Monday, October 24, 2016

Jennings, Strouss & Salmon Expands Litigation and Attorney Ethics Practice with the Addition of Jessica L. Beckwith

PHOENIX, Ariz. (October 24, 2016) – Jennings, Strouss & Salmon, P.L.C., a leading Phoenix-based law firm, is pleased to announce that Jessica L. Beckwith has rejoined the firm as an associate in the Commercial Litigation department as well as the Ethics, Professional Licensing and Discipline Law Group.
Prior to returning to Phoenix and Jennings Strouss, Beckwith spent several years practicing law in California. She began her legal career at Jennings Strouss in 2008 as a Summer Associate, and was subsequently hired to the firm full-time as an Associate in 2009. Beckwith focuses her practice on commercial litigation, lawyer professional responsibility, state bar complaints, legal ethics, and bar admission and licensing issues.
“We are pleased to welcome Jessica back to Jennings Strouss,” stated John C. Norling, Managing Attorney of Jennings, Strouss & Salmon. “Being familiar with the firm has made her integration seamless, and she is already providing valuable assistance to our commercial litigation and professional responsibility departments.”
In addition to commercial litigation and professional responsibility, Beckwith has experience assisting clients with real estate, environmental and public agency matters. She also has experience in working for the State Bar of California, Office of the Chief Trial Counsel, as both Deputy and Senior Trial Counsel, representing the State Bar of California and the Committee of Bar Examiners.
“After having the opportunity to begin my legal career at Jennings in 2009, I’m thrilled to move back to my hometown of Phoenix and rejoin this highly regarded firm,” said Beckwith. “I have spent the last six years practicing in Los Angeles gaining valuable experience that I will now use in my role at Jennings Strouss. I have always maintained strong ties to my hometown Phoenix community and am excited to once again serve the needs of clients in the Phoenix area and elsewhere.”
Beckwith is actively involved in community and business organizations in and around Phoenix and nationwide. She is currently a member of the Association of Professional Responsibility Lawyers, the Arizona Women Lawyers Association and the Association of Discipline Defense Counsel. She also is a member of the American Bar Association’s Center for Professional Responsibility, as well as a member of the Notre Dame Club of Phoenix. Her past affiliations include sitting on the Board of Directors for the Notre Dame Club of Phoenix from 2009-2010 and as a member of the Professional Responsibility and Ethics Committee of the Los Angeles County Bar Association from 2014-2016.
Beckwith earned a J.D. from Loyola University Chicago School of Law in 2009 and a B.A. from the University of Notre Dame in 2006, receiving the distinction of cum laude.

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

Contact:  Dawn O. Anderson || 602.495.2806

Wednesday, October 19, 2016

Wednesday, October 12, 2016

Energy Companies Need to Ready Themselves for New CFTC Position Limits Regime

A recent public statement by Timothy Massad, the Chairman of the Commodity Futures Trading Commission (“CFTC” or “Commission”) indicates that the CFTC still plans to finalize its position limits rule before the end of the year. The rule, which is many years in the making, has taken multiple forms since first being proposed in response to the enactment of the Dodd-Frank Act and struck down by a court.  It is intended to limit speculative trading, thereby mitigating risks of market disruptions or manipulation.  Most recently, the CFTC issued a Supplemental Proposal that would delegate to the exchanges (or, in CFTC parlance, “Designated Contract Markets”) the ability to grant bona fide hedge exemptions from not only the exchanges’ own position limits but also federal position limits set by the CFTC.                                                                                  

Many comments filed on the Supplemental Proposal praised the concept of delegating this function to the exchanges, which have experience implementing limits and understand the markets in which contracts are traded on their platforms. This concept initially was seen as welcome relief from a relatively narrow list of enumerated bona fide hedge exemptions proposed previously by the CFTC.   But, concerns remain about details of the proposal, including potential restrictions on what the exchanges can and cannot declare to be a bona fide hedge, boundless CFTC review of determinations made by the exchanges, intrusion into the exchanges’ traditional role of granting exemptions from their own limits (such as when those exchange limits fall below federal limits or there are commodity contracts without a federal limit), new data requirements, and reporting burdens.      

Below are a few examples of concerns raised in comments: 

·         Restraining Commission Reversal of Exemptions.  A common concern relates to the CFTC’s proposal to review at any time and potentially reverse an exchange’s decision to grant an exemption. Commenters were troubled particularly by the CFTC’s announcement that if the CFTC disagreed with an exchange’s decision to grant an exemption, the market participant who applied for the exemption would have to unwind its position in potentially less than one business day.  Among other reforms, commenters suggested that:  (1) a time limit be set on Commission review to promote regulatory certainty;  (2) any Commission review be noticed to the public with an opportunity for comments; (3) an appeals process be established;  (4) a hedge be added to the CFTC’s list of enumerated bona fide hedges for all similarly-situated hedgers to rely upon if the Commission affirms a previously non-enumerated bona fide hedge; and (5) the required unwind time be significantly longer than one business day, especially when a market is illiquid or approval is necessary from an energy market participant’s governing board or state/local regulator to change a commercial risk management policy.

·         Expanding list of enumerated bona fide hedges. Commenters urged the CFTC to expand the list of enumerated bona fide hedges to include cross-commodity and anticipatory merchandising hedges as well as to acknowledge explicitly, in the final rule, that an “economically appropriate” hedge is not limited to a hedge of a “price” risk  and that a hedge can still be bona fide if it reduces another type of commercial risk, such as an operational risk, product quality risk, liquidity risk, credit risk, locational risk or timing risk.  

·         Removing quantitative correlation test. In a prior CFTC Notice of Proposed Rulemaking (“NOPR”), the Commission proposed a quantitative correlation test for cross-commodity hedges to ensure that “fluctuations in value of the position in the commodity derivative contract, or the commodity underlying the commodity derivative contract, are substantially related to the fluctuations in value of the actual or anticipated cash position or pass-through swap.”  Specifically, pursuant to that NOPR, a cross-commodity hedge would only qualify as a bona fide hedge if the correlation between the daily spot price series for the target commodity and the price series for the commodity underlying the derivative contract (or the price series for the derivative contract used to offset risk) is at least 0.80 for at least 36 months.  Natural gas is a fuel input to electric generation and it is common for electric utilities to engage in cross-commodity hedges.  But, this test would likely disqualify the hedging of long-term electricity price exposure with natural gas derivatives contracts.  Accordingly, commenters urged the CFTC to clarify that the exchanges are not bound by this test and such a cross-commodity hedge qualifies as a bona fide hedge.

·         Removing Five-Day Hedging Restriction.  Commenters urged the Commission to eliminate a previously-proposed "five-day" restriction from its definition of "bona fide hedging position," which would require early liquidation of some hedges due to limiting language providing that "no such position is maintained in any physical delivery commodity derivative contract during the lesser of the last five days of trading or the time period for the spot month in such physical-delivery contract" (i.e., "expiry period").  Commenters argued that this rigid limitation is unnecessary and could leave commercial market participants exposed to risk during the expiry period.

·         Reducing burdens on end-users. Commenters asserted that the Commission should reduce regulatory burdens on end-users by, for example:  (1) providing a mechanism for exchange determinations of bona fide hedges to be maintained (rather than having to continuously re-apply for them) and extended more broadly to other commercial firms facing similar risks (rather than limited only to the individual applicant applying for the exemption); (2) removing unnecessary data requirements, such as a proposed mandate that an applicant for a hedge exemption provide three years of cash market information;  (3) avoiding duplicative recordkeeping and reporting requirements; (4) clarifying any position limits reporting forms that are required by creating a user’s manual for the forms; and (5) phasing in compliance deadlines.

·         Refraining from Micromanaging Exchanges. Some commenters expressed concern that the Supplemental Proposal intrudes too far into the exchange’s operations, with a plethora of proposed new regulatory requirements that, at least in the absence of further clarification, might apply not only to exemptions from federal position limits set by the CFTC but also exemptions granted by the exchanges from their own limits.  A few commenters urged the CFTC to simply use its existing authority to review and enforce exchange rules, rather than superimpose a new set of regulatory requirements on the exchanges.     
Although it is anticipated that the CFTC may phase in compliance requirements, energy companies should get up to speed now on the CFTC’s proposal and ready themselves for the issuance of this final rule before the end of the year. 

Friday, September 16, 2016

Prepare Early to Successfully Manage a Tax Audit - Part III

By: Otto S. Shill, III.

This is the last installment of a three part series discussing the basic tools business owners and managers need to be successful in tax audits.  Part I discussed the need for business owners and managers to understand the financial details of the business.   Part II explained why owners and managers should actively participate in decisions concerning how financial results are reported to government agencies. This final segment focuses on how to use professional advisors effectively in a tax audit situation.

Using Competent Professional Advisors is a Must.

Even with proper preparation and knowledge, today’s tax laws are far too complex to navigate without competent accounting and legal advice. When a business owner engages in a significant transaction, or knows ahead of time that the tax treatment of a transaction is likely to be reviewed by the government, he or she should involve a qualified accountant and tax attorney early in the planning process to ensure the maximum protection in the event of an audit. 

Accountants are trained to understand tax rules and regulations, and how taxing agencies expect to see transactions reported on tax returns. For example, simply choosing the correct form of reporting can significantly reduce audit risk. Tax returns communicate the tax results of transactions to the government; therefore, tax laws limit the time that the government has to challenge the position taken on a particular tax return, as long as the return discloses sufficient information to advise the government of the transaction and its treatment. There is an art to providing enough information to satisfy that standard, while keeping the information succinct enough to minimize the risk of further questions from the government. Remember, even an audit that finds no errors in reporting can be costly to defend. 

Hiring a competent tax attorney is also a critical part of successfully navigating today’s complex regulatory environment. Tax attorneys understand the tax laws and nuances of regulatory and judicial interpretations of those laws; therefore, working with a tax attorney when planning transactions with significant tax implications is critical so that the structure and documentation of the transaction supports the desired tax result. Also, while attorneys may or may not prepare tax returns, they can help to establish the legal basis for a return reporting position by offering research, advice, and formal opinions regarding proposed or completed transactions. Attorneys are particularly trained to understand when a tax reporting position may be developed in anticipation of litigation. In that circumstance, it may be appropriate to engage a tax attorney to handle a matter and to have that tax counsel employ the services of an appropriate accountant. The result of this arrangement is that the accountant’s work is attorney-client privileged work product and not generally available to the government or third parties. For the same reason, owners and managers should employ a competent tax attorney early in the audit process when an they have reason to know or suspect that reporting positions may not be resolved at the administrative level.  

Any tax audit can result in disputed issues, which can end up in litigation before the U.S. Tax Court, U.S. Federal District Courts, or state or local courts. Such cases are won only with admissible evidence skillfully applied to demonstrate to taxing authorities and the courts the correctness of the taxpayer’s position. In this context, a tax return is evidence of a taxpayer’s position, but does nothing to establish it as correct. The taxpayer’s right to take a reporting position must be established with credible source documents, testimony, bank records, other similar evidence, and legal authority. Once an issue is supported in that way, it is the burden of the government to disprove the taxpayer’s entitlement to the claimed position. A tax attorney can be invaluable in identifying the particular items of evidence that support a return reporting position and in persuading an agency or the court to accept that position. Often, accountants and enrolled agents are not licensed to practice before the courts, and the assistance of a tax attorney will be critical to the success of the case. If litigation is likely to be the end result of an audit, business owners and managers should employ tax counsel early so that counsel has the opportunity to assemble the evidence. Bringing counsel in at the last minute to argue a case without that opportunity is not likely to be effective and many attorneys will not accept such an engagement because of the low likelihood of success. 


Today’s regulatory environment is filled with complex rules and procedures enforced by government agencies. Tax laws in particular contain many complexities and nuances that are not necessarily intuitive to the untrained observer. Many current tax rules can be fully understood only by comprehending the historical context in which they arose. The marketplace is replete with a variety of advisors willing to offer tax advice or to resolve tax debts. Many are reputable and some are not. Using advisors because of the tax savings they promise is often a path to financial disaster. While some tax collections cases can be resolved through relatively simple procedures, most businesses must take a much more proactive approach to avoiding costly fights with the government and the associated professional costs, interest, and penalties.  

Successful business owners and managers need to understand the financial aspects of their businesses in depth and must be able to identify allegations of a tax auditor that do not match the financial realities of the business. Successful business owners  and managers will also take an active role in determining how transactions affecting their businesses are reported to government agencies. Finally, successful business owners and managers will establish professional relationships with competent, reputable accountants and tax counsel to plan transactions, support and develop reporting positions, prepare audit and litigation evidence and make persuasive arguments before administrative agencies and the courts.


Otto Shill is a member of the Tax, Estate Planning and Probate practice group at Jennings Strouss & Salmon, P.L.C.  He is a certified tax specialist and represents businesses, business owners and high wealth individuals in transaction matters and before the administrative agencies of state and federal governments in matters related to taxation, compensation and benefits, employment and government contracting.  Mr. Shill can be reached at

The tax attorneys at Jennings Strouss & Salmon, P.L.C. have decades of experience in successfully advising businesses, business owners and high wealth individuals in structuring transactions to achieve optimum business and tax results, and in defending them in audits and court proceedings before federal and state taxing agencies.




Monday, September 12, 2016

Chris Mason Featured in Small Biz Daily

Jennings, Strouss & Salmon attorney, Chris Mason, is featured in Small Biz Daily.

Read the full article: Sexual Harassment in the Workplace


Chris Mason is a labor and employment law attorney at Jennings, Strouss & Salmon, P.L.C. He counsels employers and management on all aspects of labor and employment law, including traditional labor matters, such as collective bargaining and union organizing; restrictive covenants; employment discrimination; sexual harassment; whistleblowing; retaliation; wrongful termination; personnel policies; reductions in force; trade secrets; duty of loyalty; drug and alcohol testing; and other state and federal laws, rules, and regulations. He is also an experienced litigator, representing clients in Arizona, federal, and appellate courts, as well as before administrative agencies, including the National Labor Relations Board, the Department of Labor, the Equal Employment Opportunity Commission, the Arizona Civil Rights Division, and the Department of Economic Security.

Thursday, September 1, 2016

Arizona Expands Securities Exemptions for New Companies

By: Arati Thaly

Are you forming a limited liability company (LLC) or a limited partnership (LP) in Arizona?  Do you anticipate issuing ownership interests at the time of formation?  If the answer to these questions is yes, then effective August 6, 2016, the offer and sale of those ownership interests may be exempt from registration under Arizona’s blue sky laws. 

Arizona’s blue sky laws, namely the Arizona Securities Act (the Act), require any securities offering to be registered before those interests are sold or offered for sale within or from Arizona, unless the security or the transaction is exempt from the Act’s registration requirements.  

Prior to August 6, organizers of a corporation could issue shares to up to 10 “incorporators” if (1) they did not intend to sell those shares to others and (2) the shares are in fact not directly or indirectly sold to a third party within 24 months, unless there is a change of financial circumstances.  

This exemption is known as the “Incorporator Exemption”.  It did not help owners of LLCs or LPs, however, until now.

Beginning August 6, 2016, the Incorporator’s Exemption has been expanded to include the issuance and delivery of securities of a LLC or LP to the original organizers or general partners subject to the same two conditions.  
The Incorporator’s Exemption is available only at organization.  Therefore, it is crucial to take steps to properly document the initial organizers’ status as “original incorporators, organizers, or general partners” prior to organizing the company.  

The securities attorneys at Jennings Strouss regularly work with Founders in organizing companies, helping them to raise capital in compliance with the securities laws and doing business transactions tailored to individual needs.  For more information on securities exemptions, restricted stock purchase agreements or securities offerings generally, you can reach Arati Thaly at (602) 262 5920.  


Arati Thaly focuses her practice in the areas of corporate and securities law. She works with both public and private companies on a broad range of issues including securities offerings, mergers and acquisitions and corporate governance matters. She can be reached at

Jennings Strouss Listed as #1 on Phoenix Business Journal's Mergers and Acquisitions List

Jennings, Strouss & Salmon was ranked #1 on the Phoenix Business Journal's 2016 edition of its Law Practices - Mergers & Acquisition list.

Read the full article: Let's Make a Deal: Here are the Top M&A Law Practices in Phoenix

Wednesday, August 31, 2016

Monday, August 29, 2016

Prepare Early to Successfully Manage a Tax Audit: Part II

By: Otto S. Shill, III

This is Part II of a three-part blog focused on how business owners and managers can successfully prepare for and manage a tax audit. Part I discussed the need for business owners and managers to understand the financial details of the business.

This blog focuses on the second area: Why owners and managers should actively participate in decisions concerning how financial results are reported to government agencies.

It is critical that owners and managers understand financial and tax reporting. Many business owners believe that if their accountant prepares their tax return, it must be correct. Most accountants work very hard to accurately reflect the financial results of the business; however, accountants base their work on the financial information they receive from their clients. It is common for an accountant to prepare an income tax return based on the accounting system information he or she receives from the business owner or manager without ever receiving backup documentation. If the business’ accounting system is inaccurate, the return will be as well. Sometimes accountants receive unorganized documentation and receipts without a formal accounting system, requiring the accountant to do the basic data entry and make decisions about how items of income and expense should be characterized.

Even with the help of a competent accountant, it is the business and the business owner, not the accountant, who is responsible for the accuracy of the information reported on a tax return. Every person who signs a tax return as a business owner makes the following representation:

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. 

A business owner’s signature on a tax return is that owner’s representation to the government about the financial performance and tax liabilities of his or her business. That owner expressly states that he or she has read the return and its schedules, and that they are true and correct. In other words, the government will expect that the business owner understands both the reporting positions taken on a return and the transactions and documents upon which that position is based.

Many business owners rely on their accountants or attorneys for guidance on how to structure transactions and whether applicable law supports the reporting position; however, it is the responsibility of the owner who signs the return to understand the issues, transactions and justification for the reporting position taken. Therefore, to the extent that the law is uncertain with respect to the position, the risks associated with the reporting position should be no surprise at audit time. Business owners and managers should understand the economic impact of the transaction and why a particular reporting position about the transaction makes sense in the context of the business deal. In the end, the knowledge necessary to make the required representations to the government about the tax return is the same knowledge that empowers a business owners and/or managers to successfully respond to an auditor’s questions. It also empowers business owners and managers to arm their professional advisors with the information needed to effectively advocate in favor of the position taken on the tax return, or to reach a resolution of the issues.

In addition to understanding the financial and tax reporting aspects of their businesses, business owners should ensure that it is organized and filed in a way that allows an auditor to easily verify reported income or expenses against source documents. In general, the goal of audits is to verify that what a business has reported is permitted by law. The auditor’s first step in that analysis will be to verify the numerical values reported against source documents. Businesses that organize and store accounting records in a way that is similar to the way the information is organized on the tax return will spend far less staff and professional time to prove the basic numerical facts reported in the return. When business or financial reporting requirements dictate a different method of organization, a map outlining how financial accounting categories and the organization relates to the tax return can save time and money.

In the end, a business owner who understands the business’ financial and tax reporting positions and who retains source documents in a way that allows efficient verification of reported amounts will reduce costs and may shorten audit times. Part III of this article, which will be posted next week, will provide guidance on how to work with attorneys and accountants effectively to prepare for and manage a tax audit.

Otto Shill is a member of the Tax, Estate Planning and Probate practice group at Jennings Strouss & Salmon, P.L.C.  He is a certified tax specialist and represents businesses, business owners and high wealth individuals in transaction matters and before the administrative agencies of state and federal governments in matters related to taxation, compensation and benefits, employment and government contracting.  Mr. Shill can be reached at

The tax attorneys at Jennings Strouss & Salmon, P.L.C. have decades of experience in successfully advising businesses, business owners and high wealth individuals in structuring transactions to achieve optimum business and tax results, and in defending them in audits and court proceedings before federal and state taxing agencies.

The United States Court of Appeals for the Fifth Circuit Remands FERC Orders Addressing Participation by Non-Jurisdictional Utilities in the WestConnect Transmission Planning Region and Re-Opens Cost Allocation Issue

On August 8, 2016, the United States Court of Appeals for the Fifth Circuit ("Fifth Circuit" or "Court") issued a Decision on El Paso Electric Company's ("El Paso") petitions for review of FERC Orders addressing compliance with the requirements of Order No. 1000, et al., in the WestConnect planning region. The Decision vacated and remanded as arbitrary and capricious FERC's decision to allow non-jurisdictional utilities to participate in the WestConnect region as Coordinating Transmission Owners ("CTOs") not subject to binding cost allocation, thereby creating uncertainty about the future of joint transmission planning in this region.

During the process to comply with Order No. 1000, El Paso and the other WestConnect public utilities first proposed a non-binding cost-allocation approach whereby beneficiaries of projects identified in the regional planning process would enter into cost-sharing agreements. The WestConnect non-public utilities reasoned that requiring binding cost allocation would be tantamount to requiring construction of transmission projects and, as such, would be beyond FERC's jurisdiction. The WestConnect non-jurisdictional utilities supported the public utilities' initial proposal. FERC rejected this approach as contrary to Order No. 1000's call for binding cost-allocation, and distinguished binding transmission cost allocation from establishing an obligation to construct transmission projects. The WestConnect public utilities filed a request for rehearing of this order.

In a second set of compliance filings, the WestConnect public utilities proposed to allow non-public utilities to participate in the WestConnect as CTOs and submit projects for consideration in the regional planning process; however, projects electrically interconnected to CTOs and other non-enrolled transmission owners providing quantifiable benefits to those non-enrolled TOs would be excluded from regional cost allocation. The non-jurisdictional utilities again supported the cost allocation approach filed by the WestConnect public utilities. FERC rejected the WestConnect public utilities' proposal, reasoning that such approach would "unduly restrict consideration of transmission facilities that nonetheless may have regional benefits and are determined to be more efficient or cost-effective transmission solutions to regional transmission needs." In the same order, FERC denied rehearing on the binding cost allocation issue ("First Rehearing Order"). The WestConnect public utilities filed a request for rehearing of this order.

In a third set of compliance filings, the WestConnect public utilities proposed to allow CTOs to participate in transmission planning (including the ability to submit projects eligible for regional cost allocation and to vote in exchange for the payment of membership fees) with an option to join in and share the cost of a beneficial project but without being automatically bound to cost allocation. To avoid the free ridership concern, these compliance filings proposed to make ineligible for regional cost allocation a transmission projects benefiting a CTO if such CTO opted out of cost-allocation and the re-allocation of costs to jurisdictional utilities increased their original costs more than 10 percent. Again, the non-jurisdictional utilities supported this proposal. FERC rejected the WestConnect public utilities' cost-allocation proposal, reasoning that "the proposal might lead to the transmission planning process rejecting regional cost allocation for a proposed transmission solution that continues to be a more efficient or cost-effective solution for the remaining beneficiaries compared to other alternatives even after a cost shift." The same order denied reharing on the free ridership issue raised by the WestConnect public utilities ("Second Rehearing Order"), reasoning that Order No. 1000 did not seek to eliminate all instance of free ridership and, indeed, acknowledged that some beneficiaries of transmission facilities scape cost responsibility because they are not located in the same transmission planning region as the transmission facility from which they benefit. Finally, in a fourth set of compliance filings, the WestConnect public utilities deleted the language concerning exclusion of projects when a CTO opts out and there is an increase of overall project costs above 10 percent. FERC accepted the compliance filings on this issue.

The Fifth Circuit reviewed the First Rehearing Order and the Second Rehearing Order with respect to the cost-allocation issue. El Paso argued that the WestConnect rehearing orders resulted in unjust and unreasonable rates because they purportedly allowed non-jurisdictional utilities to benefit from transmission projects without paying a share of the costs, in violation of FERC's own precedent regarding cost allocation principles. FERC argued that the WestConnect rehearing orders would not result in unjust and unreasonable rates because public utilities could still use the reciprocity principle to encourage non-jurisdictional utilities to participate in transmission planning. While the Court recognized that Order No. 1000 declined to regulate non-jurisdictional utilities and, therefore, does not address free ridership by those utilities, it stressed that FERC still has a statutory duty to ensure just and reasonable rates. The Court found a discrepancy between how FERC described its goals in Order No. 1000 to achieve just and reasonable rates (i.e., to ensure just and reasonable rates by reducing free ridership and following cost causation principles) and how those principles were applied in the WestConnect region. Specifically, the Court found that FERC did not provide a reasoned explanation for: (1) why the non-jurisdictional utilities have incentive or obligation to participate in binding cost allocation when they can get many of the same benefits at the jurisdictional utilities' expense; and (2) how FERC can meet its obligation to ensure just and reasonable rates when many of the costs of new development will be imposed on only half of the utilities in the WestConnect region. On this basis, it remanded FERC's WestConnect rehearing orders.

Notably, Circuit Judge Reavley dissented from the majority decision reasoning that: (1) cost allocation determinations remain commensurate with the estimated benefits considered because if a CTO does not accept the cost allocation, the transmission planning process removes the benefits applicable to those CTOs when re-evaluating the project; (2) the free rider problem the public utilities complained of is not unique but rather is the same free rider problem that arises every time any entity not enrolled in the transmission planning region benefits from a new transmission facility; and (3) the Court should give deference to FERC's ruling reached upon consideration of the free rider issue against other policy goals (such as expanding opportunities for identifying and proposing more efficient or cost-effective regional transmission projects) and not treat the satisfactory explanation standard as "one that actually persuades the Court as to the wisdom of FERC's decision or that actually rebuts the Utilities' speculative contentions regarding unintended consequences."

The turmoil created by this Court decision may fracture the delicate balance that was struck to bring non-jurisdictional utilities into the fold of WestConnect and disrupt joint transmission planning by public and non-public utilities in the region. How FERC acts on remand could be significant from the perspective of its precedent on the reciprocity principle and authority under Section 211A of the Federal Power Act.