Wednesday, May 20, 2015

FERC Approves Gas Modernization Policy November 2014, the Federal Energy Regulatory Commission (“FERC”) proposed a PolicyStatement on Cost Recovery Mechanisms for Modernization of Natural GasFacilities in Docket No. PL15-1 that would allow interstate pipelines to recover the costs of modernizing their facilities through an approved cost tracker or surcharge mechanism. Following its review of substantial initial and reply comments, FERC issued an order on April 15, 2015 implementing the Policy Statement effective October 1, 2015.
The various filed comments demonstrated a sharp disagreement between the pipelines and their customers regarding: (1) whether pipelines should receive a financial incentive for complying with EPA and PHMSA safety and environmental regulations; (2) whether the proposed policy was premature, since EPA and PHMSA have not implemented any regulations and there is considerable uncertainty about the effects of this type of tracker; and (3) whether the tracker would contravene the need for traditional Section 4 rate cases. Despite the contrasting views within the industry, FERC approved the Policy Statement with little modification.
In the final Policy Statement, FERC recognized that although its general policy is to prohibit cost trackers, this tracker was justified in order for pipelines to have a mechanism by which to recover costs of replacing “aging, unsafe and leak-prone facilities.” Under the Policy Statement, FERC will require each pipeline requesting a tracker to satisfy five standards:
  1. Review of Existing Rates: The pipeline must demonstrate that its existing rates are just and reasonable. FERC declined to require that the rate review be conducted through a Section 4 proceeding. It instead stated that pipelines could propose alternative approaches for rate justification. FERC encouraged a full exchange of information with the pipeline’s customers to ensure justification of its base rates, and stated that it will establish appropriate procedures on a case-by-case basis to resolve any issues of material fact based on the substantial evidence on the record.
  1. Defined Eligible Costs: The pipeline must specifically define the costs that it intends to recover through the tracker mechanism. However, this list of costs could be modified at a later date. FERC found that by requiring pipelines to clearly define their included costs, rate transparency will be ensured. The pipeline must also demonstrate that the costs that it seeks to recover are limited to one-time capital costs that are either necessary to comply with federal or state regulations or are necessary to improve pipeline facility efficiency. Reoccurring maintenance costs or testing costs to identify upgrades must be excluded from the mechanism. FERC suggested, however, that a pipeline could include a provision in its proposed tracker that explicitly excludes an amount representing its ordinary system costs.
  1. Avoidance of Cost Shifting: A pipeline must design its mechanism to protect its captive customers from cost shifts in the event that shippers leave the system. To do so, FERC suggested that a pipeline might agree to set a floor on the billing determinants that it uses to design the surcharge. FERC stated that it would review the billing determinants used by each pipeline on a case-by-case basis.
  1. Periodic Review: A pipeline must provide for periodic review of its mechanism to ensure that it and the underlying base rates remain just and reasonable. To meet this goal, FERC suggested that pipelines make their trackers temporary. If the mechanism terminates before recovering its costs, the pipeline could either seek to recover remaining costs in its next Section 4 rate case or file to extend the tracker. FERC stated that it will not require pipelines to file a full Section 4 rate case to review the mechanism; rather that it “remains open” to reasonable proposals for achieving such review.
  1. Shipper Support: A pipeline must work collaboratively with its shippers to seek support for its cost recovery proposal, but FERC declined to require a minimum level of customer support to warrant implementation. Instead FERC found that, as long as a pipeline demonstrates that its proposed mechanism is just and reasonable under Section 4 and meets the Policy Statement guidelines, the proposal may be accepted, even if some customers voice opposition.
Although FERC found that compliance with these five factors should protect shippers from being exposed to excessive costs, the final Policy Statement clearly sided with the pipelines’ requests for flexibility. Thus, affected shippers will need to be vigilant in reviewing the justness and reasonableness of a pipeline’s proposal beginning at the pre-filing collaborative stage. Given the ability of pipelines to submit their tracker mechanism filings on October 1, 2015, we expect that some pipelines will commence pre-filing discussions with their shippers as early as this summer. If you have questions or would like more information on the issues discussed in this article, please feel free to contact us.

Wednesday, May 13, 2015

Jennings, Strouss & Salmon Elects John C. Norling as Managing Attorney

PHOENIX, Ariz. (May 13, 2015) – Jennings, Strouss & Salmon, P.L.C., a leading Phoenix-based law firm, is pleased to announce that John C. Norling has been elected Managing Attorney. Norling succeeds J. Scott Rhodes, who stepped down from the position after six years to focus on his thriving legal ethics and professional responsibility practice. Rhodes will also resume the position as the firm’s General Counsel, which he held prior to being elected as Managing Attorney in 2009.
“During my tenure as Managing Attorney, I have seen the firm grow and flourish. We are in a great position to expand our services to clients, while continuing to provide exceptional and cost-effective legal work,” said Rhodes. “I strongly believe that leadership change is essential to the evolution of any law firm. John Norling has the insight and innovation to guide the firm’s future.”
Norling has held numerous leadership roles in the firm, including serving as a member of the Management Committee and as chair of the Corporate, Securities and Finance Department. As Managing Attorney, he will oversee all firm operations and focus on maintaining Jennings, Strouss & Salmon’s long-lasting reputation as a leader in the Arizona legal, business and non-profit communities. Norling will also support the growth of the firm’s Washington, D.C. office and its thriving energy and utilities law practice.
“I am honored to have been elected as the Managing Attorney of a firm with the reputation and esteemed history of Jennings Strouss,” stated Norling. “I have the utmost respect for Scott Rhodes and thank him for the remarkable leadership and service he has devoted to our firm. Scott has been, and will continue to be, a tremendous asset for Jennings Strouss. We are well-positioned for the future and I look forward to working with each and every member of the firm as we continue to grow and expand the services offered to our clients.”
Prior to joining Jennings, Strouss & Salmon in 2013, Norling served as Member-in-Charge of Clark Hill’s Arizona office. He was also a partner at Norling, Kolsrud, Sifferman & Davis PLC.
A Phoenix native, Norling’s legal practice is focused on advising clients on all aspects of their operations, including commercial transactions, real estate, business organizations, corporate law, mergers and acquisitions, federal and administrative compliance, business contract negotiations and advertising law. He serves as the de facto outside General Counsel for many of his clients, providing advice on issues ranging from day-to-day operations to strategic planning.
Norling is also recognized as an industry leader in the representation of automobile dealerships. He advises dealer clients on the legal, regulatory and practical aspects of the operation of a retail automotive dealership. As part of his practice, Norling serves as General Counsel to the Arizona Automobile Dealers’ Association and several dealer advertising associations.
About Jennings, Strouss & Salmon, PLC
Jennings, Strouss & Salmon, PLC, has been providing legal counsel for over 70 years through its offices in Phoenix, Peoria, and Yuma, Arizona; and Washington, D.C. The firm's primary areas of practice include agribusiness; 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 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

Monday, May 11, 2015

An Innocuous Audit That Has The Potential to Create Enormous Liability: Arizona’s Department of Economic Security’s Employment Audits Can Have Expensive Repercussions

A tax audit letter from a government agency can sink even the hardiest of business owner’s stomach. Yet, a tax audit letter from the Department of Economic Security (DES) may not create the same sense of dread. These audits typically involve low dollar amounts, which may lure business owners into a false sense of security. However, a DES audit should put business owners on high alert. Although the dollar amounts may be low, a determination by DES that a business’ independent contractors are actually employees creates precedent that can lead to additional scrutiny at the state and federal level. Such a determination may be used against the business by Arizona’s Department of Revenue, the Department of Labor, the Internal Revenue Service, and even a disgruntled worker claiming unpaid overtime. In short, ignore that audit letter at your peril.
The crux of the audit will likely be whether DES concludes that a business’ independent contractors are actually employees. That test involves looking at the substance of the parties’ relationship and the hiring party’s degree of direction, rule or control. The regulations on the matter provide twelve indicia of direction, rule or control, which are:
(1)        Whether the hiring party has any authority over a contractors’ assistants;
(2)        The extent of the contractors compliance with the hiring party’s instruction;
(3)        Whether the hiring party requires any oral or written reports;
(4)        Whether the hiring party requires the work to be performed at a specific location;
(5)        Whether the hiring party requires that a specific individual perform the service;
(6)        Whether the hiring party establishes the work sequence / order that the work is performed;
(7)        Whether the hiring party has the right to discharge the contractor;
(8)        Whether the hiring party sets the hours of work;
(9)        Whether the hiring party provides any training;
(10)     The amount of time the contractor spends working with the hiring party;
(11)     Whether the hiring party provides the contractor with tools and materials; and
(12)     Whether the hiring party reimburses the contractors’ expenses.
The regulations also provide six additional factors that tend to show independent contractor status. These factors are:
(1)        Whether the contractor makes him or herself available to the public;
(2)        Whether the compensation is tied on a per project basis;
(3)        Whether the contractor can realize a profit or a loss;
(4)        Whether the contractor is contractually obligated to perform a project; and
(5)        Whether the contractor has simultaneous contracts with other hiring parties.
In analyzing these factors, DES will review documents, interview contractors, and interview the hiring party’s principals and employees. DES may even visit the hiring party’s place of business. It is critical that DES receives accurate information during this process. Loyal employees may provide incorrect information because they are “only trying to help,” and the independent contractors may be less than honest because they have a vested interest in being reclassified as employees. Audits, and even appeals, have been adjudicated based on an incomplete or incorrect statement from a principal, contractor, or employee.
When contacted by DES, Arizona business owners should seek the advice of competent legal counsel to prevent a small problem from multiplying into a business-threatening concern.

Friday, May 8, 2015

CFTC Plans To Lighten Regulatory Burdens on End-Users Trading Commodity Options


On April 30, 2015, the Commodity Futures Trading Commission (“Commission” or “CFTC”) issued a notice of proposed rulemaking to amend its commodity trade option regulation. The proposed changes are intended to reduce recordkeeping and reporting obligations for physical commodity option transactions between commercial end-users which are not Swap Dealers (“SDs”) or Major Swap Participants (“MSPs”).  The Commission also proposed what it called a “non-substantive” amendment to remove a reference in the commodity trade option regulation to a previously-vacated position limits regulation. Many energy market participants are hoping such change is a signal that the Commission will similarly remove commodity trade options from new position limits proposed in another pending rulemaking process. 
The most significant modifications to the commodity trade option regulation proposed on April 30th include:
  • Elimination of the annual Form TO filing requirement for commodity trade options;
  • Removal of a provision in the CFTC’s existing regulation that, in the absence of no-action relief granted previously by CFTC Staff, would have required an non-SD/MSP trade option counterparty to report its trade options immediately to a Swap Data Repository (“SDR”) on a transaction-by-transaction basis if it reported any other kind of swap to an SDR in the past calendar year; and
  • Addition of a provision requiring non- SD/MSP trade option counterparties to provide notice by email to the CFTC’s Division of Market Oversight (“DMO”) within 30 days after entering into trade options, whether reported or unreported, that have an aggregate notional value in excess of $1 billion in any calendar year.  In the alternative, a non-SD/MSP may provide notice by email to DMO that it reasonably expects to enter into trade options, whether reported or unreported, having an aggregate notional value in excess of $1 billion during any calendar year.
There is a 30-day comment period now open to voice support for or opposition to these proposed changes.

Thursday, May 7, 2015

Negotiating Exclusive Use Provisions in Commercial Leases

Alan P. Christenson
The exclusive use provision in a retail or restaurant lease is often a hotly-negotiated provision.  On one hand, a retail or restaurant tenant wants to protect its business by prohibiting competitors from operating in the same shopping center. Office tenants are also pushing more and more for exclusive use rights to protect employees from being recruited by competitors. On the other hand, the owner of a shopping center or office building wants flexibility to lease to tenants of its choice.

In negotiating an exclusive use provision, a tenant and landlord will need to agree to the scope of the tenant’s exclusive right. In retail leases, the scope may be defined in terms of specific items.  For example, an electronics retailer will want an exclusive use to sell the items it generally sells, such as personal computers or household appliances. A restaurant may want an exclusive right for the general type of food it sells, such as Italian, Thai, or Mexican, or may consider framing its exclusive right in terms of percentage of sales. For example, a pizza restaurant may want to prohibit any other restaurant in the shopping center from deriving more than a certain percentage of its gross sales from the sale of pizza.

An exclusive use right in itself is not as valuable to a tenant if the lease does not address what happens if that right is breached. As such, a tenant and landlord will need to agree on what that remedy will be. That discussion will likely include remedies such as abated rent, damages, and the Tenant’s ability to terminate the lease.

When putting in the effort to craft exclusive use provisions, tenants and landlords should consider certain practical applications. A tenant should be aware that, no matter how fiercely it negotiates an exclusive right, a competitor could spring up in a shopping center across the street that will not be bound by the exclusive right, making all the time and effort put into negotiating the perfect exclusive use right seem pointless. Landlords and tenants should also be aware that, in some cases, competing business can develop a synergy that may benefit both businesses. For example, customers may only want to shop for clothing and shoes in shopping centers that have multiple options so they can browse from store to store without having to drive down the street to get to the next store.

The factors that go into determining what exclusive use rights are appropriate for a tenant are diverse. Exclusive use provisions are not one-size-fits-all, and should be carefully thought out and negotiated with the assistance of capable legal counsel.

Friday, May 1, 2015

The NLRB’s Latest Do’s and Don’ts of Employer Handbooks

In recent years, the National Labor Relations Board (NLRB) has launched a new approach with respect to employer/employee relations by studying employer handbooks to determine whether they violate the rules protecting concerted activity. On March 18, 2015, NLRB General Counsel Richard F. Griffin, Jr. issued a report and Memorandum[1] offering “guidance” on various provisions of employer handbooks in his hope that employers review their handbooks and rules to ensure they are lawful.

By providing a number of examples of rules that are prohibited and rules that are lawful, the Memorandum separately focuses on provisions of the handbook of Wendy’s International LLC, which recently made a settlement with the NLRB. As Griffin noted, his inquiry, which is not a model of clarity in establishing a bright line between the rules that are correct and those that are incorrect, focuses on whether individual rules have a “chilling effect on employees’ Section 7 activity.”

The Memorandum breaks into various categories, and quotes examples of, rules found to be “lawful” or “unlawful”. The categories include confidentiality, conduct toward employer and fellow employees, third party communications, and employer logos, copyrights and trademarks.

While the Memorandum is replete with examples of different employee conduct addressed in the handbook rules, it is instructive to look at some conduct rules that were found to be unlawfully broad because “employees would reasonably construe them to restrict protected discussions with their coworkers.”
  • “[D]on’t pick fights” online.
  • Do not make “insulting, embarrassing, hurtful or abusive comments about other company employees online,” and “avoid the use of offensive, derogatory, or prejudicial comments.”
  • Do not send “unwanted, offensive, or inappropriate emails.”
Contrast these “unlawful” rules with those deemed to simply require “employees to be respectful to customers or competitors:”
  • “Making inappropriate gestures, including visual staring.”
  • Any logos or graphics worn by employees “must not reflect any form of violent, discriminatory, abusive, offensive, demeaning, or otherwise unprofessional message.”
  • “[T]hreatening, intimidating, coercing, or otherwise interfering with the job performance of fellow employees or visitors.”
  • No “harassment of employees, patients or facility visitors.”
With the foregoing examples in mind, it is compelling to review the Memorandum and look carefully at existing handbooks, policies and procedures to attempt to modify any that appear to be clearly prohibited. This will not be an easy task since the rules found to be unlawful are written very similarly to those found to be lawful. The Memorandum does not provide sufficient clarity to enable a review of existing handbooks in order to quickly correct rules or policies that would appear to violate the law. For example, Griffin found the following rules “unlawfully overbroad since employees would reasonably construe them to ban protected criticism or protests regarding their supervisor’s management or the employer in general.”
  • “[B]e respectful to the company, other employees, customers, partners, and competitors.”
  • Do “not make fun of, denigrate, or defame your co-workers, customers, franchisees, suppliers, the Company, or our competitors.”
Concerning employees’ right to criticize an employer’s labor policies, the NLRB determined the following rules unlawfully overbroad because they would reasonably be read to require employees to refrain from criticizing the employer in public:
  • “Refrain from any action that would harm persons or property or cause damage to the Company’s business or reputation.”
  • “[I]t is important that employees practice caution and discretion when posting content [on social media] that could affect [the Employer’s] business operation or reputation.”
  • Do not make “[s]tatements “that damage the company or the company’s reputation or that disrupt or damage the company’s business relationships.”
The following rules, which look quite similar, were found to be lawful:
  • No “rudeness or unprofessional behavior toward a customer, or anyone in contact with” the company.
  • “Employees will not be discourteous or disrespectful to a customer or any member of the public while in the course and scope of [company] business.”
Since the various examples provided in the Memorandum can be so difficult to distinguish, a suggested approach would be to review the handbook and change any rules that the NLRB would find clearly unlawful.

This article does not constitute, and should not be considered, legal advice. Individuals are urged to consult with an attorney on their own specific legal matters.

[1] The Memorandum (GC 15-04) can be accessed on the website of the National Labor Relations Board at under “General Counsel Memos.”

Thursday, April 30, 2015

Are Unpaid Internships Illegal in Arizona?

To pay, or not to pay? For Arizona employers offering internships, that is the question. Since the Great Recession, the number of unpaid internships has mushroomed, presumably because employers desire to reduce costs while students still need to bolster their resumes. What for-profit employers need to know, however, is that most unpaid internships violate Federal and Arizona laws.

The Fair Labor Standards Act (FLSA) is a federal law that defines “employ” and “employee” very broadly. Interns who qualify as employees under the FLSA must be compensated pursuant to federal and state minimum wage and overtime laws. Several big companies, including Fox Searchlight and NBC Universal, have recently been hit with million-dollar class action lawsuits from former and current unpaid interns. In addition to private lawsuits, employers violating the FLSA can face stiff fines, including the payment of back taxes.

The Department of Labor has established six criteria that must be met in order for an unpaid internship to be legal in the for-profit context:
  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.
Most unpaid internships in Arizona cannot meet the above six criteria. Recognizing this, the Department of Labor is cracking down on unpaid internships in an attempt to discourage the practice.

Before offering an unpaid internship this summer, Arizona employers should seek the advice of competent legal counsel to prevent their internship program from becoming a Shakespearean tragedy.

Wednesday, April 29, 2015

The Jennings Strouss Foundation Supports Girls on the Run

PHOENIX, Ariz. – (April 29, 2015) Jennings, Strouss & Salmon’s charitable foundation, the Jennings Strouss Foundation, recently teamed up with the non-profit organization Girls on the Run as the Presenting Sponsor of its April 26th 5K event.

Girls on the Run is a non-profit organization dedicated to creating a world where every girl knows and activates her limitless potential and is free to boldly pursue her dreams. Its mission focuses on positive youth development, combining interactive curriculum and running to cultivate self-respect and healthy lifestyles in young girls. For more information about the Girls on the Run 5K, please visit  

As the presenting sponsor of the Girls on the Run 5K, staff and attorneys from Jennings Strouss supported the girls through a financial contribution, the creation of a slew of motivational posters, volunteering as running buddies and providing games for all to participate in after the run had concluded. Those who volunteered as running buddies partnered with young girls and accompanied them through their 5K, providing encouragement along the race route as well as celebrating the accomplishments at the finish line.

“Serving as the presenting sponsor of the Girls on the Run 5K was an honor for all of us at Jennings Strouss,” said Keith Overholt, President of the Jennings Strouss Foundation and Member of Jennings Strouss. “The faces of the girls crossing the finish line showed pride, accomplishment and determination. We were thrilled to play a small role in helping Girls on the Run spread its positive message throughout Phoenix.”

About Jennings, Strouss & Salmon, PLC
Jennings, Strouss & Salmon, PLC, has been providing legal counsel for over 70 years through its offices in Phoenix, Peoria, and Yuma, Arizona; and Washington, D.C. The firm's primary areas of practice include agribusiness; 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 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