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Businesses Lobby as Genetic Nondiscrimination Bill Nears Vote

March 12, 2007 Human Resource Executive Online

Business groups say a proposed bill banning the use of genetic information in work and health-care decisions is both unnecessary and a potential boondoggle, saying it could open the door to confusing regulations and procedures, a mandate to provide genetic-health benefits and the potential for costly lawsuits.

By Stephen Barlas

Business groups are working hard, and with only minimal success thus far, to change the language in a bill which imposes a new federal standard on companies with regard to the use of genetic information of employees.

The Genetic Information Nondiscrimination Act -- approved by a committee in both the Senate and the House, and due for floor action in both soon -- would prohibit employers from using individuals' genetic information when making hiring, firing, job placement or promotion decisions.

It would also make it illegal for group-health plans and health insurers to use genetic information to deny coverage to healthy individuals or charge them extra because of their genetic make-up.

It is unclear when the bill will come up for floor votes, but observers say passage seems assured -- the Senate in previous sessions has twice passed the bill, while the Democrats now in control of the House should prevail.

All of which leaves business groups scrambling to seek modifications.

"First off, this bill is unnecessary at this time. It is basically a solution in search of a problem," says Jason Straczewski, director of human resources policy for the National Association of Manufacturers in Washington.

NAM is allied with other business trade associations under the banner of the Genetic Information Nondiscrimination in Employment Coalition, whose members, and their companies, believe genetic discrimination is unlawful. Members include the U.S. Chamber of Commerce, Society for Human Resource Management and the HR Policy Association.

Just before the Senate Health Education Labor and Pensions Committee approved its bill on Jan. 31, the GINE Coalition complained about numerous provisions, such as its establishment of a de facto federal mandate requiring employers to offer health plans covering all treatments for genetic-related conditions; opening the door to substantial damages, including compensatory and punitive damages, for paperwork violations or for failing to properly distinguish genetic information from other health-care information; and requiring organizations to follow one set of rules for handling genetic information and a different set for handling health-care information.

The Senate committee passed the bill overwhelmingly without addressing any of the coalition's concerns.

However, the House Education and Labor Committee, one of three House committees with jurisdiction, was a bit more responsive when it approved the bill by a voice vote on Feb. 14. A number of changes were made to their bill that were meant to address GINE's concerns about additional record-keeping requirements and the creation of a new federal mandate.

However, NAM's Straczewski says the committee's amendment "makes the bill a little bit better, but we are still not there."

Another concern, says Michael Eastman, executive director of labor policy for the U.S. Chamber of Commerce in Washington, is the bill would not allow employers to use consultants to handle confidential genetic-health information as they can with confidential health information subject to the Health Insurance Portability and Accountability Act.

"The bill has provisions that conflict both with HIPAA and the Americans with Disabilities Act," Eastman says.

In addition, he says, passage of the bill could impose two new sets of costs on companies.

The first would have to do with general implementation issues. He compares these potential problems with those that have arisen from implementation of the Family Medical Leave Act, which, he says, "employers have struggled with," such as the confusion over how to comply with the FMLA's provision on unscheduled absences.

The second set of potential costs could arise from lawsuits that might be filed. Eastman notes that while more than 60 percent of the employee-discrimination lawsuits filed with the Equal Employment Opportunity Commission are ruled without any merit, it costs a company between $30,000 and $50,000 per case to defend itself.

SEC proposal would bar ratings firms from strong-arming issuers

April 9, 2007 Financial Week

In a little-heralded move, the Securities and Exchange Commission has proposed a new credit rating rule that could lower CFOs’ costs of borrowing, but the Big Two credit rating agencies—Moody’s and Standard & Poor’s—are fighting hard against it.

The proposal would eliminate notching, in which a credit rating agency automatically adjusts downward the ratings on structured finance bonds if it didn’t originally rate the underlying assets. Lower-rated bonds cost companies more to issue.

“The practice of notching increases costs to CFOs, so this should matter quite a bit to them,” said Christopher Ricciardi, CEO of Cohen & Co., an alternative fixed-income asset manager with $32 billion in assets under management.

Notching is one of the more objectionable actions allegedly practiced by Moody’s Investors Service, and the Standard and Poor’s unit of McGraw-Hill, the two credit rating giants that were the targets of the Credit Rating Agency Reform Act (CRARA), which Congress passed last year.

In the proposed rule issued in February, the SEC prohibited notching, period. It said that a Nationally Recognized Statistical Rating Organization—be it Moody’s, S&P or anyone else—could not threaten to modify an existing or prospective credit rating based on whether the rated entity, or its affiliates, buys that NRSRO’s credit rating for other products. That prohibition, the SEC said, would prevent an NRSRO from exerting unfair “leverage.”

But as a sop to the Big Two, the agency said that an NRSRO could refuse to rate a structured product if the NRSRO had rated less than 85% of the market value of the assets underlying that structured product. Nearly everyone involved has assailed that 85% standard, which the SEC apparently pulled out of thin air, based on what it called “anecdotal” data. John Heine, an SEC spokesman, declined to elaborate on the language in the Federal Register notice.

Charles Brown, general counsel of Fitch Ratings, the distant No. 3 industry player, said the SEC should cancel the 85% yardstick and force all NRSROs to recognize the ratings of one another.

Moody’s and S&P vehemently oppose the ban on notching and the SEC plan to force them to accept another agency’s rating on even 15% of a collateralized debt obligation’s underlying assets.

Jeanne M. Dering, executive vice president of global regulatory affairs and compliance at Moody’s, said her company “strongly objects to any measure that would compel an NRSRO to use other NRSROs’ ratings interchangeably with its own.” Ms. Dering was echoed by Vickie Tillman, executive vice president at Standard & Poor’s. She said the 85%-15% split “would flatly prohibit NRSROs from incorporating their own analyses into ratings on structured products, and other products as well, where they have not rated all the underlying assets.”

She added that calling the proposal radical would be an understatement. “It would also leave NRSROs no choice but to accept blindly the rating opinions of not only Fitch, but any other rating agency that meets the threshold for designation under the [credit rating agency reform] act,” she said.

Moody’s and S&P are getting support in their campaign from the Financial Services Roundtable. Richard Whiting, executive director and general counsel for the FSR, said the section of the SEC’s proposed rule dealing with notching is “ambiguously drafted and can be interpreted as mandating that NRSROs use the ratings of other NRSROs interchangeably with their own.” He said such a mandate would contradict the Reform Act and undermine rating agency independence to the detriment of the financial markets. He said notching should be prohibited only if it is due “to coercive or anti-competitive intent.”

But other industry players think notching is, per se, anti-competitive. “Notching appears to be designed to restrict competition,” said Sean J. Egan, president of Egan-Jones Ratings. “If a rating firm has proven that it has timely, accurate ratings, there should be no notching.”

For CFOs, “notching can hurt CFOs by potentially raising their borrowing costs,” according to Cohen & Co.’s Mr. Ricciardi.

For example, take a hypothetical case where corporate debt is not rated by either Moody’s or S&P and that debt becomes part of a structured credit product that will be rated by Moody’s. If any of the 15% of the underlying assets are rated by Fitch, then Moody’s could notch or downgrade that corporate debt—if the SEC allows it—from, say, BBB to BB, thus increasing corporate costs of borrowing by up to an extra 1.0% a year.

March 2007 Pipeline & Gas Journal

House Bill Threatens
Gulf Gas Production

The Oil and Gas Royalty Retaliation Act (note to readers:
just kidding, it isn’t really called that) the House passed on Jan.
18 would impose a new conservation fee on natural gas pulled
out of the Gulf Coast and cancel royalty relief for natural gas
companies which was included in the 2005 energy bill.
The House bill, when it was passed, was seen chiefly as an
attack on oil companies that are reporting huge profits which
raise questions about the necessity of the tax breaks for them in
the 2005 energy bill. But also motivating passage of the Creating
Long-Term Energy Alternatives for the Nation Act of 2007
(CLEAN Act) is the recouping of some of the federal revenue
losses stemming from the Department of Interior’s failure to
include royalty relief thresholds in Gulf leases awarded oil and gas
companies in 1998 and 1999.
The department’s carelessness with those 1998-99 leases,
where the absence of trigger prices has cost the federal government
as much as $950 million to date — with the loss potentially
running as high as $10 billion — is driving the bill politically.
Those leases were awarded under the 1995 Deep Water Royalty
Relief Act (DWRRA) which requires gas producers to pay the
government fees for gas taken off federal land when gas prices in
the commercial market rise above a certain trigger price.
That trigger price was inadvertently left out of the 1998-99
leases which were signed with 45 companies, said Interior
spokesman Gary Strasburg. Interior has recently renegotiated
those leases with six companies.
An investigation by the Inspector General at Interior found
an inordinate amount of buck-passing and called the failure
of the department to include trigger prices in those leases the
result of “a shockingly cavalier management approach to an
issue with profound financial ramifications, a jaw-dropping
example of bureaucratic bungling…”
Congressional anger at Interior for that sloppiness combined
with embarrassment over huge oil company profits in the wake
of the petroleum tax cuts in the 2005 energy bill helped House
Democrats ram the CLEAN Act through as a first order of
business in January. The 264-163 vote was short of a two-thirds
majority needed to override a presidential veto which is likely
if the Senate passes the exact same bill.
The CLEAN Act (H.R. 6) will impose a fee on the holders
of the royalty-free 1998 and 1999 leases unless the companies
agree to renegotiate them to include royalties. According to
Congressional Budget Office (CBO) projections, these provisions
would raise $6.3 billion over 10 years – funds which can be
used to finance renewable and alternative energy initiatives.
However, while H.R. 6 was motivated in part by the Interior
calamity with offshore leases, the bill itself goes far beyond those
leases. It cancels royalty relief given to gas and oil companies by
the Energy Policy Act of 2005, including a provision in that law
which extended royalty relief initially established administratively
by the Minerals Management Service in January 2004.
The MMS program extends royalty relief to natural gas wells
drilled in less than 200 meters of water and which produce gas
from intervals below 15,000 feet. This program specifies a trigger
price for natural gas of $9.91 per million Btus in 2006, substantially
exceeding the average NYMEX futures price of $6.98 for 2006, and
ensuring that all gas production is exempt from royalties in 2006.
Section 344 of the Energy Policy Act expanded that program
from waters less than 200 meters deep to waters less than 400
meters deep. Although the act does not specifically cite the
amount of gas to be exempt from royalties, it provides that this
amount should not be less than the existing program, which
currently ranges from 15-25 Bcf. H.R. 6 cancels royalty relief
for gas from wells in that 200-400 meter deep water.
Mark Stultz, vice president industry and public affairs at the
Natural Gas Supply Association, says the House bill will discourage
investment in U.S. resources at a time when leaders in
Congress are hoping to put a greater emphasis on energy production.
production.
“With regard to the 1998-99 leases, the bill would strike a
blow at contract sanctity,” he adds. —Stephen Barlas


Rules Of Conduct

FERC is revising its standards of conduct for natural gas
pipelines, essentially putting them back to where they were
prior to FERC issuing Order 2004 in October 2004. The purpose
of Order 2004 was to unify separate electric utility and
natural gas standards, and to make them a little more far-reaching,
too, most notably by extending their application beyond
marketing affiliates to non-marketing affiliates.
However, natural gas companies filed a lawsuit and the U.S. Court of
Appeals for the District of Columbia Circuit in the National Fuel decision
(Nov. 2006) agreed that FERC had overstepped its boundaries.
The court in National Fuel Gas Supply Corporation v. FERC
(National Fuel) indicated the Commission could seek to justify
application of the expanded scope of the Standards of Conduct
rule on natural gas pipelines if it could provide new record
evidence or a compelling theoretical argument. But on Jan. 18,
FERC said it wouldn’t go that route, although it has proposed
some tweaks to the pre-Order 2004 standards for natural gas.
In the proposed rule it issued on Jan. 18, FERC said the standards
would only apply to marketing affiliates. The standards
require employees engaged in transmission services to function
independently from employees of its marketing affiliates and
impose prohibitions restricting transmission providers from
sharing certain information with their marketing affiliates.
However, the Commission wants to expand the definition of
“marketing, sales and brokering” to include entities that manage
or control transmission capacity, such as asset managers or agents.
Another issue up for consideration is when a natural gas transmission
company should first become subject to standards of conduct.
Under Order 497, which was in effect until Order 2004 hit the
streets, the standards applied as soon as the pipeline began transportation
transactions with its marketing or brokering affiliate.
Order 2004 changed that so that the standards clicked in
when the transmission provider began soliciting business or
negotiating contracts; that was further modified by Order 2004-
B which kicked in the standards when the pipeline is granted
and accepts a certificate of public convenience and necessity.
That was one of the issues at the heart of the National Fuel
appeal, but the court did not address it in its final decision.
In an interim rule FERC issued on Jan. 9, it relocated the start
date for the standards to when the pipeline company began transportation
transactions with its marketing affiliates. Then in the
proposed rule issued on Jan. 18, it made another change, which
it is asking for comment on, suggesting that the standards begin
applying within 30 days of the transmission provider becoming
subject to the Commission’s jurisdiction. —Stephen Barlas

‘Natural’ claims on RTE food packaging

March 2007 Packaging World magazine

USDA has a beef with some ready-to-eat deli packages. Companies are being forced to ditch “natural” copy on packaging.



Ready-to-eat deli meat marketers are clearing room in their garbage cans for packaging and labeling they will have to toss out if the U.S. Department of Agriculture (USDA) moves forward with its intention to change its rules for use of the term “natural” on labels of meat and poultry.

The USDA’s Food Safety and Inspection Service (FSIS) sent out letters in December to numerous companies such as Farmland Foods giving them a couple of months to prove that the sodium lactate they add to products labeled “natural” is used only for flavoring, not as a preservative.

Jesse Waller, manager of labeling at Farmland Foods, a division of Smithfield Foods, acknowledges that the sodium lactate in the company’s eight ham products does indeed function as a preservative. “All types of things will be precipitated with regards to packaging as a result of this,” he states. “We have no choice, our packaging will be rescinded.”

Randy Huffman, vice president, scientific affairs, American Meat Institute Foundation, does not know exactly how many other companies are in Farmland’s boat. “But it is definitely more than one or two,” he adds. The growth in use of sodium lactate in deli meats to control Listeria has been quite significant in recent years. The FSIS encourages its use as an anti-microbial. Companies can continue to use it for that purpose, but they will not be able to put a “natural” label on their package.

The FSIS’s impending cancellation of some “natural” labels reverses a policy the agency announced in August 2005 when it said companies could use sodium lactate in products labeled “natural.”

Hormel Foods forced the reversal by submitting a petition to the USDA in the fall of 2006 arguing the FSIS had erred in allowing sodium lactate because it is a refined chemical synthesized using a separate chemical manufacturing process that therefore corrupts an otherwise natural product.

The original 1980 FSIS policy memo on use of the term “natural” says that an ingredient that has been “more than minimally processed” cannot be included in a product with a “natural” label on it. But as sodium lactate became popular over the past few years, the FSIS started approving its use in natural products on an ad-hoc basis. It translated those ad-hoc decisions into formal policy in August 2005, and is now reversing it under pressure from Hormel.

Hormel’s alternative

Hormel has competitive reasons for pressing the FSIS to withdraw approval of sodium lactate. The company uses an anti-microbial process called high-pressure pasteurization (HPP) to increase shelf life of its natural products. HPP, a post-packaging pasteurization step, uses approximately 87,000 pounds-per-square-inch of water pressure to denature pathogens such as Listeria monocytogenes.

It is the technology behind the “all natural, no preservatives” claim on Hormel’s new Natural Choice line of luncheon meats that were rolled out last May. Perdue Farms also uses HPP in some of its Short Cuts line of ready-to-eat sliced turkey and chicken breast strips.

The FSIS’s response to the Hormel petition is just the first step in an upcoming rulemaking which will plumb numerous other issues related to a “natural” claim. This rulemaking could have even wider packaging implications, according to Bob Hibbert, a Washington attorney for flavor manufacturers and a former top FSIS official.

Hibbert says that the carbon dioxide added to meats when companies use modified atmosphere packaging (MAP) could be ruled an unnatural chemical ingredient, on a par with sodium lactate.

Effects on processors

The immediate concern, though, is to companies that use sodium lactate, and indicate that fact on their labels and packaging. All meat and poultry retail labels need to be pre-approved by the FSIS, which has threatened to cancel all past approvals for all labels for “natural” products that include sodium lactate.

Robert Post, the current director of the FSIS labeling and consumer protection staff, declined to be interviewed about this issue.

Farmland’s Waller explains that his company has eight active product codes devoted to all-natural classic ham products that use pressure-sensitive labels and are vacuum-packed. All are formulated with sodium lactate.

The products are only a small part of the company’s 3,000 active codes, but an increasingly important part, as Farmland and its rivals bid for the expanding demand for those products, especially from the giant “club” stores. “We will have to get rid of all our current labels and packaging for those eight codes if the FSIS goes ahead with this,” says Waller.

Other new techniques

Explaining the agency’s change of heart on sodium lactate, the FSIS’s Post, at a meeting in Washington, DC, on December 12, 2006, cited a growing number of requests by manufacturers to permit the “natural” claim on products that are made via processing techniques that were not available in 1980 when the
original FSIS policy allowing only minimal processing was written.

“For example, techniques have evolved such as high-pressure processing, packaging methods such as modified-atmosphere packaging and multiple-function ingredients such as sodium citrate and sodium nitrate that are regulated as flavoring agents and have anti-microbial effects,” he explained.

Now that Hormel has opened up this can of worms, the company itself is likely to come under scrutiny. Deb O’Donnell, director of research and development for Kayem Foods, wonders whether Hormel’s HPP process violates the “more than minimally processed” policy. This is a question asked by a number of other attendees at the FSIS December meeting.

Kayem markets an Al Fresco line of all-natural chicken-based sausages, and has for eight years. The product does not contain sodium lactate, nor does the company use HPP. O’Donnell says the company has extended the shelf life of its vacuum-packed line of Al Fresco sausages from 18 days initially to 35 days today without adding chemicals, but by altering cooking temperatures, handling procedures and by tweaking its packaging line, which it declined to identify.

“But now we have a lot of pressure on us to have more shelf life as we grow across the country,” she concedes. “A product can get lost in a warehouse for a week. Customers want shelf life that is endless