Smart Grid Primer: Legal Issues

Derek A. DysonDuncan, Weinberg, Genzer & Pembroke, P.C.

Energy Bar Association

December 4, 2009

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Agenda

I. IntroductionII. Grant Agreement

Negotiate Terms Key Provisions

III. ReportingIV. Regulatory RequirementsV. Other IssuesVI. Conclusions

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I. Introduction: What Are Smart Grids?

Source: Electric Power Research Institute

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II. Grant Agreement

Notification of Grant Award: Awardees were notified on October 24, 2009

Notification triggers the start of negotiation with DOE to finalize grant agreement

Finalize terms of any Cost Share commitments with Sub-Recipients Identify any modifications to the project plan, e.g.,

new project partners, revised cost share amount

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Negotiate Terms Negotiate Terms Applicable to Client DOE’s schedule for SGIG is to have contracts in

place by 12/30/2009 Prime Recipients, Sub-recipients, and Vendors

Prime Recipient Agreements with Sub-recipients and Vendors

Recipients should apply their standard procurement policies

Flow-through provisions Buy American (ARRA § 1605) Wage Rate/Davis-Bacon Act (ARRA § 1606) Whistleblower Protection (ARRA § 1553) GAO/IG Access (ARRA §§ 902, 1514, 1515) Reporting Requirements (ARRA § 1512)

Technical questions from DOE will need to be addressed

Budget modifications/clarifications

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Key Provisions - Issues

Applicability – prime recipients/sub-recipients

Cost Accounting Access to Records Requirements may impose substantial

burdens Project Execution Plan Risk Management Plan Cyber Security Plan

Intellectual Property Closeout

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Key Provisions, Cont’d.

DOE & client must finalize cost benefit analysis methodology

Vendor and sub-recipient agreements entered into prior to DOE acceptance may need to be modified to comply with DOE terms & conditions

Client may seek clarification from DOE regarding award requirements E.g., equipment purchased within the Smart Grid

grant will be encumbered with an ownership interest held by the Federal Government, how will that impact utility mortgages. (10 CFR §§ 600.132 or 600.321)

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Applicability

Grant recipients (primary applicant) First-tier recipients Agreement is with the primary Recipient

Sub-recipients (2 CFR § 176.30) A non-Federal entity that expends Federal money

received through a pass-through entity to carry out a Federal program, but does not include an individual that is a beneficiary of such a program

i.e., if a utility cooperative applies for funding on behalf of its members, the members may be Sub-recipients

Vendors (limited information required)

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Applicability, Cont’d.

Flow Down Requirements in

Agreements with Sub-Recipients All Recipients must flow down the requirements of

applicable Federal, State and local laws, regulations, DOE policy and guidance, and instructions in the Grant Agreement to flow down recipients at any tier to the extent necessary to ensure the Recipient’s compliance with the Grant Agreement.

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III. Reporting

Finalize terms of reporting relationship with Sub-recipients once reporting requirements are negotiated with DOE Supervisory role over Sub-recipients:

Recipients can delegate but are ultimately responsible for the data reported

Reporting requirements for Recovery Act (ARRA) and Department of Energy

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Flow of Reimbursement and Data Reporting Example:

Department of

Energy

Department of

Energy

CooperativeMembers

CooperativeMembers

Contractor,Supplier,

Etc.

Contractor,Supplier,

Etc.

Sub-Recipient Vendor

Contractor,Supplier,

Etc.

Contractor,Supplier,

Etc.

$ $

ElectricCooperative

ElectricCooperative

Recipient*Grantor

*Recipient maintains duty of reporting

(can delegate to Sub-Recipient, but ultimately responsible for ALL data reported)

$

$

Report Jobs and Cost Dataat FederalReporting.gov

Report on VIPERS

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Reporting Requirements

Data quality Goal is to avoid:

Material omissions Significant reporting errors Double-counting

Additional Recovery Act goals: Transparency Accountability

Additional Department of Energy goals: Learn from the grants program Share data through Smart Grid Clearinghouse

for industry benefits Prime Recipient is responsible for creating

processes to ensure data integrity

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IV. Regulatory Requirements

Recovery Act DOE Financial Assistance Rules (10

CFR Part 600) Accounting and Audit Requirements

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Recovery Act Requirements

Buy American (§ 1605) Include in all Recovery Act-funded construction

contracts if governmental entity constructing “public works” or “public buildings”

48 CFR § 52.225-21 - 24 Davis-Bacon Act (§ 1606) Whistleblower Protection (§ 1553)

Include in all Recovery Act funded contracts 48 CFR § 52.203-15

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Recovery Act Requirements, Cont’d.

GAO/IG Access (§§ 902, 1514, 1515) Include in all Recovery Act funded solicitations,

contracts & orders, as applicable 48 CFR §§ 52.212-5, 52.214-26, 52.215-2

Reporting Requirements (§ 1512) Include in all Recovery Act funded solicitation,

contracts & orders 48 CFR § 52.204-11

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Buy American Provision

Prohibits use of Recovery Act funds for: A project for construction, alteration,

maintenance or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

Some exceptions

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Davis-Bacon:

All persons employed by recipients & sub-recipients on Recovery Act funded construction, alteration or repair projects shall be paid wages at rates not less than prevailing rates on projects of similar character in locality

Contractors & subcontractors on prime contracts >$100k must pay 1.5 x basic rate for all hours > 40hrs/wk

DOL compliance guide at: http://www.dol.gov/compliance/guide/dbra.htm

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Davis-Bacon Act: cont’d

Grant recipients & sub-recipients who directly hire persons to perform construction work funded by Recovery Act must comply

May be applicable to cooperative employee who is being paid with Recovery Act funds, e.g., Grant Administrator

Reporting requirements 29 CFR § 5.5: Weekly copy of payroll Statement of compliance

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Financial Assistance Rules

10 CFR Part 600 Subpart A: general requirements applicable to all Subpart B: requirements applicable to non-profits Subpart D: requirements applicable to for-profits

Financial Assistance Rules revised effective 9/28/09

Financial Assistance Rules available at: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title10/10cfr600_main_02.tpl

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Provisions Required By Financial Assistance Rules

All contracts awarded by recipient including small purchases (<$100k) must include the following, as applicable: Equal Employment Opportunity Copeland Anti-Kickback Act (>$2000 construction or

repair contract) Davis-Bacon Act (>$2000 construction contract) Contract Work Hours & Safety Standards Act

(>$2000 construction contract; >$2500 others)

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Provisions Required By Financial Assistance Rules, Cont’d.

All contracts awarded by recipient including small purchases (<$100k) must include the following, as applicable: Rights to inventions made under contract (37

CFR Part 401) Clean Air Act and Federal Water Pollution

Control Act (>$100,000 contracts & subgrants) Byrd Anti-Lobbying Amendment Certification

(bid ≥$100k) Debarment & Suspension (>$100k small

purchase threshold and certain other contracts) www.epls.gov

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Accounting & Audit Requirements

Recipients must maintain records identifying source & application of Recovery Act funds

FERC develops accounting guidance for DOE

Neither FERC nor RUS Uniform System of Accounts has issued Smart Grid accounting guidance

Until guidance is issued segregate Smart Grid assets in appropriate sub-accounts

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V. Major Outstanding Issues

Does the project have external intellectual property issues: e.g., SIPCO

Utility mortgages on equipment versus DOE’s ownership interest in equipment (10 CFR §§ 600.132 or 600.321)

DOE Reporting requirements are still in flux

Cyber-Security training available from DOE within 4-6 weeks

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VI. Conclusions

Prior and after award, requirements may change Requirements may vary between applicants Reporting requirements are extensive DOE Financial Assistance Rules are extensive (10

CFR Part 600) Accounting guidelines are incomplete, but keep

accounts separate DOE intends to have hands off on project

management, but hands on regarding reporting and data collection

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Supplemental Slides

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Recovery Act Smart Grid Awards

100 Awards of Smart Grid Investment Grants DOE issued Notice of Awards on October 27,

2009 32 Awards of Smart Grid Demonstration

Grants DOE issued Notice of Awards on November 24,

2009 Awards are geographically dispersed

across the United States

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Negotiate Terms, Cont’d. DOE may request additional information:

Indirect cost information Other budget information Name & phone of Designated Responsible

Employee for complying with anti-discrimination policies

Representation of Limited Rights Data & Restricted Software, if applicable

Commitment Letter from Third Parties Contributing to Cost Sharing, if applicable

Certification as to USA status of prime awardee or national status of any subawardee

EPAct Representation (EPAct 1992 has a requirement that grantee must state that its participation in the grant program is in the economic interest of the U.S.)

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AL Southern Company Services

AR Woodruff Electric

AZ Salt River Project

Southwest Transmission Coop

Navajo Tribal Utility Association

CA Sacramento Municipal Utility District

Burbank Water and Power

San Diego Gas and Electric

City of Glendale

City of Anaheim

Modesto Irrigation District

CO City of Fort Collins

Black Hills/Colorado Electric

CT Connecticut Municipal Electric Energy Coop

DC PEPCO

FL Florida Power & Light

Lakeland Electric

JEA

City of Leesburg, FL

City of Tallahassee

Talquin Electric Cooperative

Intellon Corporation

City of Quincy, FL

GA Cobb Electric Membership

Municipal Electric Authority of GA

Georgia System Operations Corp.

Tri State Electric Membership Corp.

GU Guam Power Authority

HI Hawaii Electric Co.

IA Iowa Ass’n of Municipal Utilities

ID Idaho Power Company

M2M Communications

IL City of Naperville, IL

IN Indianapolis Power and Light Company

City of Auburn, IN

KS Westar Energy, Inc.

Midwest Energy, Inc.

KY South Kentucky Rural Electric Cooperative

LA Cleco Power LLC

Lafayette Consolidated Government

Entergy New Orleans, Inc.

Entergy Services, Inc.

City of Ruston, LA

MA Honeywell Int’l

NSTAR Electric Co.

Town of Danvers, MA

ISO of New England

Marblehead Municipal Light Department

Vineyard Energy Project

MD BG&E

Smart Grid Investment Grant Awardees:

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ME Central Maine Power Co.

MI Detroit Edison Company

Whirlpool Corp.

MO City of Fulton, Missouri

MS South Mississippi Electric Power Ass’n

NC Duke Energy (x2)

Progress Energy

NE Cuming County Public Power District

Stanton County Public Power District

NH New Hampshire Electric Cooperative

NJ Atlantic City Electric Co.

NV NV Energy

NY ConEd

NYISO

OH First Energy Service Company

City of Wadsworth, OH

City of Westerville, OH

OK Oklahoma Gas and Electric Co.

OR Pacific Northwest Generating Cooperative

Central Lincoln People’s Utility District

PA PECO

PPL

PJM

PA Wellsboro Electric

SD Black Hills Power, Inc.

Sioux Valley Energy

TN Electric Power Board of Chattanooga

Memphis Light, Gas and Water

Knoxville Utilities Board

TX CenterPoint Energy

TX Reliant Energy Retail Services

Golden Spread Electric Cooperative

Denton County Electric Cooperative

El Paso Electric

UT WECC

VA Rappahannock Electric Cooperative

Northern Virginia Electric Cooperative

VT Vermont Transco

WA Avista Utilities

Snohomish County Public Utilities District

WI American Transmission Company (x2)

Madison Gas and Electric

Wisconsin Power and Light

WY Cheyenne Light, Fuel and Power Company

Powder River Energy Corporation

Smart Grid Investment Grant Awardees, Cont’d.:

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CA LADWP

SCE (x2)

Primus Power Corporation

Seeo, Inc.

Amber Kinetics, Inc.

PG&E

MA NSTAR Electric & Gas (x2)

Premium Power Corporation

Beacon Power Corporation

MI Detroit Edison Company

MO Kansas City Power & Light

Boeing Company

NC Duke Energy

NH SustainX, Inc.

NM Ktech Corporation

PSCo. Of New Mexico

NY ConEd

Long Island Power Authority

New York Power Authority

New York State Electric & Gas

OH AEP Ohio

City of Painesville

PA East Penn Manufacturing Co.

44 Tech Inc.

Smart Grid Demonstration Grant Awardees:

TX Center for the Commercialization of Electric Technologies

Pecan Street Project

Oncor Electric Delivery Company

VA Nat’l Rural Electric Cooperative Ass’n

WA Battelle Memorial Institute, Pacific Northwest Division

WI Waukesha Electric Systems

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Cost Accounting

All Smart Grid grant funds received from DOE must be separated from all other funds in recipients’ books (this includes sub-recipients)

Smart Grid grant funds can only be used for costs allowable by the Grant Agreement and the Recovery Act

Be on the lookout for accounting guidance from FERC

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Access to Records

Transparency is paramount Audits anticipated All of the Smart Grid grant-related records

of Grantee are subject to review by the Federal Government Inspector General Comptroller General

Any officer, employee, contractor, subcontractor, sub-recipient, etc is subject to be interviewed by the Federal Government – may visit facilities

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Extensive Reporting

What will be reported will be negotiated Project Management/Execution Plan

Earned Value Approach (time vs. project value) – may be reported monthly

Risk Management Plan Cyber Security Plan Required Plans may be submitted

after execution of the Agreement

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Intellectual Property

Intellectual property Patent rights: DOE waives its general

rule that title vests in the Federal government for all inventions under DOE awards

Rights in technical data: The Federal government generally has unlimited rights in technical data under the grant Agreement except when developed solely at private expense

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Closeout

Inventory of government owned equipment

Release of ownership from DOE for government equipment

All final reports must be timely submitted within 90 days after final project period ends

All grant funds not spent will need to be returned to the DOE

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Reporting

DOE Reporting Checklist Identifies reporting requirements Identifies frequency for reporting Identifies special instructions for

reporting Available at:

http://www.cio.energy.gov/documents/4600-2.pdf

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Additional Smart Grid Related Reporting to DOE

o Management Reportingo Earned Value Progress Reporting

o Technical Reportingo Cost/Benefits Data Metrics

o Financial Reportingo Financial Status Report (Long or Short Form)

o Closeout Reportingo Patent Certificationo Property Certification

o Other Reportingo Annual Indirect Cost Proposalo Annual Inventory of Federally Owned Property, if any

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Reporting Requirements: What?

Data elements include: The total amount of Recovery Act covered

funds received from DOE;

The amount of Recovery Act covered funds received that were expended or obligated to projects or activities;

Detailed information on subcontracts or sub-grants awarded by recipient

May be required to submit backup documentation for expenditures

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Audit Requirements

Financial Assistance Rules define “non-profit” (10 CFR § 600.3)

DOE may presume all cooperatives are “non-profits”

Cooperatives seeking to avoid burden of non-profit status can negotiate with Contracting Officer that “part of net earnings [does] inure to the benefit of any private shareholder or individual” e.g., capital credits

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Single Audit Information: OMB Circular A-133

Audits of States, Local Governments, & Non-Profits, OMB Circular A-133

Schedule of Expenditures of Federal Awards (SEFA) Data Collection Form (SF-FAC) submit online at:

http://harvester.census.gov/fac/collect/formoptions.html

Recipients must identify each sub-recipient & document at the time of the sub award & disbursement of funds: Federal award number Catalog of Federal Domestic Assistance (CFDA)

number Amount of Recovery Act funds

Recipients agree to require their sub-recipients to include on their SEFA information to specifically identify Recovery Act funding

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Audit Requirements Generally

Non-Profits subject to: Subpart B (10 CFR §§ 600.101 et seq.) OMB Circular A-133 Single Audit Information

http://www.whitehouse.gov/omb/assets/omb/circulars/a133/a133.pdf

Others subject to: Subpart D (10 CFR §§ 600.301 et seq.) Generally Acceptable Government Auditing

Standards (GAGAS) for RUS Borrowers may or may not satisfy DOE independent audit requirements

RUS policy is to accept A-133 audit in lieu of required RUS audit if cooperative agrees to A-133 audit at request of another agency

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Key References

American Reinvestment & Recovery Act of 2009 www.recovery.gov

Department of Energy www.energy.gov Office of Management & Budget (OMB)

http://www.whitehouse.gov/omb/ DOE Smart Grid Investment Grant (DE-

FOA-0000058) and Demonstration Grant (DE-FOA-0000036) Funding Opportunity Announcements

DOE Contracting Officers and Technical Negotiators