Tightening the Parachute Strings

Human Resource Executive Online, March 11, 2008

The IRS recently acted to tighten the rules affecting executive severance of more than $1 million, requiring companies to review their agreements. And more changes may be in the winds as well, as Congress continues to look into executive comp.

By Stephen Barlas

Companies have some new tax considerations that will force them to rethink many of the performance-based severance packages they have developed for top executives in the past.

It's possible the Internal Revenue Service was responding to prevailing political winds when it tightened its rules dealing with when executive compensation of more than $1 million can be deducted from corporate taxes.

The IRS > action on Feb. 21 may deflate some lucrative exit packages -- known as golden parachutes -- and may be the harbinger of upcoming congressional moves to eliminate the pay deduction entirely.

Steve Seelig, executive compensation counsel at Washington-based Watson Wyatt, says it is not clear whether the < IRS > was primarily motivated by what it learned in recent corporate audits or by the current political climate.

For example, had the new < IRS > ruling been in effect prior to Stan O'Neal's forced resignation from Merrill Lynch in October -- just a week after the investment bank reported its largest-ever quarterly loss of $2.24 billion -- Merrill would have qualified for a much smaller tax deduction.

O'Neal appeared before the House Oversight and Government Reform Committee on March 7, as part of chairman Rep. Henry Waxman's continuing investigation into the "compensation of executives who preside over billion-dollar losses."

Waxman, D-Calif., noted in his opening statement that the hearing was not about "illegality or even ethical breaches. It's a hearing to ... help us understand whether this situation is good for the companies, the shareholders and for America."

O'Neal -- who left Merrill Lynch with a $161 million retirement package -- was joined at the Waxman hearing by other CEOs who had been extremely well compensated by their floundering companies: Angelo R. Mozilo of Countrywide Financial Corporation -- who received more than $120 million in compensation and sales of stock as the company lost $1.6 billion in 2007 and its stock lost 80 percent of its value -- and Charles Prince of Citigroup -- who was awarded a $10 million bonus, $28 million in unvested stock options and $1.5 million in perks when he left the company.

It is congressional dissatisfaction with those kinds of pay packages that has led to talk about further curtailing exceptions to the $1 million pay cap.

A spokesman for Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, says Baucus "is reviewing proposals that would affect deferred compensation, as he has been since last January. He remains committed to working with his colleagues, including Sen. [Chuck] Grassley, on this issue."

Grassley, from Iowa, is the top Republican on the committee.

With regard to the new < IRS > policy, Seelig says companies now need to examine severance and retirement packages to make sure they don't simply pay out at target levels.

This raises a couple of possibilities of how companies will seek to amend existing agreements. For example, a plan that pays out at target for a termination one year into a three-year performance might make the executive wait until the actual results come in at the three-year mark before paying out.

Or the company could substitute a severance agreement that entitles an executive to a specific dollar amount if he or she leaves prior to the end of the performance period.

Section 162(m) of the < IRS > Code explains when companies can take more than a $1 million deduction for the pay of any of its top five executives, excepting the chief financial officer. That $1 million cap does not apply to qualified performance-based compensation.

Based on rulings the < IRS > issued in 1999 and 2006, companies could pay, and top executives could receive, a pro-rated share of a performance-based award even if they left the company before the performance period ended, and before it was clear those performance goals had been met, as long as the executive left the company as a result of being terminated without "cause" or if he or she voluntarily terminated his or her employment for "good reason."

In its revenue ruling issued on Feb. 21, the < IRS explained that an employee could leave for "good reason" or be terminated without "cause" simply because that employee missed interim performance targets. Therefore, he or she was not eligible for performance-based pay, nor could the company deduct that pay of more than $1 million.

Seelig says that although 162 (m) explicitly deals with the five highest-paid corporate employees (not including the CFO), companies typically look at pay packages for lower-ranking employees outside the top five.

That is because, if a company, for example, sets a three-year performance period for its top 10 executives, it won't be clear at the start of the period which of those 10 will be in the "top five" three years later.

Infrastructure, cost blunt E85 adoption

Automotive Engineering, March 2008

Alexander Karsner, an assistant secretary at the Department of Energy, was obviously ticked at what he perceives as the slow introduction of E85-fueled vehicles when he appeared before the Senate Energy Committee on February 7. Sen. Jeff Bingaman (D-N.M.) had called the hearing because of growing fears that the renewable fuels mandate included in last year’s energy bill is unworkable.

Both Bingaman and Sen. Pete Domenici (R-N.M.), the ranking Republican, indicated that the committee may write a “technical corrections” bill which would revise the renewable fuel provision in the Energy Independence and Security Act (EISA) of 2007, which President Bush signed on December 19. That provision mandated the use of 9 billion gallons of renewable fuel in U.S. autos by 2008 and 36 billion by 2022. That is quite an increase from the 2005 energy bill, which set a goal of 5.4 billion gallons in 2008. The EISA provision did not establish any numerical goals for the production of flexible fuel vehicles, which ostensibly will be needed to use the corn- and cellulose-based ethanol fuel that will be produced in large amounts. But there is certainly de facto political pressure on Detroit to step up its FFV production, and fast, a fact reflected in Karsner’s testimony.

But reaching 9 billion gallons in 2008 depends on a heck of a lot more than the appearance of new FFV models from Detroit. Numerous witnesses at the Bingaman hearings—none of them from the auto industry—testified that the near term ethanol production/use goals were probably unrealistic and that for the goals to be reached many things will have to fall into place, including a fueling infrastructure and certification by EPA of fuels somewhere between E10 and E85 for use in conventional engines, actions which have nothing to do with the production rate of E85 vehicles.

Karsner noted the infrastructure problems, the shortage of fueling stations and the difficulty of getting ethanol to the East Coast. But he seemed to come down particularly hard on the auto industry on a day after GM North America President Troy Clarke told the Chicago Auto Show that GM will have 11 ethanol-capable vehicles on the market this year, and 15 in 2009.

Karsner wasn’t impressed, apparently. Speaking to Bingaman and Domenici, he read from his prepared testimony and said, “Both the Secretary (Samuel Bodman) and I have been calling on automakers to make flex-fuel and hybrid vehicles ubiquitous across the fleet, for every make and model, for every manufacturer who services the U.S. market.” He then picked up his head from the paper he was reading and emphasized, departing from his prepared testimony, “They need to be made available not in the hundreds, not in the thousands, but in the millions,” implying that U.S. automakers are dragging their feet.

Going back to his prepared testimony, he read, “We do not see any technical reasons that at least the option of flex-fuel vehicles could not be offered to all consumers at a relatively low price.” And again, add-libbing, he added, “And in short order.”

Asked after the hearings whether Karsner is annoyed with U.S. auto manufacturers, Julie Ruggiero, an Energy Department spokeswoman, said that isn’t the case. But she said Karsner believes, “We need to move beyond prototypes and concept cars and we need to do it with a sense of urgency.”

However, there is a real question about whether consumers would buy, in the short term, more flex fuel vehicles than Detroit is producing. Charles Drevna, president of the National Petrochemical & Refiners Association, noted that FFVs get about 20-30 percent fewer miles per gallon when fueled with E85. And if that were not bad enough—especially given the new CAFE mandates the industry faces—he pointed out that a gallon of E85 can cost upwards of $.80 a gallon more than a gallon of E10.

If mileage and price don’t discourage consumers, lack of fuel pumps certainly will. There are only 1,348 fueling stations in the U.S. offering E85.There is another 1,350 terminals where ethanol can potentially be blended.

Maybe a solution to those problems would justify more aggressive production of FFVs. So would the Environmental Protection Agency’s (EPA) certification of blends between E10-E85 in conventional auto engines. The DOE and the American Coalition for Ethanol co-sponsored an Optimal Ethanol Blend Level Investigation last year, and released the results in December 2007. “The investigation revealed unprecedented data that E20 and E30 blends can provide better fuel economy than regular gasoline in non-flex fuel vehicles with fewer harmful tailpipe emissions,” said Brian Jennings, executive vice president of the ACE.

FDA Bulks Up in 2008: Congress Injects Political Steroids; More Muscle for Drug Safety

Pharmacy & Therapeutics, December 2007

Avandia, the type-2 diabetes drug manufactured by Glaxo-SmithKline, is the most recent poster child for drug safety hysteria. A meta-analysis published last May by a noted cardiologist
fueled concern and headlines over possible cardiovascular side effects from the drug (rosiglitazone maleate), forcing the FDA to revisit Avandia’s labeling in the absence of any new, convincing clinical trials. The result: GSK’s agreement in mid-November to expand Avandia’s existing black-box warning with confusing language saying “a risk of an increase in myocardial
ischemic events was not confirmed or excluded in three long-term clinical trials.”

It is that kind of decision-making in the absence of facts that the Food and Drug Administration Amendments Act (FDAAA) of 2007 aims to help eliminate. The bill is a political steroid shot in the arm to the beleaguered FDA, long considered a 98-lb. weakling. As a result, its Center
for Drug Evaluation and Research (CDER) will flex new muscles in 2008. But don’t expect CDER to become Hulk Hogan overnight, if ever. In many ways, despite its size and provisions, the legislation is hardly radical. “It is not a rewrite of authority; [nor] is it a huge addition the
way the 1962 amendments were,” explains Bill Hubbard, who left the FDA in 2005 as Associate Commissioner. He now serves as senior advisor to the Coalition for a Stronger FDA.
“It is a tweaking, but a big tweaking,” he says.

The bill gives the FDA authority to impose restrictions on the distribution of new drugs that have significant benefits—like Avandia—but whose safety hasn’t quite been buttoned down at the time of approval (again, like Avandia). Those up-front agreements are called Risk Evaluation and Mitigation Strategies (REMS). The agency will be able to force companies to perform postapproval clinical trials to pin down unresolved safety problems. If those trials turn up troubling information, the FDA will be able to act quickly to force a label change. None of this had happened with Avandia.

Concerns about Avandia hit the headlines last spring when Steven Nissen, M.D., chairman of the Department of Cardiovascular Medicine at Cleveland Clinic and immediate past president
of the American College of Cardiology, dropped a bomb. The meta-analysis he published in the New England Journal of Medicine in May 2007 combined the results of 42 previously completed small studies to show that Avandia posed a 43% increased incidence of heart attacks. At the FDA’s insistence, GSK had added additional language about heart attacks to Avandia’s
warning label 15 months earlier. The Nissen meta-analysis, however, implied that the company
was soft-pedaling the risk—even though he conceded thathis meta-analysis was “less convincing” than a clinical trial, even though the New England Journal of Medicine itself had seconded the fuzziness of the doctor’s analysis in an accompanying editorial, and even though FDA Commissioner Andrew von Eschenbach, M.D., had noted “serious concerns.” He said that
patients taking Avandia and their health care providers were confused about the drug’s safety because of media reports surrounding the journal article.

Confusion and hysteria are what Congress hopes to eliminate in 2008 and beyond with the provisions of the FDAAA. A more accurate title for the bill might have been “The No More Vioxx, Ketek, Paxil, Avandia, et al., Act of 2007.” The legislation weighs in at more than 400 pages of technical verbiage and contains at least 200 provisions. Many of these provisions have deadlines for implementation and are identified within the bill itself. Although the bill’s drug safety provisions were the subject of numerous headline-producing congressional battles, they were actually an add-on to legislation reauthorizing the FDA to collect user fees from drug companies for the five years starting in fiscal year 2008, which began on October 1, 2007. Those user fees, althoug h controversial, are a critical component of the CDER’s budget.

In fiscal year 2008, according to Alan Goldhammer, Deputy Vice President of Regulatory Affairs of Pharmaceutical Research and Manufacturers of America (PhRMA), companies will pay a total of $459 million in user fees. These fees will accoun t for 62% of the CDER’s budget. The $459 million is an increase of nearly 50% over the $305 million the companies paid in 2007, and it will increase in each of the next four years over the five-year term of the reauthorization. Most of that money has been, and will continue to be, used for the review of new drugs. However, the bill sets aside $54 million for drug safety activities in fiscal year 2008; that figure will also increase steadily over the next five years, and much of the $54 million will be used to hire
staff in the area of postmarketing surveillance. By the end of 2008, the CDER’s staff will have grown by about 500 employees, a 20% increase. Congress expects to see a bigger, stronger, better-staffed CDER win more wrestling matches with pharmaceutical companies over drug safety, but the companies aren’t so sure that a larger CDER will necessarily mean fewer drug safety headlines.

Dolly A. Judge, Pfizer Vice President of Federal Government Relations, says: I think more interactions are better for drug safety management purposes. But I know the optics of the industry and agency meeting more frequently is not necessarily better politically. Senator Grassley and others have been critical of the relationship between industry and FDA, so more meetings could further enhance a false perception that the relationship is too close or somehow it is unholy, so to speak.

Certainly, the FDA has met with drug company representatives in the past, both before and after drug approvals, but the agency’s leverage has been limited. In the past, for example, the CDER’s negotiations with a company like GSK about adding or upgrading a warning about heart attacks to a drug like Avandia could go on for years, as happened with Merck and its pain relieve r rofecoxib(Vioxx), for example. It has been happening, apparently, with Avandia in the wake of the publicity around Dr. Nissen’s article and an FDA advisory com mittee meeting last summer.
In the past, the only power the FDA had in ordering a label change, after a drug went on the market, was to threaten to force a company to take the drug off the market. The FDA rarely used that authority, because such an action might have hurt patients already taking the drug. The FDAAA sets up a quicker pathway for making label changes. With the new step, the company and the FDA would move quickly through a process of proposals and counterproposals.
If there is no agreement, there is a time limit for ending the company’s appeals and
forcing it to make changes dictated by the FDA. Normally, these negotiations would last no longer than 120 days and might be substantially shorter. Why have these labeling discussions
taken so long? Part of the reason is the absence of clinical trial data; this lack has fostered
much uncertainty. Again, when the FDA approved Avandia in 1999, the drug was considered a real benefit for patients with type-2 diabetes. At that time, the FDA knew that adverse reactions might be a problem, but it had little leverage to force GSK to conduct a major postmarketing clinical trial directed at pinning down the risk of a heart attack. Because of the cost of clinical trials, GSK had little incentive to undertake such a trial on its own. Subsequently, many small studies were performed on Avandia, but heart attack was not an endpoint in any of them. This series of events led to Dr. Nissen’s hysteria-promoting article in May 2007.

Under the FDAAA, the FDA can force a study or a clinical trial in conjunction with a new drug approval if the scientific data are deemed appropriate. That authority has been absent in the past. A study can be ordered (1) to assess a known serious risk, (2) to evaluate signals of serious risks, and (3) to identify an unexpected serious risk when the available data indicate the potential for such a risk. If any of these three objectives can be achieved by the active
postmarketing risk-identification and analysis system, which this bill charges the FDA to set up, the agency cannot order a study. A clinical trial can be mandated only when a study cannot accomplis h the three objectives. The pharmaceutical company sets the timetable for completing the study or trial. If those deadlines are missed, the FDA can levy civil penalties.

The FDAAA allows the FDA to fine a company $250,000 for missing a deadline by 30 days; that fine is doubled every 30 days until it reaches $1 million. The FDA has this same authority to impose a penalty if a company fails to make post-approval label changes after the FDA mandates them. The FDA’s authority to order post-approval studies and clinicaltrials is constrained somewhat by the need to consider whether it can obtain the information it needs from the new active active postmarketing risk-identification network. With this new
network, the FDA would link up with databases currently established by the Department of Veterans Affairs, the Centers for Medicare and Medicaid Services, and by private health insurers. The new network will supersede MedWatch (the current system for reporting adverse reactions); however, this system is considered almost useless. MedWatch depends on reports from health care providers and individuals. Unfortunately, duplicate reports are often filed. Moreover, the FDA must then go back and interview those who sent in reports. All of this takes an enormous amount of time. Even after this step, the agency has no “denominator” (hard facts on how many other patient s had the same adverse reaction, much less how many people are taking the drug).

With the new postmarketing database, those data will no longer be available from MedWatch; the FDA will be able to go into the database and look for trends (e.g., cardiovascular
events tied to a particular drug). Setting this network up is going to take time, though. The FDA will have two years to develop the data sources. By July 1, 2010, at least 25 million patients must be in the database; by 2012, 100 million must be included. On its own, the FDA had already awarded contracts in this area. The new user fees for drug safety, flowing into the CDER budget starting in fiscal year 2008, will allow the FDA to accelerate its efforts to meet the
timelines in the FDAAA. Although FDA officials claim that they will be able to meet those deadlines, this new network might cost considerably more than what the FDA will have in user fees to pay for it.

Given the failure of Congress to appropriate adequate funds for drug safety, no one expects future FDA appropriations to add congressional money to the user fees that will be available for
the database. That is why the agency hopes to also supplement user fees with funding provided by the Reagan–Udall Foundation, also being established by the FDAAA. The fund has a
much broader purpose, however. It is a private foundation, modeled on the ones already used by the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health
(NIH). The fund will raise its own operating budget. That money will be spent on collaborative research in which drug companies, academic centers, and others join together for research that
would be dispersed broadly and whose results generally would not be patented. The kinds of research projects to be undertaken would be those on the FDA’s Critical Path Initiative (CPI) list.

The FDA established the CPI in March 2004. The CPI list includes 76 projects, but the FDA has funded only half a dozen or so. These projects cover biomarkers, animal models, inter-individual
variability in drug response, data analysis technology and methodology in drug development, and improvements in designing and conducting clinical trials. Some are concerned that because the Reagan–Udall Foundation will depend on private funding and because most (if not all)
of that funding will come from the drug companies, it will serve the interest of drug companies, even though its 14-person board of directors will have representatives from widely diverse
groups. Only four directors will be from the pharmaceutical, device , food, cosmetic, and biotechnology industries.

Steve Walker, co-founder of Abigail Alliance, a patient advocacygroup, says,
“The Reagan–Udall Foundation is the only provision of the bill with real potential to improve the FDA, but there is a real chance it won’t accomplish that goal.” He argues that the foundation has no authority to impose change on the FDA. It can fund only research, the results of
which the FDA can choose to accept or reject. “The FDA is a profoundly change-resistant agency and will likely reject or weaken any recommendations for real change from the institute,” he contends.

The Republican Senate staffer who worked on the FDAAA says that some of the concerns raised about the foundation are “misconstrued,” but she does acknowledge that the legislation allows drug companies to make “directed” donations based on bylaws to be developed by the board of directors; some of the research would be patentable, again based on board policies.

Just as there are skeptics of the Reagan–Udall Foundation, however, some are more optimistic. Mary Richards, Deputy Chief Executive Officer of the Parkinson’s Action Network (PAN), says that the development of a biomarker for Parkinson’s disease would be of “huge, huge importance” to the Parkinson’s community. It might not only hasten development of a drug that would be effective in the later stages of the disease—a drug that does not exist today—but might also allow for better diagnosis. Although this is the type of research we expect the foundation
to fund, two questions remain: • Can the foundation’s board of directors ensure that money
will come in from multiple sources? • Will the money be applied on the basis of strategic public
health needs? Ms. Richards states: “I think there will be a lot of scrutiny around
that.”

Patients with Parkinson’s disease and many other conditions are hopeful about another provision in the FDAAA that would require drug companies to post more complete information
about a clinical trial in progress on the NIH database (www. clinicaltrials.gov). Right now, that Web site has only limited information posted by the sponsor when the trial gets under way before the drug is approved. The FDAAA substantially increases that early information; mandates new search features for users; and, perhaps most importantly—and most controversially—forces companies to post, for the first time, the results of Stage II, III, and IV clinical trials after a drug is approved. The post-approval information must also include links to FDA reviews of the clinical trials and to medical journal articles in which the trials are discussed. This must be accomplished within 90 days of the FDA’s approval. The bill allows the FDA
to levy those $250,000 and $1 million civil penalties against recalcitrant companies.

The House bill had included a provision forcing companies to submit summaries of their clinical trials in “layman language.” PhRMA fought to have this provision kicked out of the bill because
of concerns it would expose drug companies to liability for making promotional claims and because it felt clinical trial results were useful only for medical professionals. Eventually, Congress eliminated the lay language provision. Instead, House and Senate members agreed to language requiring the FDA to finish making its rules in three years. They also debated
whether to require a summary of the clinical trial and its results, written in nontechnical, understandable language for patients , “if the Secretary determines that such types of summary
can be included without being misleading or promotional.”

Even patient activists have disagreed about whether it is good to add clinical trial results to the www.clinicaltrials.gov Web site. According to Mary Richards of PAN, the detailed additional clinical trial data that will become available will allow Parkinson’s patients to make better
decisions about new therapies. Many disease communities, including those involving
Parkinson’s disease, are experiencing low participation rates in new trials. She explains:
By providing greater data transparency and access to results information, we believe that will
enhance awareness and understanding of trials as well as secure greater trust in the clinical trial process. . . .

Ultimately, adequate enrollment in trials is essential for bringing newdrugs to the market, and this provision may have a positive impact on the current participation issues. However, Steve Walker believes that tossing huge masses of data from clinical trials into the public domain will give the Steve Nissens of the world more fodder for creating fiascos. He says:
I asked Congress to go back to the drawing board on posting clinical trial data and figure out how to make it available in a manner that would effectively limit irresponsible snipers from doing statistical drive-by hits on the integrity of our drug approval system. Obviously,
they didn’t do that, and I think that was a big mistake.

The FDAAA will give the FDA more money and authority in 2008 and beyond, but it doesn’t do everything that many inside and outside of Congress had hoped for. The bill gives the CDER
statutory authority to require REMS for the first time; however, in the past, the agency has demanded that drug companies produce Risk Minimization Action Plans (RiskMAPs) for some
drugs for which questions about safety rivaled their benefits. Those RiskMAPs required the companies to provide medication guides for the drugs, for example, as REMS will do. Many in
Congress wanted the FDA to require REMS for all drugs. The authority in the FDAAA pertains only to drugs for which REMS are needed to ensure that the drug’s benefits outweigh the
risks. Neither does the bill give the FDA new authority to restrict the advertising of new drugs, a power that many outside groups and many Democrats in Congress had favored. Of course, the
passage of any significant new legislation is subject to all kinds of compromises. In the case of the FDAAA, the finished product clearly improves the FDA’s bargaining position with drug
companies on matters of safety. In the end, having additionalleverage is one thing; using it effectively is another. 

Controversy Flares over LNG Quality Standards

Pipeline & Gas Journal, December 2007

Spectra Energy’s Algonquin Gas Transmission, LLC is getting hit from all sides over the quality of the liquid natural gas (LNG) it expects to bring into the U.S. via the Northeast Gateway project in Massachusetts Bay. Greg McBride, vice president, rates and economic analysis, Spectra Energy, says, “As you would expect, the pipelines for the most part are in the middle in this. The LNG suppliers are on one side; they want gas quality specifications that are fairly broad. Customers want more narrow specs.”

The debate has also set LNG suppliers against local distribution companies, both of whom have engaged in some creative name calling. For example, Consolidated Edison, a major northeast distributor, sniffed that Statoil, the Norwegian company which apparently won’t even drop off LNG at Northeast, is taking a “cavalier” approach toward Con Ed’s peak-shaving facility, which Con Ed sniffs “is not a bakery.” Dominion Transmission Inc., another LNG supplier like Statoil and essentially its ally, says Algonquin is following the “Goldilocks Theory” arguing that because some say its proposed nitrogen limit is too high and others say it is too low it must be just right.

Rhetoric is definitely flowing fast and deep as FERC decides whether it should reconsider the gas quality standards it has already approved for Algonquin which has completed 13 miles of pipeline to connect its existing offshore terminal to a fleet of specially designed Energy Bridge™ Regasification Vessels (EBRVs) owned by Excelerate Energy L.L.C. The FERC’s reconsideration of such things as the Wobbe range, nitrogen level and hydrocarbon content of the LNG Algonquin expects to start selling in late November underlines what is likely to be the precedent-setting nature of FERC’s final decisions as new LNG delivery points coming on board, such as the Suez Neptune facility which will compete with Northeast in Boston, the Repsol Energy North America Corporation facility in Canada which will start delivering LNG through Spectra’s Maritimes to the U.S. in November 2008 and Weaver’s Cove, project slated for Fall River, Massachusetts.

Algonquin, the major natural gas supplier to the northeast U.S. along with Iroquis, already brings in about 7-8 percent of its 1.6 bcf/day of throughput from the Distrigas facility in Boston. Distrigas gets its LNG from Trinidad; there have been no issues about the quality of that gas. However, Algonquin could take as much as 800,000 mmcf/day from the Northeast Gateway project, which is suppose to start operating in late November.

Algonquin had tried for the past two years to hammer out a consensus agreement on gas standards with local distributors such as KeySpan, the largest firm customer on Algonquin, Con Ed and local New England LDCs. Owners of electric generating capacity such as FPL and gas suppliers such as BP have been involved in the discussions, too. But players in each of those three categories have big problems with the Algonguin gas standards the FERC has endorsed. The FERC is now taking a second look at those standards.

Some of the local distributors in New England and Con Ed are unhappy with the 2.5 percent nitrogen cap Algonquin has proposed. They want a 2 percent cap instead. Distributors store liquefied LNG in peak-shaving facilities during the summer for use during the winter. Too much nitrogen in the LNG leads to frozen liquid. Potential suppliers such as Statoil and BP want a higher nitrogen cap at around 4 percent because they often add nitrogen to the gas they bring in to the U.S. in order to drive down high Wobbe numbers. Wobbe is a measure of the interchangeability associated with different qualities of natural gas, and is expressed in a numerical range. Gas within a particular range will burn comparability.

The issues are so complex that some key parties take Algonguin’s side on one issue, but oppose it on another. So, for instance, KeySpan supports the 2.5 percent nitrogen cap. However, KeySpan is opposing Algonquin on a second issue: it wants a limit on hydrocarbon constituents for ethanes and heavier hydrocarbons of 10 percent. Algonquin, which has proposed a 4 percent level, calls a 10 percent level “unacceptable,” arguing it would cut off an additional six sources of LNG supply.

The New England LDCs are siding with KeySpan on the hydrocarbon constituent issues but part company on nitrogen, supporting a 2 percent nitrogen level; they cite Algonquin’s historical data which shows that nitrogen levels on the Algonquin

system are between 0.5 percent and 1.75 percent. Statoil and BP argue that even the 2.5 percent nitrogen level will cut off important supplies. It says LNG from places such as Qatar, Algeria and Nigeria will need nitrogen injection to reach the Wobbe numbers specified by Algonquin. Statoil wants a 4.0 percent nitrogen cap.

The Wobbe numbers themselves are a separate issue in dispute. The Wobbe number range comes into play for the utilities with dry low-Nox electric generators. Algonquin has proposed 1314-1400. Con Ed says while Algonguin’s range is reasonable, and may well be the right range long term, but in the short-term, while it is retooling its peak shaving facility in Astoria, Queens with what is called “auto-tuning” equipment, Con Ed wants an interim Wobbe range of 1314 and 1385. FPL Energy says 1314 to 1389 while Calpine supports 1314 and 1373.

Auto Manufacturing Fund a part of Senate Greenhouse Gas Bill

Automotive Engineering, December 2007

Higher fuel efficiency standards for autos are rearing their political head in a bi-partisan greenhouse gas bill heading for the Senate floor. The global warming bill which was likely to pass the Senate Environment and Public Works Committee in November includes a $232 billion “manufacturing incentive” fund for the auto industry which companies will only be able to access if their vehicle lineup averages 35 miles per gallon starting in 2012, the year those funds would start to flow. The money can be used for, among other things, engineering integration.

This CAFE provision in the America's Climate Security Act is different, of course, than the one the Senate passed as part of its omnibus energy bill. There the Senate mandated that fleets average 35 miles per gallon by 2020, no ifs, ands or buts. It was a mandate. The House didn’t have a CAFE increase in its energy bill, and it looks like the Senate and House are having trouble coming to an agreement on a compromise energy bill. So the increased CAFE standard in the Senate bill may never see the light of day.

The 35 mpg CAFE standard in the greenhouse gas bill—sponsored by Sens. Joe Lieberman (D-Conn.) and John Warner (R-Va)--only comes into play if a car company wants some of the manufacturing incentive money. So it is not a formal mandate. But what company won’t want to dip into the $232 billion? So the 35 mpg fleet-wide threshold is a de facto requirement, and kicks in four years earlier than the one in the Senate energy bill.

The Lieberman/Warner bill’s main objective is to reduce total U.S. greenhouse-gas emissions from electric power, transportation (large fleets, not consumer autos) and manufacturing (auto factories included) sources by as much as 19% below the 2005 level in 2020 and by as much as 63% below the 2005 level in 2050. Lieberman and Sen. John McCain (R-Ariz.) sponsored a very similar bill in the past which was rejected twice by the Senate. What is different this time around is the breadth of Republican support, for one thing. Of the seven co-sponsors of Lieberman/Warner, four voted against one or both of the earlier iterations. Now they are supporters.

In addition, greenhouse gas reductions have floated to the top of the presidential agenda, giving them added heat. On November 5, Sen. Hillary Clinton (D-N.Y.) gave a speech in Iowa in which she proposed a number of initiatives including $20 billion of “Green Vehicle Bonds” to help U.S. automakers retool their plants to meet greenhouse gas caps.

The Lieberman/Warner bill allows companies in all industries, including the electric utilities, who are a major target of the bill, to buy emission credits in an auction which allow them to emit more carbon than their industry “cap” would otherwise allow. The money from the auction goes to a Climate Change Credit Corporation. One of the things the auction proceeds will go for is a new advanced technology vehicles manufacturing incentive program. The Corporation would provide money to automobile manufacturers and component suppliers to pay up to 30 percent of the cost of reequipping or expanding an existing manufacturing facility to produce and/or engineer qualifying vehicles and qualifying components. In the original version of the Lieberman/Warner bill, vehicles eligible for funding were defined as those meeting Tier II Bin 5 emission standards, any new emission standard for fine particulate matter and at least 125 percent of the average base year combined fuel economy, calculated on an energy-equivalent basis, for vehicles of a substantially similar footprint.

When the bill came up for a vote in subcommittee, Sen. Bernie Sanders (D-Vt) offered an amendment changing the last requirement of the three to one where a company’s entire fleet would have to meet a standard of 35 miles per gallon. That amendment passed. Call that amendment CAFE 2, a more draconian proposal, given the start date, than CAFE 1 in the Senate energy bill. The auto industry hasn’t reacted to the Sanders’ amendment yet. But it will.

Wrangling over Medicare Incentives for ePrescribing

Digital Healthcare & Productivity, December 11, 2007

By Stephen Barlas

December 11, 2007 | The last-minute Medicare fee bill expected to be passed by Congress before it leaves Washington in mid-December may include a major incentive for physicians to adopt ePrescribing.

The Bush administration has proposed a 10 percent reduction in Medicare fees for physicians in calendar 2008, a serious reduction which would be slightly ameliorated for physicians who write electronic prescriptions. Congress is likely to pass legislation, as it has in past Congresses, eliminating that reduction. That bill may well include an amendment introduced on December 5 by House and Senate Democrats and Republicans providing a permanent Medicare bonus of 1 percent for every electronic prescription a physician writes.

It is not clear whether those bonuses in 2008 would amount to more than the $1.35 billion physicians will have access to in 2008 under the initiative which requires physicians to adhere to the terms of Medicare’s Physician Quality Reporting Initiative (PQRI). However, the PQRI is a temporary, one-year program. The Medicare Electronic Medication and Safety Protection (E-MEDS) Act of 2007 introduced on December 5 by Sens. John Kerry (D-Mass.) and John Ensign (R-Nev.) and Reps. Allyson Schwartz (D-Penn.) and Jon Porter (R-Nev.) would provide permanent Medicare funding for 1 percent bonuses to physicians for every electronic prescription they write.

The bill also contains a huge sledgehammer: physicians who are not writing electronic prescriptions as of January 2011 would see their Medicare payments drop 10 percent automatically. The American Medical Association, which has been working hard to avert President Bush’s proposed 10 percent negative update in 2008, is unhappy with the Kerry/Ensign bill for two reasons.

“The American Medical Association is deeply committed to the adoption of ePrescribing, but steps must be taken to implement standards and address other barriers before this technology can fully benefit the health care system,” says Edward Langston, AMA Board Chair. “We look forward to working with the Senate and the House to encourage adoption of ePrescribing without placing an undue burden on physicians.” The AMA also doesn’t like the bill’s provision for a 10 percent cut in the Medicare fees in 2011.

The E-MEDS Act is being considered as an amendment to the larger Medicare fee bill because use of ePrescribing is expected to save Medicare substantial money based on savings from adverse drug reactions prevented, increased formulary compliance, and increased use of generic drugs. Those savings would balance the revenue loss from paying physicians 10 percent more than expected, because of cancellation of the negative update in 2008.

The Congressional Budget Office (CBO) has not made an estimate yet of the Kerry/Ensign bill financial impact on Medicare. But a Senate staffer says that CBO will show Medicare making a net gain from the ePrescribing incentive.

The Senate staffer says that Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, of which Kerry is a member, will probably include some version of the Kerry/Ensign bill in the end-of-year Medicare fee legislation Baucus is currently negotiating with Rep. Pete Stark (D-Calif.). Stark is chairman of the House Ways & Means health subcommittee, which makes Medicare payment policy.

Mike Leavitt, the secretary of health and human services (HHS), the department which includes the CMS, said on December 3 in a letter to the Senate Finance Committee, “In my view, any new bill should require physicians to implement health information technology that meets department standards in order to be eligible for higher payments from Medicare. Such a requirement would accelerate adoption of this technology considerably, and help to drive improvements in health care quality as well as reductions in medical costs and errors.”

U.S. Makes Progress in Preparing for Pandemic Influenza...But Drug Distribution and Effectivess are Debatable

P&T Journal, November 2007

The avian flu scare of a few years ago
has long since disappeared from
the headlines in the U.S., but its
legacy is still being felt in efforts at local,
state, and federal levels to put the country
on secure footing in case of a pandemic
influenza epidemic. No one is complacent,
especially since the deadly H5N1
strain of bird flu is apparently alive and
well in the Far East. China closed off one
village near Hong Kong in October after
10,000 ducks in the village died.
A question persists: How much prog -
ress have the Department of Homeland
Security (DHS) and the Department of
Health and Human Services (DHHS)
made in implementing an emergency
strategy and helping states, cities, and
counties develop an emergency response
capability? Not surprisingly, the answer is
mixed, according to hearings held in the
Senate Homeland Security and Governmental
Affairs Committee in October.
Homeland Security issued a plan in
March 2006, and the DHHS has been
busy implementing its overwhelming
share of the action items; at last count,
200 of them had been completed. Worried
about federal planning, Congress created
the position of Assistant Secretary for
Preparedness and Response in the Pandemic
and All-Hazards Preparedness Act
in December 2006, now filled by Rear Admiral
William Craig Vanderwagen, MD.
However, the federal lines of authority,
with respect to a pandemic influenza
emergency, are still unclear. Homeland
Security is responsible for the National
Response Plan (NRP), which is supposed
to be used as guidance at the local level for
response to all emergencies, whether it be
a Hurricane Katrina, a nuclear accident, or
an influenza outbreak. The department is revising and renaming the NRP, to be
called the National Response Framework.
The first draft of this plan, published this
past spring, was heavily panned.
In October, Yvonne Madlock, a Tennessee
public health official, stated:1
… we share the frustration of many local
and state officials about their lack of representation
in the revision process for the
National Response Plan, which will govern
response to pandemic influenza.
That lack of local input is evident in confusing
federal guidelines. In the same
presentation, she explained:1
For instance, recently released HHS/CDC
guidance for state and local preparedness
lists eight required critical tasks to prepare
for isolation and quarantine and [D]HHS is
working on performance metrics. DHS has
a published a Target Capabilities List for
Isolation and Quarantine that includes over
60 critical tasks, with associated performance
measures. The result is a mixed message
to local planners.
Beyond these kinds of guidance conflicts,
there are operational uncertainties
as well, foremost among them whether
localities will have enough of the right
anti viral agents on hand if an emergency
strikes and whether they will be able to
get them quickly enough to people who
need them.
Paul K. Halverson, Director and State
Health Officer of the Arkansas Department
of Health, said that even when a
state purchases antiviral drugs and stockpiles
them, it is still unknown whether
they will work. Moreover, millions of dollars
have been spent to purchase those
drugs, but the drugs cannot be used in
non-pandemic situations. If the drugs
have not been utilized at the end of five
years—at the end of their shelf life—they
are useless.
“There is no alternative offered to us
for rotation of this stockpile,” Mr. Halverson
added.The good news is that an adequate
stockpile (adequate treatment for 25% of
the U.S. population) of two neuram in -
idase inhibitors is nearly in place: osel -
tamivir phosphate (Tamiflu, Roche) and
zana mivir (Relenza, GlaxoSmithKline).
The federal stockpile provides 37.5 million
treatment courses, and the government
expects to purchase the remaining
12.5 million courses soon, after Congress
forks over the money, to achieve the goal
of 50 million—the 25%—by July 2008.
The states have bought about half of their
goal of 30 million courses of treatment,
and the DHHS is subsidizing those purchases
to the tune of $170 million.
Whether Tamiflu and Relenza will
work remains to be seen. Of course, it is
always possible that clinical resistance
to those two drugs will develop—hence
the efforts by the DHHS to develop a
third drug, peramivir, which is also a neuraminidase
inhibitor. Peramivir is in midstage
clinical evaluation.
“We need new antiviral candidates,
should the viruses become resistant to
the currently available antivirals,” admits
Dr. Vanderwagen.
Christopher Pope, Director of Home -
land Security and Emergency Management
in New Hampshire, offered the
clearest picture of our nation’s preparedness
for a pandemic influenza outbreak:2
Local governments, states, and the private
sector have made great strides in their preparedness
and response capabilities in public
health crisis. However, we are still not at
the acceptable level of readiness that our
citize ns expect and deserve. States and local
governments continue to need funding and
leadership from the federal government as
we continue to build these capabilities.

FERC Ignores Pipelines, Proceeds With Rule to Make Challenges Easier

Pipeline & Gas Journal, November 2007

The Federal Energy Regulatory Commission (FERC) ignored
pleas from interstate pipelines and proceeded with a rulemaking
which, if finalized, will require transmission companies to report
more financial data to the commission on Form 2, which shippers
use as the basis of complaints about unfair pipeline rates.
The shipper community has argued that Form 2 information is
insufficient and now FERC has agreed with them.
The commissioners believe that the lack of data is preventing
some shippers from challenging pipeline rates, some of which have
not been reviewed in a decade. INGAA has pushed back, arguing
in its comments to a February notice of inquiry that shippers have
plenty of information available elsewhere outside Form 2. FERC
did not buy that argument. In its proposed rule issued in September,
FERC said, “We do not believe that users should have to piece
together and interpret from myriad sources information that is readily
available to the pipeline and can, without a substantial increase
in burden, be incorporated into Forms 2 and 2-A. Also, much of the
information cited by INGAA is not coterminous with Form 2 data
and cannot be used for purposes of comparison.”
The proposed rule would require, among other things, natural
gas companies to (1) submit additional revenue information,
including reporting revenue from shipper-supplied gas, (2) identify
the costs associated with affiliate transactions, and (3) provide
additional information on incremental facilities and discounted
and negotiated rates. The changes would be effective Jan. 1, 2008.
Accordingly, companies subject to the new requirements would
file their new Forms 2 and 2-A in 2009 for calendar year 2008.
“In my view, it is essential that public information suffice as
a foundation for a section 5 complaint,” said FERC Chairman
Joseph Kelliher on Sept. 20 in announcing the proposed rule.
However, FERC did not go nearly as far as some shippers
wanted it to go. The Commission rejected a request that
pipelines not using the rate of return on equity approved in the
pipeline’s last rate case provide the calculation and derivation
of the return used at present, as well as additional information
on capital structure used for ratemaking purposes.
But that may have been the only silver lining in the proposal
as far as the interstate pipelines are concerned. Elsewhere in the
proposed rule, FERC rubbed additional salt into their wounds
by deciding to open up a separate rulemaking designed to
explore a separate but related issue: the adequacy of information
reported in the Form No. 2 concerning gas retained, used
for compression, and lost and unaccounted-for.
Pipeline companies now have two options for recovering
these costs. The first is to establish a fixed-fuel retention percentage
in a general section 4 rate case and leave that percentage
unchanged until the pipeline files its next general section 4
rate case. The second allows the pipeline to include in its tariff
a mechanism permitting periodic changes in its fuel retention
percentage outside of a general section 4 rate case.
Pipeline customers have expressed concerns that in-kind gas
retained by pipelines for fuel and unaccounted-for gas requirements
is excessive and provides pipelines with significant profits. The
Commission’s review of information filed by pipelines in their 2005
Form 2 filings indicates that major pipelines appear to have retained
or carried over in their accounts a net sum of over 97 Bcf in fuel
beyond what was consumed, lost, or unaccounted-for. At average
2005 prices, this represents over $711 million in value.
The FERC seems to think that option one — the fixed fuel percentage
which accounted for the lion’s share of that $711 million
— is the potential problem. Moreover, it implied that pipelines are
claiming those excessive fuel costs when they could be reducing
their use of fuel by building new or revamping existing compressor
stations by taking actions such as minimizing pressure drops
and changing motors. The Commission floated the idea that if it
were to adopt incentive provisions to encourage pipelines to reduce
fuel use and lost and unaccounted-for gas, one option would be a mechanism for sharing between the pipeline and its shippers any
fuel cost recoveries and /or under-recoveries.

Microsoft Offers Healthy Solution: Introduces HealthVault Software and Services Platform

Econtentmag.com, October 09, 2007

By Stephen Barlas While much its content can be found elsewhere, the combination of information, tools, and technological enhancements make Microsoft's launch of its free online consumer healthcare management platform, HealthVault, last Thursday one to watch. Almost all of the 40 device plug-in and software applications the company is starting with are available individually and independently from its vendor partners. Yet through the combination, HealthVault offers convenience, the possibility of application customization, the ability to import and store personal data, and a search capability that may not be available anywhere else. he key to HealthVault's initial appeal is its all-in-one-place access to a range of applications plus the ability for some of those applications to "play together" in a way has not previously been possible. For example, a user can download his or her heart rate from a monitor and then send those statistics to a personal trainer who can immediately adjust the user's exercise workout. "Customization is all online and completely integrated within both platforms," states Teri Sundh, CEO & co-founder of Podfitness, Inc., one of HealthVault's initial partners. Microsoft believes that its search engine will give the product an edge over existing solutions. Sean Nolan, chief software architect of the Microsoft Health Solutions Group, says HealthVault uses the technology from a company called MedStory, which Microsoft purchased earlier this year, to mine the very detailed minutia in peer-reviewed medical journals, simplify the material, and then present the user with much more relevant, narrow search results based on very specific medications and medical procedures. As a health data repository, another thing that sets HealthVault apart from existing records storage software solutions is its security. Deborah Peel, M.D., the founder of the Patient Private Rights Foundation, called the Microsoft security for HealthVault "Fort Knox state of the art." She added, "This is the first example of a technology product actually guaranteeing patients will be able to protect their information." While much of its content and even its tools are available elsewhere, the company believes that HealthVault will be greater than the sum of its parts. The American Heart Association, for example, developed its Blood Pressure Management Center after being solicited by Microsoft. The center is also available through the AHA web site, but Dan Jones, M.D., president of the AHA, says he believes HealthVault gives him a better chance to reach the 20% of Americans with high blood pressure who do not have it controlled. "It's not unlike the popularity of building applications at Facebook based on the personal information stored there, but with MSFT HealthVault, it's for a much higher purpose, improving the health of our loved ones," explains Enoch Choi, M.D., a Palo Alto urgent care doctor, and product manager at MedHelp.org, a HealthVault partner. Already there have been announcements of applications to come. Healthphone Solutions will launch a tool in early 2008 that will allow users to send "stop smoking" messages to their cell phones throughout the day. If the HealthVault's offering is really an evolutionary advance, as suggested by Peter Neupert, corporate vice president of the Health Solutions Group at Microsoft, this may be driven by its data repository, which provides a number of personal health management software packages a user can download. The user can then give access to that data to his personal physician, or an emergency room doctor, or anyone else. HealthVault’s shortcoming in this regard, as is the case with the other software packages, is that one cannot electronically import into the data repository information from one's physician, or from, for example, the hospital discharge summary that one might receive after having an operation. With the launch of HealthVault, Microsoft has what it calls a simple focus "to empower people to lead healthy lives." While this objective is far from an easy one--as are the privacy issues projects like these must contend with--the launch of HealthVault does provide a way for people to collect their health information in a digital repository, along with a platform on which companies across the health industry can develop compatible tools and services to enhance our search for good health.