Energy Regulation and Litigation

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1 Skadden Our highly ranked Group combines a client-focused approach with experience in cutting-edge issues to help clients solve their complex legal problems. We are equally committed to keeping our clients abreast of developments in each of our areas of practice. The group holds an annual Enforcement and Compliance Conference; authors timely articles, advisories and industry reports; and moderates roundtable discussions on hot-button issues in this developing arena. Skadden is ranked consistently among the leading energy regulatory and litigation practices by Chambers USA and Legal 500. Standout group of FERC lawyers, which maintains a fine reputation for its enforcement defense work. Chambers USA 2014 We have extensive knowledge and experience in the following areas of practice: Mergers and Acquisitions Skadden has the leadership and insight required to secure essential regulatory approvals for complex M&A transactions. Recent examples include the FERC and antitrust approval process for the Duke/Progress, Exelon/Constellation, Northeast Utilities/NSTAR, Allegheney/ First Energy, AES/Dayton Power and Light, and RRI/Mirant transactions. The volume of deals we handle gives us keen insights on how to meet rapidly evolving review criteria at both FERC and DOJ/FTC. We have extensive experience analyzing the competitive effects of large and small transactions, as well as cross-subsidization issues spotlighted by FERC s new merger review criteria. Attorneys at Skadden also have a highly honed sense of the business realities driving potential transactions, and we regularly advise the boards and senior management of our clients throughout the M&A process. Enforcement Skadden has extensive experience defending companies in high-profile FERC enforcement actions. We have combined our litigation skill and depth, our broad knowledge of the relevant subject areas, and our intimate understanding of agency priorities and sensitivities to help companies navigate the most difficult enforcement cases, thereby protecting their reputations and mitigating potentially large civil penalty awards. Given the increasingly common multi-agency and potential judicial nature of such cases, where appropriate we work closely with our white collar defense group, our civil litigation attorneys and our CFTC practitioners. The firm has been particularly active in market manipulation cases. We have defended a majority of the FERC enforcement cases involving market manipulation allegations that have become public, including for Barclays Bank PLC (the first case to go to federal district court), JP Morgan Ventures Energy Corp., DB Energy Trading, LLC, Rumford Paper Company and Dr. Alan Chen. We were involved in five of the eight investigations listed as significant matters in FERC s 2013 Report on Enforcement. We previously defended Energy Transfer Partners, one of the first FERC market manipulation cases, which settled on favorable terms on the eve of trial. We also defended H.Q. (United States) in the first complaint case claiming market manipulation. Numerous regulatory enforcement engagements, however, are resolved without sanction or any other public event, and we have navigated many nonpublic FERC enforcement cases to such a conclusion.

2 We also have been active in other enforcement areas, such as defending Florida Power & Light Company in the first reliability investigation, representing companies involved in the southwestern and San Diego outages, and representing the Edison Electric Institute in its successful bid to reform FERC s Penalty Guidelines. Our representations in this field give us deep knowledge into effective strategies and tactics for dealing with regulatory agencies in this area particularly, but not exclusively, FERC and the CFTC. We also employ state-of-the-art data retrieval and web-based litigation support systems to accommodate the needs of specific clients and matters. This sort of knowledge bank, the product of extensive and practical experience in a complex area, is a significant source of value for our clients. FERC Compliance Our attorneys have deep experience in developing compliance programs for energy companies subject to FERC regulation. In 2005, we wrote the Compliance Handbook, which is a leading public reference work on FERC compliance. From 2008 to 2009 we represented 27 companies from across the energy industry in creating a cutting-edge, model FERC compliance program guide, which includes a comprehensive identification of FERC requirements; an assessment of actions that can trigger those requirements; and guidance on controls, training and documentation, as well as compliance policies and culture of compliance issues. We provide similar services to individual companies, assisting them in evaluating and, as appropriate, updating their compliance programs. We regularly address compliance issues in all areas of FERC regulation, such as questions involving the application of reliability standards, anti-market manipulation rules and affiliate rules. Our broad experience ensures that compliance questions can be answered efficiently, based on our command of the substantive legal issues and a realworld understanding of our clients business operations and compliance practices. We have shaped compliance policy through conferences, articles and testimony before FERC. We hold an annual Enforcement and Compliance Conference that is a popular industry event, and our roundtable conference calls frequently feature compliance topics. Electric Reliability Skadden has been at the forefront of the rapidly developing area of reliability regulation, representing companies in virtually every region of the U.S. on reliability enforcement matters, including the first publicly announced FERC investigation (of Florida Power and Light). We have assisted companies in developing compliance programs that address the multitude of reliability requirements and processes. Market Design We have played a leading role in FERC and appellate proceedings related to the design and reform of organized power markets throughout the nation, including ISO New England, PJM, California ISO, Midwest ISO, New York ISO and other markets. Skadden has negoti- Page 2

3 ated market rules, defended markets and market outcomes against challenges, and obtained revisions to flawed markets. We also have helped clients obtain relief when market designs fail, including the first successful application for a reliability must-run agreement. Our attorneys have experience in capacity market design issues, having led, on behalf of generators, the litigation and settlement efforts of the capacity market designs in ISO New England and PJM, and representing clients in other regions as their capacity markets evolve. In addition to our work in organized markets, Skadden also has developed alternative structures to formalized markets, including an organized procurement process overseen by an independent entity. Additionally, we have longstanding relationships with the leading power market economists and have worked closely with these experts in numerous proceedings. Electric Transmission Skadden offers creative solutions to the evolving challenges in the electric transmission business, including handling the increasing demands for renewable resources, the need for incentive returns on investment and the implementation of Order No. 890 requirements. We can provide creative solutions to these challenges, drawing on our cutting-edge work over the last 20 years in this area, including: designing open access tariffs, including developing the first comparability tariff; counseling companies in virtually every region on the design of ISOs, Regional Transmission Organizations (RTO), tariff administrators and transmission coordinators; and defending companies against complaints by customers claiming denials of transmission access. Affiliate Regulation Affiliate regulation is uniquely challenging because it applies to relationships between business units, and its goals are not always self-evident; thus, it can fall between the cracks. Our lawyers have been heavily involved in affiliate regulation issues on both a policy and practical level, from the inception of the first affiliate regulations imposed on energy companies through each step of their evolution. Because we work for so many different electric and gas companies in this area, there are few fact patterns we have not seen. We know how to efficiently anticipate problems, resolve issues and distinguish real problems from manufactured ones. Clients turn to us for creative solutions that achieve compliance with minimal regulatory impingement on business objectives (including, for example, obtaining Affiliate Restrictions and Standards of Conduct waivers and no-action letters, as well as sorting through difficult issues regarding permissible activities of employees and officers and permissible compensation for services that affiliated energy companies provide each other). Page 3

4 Complex Litigation Skadden s distinct experience in all aspects of energy regulation makes us ideally suited to participate in complex litigation involving the energy industry. We specialize in large, complex administrative litigation before FERC and state regulatory commissions, and we have experience in related litigation before such agencies as CFTC and in federal and state courts. This includes antitrust and competition issues, market manipulation proceedings and other complex matters. Skadden s cross-disciplinary approach allows us to tap, as needed, the resources of related practice groups, such as litigation and securities litigation. The current period of volatile energy prices and economic instability create an environment for potentially far-reaching claims against energy companies. Further litigation is likely to result as electric utility rate freezes enacted in several states in connection with utility restructuring are scheduled to expire and large rate increases potentially will go into effect. Because Skadden has been at the forefront of these new proceedings, we believe our combination of energy knowledge and courtroom skills will provide invaluable assistance. Nuclear Power Skadden has long represented a variety of clients in the energy industry that own, operate and/or design nuclear generating facilities, and we have worked on many transactions which have involved nuclear issues. These transactions have included sales of individual nuclear plants, mergers of utilities that own nuclear plants, mergers of nuclear suppliers including reactor and fuel supply vendors, joint-ownership arrangements for new plants and the spin-off of a utility s nuclear power business. We advise clients regarding the regulatory implications of their transactions, including providing assistance in obtaining the necessary regulatory approvals when required. Although no new nuclear plants have been constructed in the United States in more than 20 years, the construction of new nuclear facilities is starting to become an option again in light of the prospect of new restrictions on carbon emissions. Skadden has counseled clients regarding potential new construction, government financial incentives, and loan guarantees and joint-ownership arrangements. We advise with respect to tenant-incommon arrangements historically used by traditional utilities as well as the creation of new joint ventures formed to pursue new merchant nuclear plant construction. This has included advice to international companies regarding Atomic Energy Act restrictions on foreign ownership of nuclear reactors in the United States and the creation of ownership structures designed to comply with those restrictions. Natural Gas Skadden s Energy Regulatory and Litigation Group has been involved with natural gas issues for more than 25 years. We represented a wide range of producers, pipelines, developers and lenders as the industry transitioned to a competitive market structure in the 1980s and early 1990s. Page 4

5 Since then, our practice has focused on two principal areas. First, we represent natural gas companies on regulatory and commercial issues that arise in connection with specific transactions. Our work includes providing advice to owners and lenders regarding the acquisition of natural gas supply and transportation for service for electric generation facilities, and advice to natural gas pipeline owners with respect to natural gas issues arising from the purchase or sale of natural gas pipeline facilities. Second, we represent natural gas companies in FERC proceedings, both public and nonpublic, involving alleged market manipulation and related claims. Such matters may be initiated by FERC s enforcement staff or through complaints filed by customers or state officials. We also represent natural gas companies in investigations initiated by the CFTC and represent natural gas pipelines in FERC rate proceedings. This broad-based practice requires us to address major regulatory and legislative developments, including, for example, FERC s Penalty Guidelines and the changes to commodities trading resulting from the 2010 financial reform legislation. This practice also entails working with many of the country s leading economists and commodities experts.. NEW YORK BOSTON CHICAGO HOUSTON LOS ANGELES PALO ALTO WASHINGTON, D.C. WILMINGTON BEIJING BRUSSELS FRANKFURT HONG KONG LONDON MOSCOW MUNICH PARIS SÃO PAULO SEOUL SHANGHAI SINGAPORE SYDNEY TOKYO TORONTO. Market Manipulation The Energy Policy Act of 2005 clarified and strengthened FERC s authority to investigate and prosecute alleged market manipulation and FERC has aggressively pursued this authority. We expect FERC to expand its oversight beyond traditional areas, applying enhanced scrutiny over many activities previously perceived as nonjurisdictional, but which the agency may view as having a nexus with jurisdictional power and natural gas transmission and sales. In addition, since the California energy crisis, the CFTC has aggressively investigated physical and financial energy transactions. We recently defended Energy Transfer Partners in one of the first FERC market manipulation administrative trials (as well as in a parallel investigation and litigation brought by the CFTC). We successfully defended Hydro-Quebec at FERC in the recently concluded investigation of market manipulation allegations related to congestion and energy pricing in the New York ISO. We also are actively representing clients in ongoing, nonpublic matters. Our representations in this field give us deep knowledge of the substantive state of the law and have provided us with important insights into effective strategies and tactics for dealing with regulatory agencies in this area particularly, but not exclusively, FERC and the CFTC. We also employ state-of-the-art data retrieval and Web-based litigation support systems to accommodate the needs of specific clients and matters. This sort of knowledge bank, the product of extensive and practical experience in a complex area, is a significant source of value for Skadden s clients. Page 5