Tuesday, June 20, 2017

The Bystander Effect

Jennings, Strouss & Salmon attorney and Maricopa County Bar Association president, Norma C. Izzo, was featured in the June 2017 issue of Maricopa Lawyer, the official publication of the Maricopa County Bar Association.

Read the full article: The Bystander Effect

Ms. Izzo is Chair of the firm's Family Law and Domestic Relations Department. She concentrates her practice in the area of family law and domestic relations matters, including collaborative divorce, mediation, arbitration, parent coordination, custody and child support. She perceives practicing in the area of family law as a three dimensional experience: legal, financial and emotional.

Ms. Izzo serves as President of the Maricopa County Bar Association and President-Elect of the Association of Family Court and Conciliation Services.

Thursday, June 15, 2017

FERC Sets Agenda for Technical Conference on Natural Gas Index Liquidity and Transparency

On June 29, 2017, the Federal Energy Regulatory Commission (FERC) will hold a technical conference to discuss liquidity in the natural gas markets and what, if anything, the industry or FERC can do to increase transparency and robustness in natural gas price formation.

The day-long conference will feature three stakeholder panels. The first panel, featuring publishers of natural gas newsletters, will examine the current state of natural gas indices, the degree of industry reliance on index-based contracts rather than fixed-price contracts, and whether natural gas indices accurately reflect market conditions. Since 2008, there has been a steady decrease in fixed price transaction reporting, which the Commission believes may be affecting natural gas price robustness.

The second panel, featuring representatives from industry trade associations and Regional Transmission Organizations and Independent System Operators (RTOs/ISOs), will examine the various uses of natural gas indices, potential concerns with their robustness and liquidity, whether the standards for indices referenced in jurisdictional tariffs accurately capture liquidity, and whether improvements are necessary to ensure that the indices function properly and efficiently.

The technical conference will conclude with a panel of various stakeholders discussing whether FERC or the industry should take action to improve pricing information and, if so, what those improvements should be.

The last time FERC substantively addressed natural gas index liquidity was in its 2004 order, Price Discovery in Natural Gas and Electric Markets, 109 FERC ¶ 61,184. That order adopted minimum criteria for the use of an index point in a jurisdictional tariff that would test liquidity. Several years later, in 2007, FERC issued Order No. 704, which required buyers or sellers of natural gas to file Form 552 with FERC, containing information about the amount of daily or monthly fixed-price trading eligible to be reported to price index publishers. Since then, U.S. natural gas markets have undergone significant changes. Natural gas demand has significantly increased. In 2015, for the first time, natural gas was the primary source of electric generation output. In response to this increased demand, FERC issued Order No. 809, which instituted changes to its regulations relating to the natural gas nomination timeline in an effort to ensure more efficient coordination between the natural gas and electric industries. The June 29 technical conference will be another step towards addressing the challenges presented by the changing natural gas markets.

For more information about the issues discussed in this post, please contact us.

Wednesday, June 7, 2017

Getting Ready for July 1st: Arizona's Sick Leave Rules Become Effective

For more than 30 years, Mr. Shill has helped businesses and business owners comply with government regulations, navigate government investigations, and build wealth through business transactions and long-term planning. He has significant experience in federal and state tax compliance and tax controversies; compensation, benefits, and employment regulation; and government contracting compliance and disputes.

By: Ottos S. Shill, III

Arizona’s new voter-approved law, ARS Sec. 23-371 et. seq., gives virtually every employee in the State the right to 24 or 40 hours per year of paid sick leave (depending on the size of the employer). Employers have just under 30 days to prepare for the new rules, which become effective July 1, 2017. Before that date, every Arizona employer should:
  • Select a measurement year
  • Ensure record-keeping systems are ready
  • Prepare employee communications, notices and policies
  • Ensure that disciplinary procedures and clear and well documented
  • Separate PTO and sick leave policies
  1. Measurement Year. Sick leave rules measure accrual and use based on a 12- month measurement year. Proposed regulations leave it to the employer to define the measurement year. Some employers will find using the calendar year is the simplest approach, while others will want to continue existing policies of using employee anniversary dates. The consequence of using anniversary dates will be that each employee may have a different measuring period. In any event, each employer should determine which measurement year the employer will apply prior to July 1.
  2. Record-keeping. Requirements to retain employment data are not new to Arizona law. What is new is the requirement to track accrual and use of sick leave and to report it with each employee’s paystub every payroll period. Employers often do not keep sufficient records, which has the potential to cause significant issues for the employer in the form of increased litigation expense, higher costs of settlement or judgments, and penalties. Arizona’s new sick leave statutes impose penalties of up to $1,000 per violation for recordkeeping failures. In addition, an employer who does not keep proper records is presumed not to have paid sick leave benefits, which carries a penalty of double the amount of any unpaid wages. Employers should verify that their payroll systems or payroll services are prepared to gather and report required date.
  3. Hourly Rates. The proposed Regulations provide specific rules for determining the rate at which employees must be compensated for sick leave they use. Particularly in cases where employees may be paid at multiple hourly rates because they fulfill a variety of assignments, or where employees are paid on a piece rate or other non-hourly rate basis, employers should ensure that sick leave reimbursement rates satisfy the requirements of the proposed regulations.
  4. Communications and Notices. As a result of changes in both Arizona minimum wage laws and sick leave requirements, Arizona employers should review pertinent policies to ensure that they are up to date. In particular, notices regarding the new sick leave requirements must be posted in English and Spanish, whether or not the employer has any Spanish-speaking employees. Click HERE to view and access notices in both languages on the website of the Industrial Commission of Arizona.
  5. Disciplinary Policies. As with many employment-related statutes, Arizona’s new sick leave statutes prohibit retaliation against employees for using sick leave, and penalize employers who retaliate. Even when an employee appears to be abusing the use of sick leave, the employer must not take an adverse employment action in response. Employees complaining about retaliation have a relatively low threshold for establishing a rebuttable presumption that the employer has retaliated in response to protected activity by the employee. This means that a planned disciplinary action could be interpreted as a violation of anti-retaliation rules if it occurs shortly after an employee takes sick leave, even if there is no relationship between the two events. In order to rebut the presumption, employers must manage their disciplinary process in a way that creates a clear history and evidence of the employer’s response to an employee’s negative behavior. This evidence will help the employer to establish reasons for its disciplinary actions that are independent of an employee’s protected activity. Thus, we strongly recommend that employers review their disciplinary processes to ensure that any adverse employment actions can stand on their own merit and cannot be easily linked to an employee’s exercise of his or her rights to sick leave or other protected activity.
  6. Establish Separate Policies. Twenty or so years ago, most employers consolidated sick leave and vacation pay policies into unified policies for paid time off or PTO. This relieved the employers of the need to identify or track the reason for an employee’s absence, and gave employees greater freedom to plan their own schedules. Now, because sick leave accrual and use must be tracked and reported each payroll period, employers are well advised to separate sick leave from any other kind of leave that they provide to employees so that each employer can define the conditions of the benefits the employer offers to the maximum extent possible. In particular, employers may want to minimize record-keeping requirements and the potential of unlimited carryover of paid time off. Employers who continue to maintain a single paid time off policy may subject the entire leave pool to all the restrictions and conditions attached to any part of that pool. Thus, if sick leave is subject to unlimited rollover, the entire paid time off pool may be treated in that way. This principle can be important, for example, if an employer cashes-out paid time off when and employee leaves. If the employer maintains a single paid time off policy, the entire leave pool, including unused sick leave, could be subject to the cash-out if the policy treats paid time off that way. The wording of Arizona’s sick leave statute appears to require the indefinite carryover of unused sick time each year, but proposed regulations can be read as limiting carryover to a maximum of 40 hours. If the wording of the statute, rather than the proposed regulations prevails, using a single leave policy could result in years of accrued sick leave being subject to cash-out. In contrast, if the employer’s policies provide separately for sick leave, and, as permitted by the new law, prohibit cash-out of sick leave on an employee’s termination, the employer can provide a cash-out of paid time off under whatever conditions the employer prefers and still comply with the requirements for sick leave. Even if the proposed regulations’ limits on sick leave rollover apply, a single paid time off policy would need to be conformed to the other requirements for sick leave including, the rate of accrual, the rate of reimbursement, record-keeping requirements and conditions of use, which the employer may or may not want to apply to all paid leave. By having separate policies, an employer can satisfy the statutory requirements regarding sick leave, and define its own conditions for any other leave that it provides to its employees.
The deadline for compliance with Arizona’s sick leave requirements is scarcely 30 days away. The penalties for non-compliance are significant, and numerous plaintiffs’ attorneys are undoubtedly ready to scrutinize compliance failures and pursue legal action against unprepared employers. Employers should visit with counsel to prepare and implement the necessary policies and procedures to ensure full compliance with ARS sec. 23-371. Click HERE to access FAQs about minimum wage and earned paid sick time that the Industrial Commission of Arizona has posted.
As always, this article is intended general information and not legal advice. Employers should seek counsel for their specific situations from qualified counsel. We are happy to assist employers in considering their options for responding to Arizona’s new paid sick leave rules and the other challenges that come with managing a workforce.

Mr. Shill regularly represents clients before federal and state government agencies, including the Internal Revenue Service, the Equal Employment Opportunity Commission, U.S. Department of Labor (DOL), the National Labor Relations Board, Arizona Attorney General's office, Arizona Industrial Commission, Arizona Department of Revenue and other Arizona regulatory boards. Mr. Shill also drafts and lobbies for the passage of legislation to address client issues.

Mr. Shill can be reached at 602.262.5956 or oshill@jsslaw.com.

Tuesday, June 6, 2017

Jennings, Strouss & Salmon Attorney Patrick Welch Discusses Arizona Town Hall

Jennings, Strouss & Salmon attorney Patrick Welch joins PBS's Arizona Horizon to discuss the firm's involvement with the Arizona Town Hall hosted in Hermosillo, Sonora. The event focused on improving economic and other ties between Mexico and Arizona.

Friday, June 2, 2017

New Court Decision Opens Door to Broader Assertion of Jurisdiction by FERC over Governmental Entities


The U.S. Court of Appeals for the D.C. Circuit issued a decision recently finding that the Federal Energy Regulatory Commission (“FERC”) had authority to order the Bonneville Power Administration (“BPA”) to pay money to a public utility.  This holding is significant because BPA is a governmental entity exempt from FERC’s jurisdiction under most provisions of the Federal Power Act (“FPA”).

In TNA Merchant Projects, Inc. v. FERC, No. 13-1008, an issue arose before FERC as to whether a generator interconnected to BPA’s transmission system charged a just and reasonable rate to BPA for reactive power.  Commonly, interconnection agreements modeled upon FERC’s pro forma Larger Generator Interconnection Agreement include a provision requiring a generator to be compensated by a transmission provider for reactive power service.  But, the Court’s decision notes that there was no such provision in the interconnection agreement between BPA and the generator, which had been supplying reactive power to BPA without charging BPA for this service.  The generator, which was subject to FERC’s jurisdiction, eventually filed a rate at FERC for the reactive power service and FERC found the rate to be excessive.  FERC treated the rate as a “changed” rate, rather than an “initial” rate, and ordered the generator to refund a portion of the revenues it collected from BPA.  Following a challenge to FERC’s decision by the generator, FERC altered its course.  FERC found that it would be appropriate for the generator to recoup amounts previously refunded to BPA but that FERC lacked authority under the FPA to order BPA to repay the funds at issue.

When reaching the conclusion that it lacked jurisdiction, FERC relied on, among other things, a key decision issued previously by the U.S. Court of Appeals for the Ninth Circuit.  That Ninth Circuit decision acted on an appeal by BPA of FERC orders purporting to require governmental entities to pay refunds for their sales of electric energy during the Western energy crisis of 2000-2001.  There, the Ninth Circuit held that FERC lacked authority under the FPA to order governmental entities to pay refunds for their sales of electric energy.

The D.C. Circuit distinguished the Ninth Circuit’s decision on the ground that the instant case does not involve a refund of a rate charged by BPA but instead involves the “recoupment” of a refund erroneously made a generator whose rate is regulated by FERC.  While the two situations can be distinguished factually, the D.C. Circuit’s decision should be of concern to governmental entities which are non-jurisdictional public power utilities for at least two primary legal reasons.  First, the D.C. Circuit relied on Section 309 of the FPA to conclude that FERC had authority, which the Ninth Circuit refused to do.  Section 309 states that FERC “shall have power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter.”  The D.C. Circuit decision therefore potentially opens the door to a broader assertion of jurisdiction by FERC over governmental entities than has occurred in the past by using this FPA provision as a bootstrap.  Second, in the past when a public utility wanted to collect money it alleged was owed by a governmental entity under a contract for services provided by the public utility, it typically would take the governmental entity to court to collect the amount owed.  Going forward, public utilities might try to use the D.C. Circuit decision to sidestep a court action by asking FERC to order a payment by a governmental entity directly.

For further information, please contact Debbie Swanstrom at DSwanstrom@jsslaw.com.

Wednesday, May 3, 2017

FERC Weighs Tax Policy Changes in Wake of Ruling in United Airlines, Inc. v. FERC

On December 15, 2016, the Federal Energy Regulatory Commission (FERC) issued a Notice of Inquiry (NOI) in Docket No. PL17-1, seeking comments on how to address any double recovery that may result from its tax allowance and rate of return policies in light of the ruling in United Airlines, Inc. v. FERC, 827 F.3d 122 (D.C. Cir. 2016). See Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Costs, 157 FERC ¶ 61,210 (2016) (citing Composition of Proxy Groups for Determining Gas and Oil Pipeline Return on Equity, 123 FERC ¶ 61,048 (2008); and Inquiry Regarding Income Tax Allowances, 111 FERC ¶ 61,139 (2005)).

In United Airlines, SFPP, L.P.’s (SFPP) Shippers argued that FERC engaged in “arbitrary-or-capricious” decision-making by granting an income tax allowance to SFPP, a master limited partnership (MLP). MLPs are exempt from corporate income tax under the U.S. Tax Code. See 26 U.S.C. § 7704.  The Shippers argued FERC granted SFPP double recovery of the partners’ income taxes by granting an income tax allowance when the return calculated by the discounted cash flow (DCF) analysis already incorporates the investor partner taxes. 

FERC argued that there was no such double recovery because the DCF analysis imputes the tax burdens of the individual partners to the partnership and that the income tax allowance equalized the after-tax "entity-level" rates of return for partnership and corporate pipelines.  

The D.C. Circuit rejected FERC’s argument and found that the policy allowing income tax allowances for partnership pipelines may allow partnerships to unfairly profit from their tax structure, because a partnership does not incur the same income tax burden as a corporation. The D.C. Circuit remanded the proceeding to FERC to consider “mechanisms for which the Commission can demonstrate that there is no double recovery.” 827 F.3d at 137.

FERC issued the NOI in December 2016, seeking comments on whether, and if so how, to address the income tax allowance policy or ROE policy to resolve any double recovery by MLPs and other pass-through entities. Comments were submitted in March and April, 2017.

 Several commenters, including the Association of Oil Pipe Lines (AOPL), the Interstate Natural Gas Association of America (INGAA), and SFPP, raised the preliminary issue of whether United Airlines requires FERC to amend its tax and ROE policies. These commenters argued that because the D.C. Circuit did not reject these policies, but rather found that FERC did not provide sufficient justification for its claim that the income tax policy did not result in double recovery for partnerships, FERC could, and should, reaffirm its policy and offer a new, reasoned explanation for its ruling. In contrast, customer groups such as the Liquids Shippers Group and the shippers group led by United Airlines, argued that the United Airlines ruling mandated that FERC change the income tax allowance policy. These commenters argued that if FERC maintained the policy, it would effectively overrule the D.C. Circuit’s decision. 

The shipper groups, among others, argued in favor of the D.C. Circuit’s definition of the regulated entity as solely the MLP pipeline, stating that, because MLPs are exempt from corporate income taxes, they should not be permitted to recover those taxes through their rates. They proposed that FERC remove the income tax allowance for MLPs from its tax policy. The pipeline commenters argued that FERC should not revise its income tax allowance policy because MLP pipelines actually do pay income taxes. They argued that the D.C. Circuit narrowly defined the entity subject to FERC’s tax policy as just the pipeline; and that the regulated entity is the MLP pipeline and the individual investors who do incur the tax liability. INGAA argued that the current policy recognized this cost to investors as a cost of service, and that without the ability to recover the tax, MLPs may not be able to obtain the financing necessary to promote their infrastructure projects. 

 Two analysts, filing comments on their own behalf, took a slightly different approach than the shipper groups. Thomas Horst, who provided the income tax allowance analysis in the underlying SFPP FERC proceeding, and Erin Noakes, a consumer advocate, suggested that proxy groups for the DCF analysis should only include entities with the same corporate structures, i.e. a proxy group of only partnerships or a proxy group of only corporations. Horst recommended that, for partnerships, the DCF analysis should exclude the income tax allowance. If an MLP pipeline is included in the proxy group for a corporate pipeline, then FERC should decrease the MLP ROE by at least 1.4% to compensate for the difference between MLPs and corporations.

In addition to suggesting that FERC issue a revised tax policy, the Natural Gas Supply Association also suggested that FERC initiate investigations under Section 5 of the Natural Gas Act to review pipeline rates and to remove the income tax allowance for MLP pipelines that already include the allowance in their rates. They suggested FERC stagger the investigations, and begin with the pipelines having “the most egregious over-earnings.”

Meanwhile, FERC remains stymied by its lack of quorum to take action on this NOI and cannot issue a formal rulemaking until it regains quorum. Notably, on April 26, the White House unveiled its 2017 budget proposal to, among other things, cut the tax rate for MLPs to 15%. If adopted, this could impact the outcome of this rulemaking. Because the budget proposal is in its nascent stage, with the final impacts on the energy sector uncertain at this time, it is difficult to predict the outcome of FERC’s deliberations on this rulemaking. We will continue to monitor FERC and Congress to see what happens next. 

If you have questions or would like more information on the issues discussed in this article, please feel free to contact us.

Tuesday, May 2, 2017

Jennings, Strouss & Salmon Expands Commercial Litigation Practice with the Addition of Jordan T. Leavitt

PHOENIX, Ariz.  – Jennings, Strouss & Salmon, P.L.C. continues to implement its growth strategy to be better positioned for the future by adding JordanT. Leavitt as an associate to its commercial litigation department.
“Jennings Strouss is growing and it is an exciting time for the firm,” states John C. Norling, Managing Attorney of Jennings, Strouss & Salmon. “We are being strategic in our hiring to enhance existing services and expand areas most in demand by our clients. Jordan is a talented young lawyer who comes to us with experience in multiple areas of litigation. His skills are a great asset to the firm and its clients.”
Leavitt’s experience includes commercial, employment, and probate litigation. Prior to joining the firm, he practiced at a law firm in Twin Falls, Idaho. Leavitt also worked as a judicial clerk to the Hon. Nancy Porter in Elko, Nevada and the Hon. Molly J. Huskey at the Idaho Court of Appeals. While earning a J.D. at the Arizona State University Sandra Day O’Connor College of Law, Leavitt served on the executive Board of Jurimetrics: The Journal of Law, Science, and Technology. He earned a B.S. in psychology at Brigham Young University.
“Jennings, Strouss & Salmon has a sterling reputation,” states Leavitt. “I am honored to be practicing with the firm’s exceptional litigation team, and look forward to serving its clients.”
Celebrating 75 years of advising businesses and individuals on a wide-range of legal matters, Jennings, Strouss & Salmon is excited to be growing its transactional and litigation departments to enrich the services offered to clients across multiple practice areas. Over recent months, the firm has welcomed nine new attorneys with experience in multiple areas, including tax, commercial litigation, labor and employment, medical malpractice, legal ethics, bankruptcy, real estate, and energy. Jennings, Strouss & Salmon continues to build its presence throughout North America through its Arizona and Washington, D.C. offices.

Monday, May 1, 2017

Law Day 2017 Celebrates the 14th Amendment

Today we celebrate Law Day. The American Bar Association first proposed the idea for a nationally recognized Law Day 60 years ago. On May 1, 1958, President Eisenhower established Law Day to celebrate the role of law in the United States. It is an opportunity to reflect on the ways in which the creation of law has developed our country and the freedoms we enjoy. This year’s topic is the 14th Amendment. The 14th Amendment is simply written, but in its plain language, there is a significant amount of constitutional heft, and it has become the workhorse of Constitutional law since its passage in 1868. 
On its face, the 14th Amendment confers citizenship to those born or naturalized in the United States, and reinforces the requirement of “due process” of law and promises “equal protection.” However, one of the most fascinating and wide-ranging impacts of the law is based on a single word:  “State.”  The 14th Amendment commands that “nor shall any State deprive any person of life, liberty, or property” without due process. The 14th Amendment also requires that no State “deny any person within its jurisdiction the equal protection of laws.” By operation of the 14th amendment, the rights set forth in the Bill of Rights (the 1st through 10th Amendments to the U.S. Constitution) have, over time, become applicable to actions by the States.
Although then-President Andrew Johnson called the 14th Amendment “purely ministerial,” it became a vehicle of incredible, wide-ranging change. Women’s right to vote was found to be rooted in the 14th Amendment. The right to be free from unlawful searches and seizures by local and State police was recognized through the application of the 14th Amendment. A defendant’s right to a public defender in State and local prosecutions was granted by the application of the 6th Amendment upon the State, again, by operation of the 14th Amendment. The right to privacy, the right to marry someone of the race or sex that you choose, the right to a school hearing before getting expelled, among others, all are based in the application of the 14th Amendment. Brown v. Board of Education, which compelled the desegregation of schools and determined that “separate but equal” was by no means equal, was grounded in the 14th Amendment. The 14th Amendment, although not as commonly discussed in non-legal circles as other amendments, significantly impacts each of us every day.

Norma Izzo is Chair of Jennings, Strouss & Salmon’s Family Law and Domestic Relations practice. She serves as the current President of the Maricopa County Bar Association.

Friday, April 14, 2017

Twenty Jennings, Strouss & Salmon Attorneys Recognized in 2017 Edition of Southwest Super Lawyers®

PHOENIX, Ariz. (April 14, 2017) – Jennings, Strouss & Salmon, P.L.C., a leading Phoenix-based law firm, announced that twenty attorneys have been listed in Southwest Super Lawyers® magazine for 2017, including six 2017 Southwest Rising Stars.  
Each year, no more than five percent of the lawyers in the state are selected by the research team at Super Lawyers for inclusion on the Super Lawyers list. The Jennings Strouss attorneys listed in 2017 Southwest Super Lawyers are:

In addition, no more than 2.5 percent of the lawyers in the state are selected for inclusion on the Rising Stars list. The Jennings Strouss attorneys listed as 2017 Southwest Rising Stars are:

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys. The Super Lawyers lists are published nationwide in Super Lawyers magazines and in leading city and regional magazines and newspapers across the country. Super Lawyers magazines also feature editorial profiles of attorneys who embody excellence in the practice of law.
About Jennings, Strouss & Salmon, PLC
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 www.jsslaw.com and follow us on LinkedIn, Facebook, 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 www.b3strategies.com.