizona Court of Appeals, announced through Levine v. Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., 2018 WL 543052 (Ariz. Ct. App. 2018). The Levine case involved a dispute over attorneys’ fees between the law firm Haralson, Miller, Pitt, Feldman & McAnally, P.L.C. (“Haralson”) and attorney Jack Levine. Levine claimed to have worked over 400 hours on a contingency fee case before the clients retained Haralson to take over the representation. The clients had signed a contingent fee agreement with an attorney sharing office space with Levine; however, they did not have a written or signed fee agreement with Levine, nor was there a fee-sharing agreement between Levine and the original attorney. The clients eventually fired both the original attorney and Levine, and hired Haralson before settling the case. The court awarded Haralson attorneys’ fees. Levine then initiated an action to recover a portion of the fee in quantum meruit.

Most jurisdictions allow an attorney to recover in quantum meruit when a written agreement is invalid or does not exist. But, in Levine, the Court disregarded that general rule by declaring that neither the Arizona Ethical Rules nor the State’s “public policy is subject to meaningful analysis by applying the law of other jurisdictions.” Because the “clear and unambiguous” rules “have the same force and effect as state statutes and are equally binding,” the Court held that a violation of ER 1.5(c) renders a contingent fee agreement void as against public policy, thus barring Levine from any recovery.

Although the Levine holding is limited to contingent fee agreements, might a court extend it to other fee agreements that violate the letter of the Ethical Rules in Arizona? For example, unlike the Model Rules, Arizona’s ER 1.5(b) mandates that all fee agreements shall be communicated to the client in writing. The Levine Court reasoned that the failure to obtain a written agreement invites unnecessary litigation, as parties might attempt to alter the terms of an oral agreement after a matter’s resolution. In these situations, a court would be forced to rely on the parties’ “self-serving recollections” to reconstruct the details of the original agreement.

Does this analysis of public policy in Levine foreshadow that a lawyer’s failure to communicate a traditional (non-contingent) fee agreement in writing might mean the lawyer can receive no compensation at all for legal services as a matter of public policy? In other words, does Levine sound the death knell for quantum meruit recovery in Arizona?

As a practical matter, some of the Levine Court’s public policy concerns may not apply to a non-contingent fee agreement. A contingent fee, by definition, is settled and paid when a matter concludes. On the other hand, a traditional fee agreement typically includes periodic billing and payment, which in turn allows for an earlier opportunity to resolve any misunderstandings. That is, a client can address with her lawyer any concerns about accruing fees, and the lawyer can address a client’s inability or unwillingness to pay. By receiving invoices and submitting payments as the matter progresses, a client essentially acknowledges that the attorney is providing a service and deserves some compensation for them. Moreover, unlike ER 1.5(c), which requires a written agreement signed by the client, ER 1.5(b) contains a lesser requirement -- to simply communicate the fee terms in writing.

At the time this article was published, there was still time for Levine to be appealed to the Arizona Supreme Court, which will have discretion regarding whether to accept review. Ultimately, whether Levine will remain good law and, if so, whether it will remain tethered to its facts or will be expanded to cover other kinds of fee agreements, or similar arrangements, is yet to be seen. One thing is certain – for the present, lawyers in Arizona should assume that work performed without a written and, for some cases, signed fee agreement might turn out to be work performed with “no meaningful expectation of compensation.”

Mr. Rhodes has an extensive background in legal ethics. He regularly advises attorneys and law firms in matters relating to State Bar complaints, fee disputes, disciplinary matters, bar admission and other licensing, ethics, and professional responsibility issues. Mr. Rhodes was named The Best Lawyers in America® 2018 Phoenix Ethics and Professional Responsibility Law Lawyer of the Year.  |  602-262-5911

Thursday, January 11, 2018

FERC Terminates Rulemaking Aimed At Increasing RTO/ISO Reliance On Merchant Coal and Nuclear Resources, Initiates New Proceeding To Explore RTO/ISO Resilience Issues

On January 8, 2018, the Federal Energy Regulatory Commission (FERC or Commission) issued an Order terminating a rulemaking initiated in Docket No. RM18-1-000 in which the Commission, acting at the request of the Department of Energy (DOE), considered requiring Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to establish tariff mechanisms ensuring appropriate compensation to “baseload” generating units with a ninety-day supply of onsite fuel storage when they participate in regional electricity markets, including full recovery of allocated costs and a fair return on equity. The Proposed Rule on Grid Reliability and Resilience Pricing (Proposed Rule) was submitted to the Commission by Secretary of Energy Rick Perry last fall pursuant to a rarely used procedure under section 403 of the DOE Organization Act, 42 U.S.C. § 7173. The criteria included in the Proposed Rule were interpreted largely as favoring merchant coal and nuclear resources over other resources.

The Commission terminated the proceeding after reviewing extensive industry comments, finding that neither the Proposed Rule nor the record evidence met the threshold statutory requirement under section 206 of the Federal Power Act showing that the existing RTO/ISO tariffs are unjust and unreasonable. The Commission also found that the proposal would guarantee compensation to owners of certain resources regardless of the need or cost of those resources to the system, rendering the proposed remedy unduly discriminatory or preferential.
Commissioners Richard Glick, Cheryl LaFleur, and Neal Chatterjee each issued separate, concurring opinions supporting the termination of the Proposed Rule. Commissioner Glick noted that the Department’s own study concluded that “changes in the generation mix, including the retirement of coal and nuclear generators, have not diminished the grid’s reliability or otherwise posed a significant and immediate threat to the resilience of the electric grid,” and that the record failed to support the proposed remedy of a “multi-billion dollar bailout targeted at coal and nuclear generating facilities.” Glick observed that RTOs and ISOs should consider how best to mitigate resiliency challenges within their markets and without prejudging what technology or fuel-type provides the best solution. Commissioner LaFleur wrote separately that the transformation of the nation’s resource mix is ever-evolving, noting that the Department of Energy’s proposed remedy would “freeze yesterday’s resources in place indefinitely rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future.” Commissioner Chatterjee highlighted his concern that existing RTO/ISO tariffs may not adequately compensate resources for contributions to bulk power system resilience, and expressed his expectation that exploring resilience issues within RTOs/ISOs is the first step in a more systematic effort to ensure the resilience of the nation’s bulk power system.

In its Order terminating the Proposed Rule, the Commission acknowledged allegations of the existence of grid resilience or reliability issues due to the retirement of particular resources. Although the Commission concluded that such concerns do not demonstrate the unjustness or unreasonableness of the existing tariffs, it found that the record developed to date warrants further examination of the risks to the bulk power system and ways to address those risks in the changing electric markets. To that end, the Commission initiated a new proceeding (Docket No. AD18-7-000) and directed each RTO and ISO to submit information concerning resilience within their respective footprints. 

The stated goal of the new proceeding is to: (1) develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time. Each RTO and ISO must submit within 60 days of the date of this Order (i.e. March 9, 2018) specific information explaining how it currently addresses resilience of the bulk power system within its footprint, highlighting any specific or unique resilience challenges it faces. Each RTO and ISO may also propose resolutions to any identified gaps or exposure on the resilience of the bulk power system. Specific questions posed by the Commission begin on page 12 of the Order. These questions generally seek information regarding how RTOs/ISOs define resiliency, measure resiliency of the system, and evaluate options to mitigate resiliency risks. Those wishing to comment on the RTO/ISO submissions will have 30 days following the RTO/ISO submissions to do so (i.e. April 8, 2018).
(FERC Docket Nos. RM18-1-000 | AD18-7-000) 

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C. 

Debra Roby –
Andrea Sarmentero Garzon –
Omar Bustami –
Joel Greene –
Gerit Hull –
Gary Newell –
Alan Robbins –
Debbie Swanstrom –

Jennings, Strouss & Salmon, P.L.C., has been providing legal counsel for 75 years through its offices in Phoenix, Peoria, Tucson, Arizona; and Washington, D.C. The firm's primary areas of practice include advertising and media law; agribusiness; automobile dealership law, bankruptcy, reorganization and creditors’ rights; construction; corporate and securities; eminent domain and condemnation; employee benefits and pensions; energy; family law and domestic relations; health care; intellectual property; labor and employment; legal ethics; litigation; professional liability defense; real estate; surety and fidelity; tax; and trust and estates. For additional information please visit and follow us on LinkedIn, Facebook, and Twitter.

Thursday, November 9, 2017

Storm On The Horizon: Amend Your Partnership Agreement Before The IRS Does It For You

As we approach the end of 2017, many uncertainties prevail in the United States tax system. Late last week, Congressional leaders proposed extensive tax reform legislation that has sparked sharp debates about rates, deductions, eliminating some taxes, and frankly, whether any of it can be actually passed into law. There is, however, prior legislation that goes into effect in just 8 weeks that may require the prompt attention of certain businesses and individuals.  Effective January 1, 2018, key changes will apply to all entities that are taxed as partnerships (including limited liability companies); therefore, it is imperative that all impacted entities evaluate partnership and operating agreements to determine whether amendments may be required to address the changes.
The Bipartisan Budget Act of 2015 significantly changes the landscape for the way the Internal Revenue Service (IRS) audits partnerships. These changes are not just administrative details, but rather they (i) potentially change how economic risk is shared between partners in the context of a tax audit, and (ii) imbue a single partnership representative with absolute power to effect those changes.  In addition, all partnerships continue to be subject to prior audit rules for tax years prior to 2018.  Available elections may be different, the powers of those representing the partnerships may be different, and the rights of partners to participate in, and affect the outcome of, audits may be different, depending on which audit regime applies.  For example, audits of small partnerships (less than 100 partners) have historically resulted in adjustments at the individual partner level. But after January 1, all adjustments are at the partnership level unless the partnership is eligible to make, and in fact makes, an election every year to be exempted.
The IRS is increasing audit activity and the changed partnership audit rules are part of the IRS strategy to improve its ability to examine more entities in less time. In the past, the tax matters partner had to notify partners of key audit developments and partners had the right to participate in any phase of administrative proceedings.   Now, because a partnership representative has no statutory duty to keep partners informed, and partners have no statutory right to participate in the audit, partners and partnerships that do not address these important rights and responsibilities in partnership organizational documents may experience unwelcome economic results with little or no warning. In addition, partnerships must now be prepared to operate under two sets of audit rules, depending on which years are under audit. The law is designed to increase IRS efficiency, but can negatively impact the interests of individual partners. This means that a partner’s most important protection against an unexpected audit result is a well-drafted partnership or operating agreement that addresses any required changes to a partnership’s ownership structure, how audit-related decisions will be made, what role individual partners will have in decision-making, and how economic consequences of audits will be shared among current and historic partners.
The Tax and Estate Planning department of Jennings, Strouss & Salmon, P.L.C. has significant experience in assisting our clients with such partnership issues.  In order to be ready for the coming partnership audits that could encompass past as well as future years, we suggest that partnership and operating agreements be evaluated and updated in the near future.  Appropriate changes to organizational documents should be accomplished long before the IRS issues the first audit notices.  Although we expect partnerships to begin to receive audit notices under the new rules after the 2018 tax year, it is appropriate to begin the discussions now because some of the changes to governing documents may affect critical partnership governance ownership, and economic issues that will require more than perfunctory attention from the partners.  We are available to discuss and review your existing partnership or operating agreements and provide guidance on the best way to address this new regulatory environment.

About Jennings, Strouss & Salmon, P.L.C.
Jennings, Strouss & Salmon, P.L.C., has been providing legal counsel for 75 years through its offices in Phoenix and Peoria, Arizona; and Washington, D.C. The firm's primary areas of practice include advertising and media law; agribusiness; automobile dealership law; bankruptcy, reorganization and creditors’ rights; construction; corporate and securities; employee benefits and pensions; energy; family law and domestic relations; health care; intellectual property; labor and employment; legal ethics; litigation; professional liability defense; real estate; surety and fidelity; tax; and trust and estates. For additional information please visit and follow us on LinkedInFacebook, and Twitter.

The firm’s affiliate, B3 Strategies, assists clients with lobbying and public policy strategy at the local, state, and federal levels. For more information please visit

Please note that this client alert has been prepared by Jennings, Strouss & Salmon, P.L.C. for informational purposes only. These materials do not constitute, and should not be considered, legal advice, and you are urged to consult with an attorney on your own specific legal matters. Transmission of the information contained in this client alert is not intended to create, and receipt by the reader does not constitute, an attorney-client relationship with Jennings, Strouss & Salmon or any of its individual attorneys.