Federal Court Ruling On Mercury Revives Gas-Electric Worries

Pipeline & Gas Journal
June 2014 - for the online version go HERE.

A federal court decision allowing the Environmental Protection Agency (EPA) to move forward with a rule limiting mercury emissions from power plants has heightened concerns in some quarters about interstate pipeline infrastructure inadequacy.

In mid-April, the U.S. Court of Appeals for the District of Columbia said 1,400 coal- and oil-fired electric generating units (EGUs) at 600 power plants must meet air emissions standards finalized in 2011. The plants have up to four years to comply with necessary reductions in emissions of mercury and other air toxics, but the 2011 final rule had been held in abeyance because of a legal challenge.

In September 2013 the EPA issued a proposed rule, which, if finalized, will force newly built power plants to meet stricter standards on emissions of carbon dioxide, a leading greenhouse gas. Taken together, these two EPA actions have persuaded some electric utilities to close coal-and oil-fired power plants, leading some officials at agencies such as the Federal Energy Regulatory Commission (FERC) to worry that natural gas pipelines will have a hard time supplying replacement power plants using natural gas, especially in tough weather such as last winter.

American Electric Power has said it will retire almost a quarter of its coal-fueled generating units in the next 14 months. That is 25% of its capacity. In PJM, 13,000 MW of additional capacity will be retired by mid-2015. "Unless the market structure changes, the capacity replacements for these assets may not provide the same level of reliability we have experienced historically," says Nicholas Akins, chairman, president, and CEO, AEP. PJM is the Regional Transmission Organization (RTO) serving all or parts of the states of Illinois, Indiana, Michigan, Ohio, Kentucky, Tennessee, West Virginia, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, New Jersey and the District of Columbia. AEP, Dominion and Exelon, among others, serve electricity customers within PJM, to name a few.

To the extent that EPA regulations drive some coal-fired generation plants out of business, pressure will be ramped up on pipelines to serve the gas-fired plants that take their place, if in fact gas-fired plants DO take their place. "Natural gas has proven to be the fuel of choice for new generation developing in our region," states Michael Kormos, executive vice president of Operations for PJM Interconnection. "Over 64% of new resources in our queue are proposed gas-fired generation."

A week before the federal court handed down its EPA/mercury ruling, the FERC’s unofficial "pipeline commissioner" told a Senate committee he preferred the EPA present better data before forcing electric utilities to close because of new environmental rules. Philip Moeller told the Senate Energy and Natural Resources Committee, which was meeting to consider issues related to grid reliability, "The sufficiency of our generating resources has been clouded by uncertainties arising from changing environmental regulation. I am not opposed to closing older and less environmentally-friendly power plants, but I am concerned that the compressed timeframe for compliance with the new environmental rules was not realistic given the amount of time it takes to construct new plants and energize transmission upgrades to mitigate plant closures.”

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Financial Reporting

Strategic Finance
May 2014

Federal agencies are mulling over changes to the final Volcker Rule, published by five federal agencies on December 10, 2013. A key issue is whether banks will be forced to sell collateralized loan obligation (CLO) debt securities because they are considered subject to the rule's ban on proprietary trading by banks. At hearings in the House Financial Services Committee in February, top committee Republicans complained that the final rule would allow U.S. banking subsidiaries of foreign bank holding companies to trade in debt of Spanish and Greek companies and cities but U.S. banks could not trade in certain kinds of U.S. corporate debt. "Congress never intended that CLOs be covered in the first place," says Rep. Scott Garrett (R-NJ), chairman of the House Capital Markets and Government Sponsored Enterprises subcommittee.

In a letter to financial regulatory agencies on December 24, 2013, five U.S. financial associations pleaded for guidance that would say CLOs are not an "ownership interest" under the final rule, and therefore exempt from the ban on proprietary trading. If that clarification is not forthcoming, the letter said, " Divestment of CLO debt securities will unnecessarily disrupt the CLO market, could result in immediate and substantial capital losses for banking entities, and will ultimately impair the availability of, and increase the cost of, corporate lending since banking entities play a significant role in providing continued liquidity to the CLO debt market and CLOs provide significant capital and liquidity to the corporate loan market."

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, told members of the House Financial Services Committee in February that a working group formed by the agencies after the final Volcker Rule was published "would review and consider" the complaints about the Volcker's negative impact on corporate borrowing stemming from the inclusion of CLOs in the proprietary trading ban. The other four agencies responsible for authoring the Volcker Rule are the Federal Deposit Insurance Corporation, Comptroller of the Currency, Commodity Futures Trading Commission and Securities and Exchange Commission.

Carol Danko, vice president, public affairs for SIFMA, one of the trade groups pressing for a CLO exemption, says the federal financial regulators had not made a decision as of the end of March.  Currently, CLOs provide $280 billion of credit to non-investment grade corporate borrowers, roughly 45 percent of funded non-investment grade term loans to U.S. companies, according to the Loan Syndications and Trading Association.

Financial Reporting an Issue in Proposed Reg A Changes

The North American Securities Administrators Association (NASA) announced a new coordinated, national filing program for smaller businesses seeking to raise capital under the SEC's Regulation A. The idea is to eliminate differences in state "Blue Sky" laws which add legal complexity and cost for businesses looking to raise capital. Tom Quaadman, vice president, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, says, "We are concerned that relying on an untested and unproven review program will only add delays and complexity to issuers that are looking to take advantage of the modernized Regulation A." He wants the SEC to pre-empt Blue Sky laws in a final rule making changes to Regulation A. The Jumpstart Our Business Startups Act (“JOBS Act”) passed by Congress in 2012  raised the exemption threshold under Regulation A from $5 million to $50 million.

Current Regulation A allows issuers to make unregistered public offerings of up to $5 million in a 12-month period. The financial statements that must be included in current Regulation A offering circulars do not have to be audited, and there are no ongoing reporting obligations under the Securities Exchange Act of 1934. Securities sold through this method are not restricted securities, but are subject to state registration and qualification requirements.

The SEC issued a proposed rule on December 2013 which creates a new Tier II under Regulation A for filings under $50 million, per the congressional directive. The big question now is what kind of reports will companies have to file under Tier II. Quaadman says there should be a broad exemption plus a second exemption for compliance with the eXtensible Business Reporting Language (XBRL) requirements. In the first instance, the Chamber is particularly worried about the possibility that once a Regulation a issuer crosses either the500 non-accredited investors or 2,000 total investors threshold under section 12(g) it would become subject to all the reporting requirements under the Exchange Act.

"We believe that if an exemption were not granted to Regulation A issuers under Section 12(g), it is likely that Tier 2 offerings would become less attractive, and issuers would be incentivized to either restrict their Regulation A offerings to accredited investors, or pursue a private offering under Regulation D," explains Quaadman. "Such an outcome would be contrary to the intent of the JOBS Act, and would inhibit capital formation in our economy."

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

FERC To Review Recent Rule Requiring Permitting Of Auxiliary Facilities

Pipeline & Gas Journal
March 2014 - for the online version go HERE.

The Federal Energy Regulatory Commission (FERC) will look again at a new rule requiring certificates to be filed for right-of-way auxiliary construction and for landowners to be given a five-day heads-up before construction and maintenance work starts. That rule was published in November and went into effect Feb. 3.

The Interstate Natural Gas Association of America (INGAA) and National Fuel Gas Supply Corp. both asked for a rehearing, and FERC granted that wish on Jan. 29. The rule was issued as the result of a petition submitted in 2012 by INGAA whose requests were essentially squashed by FERC when it issued a final rule in November.

Joan Dreskin, general counsel, INGAA, says, "FERC issued a standard ‘tolling order’ in this case which allows them to act when they wish on the rehearing/clarification."

In part, the debate revolves around the difference between replacement and auxiliary facilities. FERC wants them treated similarly as "jurisdictional," meaning they would have similar requirements with regard to pipeline companies filing certificates which the commission would have to approve before the companies could start construction. INGAA says auxiliary facilities shouldn't be permitted.

INGAA had started the ball rolling in 2012 because of Commission staff discussions with pipeline representatives where FERC staffers stated that companies undertaking section 2.55(a) auxiliary installations to augment existing facilities must stay within the right-of-way or facility site for the existing facilities and restrict construction activities to previously used work spaces. Industry officials thought this was a change in policy which would force them to obtain certificates when auxiliary facilities were installed outside rights-of-way. The kinds of auxiliary facilities at issue include: valves; drips; pig launchers/receivers; yard and station piping; cathodic protection equipment; gas cleaning, cooling and dehydration equipment; residual refining equipment; and water-pumping equipment.

Given that ostensible change in policy made outside any rulemaking, INGAA filed its petition in 2012. FERC issued a proposed rule in December 2012 which simply codified the position its staff had laid out. INGAA protested. FERC argued the proposed rule was only a "clarification" which "articulated existing, long-standing constraints and obligations with respect to auxiliary installations." It then took more comments before ignoring INGAA's protests again when issuing the final rule last November.

The final rule also codified for the first time the common industry practice of notifying landowners prior to coming onto their property to install, replace or maintain auxiliary or replacement facilities.
In its request for rehearing, INGAA says that in the Final Rule, the Commission "persists as well in a fiction that its new ruling does not change what had been the plain and universal understanding of that provision for approximately 60 years until the December 2012 NOPR."

In addition to unlawfully converting an entire class of exempt, non-jurisdictional auxiliary installations into jurisdictional NGA facilities, the Commission, without referencing a record of abuse, without identifying any material threat to its statutory obligations, and without providing any premise based on relevant facts, extends regulatory limitations to these installations that in the past have applied only to separate and distinct replacement activities. The Commission’s Final Rule is arbitrary and capricious. It is not the product of reasoned decision making.

Besides absolving auxiliary activities from permitting, INGAA also wants FERC to clarify that the five-day prior notification requirement would not apply to activities done for safety, DOT compliance, in response to “one-call obligations,” or environmental or unplanned maintenance reasons that are not foreseen and that require immediate attention by the company and for activities that result in ground disturbance where such disturbance would be located entirely within the fence line of an existing, aboveground facility site.

David W. Reitz, Deputy General Counsel, National Fuel Gas Supply Corp. and attorney for Empire Pipeline, points out that PHMSA’s regulations require a company discovering a pipeline anomaly requiring immediate remediation to excavate and inspect the pipeline within five days of discovery. "Because of the time required to verify or determine the names and addresses of the property owners and to deliver the notices, five-day advance landowner notification would be impractical in these circumstances," he explains. "In addition, a pipeline receiving a one-call notification often has a maximum of 48 hours to determine and mark the precise location of its facilities, which may require some excavation."

Possibility of FDA Regulation of Health Information Technology Looms Large

P&T Journal
October 2013 - for a PDF copy of the published version go HERE.

Pharmacies and Their Vendors Worry About Quality

The hospital drive to implement health information technology (HIT) systems, driven in good part by Medicare and Medicaid incentives (and penalties), has certainly affected pharmacy systems, and will continue to do so as the definition of "meaningful use" is expanded to incorporate more required medication tasks. So anyone who works in a hospital pharmacy ought to be interested in how the federal government regulates these new technologies, be they hardware or software. Retail pharmacies, too, even though they are not being pressured by incentives, are concerned about how any regulation would affect mobile medical devices such as glucose monitoring/diabetes management, at home hypertension monitoring/management, medication management, and medication reconciliation at transitions of care. 

Pharmacy organizations such as the Pharmacy e-HIT Collaborative are communicating with a work group within the Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) which will be making HIT recommendations to Congress imminently. That report will provide directions to the Food and Drug Administration (FDA).

Surescripts, too, is concerned about the failure of some pharmacy systems vendors to police the quality of their products. Surescripts provides the e-prescribing electronic backbone which software vendors plug into. Those vendors sell plugged-in e-prescribing systems directly to end-user pharmacies. David Yakimischak, General Manager, E-Prescribing, says the company has worked hard to encourage its vendors to adopt quality programs leading to fewer pharmacy errors. "Vendor responsiveness has been relatively random," he explains. "Quality/patient safety performance does not appear to play heavily in end-users’ purchasing decisions. Our conclusion is that in the absence of new incentives and penalties, there is currently little or no business case for vendors to make significant investments in high quality patient safety programs."

The FDA is under a congressionally-mandated deadline of January 2014 to produce a regulatory framework for HIT. The key issue is whether the FDA should be allowed to regulate all HIT as it does medical devices. Or should some HIT, especially software where pharmacists and physicians interact with a system to make clinical decisions or observations, even be regulated at all. There are those who think systems requiring clinical intervention should be certified, not regulated, by a non-federal body such as The Joint Commission, with that certification process overseen by the ONC. The ONC already has a few years of experience certifying HIT eligible for incentives (which go to the purchasers, such as hospitals) decreed by the 2009 stimulus bill. "The ONC is well positioned to coordinate oversight among these various organizations to ensure patient safety, prevent overlap and continue to foster innovation and adoption of health IT by providers," states Ann Richardson Berkey, Senior Vice President, Public Affairs, McKesson Corp. She says organizations such as the National Committee for Quality Assurance (NCQA), The Joint Commission or URAC have track records in the rigorous accreditation of healthcare software.

The American Hospital Association (AHA) thinks products should be regulated based on the risk they pose to patients. Key factors to be considered include the potential for harm, the extent of harm, and the extent to which software is automating and or guiding clinical decision-making. "For example, when drug dosage data are sent from an order entry system to a pharmacy information system, it is crucial for safety that both the data points and their units of measure are accurate within each system and across systems," says Linda E. Fishman, Senior Vice President, Public Policy Analysis & Development, AHA.

Last February, the Bipartisan Policy Center, a think tank of sorts meant to meld Democratic and Republican views, produced a report called An Oversight Framework for Assuring Patient Safety in Health Information Technology. It stated: "The FDA’s current regulatory approach for medical devices is generally not well-suited for health IT." The report recommends that HIT products be divided into three categories according to the relative risk to patients and the opportunity for clinical intervention. Those where there is no or little opportunity for clinical intervention represent a higher potential risk of patient harm. Such devices are currently regulated by the FDA as Class I, Class II, or Class III medical devices. The FDA would continue to regulate these devices.

The lowest risk category would be administrative software which supports the administrative and operational aspects of healthcare but is not used in direct delivery of clinical care. Population analytics, back office billing systems, claims payment systems, and prescription drug refill reminders are all examples of software that are not used for patient specific treatment or diagnosis. The BPC recommends no additional oversight for this category.

The middle category would include products which can be used to recommend a course of care; call this category clinical software. Very few participants in the debate, at least on the industry side, think this category should be regulated by a federal agency.

    

Meanwhile, the ONC's ability to translate its considerable HIT experience into political weight in any upcoming battle with the FDA over new regulations is compromised by the absence of a National Coordinator, given the departure of Farzad Mostashari, M.D. The position needs to be filled quickly, and for a lot of reasons.