The Louisiana Legislature adopted the Geologic Sequestration of Carbon Dioxide Act in 2009. Recent policy changes at the federal level have drawn increasing attention to the Act’s provisions regarding the permits needed to operate a carbon dioxide storage facility in Louisiana.

The Act grants jurisdiction over the permitting process to the Commissioner of Conservation.[1] It requires that the Commissioner hold a public hearing to obtain evidence regarding the suitability of a particular underground reservoir for carbon dioxide storage.  Before permitting use of a reservoir for carbon dioxide storage, the Commissioner must find that the reservoir is not capable of producing oil, gas, condensate or other commercial minerals in paying quantities or that one of the following conditions applies:

  1. All owners in such reservoir or relevant part thereof have agreed to such use;
  2. The volumes of original reservoir, oil, gas, condensate, salt, or other commercial mineral therein which are capable of being produced in paying quantities have all been produced; or
  3. Such reservoir has a greater value or utility as a reservoir for carbon dioxide storage than for the production of the remaining volumes of original reservoir oil, gas, condensate, or other commercial mineral, and at least three-fourths of the owners, in interest, have consented to such use in writing.

The Commissioner must also find that use of the reservoir for the storage of carbon dioxide will not contaminate other formations containing fresh water, oil, gas, or other commercial mineral deposits and that the proposed storage will not endanger human lives or cause a hazardous condition to property.

The Act requires the Commissioner to issue a certificate of public convenience and necessity to any person applying therefor once he has made the determinations described above. The holder of such a certificate is authorized to exercise the right of eminent domain to acquire needed property including surface and subsurface rights and property interests necessary or useful for the purpose of constructing, operating, or modifying a storage facility and the necessary infrastructure including the laying, maintaining, and operating of pipelines for the transportation of carbon dioxide to a storage facility, together with utility, telegraph, and telephone lines necessary and incidental to the operation of these storage facilities and pipelines.

The operator of a carbon dioxide storage facility will also need to obtain a Class VI underground injection well permit. The Louisiana Department of Natural Resources recently adopted extensive regulations governing the issuance of such permits.[2] Those will go into effect if the EPA grants the state’s pending application for primacy over such wells under the Clean Water Act. Until that application is granted, the EPA retains jurisdiction to issue these permits.

[1] La. R.S. 30:1104

[2] 43 LAC:XVII:601 et seq.

The Louisiana Third Circuit Court of Appeal held that an insurer waived coverage defenses where the insurer failed to timely assert the specific coverage defense prior to the assignment of defense counsel by the insurer via a reservation of rights. See Teresa Jeffries v. Prime Insurance Company, et al., 2021-161 (La.App. 3 Cir. 11/3/21), — So.3d —-.

In Jeffries, Elvis Thompson was driving an eighteen-wheeler owned by Graham Trucking, Inc. which was insured by Prime Insurance Company when he was involved in an automobile accident on March 31, 2017. Teresa Jeffries then sued Thompson and Graham and asserted claims directly against Prime via the Louisiana Direct Action Statute.

Prime assigned defense counsel who answered the lawsuit on behalf of its insured, Graham, and then filed a separate answer on behalf of Thompson. In those answers, Prime pled the limitations, terms and conditions of the policy “as if copied in extenso.” Additionally, counsel assigned by Prime continued to represent all three defendants until days before trial was to begin and no reservation of rights letter was proven to have been received by Graham or Thompson.

“Just days” before the October 7, 2019 trial, Prime filed a motion to continue the trial. Prime’s assigned defense counsel argued that he had a “conflict” in representing all three of the defendants at trial because Prime now sought to exclude coverage on the alleged basis that Thompson was an “unscheduled driver” not covered by policy. The trial court issued a ruling finding “no conflict. If there was a conflict I find that it’s been waived by the insurance company.” The appellate court affirmed.

Jeffries reinforced long-standing Louisiana jurisprudence that an insurer must timely issue a reservation of rights to the insured if the carrier wishes to offer a defense and reserve the right to assert coverage defenses. This rule applies not just to the insured, but to any other defendant who may be owed coverage under the policy and the carrier must be prepared to prove that the reservation of rights letter was actually received by those persons.

Here, Prime hired a single lawyer for all three defendants, no reservation of rights letter was proven to have been received by the insured or to have been sent or received by Graham. As explained by the court in Jeffries, due to the insurer’s actions “…the insured were led to believe the insurer had relinquished its coverage defenses as the insurer continued to defends the insureds while having knowledge of facts indicating noncoverage.”

Last week, the Supreme Court of the United States heard argument in Badgerow v. Walters[1] as to an important jurisdictional question under the Federal Arbitration Act (“FAA”), 9 U.S.C. 1, et seq. Specifically, the question presented to SCOTUS was whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under the FAA (Sections 9 and 10) when the only basis for jurisdiction is that the underlying dispute involved a federal question.

In Badgerow v. Walters, Denise Badgerow was employed as an associate financial advisor with REJ Properties, Inc., a Louisiana corporation, from January 2014 until her termination in July 2016.  During her employment with REJ Properties, Inc., Badgerow signed an agreement to arbitrate any disputes that may arise between her and the three principals of the corporation.

Following her termination, Badgerow initiated an arbitration proceeding against the three principals before an arbitration panel of the Financial Industry Regulatory Authority (“FINRA”).  Badgerow sought damages for tortious interference of contract and for violation of Louisiana whistleblower law, but the panel dismissed all of her claims with prejudice.

Thereafter, Badgerow brought a new action in Louisiana state court, asking the court to vacate the dismissal, alleging that the whistleblower claim was obtained by fraud.  The principals removed the action to federal court.  Badgerow filed a motion to remand for lack of subject-matter jurisdiction.  The district court held that it possessed subject-matter jurisdiction over the petition to vacate and denied remand. On the merits, the court found that there was no fraud and denied vacatur of the FINRA arbitration panel’s dismissal.

The U.S. Court of Appeals for the Fifth Circuit affirmed the district court’s decision to deny remand, relying on the “look-through analysis” articulated in Vaden v. Discover Bank, 556 U.S. 49 (2009),[2] which dictates that federal courts determine their jurisdiction over motions to confirm or vacate arbitral awards by looking through an FAA petition to the parties’ underlying substantive controversy. Ultimately, the Fifth Circuit concluded that because there was federal jurisdiction over the removed petition to vacate, the district court’s denial of remand back to the Louisiana state court was proper.

SCOTUS granted certiorari on May 17, 2021,[3] and heard argument on November 2, 2021.  We await a decision and will update the Louisiana Law Blog when we hear from SCOTUS.

[1]           Docket No. 20-1143 in the Supreme Court for the United States.

[2]           The United States Court of Appeals for the Fifth Circuit explained that, “[a] careful reading of Vaden demonstrates that the district court’s approach was correct. Vaden tells us that federal jurisdiction lies over an FAA petition ‘if, ‘save for’ the [arbitration] agreement, the entire, actual ‘controversy between the parties,’ as they have framed it, could be litigated in federal court.’” Badgerow v. Walters, 975 F.3d 469, 474 (5th Cir. 2020) (citing Vaden, 556 U.S. at 66).

[3]           Badgerow v. Walters, 141 S. Ct. 2620, 209 L. Ed. 2d 748 (2021).

On October 28, 2021, the Department of Interior announced three major milestones to advance commercial offshore wind energy development, one of those impacting the Gulf of Mexico.

The Bureau of Ocean Energy Management (“BOEM”) will publish a Call for Information and Nominations (“Call”) on November 1, 2021 in the Federal Register. The Call will allow a 45-day window, or until December 16, 2021, for submissions indicating interest in commercial leasing and/or public comment. The relevant area includes 30 million acres within the Gulf of Mexico bordering Texas and Louisiana west of the Mississippi River.

The Call will allow BOEM to better decide whether and where wind energy leases may be issued. BOEM will need to consider the comments and submissions, conduct an environmental review as required under the National Environmental Policy Act (“NEPA”), and consult with agencies at the state and federal level, as well as any impacted Tribes, before making leasing decisions.

The full process will allow for multiple opportunities of public input. After an environmental review is conducted under NEPA, BOEM will consider the Call area’s existing uses, feedback from governmental task forces, and again, the public. BOEM may then decide to publish a Proposed Sale Notice describing the areas available for potential wind energy leasing and the proposed terms and conditions of these leases.

Comments may be submitted using the regulations.gov portal and searching for Docket No. BOEM-2021-0077, or by mailing written comments to BOEM’s office in New Orleans. Keep in mind that BOEM does not consider anonymous comments.

Department of Interior Press Release: https://www.doi.gov/pressreleases/interior-department-takes-action-advance-offshore-wind-atlantic-and-gulf-mexico

BOEM’s announcement of Gulf of Mexico activities: https://www.boem.gov/renewable-energy/state-activities/gulf-mexico-activities

Map of the Call Area: https://www.boem.gov/sites/default/files/documents/renewable-energy/state-activities/Gulf%20of%20Mexico%20OCS%20Region%20Call%20for%20Information%20and%20Nominations%20Map.pdf 

On October 28, 2021, the Louisiana Department of Revenue (the “Department”) publicly announced a transfer pricing managed audit program in Revenue Information Bulletin No. 21-029 (October 26, 2021). Louisiana’s program is similar to managed audit programs recently introduced in other states, such as Indiana and North Carolina. However, unlike some other states, Louisiana’s managed audit program offers the potential for a prospective agreement.

To be eligible to participate in the program, a taxpayer must have an established history of voluntary tax compliance with the Department, certify that the taxpayer has resources available to participate in the program, have suitable records concerning its intercompany transactions, and have a reasonable expectation of its ability to pay “an expected liability”. Interestingly, the Department did not refer in this section to the possibility that no liability would be determined, however, in a later section, they discuss collection “if” a liability is determined.

The tax periods eligible for resolution include the current tax period, any open tax periods that have not yet prescribed, and up to four future tax periods. In certain instances, a previously audited taxpayer may participate in the program. A previously audited taxpayer is eligible to participate if: (1) the taxpayer has already been audited and transfer pricing was at issue in the audit; (2) the audit is in a review or protest with the Audit Review and Appeals Division, or legal status with the Litigation Division; and (3) the taxpayer disagrees with the transfer pricing adjustments. If a previously audited taxpayer is accepted into the program, the taxpayer will have 30 days to offer comments to the previously made transfer pricing adjustments for the Department’s review.

If the eligibility requirements are met, the Department will authorize the taxpayer to conduct a managed audit with respect to its intercompany transactions under the supervision of a representative from the Field Audit Division. A taxpayer can appoint a representative, including a tax attorney, to assist with the managed audit.

If a taxpayer is accepted into the program, the taxpayer will be required to submit the following documentation within 30 days:

  1. Complete federal tax returns for the last three years;
  2. List of all intercompany transactions by type, amount, and entity, including journal entries;
  3. Transfer pricing studies, including comparable methods used and any agreements from the Internal Revenue Service;
  4. Organizational charts reflecting each subsidiary and its relationship to the parent company;
  5. Financial statements on a GAAP basis for each party to an intercompany transaction. (If these are not available, Department and the taxpayer will jointly determine operating income using the federal return (Form 1120) and its accompanying Schedule M-3 schedules); and
  6. Other invoices, checks, accounting records, or other documents or information, if requested by Department, to determine the correct amount of tax.

The Department will review this documentation and issue a written determination as to whether it agrees with the taxpayer’s transfer pricing studies and methods. The Department may use an external consultant to assist in its review. The taxpayer will have 30 days to accept the Department’s written determination or offer modifications or adjustments.

If additional tax is due, the Department will proceed with normal collection procedures. But no penalty will be assessed on any tax due related to the managed audit findings. In addition, interest that accrues during the managed audit tax period (i.e., the period of time from the date of Department’s notice of the taxpayer’s acceptance into the program through the date of Department’s notice of the correct amount of tax due) will be abated (not to exceed 180 days).

The program is scheduled to begin on November 1, 2021 and applications must be received by April 30, 2022. All managed audits must be closed by June 30, 2022.

Implications

Louisiana’s transfer pricing managed audit program is a major development that may be welcome to a taxpayer with significant intercompany transactions. In particular, an eligible taxpayer with a large volume of domestic intercompany transactions that could create state tax exposure but, necessarily, have not been subject to scrutiny by the Internal Revenue Service should consider participating in the program.

For the past several years, the Department has been very actively issuing transfer pricing adjustments resulting in typically large proposed tax assessments and many of those remain unresolved in various stages of audit review or litigation. As the Department developed its transfer pricing audit program over the last few years, it has not been unusual to find significant flaws in an auditor’s analysis, which was likely due to the extraordinary complexity of transfer pricing audits. In making a determination on whether to participate in this new program, a taxpayer that is currently attempting to resolve an existing transfer pricing audit should also consider the extent to which participating in the program could impact ongoing negotiations related to that audit. Due to the length of time it takes to resolve past audits, the possibility of prospective relief, and the potential for penalty and interest relief, an eligible taxpayer with an existing transfer pricing audit or a taxpayer desiring more certainty with respect to its Louisiana corporation income tax should discuss the possibly risks and benefits with their Louisiana tax counsel.

When considering whether to participate in the program, a taxpayer should also be aware of potential issues that could arise. If the Department does not agree with the taxpayer’s reasonable position as to the appropriate transfer pricing range, it appears that, with respect to the transfer pricing issue alone, statutory rights to contest any determination would apply, however, will the Department, as a policy matter limit itself to auditing only transfer pricing once it has all of the taxpayer’s information? The Department is not suggesting that these tax years will be closed as a result of this program so other issues remain ripe for audit. An eligible taxpayer should consider that while the managed audit program is limited to transfer pricing issues and the information provided to the Department could be used for purposes of other Louisiana audits, such as franchise tax or sales and use tax. It also is not clear whether the Department could take the position, after receiving all of the information required to participate in the program, that taxpayer has not provided all or sufficient data to continue in the program. At that point, the Department could potentially open a standard audit and there would be no penalty or interest protection for the taxpayer. For this reason, participation in the program may be more beneficial for a taxpayer that has already been audited or is in the process of being audited.

Another potential issue relates to confidentiality of information vis a vis other states. For example, many states have entered into transfer pricing information sharing programs so it is possible that any taxpayer documents and data provided in this context could be shared with other states as well as the Department’s third-party consultants. In many instances, transfer pricing documentation contains sensitive information, such as organizational charts or proprietary trade secrets. To minimize the risk of this information being shared with other states or the Internal Revenue Service, a taxpayer considering participating in the program should also consider entering into a confidentiality and nondisclosure agreement with the Department.

The volume of documentation required by the Department is substantial. A taxpayer will likely have to allocate a significant amount of time and resources to locate and prepare the required documentation for delivery to the Department, including, possibly, interstate transfer pricing analyses. Moreover, unless the taxpayer regularly reviews and updates its intercompany agreements (which we recommend), those agreements or other required information may be very old and difficult to obtain, particularly if employees with the required institutional knowledge have retired or are not longer employed by the taxpayer. Thus, a taxpayer considering applying to the program should ensure it has the ability to provide the required documentation in the time allotted before submitting its application.

A taxpayer considering participating in the managed audit program should carefully weigh the program’s benefits and risks. Depending on a taxpayer’s specific facts and circumstances, participating in the managed audit program may be beneficial. But participating could also result in confidential information being shared with other states, being used to generate audit leads by the Department’s consultants, or being used to generate additional assessments in other Louisiana audits, thereby increasing the risk of additional tax exposure. That said, Louisiana’s transfer pricing program will likely be a welcome development to many taxpayers because participation has the potential to both resolve time consuming and expensive audits and provide certainty in the future.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, or Willie Kolarik at (225) 382-3441.

The current administration’s focus on climate change has prompted a renewed interest in carbon capture, utilization, and sequestration (CCUS). In July of this year, the White House Council on Environmental Quality (CEQ) issued a report to Congress stating the Biden administration “is committed to accelerating the responsible development and deployment of CCUS to make it a widely available, increasingly cost-effective, and rapidly scalable climate solution across all industrial sectors.”[1]

Louisiana has been characterized as an “emerging hub of carbon capture deployment” in large part due to the prevalence of existing industries such as refineries and chemical manufacturers. Proponents of carbon capture believe that Louisiana has ample storage capacity (such as depleted oil and gas fields), an experienced workforce, and the necessary infrastructure, including an established existing network of pipelines, to utilize carbon capture technologies to reduce its carbon footprint. Providing further incentive, the  Louisiana Legislature has passed laws providing the state will assume liability for sequestered carbon dioxide after ten years if certain conditions are met, see La. Rev. Stat. § 30:1109(A), and has provided a cap on civil liability actions for noneconomic losses. See La. Rev. Stat. § 30:1109(B).

As with any new industry, there are a number of questions facing companies interested in availing themselves to the benefits of CCUS. In addition to regulatory compliance, companies will need to obtain the right to utilize the “pore space” or the subsurface cavity which is either naturally or artificially created for carbon storage. However, to obtain this approval, operators must determine ownership of the pore space, a question which becomes more complicated when the mineral and surface estates have been severed.

Nationwide, a majority of courts have concluded that the pore space is owned by the surface owner, but the issue of “who owns the pore space” remains unresolved.  In addition, companies may need to consider whether use of the “pore space” interferes with a severed mineral estate. While in Louisiana, these issues have not been directly examined in the context of CCUS, existing jurisprudence provides guidance.  In United States v. 43.42 Acres of Land, the court examined ownership of a subsurface cavern created by the removal of salt.  520 F. Supp. 1042, 1045 (W.D. La. Aug. 26, 1981).  Recognizing Louisiana has adopted a “non-ownership” theory of mineral rights, the court reasoned that the mineral estate did not have ownership interest in the subsurface strata containing the spaces where the minerals are found.  Id. at 1046.  Therefore, it was the surface owner, rather than the mineral, who was entitled to compensation for the value of the cavern created by removal of salt.  Id. The Federal Fifth Circuit Court of Appeals reached the same conclusion in Mississippi River Transmission v. Tabor, but held that while the surface owner owns the storage rights, the “mineral servitude owner…enjoys the right to participate in production of the remaining natural gas and condensate in the reservoir…and must be compensated for the expropriation of this right.” 757 F.2d 662, 672 (5th Cir. 1985), citing, S. Natural Gas Co. v. Poland, 406 So. 2d 657, 666 (La. App. 2d Cir. 1981).  Because these questions have never been directly examined in the context of CCUS, the most cautious approach would be for companies to obtain approval from both the surface and mineral owner.  But the legislature in Louisiana has provided storage operators with another option – expropriation.

In 2009, the Louisiana Legislature enacted the Louisiana Geologic Sequestration of Carbon Dioxide Act which declared it to be in the “public interest for a public purpose and the policy of Louisiana that the geologic storage of carbon dioxide will benefit the citizens of the state and the state’s environment  by reducing greenhouse gas emissions.” This Act was amended in 2020 to clarify certain definitions and procedures, to provide the power and duties vested with Louisiana’s Commissioner of Conservation, and to clarify the right of eminent domain and expropriation.[2]

The ability to expropriate the surface and subsurface of property used for CCUS is especially important due to questions surrounding ownership of the subsurface “pore space” zone where carbon is injected.  Louisiana law provides that an operator is authorized to “exercise the power of eminent domain and expropriate needed property to acquire the surface and subsurface rights and property interests necessary or useful for the purpose of constructing, operating, or modifying a storage facility and the necessary infrastructure including the laying, maintaining, and operating of pipelines for the transportation of carbon dioxide to a storage facility.”  La. Rev. Stat § 30:1108(A)(1).   To expropriate property, a storage operator must first obtain necessary permits and a certificate of public convenience and necessity from LDNR’s Commissioner of Conservation.  Id.

As with any emerging industry, there still exists much legal and regulatory uncertainty.  Already this year, we have seen significant upswings in legislation and regulations governing CCUS nationwide.  Therefore, we certainly expect the question of pore space ownership to receive increasing attention from state legislatures and court systems as more and more companies turn their interest towards CCUS.

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[1] Council on Environmental Quality Report to Congress on Carbon Capture, Utilization, and Sequestration, available at: https://www.whitehouse.gov/wp-content/uploads/2021/06/CEQ-CCUS-Permitting-Report.pdf

[2] Act No. 61 (2020), available at: https://legis.la.gov/legis/ViewDocument.aspx?d=1180294

The Louisiana Private Works Act (“LPWA”) [1] provides helpful security to unpaid contractors, subcontractors, and suppliers. In particular, it can provide persons that have no contract with the owner a direct claim against the owner for payment and provides both those with and without direct contracts with the owner a privilege or lien on the owner’s property, which is often helpful security for enforcing payment rights. But these benefits are only available if the LPWA’s relatively strict provisions are followed. Further, as the Louisiana Court of Appeal, First Circuit recently confirmed, the claim and lien rights provided by the LPWA are only available to properly licensed contractors, and any lien filed by an unlicensed contractor is invalid where a license is required to perform the work.

In Ilgen Construction, LLC v. Raw Materials, LLC, [2] RML attempted to file two liens on property owned by Ilgen where RML had performed clearing and dirt work for which it claimed to have not been paid. The First Circuit looked past arguments that dominated the trial court proceedings concerning notice of contract requirements to hold that the liens were invalid because RML was not a licensed contractor. The Court reasoned that the LPWA’s protections are designed to secure debts arising from contracts, and because contracts with unlicensed contractors are absolute nullities (i.e., completely invalid), an unlicensed contract cannot assert a valid lien under the LPWA.

In addition to the fact that licensing is required by law, this holding provides another reason for contractors to ensure that they are properly licensed with the Louisiana State Licensing Board for Contractors. If you need assistance with or have questions concerning licensing, liens, or any other construction issues, please reach out to our construction team at this link: https://www.keanmiller.com/construction.html.

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[1] La. R.S. 9:4801, et seq.

[2] Ilgen Constr., LLC v. Raw Materials, LLC, 2020-0862 (La. Ct. App. 1st Cir. 4/16/21), 2021 WL 1438726.

On September 6, 2021, Louisiana Governor John Bel Edwards signed and issued Emergency Proclamation 170 JBE 2021 (the “Proclamation”) designed to provide assistance to certain groups affected by Hurricane Ida, including a temporary suspension of certain deadlines and requirements relating to unemployment insurance as well as the temporary suspension of legal deadlines applicable to legal proceedings in all courts, administrative agencies, and boards.

This Proclamation follows Emergency Proclamation 165 JBE 2021, which declared a state of emergency in anticipation of Hurricane Ida.

The suspension of legal deadlines is similar to the previous suspensions that occurred in 2020 in relation to the COVID-19 pandemic. The suspension is broad reaching, affecting prescription for filing legal claims, discovery deadlines, and all other deadlines set forth in the Louisiana Civil Code, Louisiana Code of Civil Procedure, Louisiana Children’s Code, and many provisions of Louisiana’s revised statutes. Deadlines are suspended until September 24, 2021.

In addition to the suspension of legal deadlines, the Proclamation suspends some requirements relating to certain unemployment benefit claims resulting directly from the effects of Hurricane Ida. Due to the suspensions in the Proclamation, certain hurricane related claims are temporarily prevented from being charged against employers, and certain requirements that unemployment claimants register and search for work (although claimants must still be able and available to work) are suspended. In addition, the one-week waiting period for claimants is suspended, allowing claimants to begin receiving benefits immediately. Further, claimants are temporarily relieved from avoiding certain disqualifiers before receiving benefits. Usually a claimant could be disqualified for: leaving his previous employment without “good cause” or being discharged from his prior employment for “misconduct”. These disqualifiers are temporarily suspended. Additionally, under the usual rules, if during the time period being applied for the claimant has already received or is receiving: wages, workers compensation remuneration, or receives payment for vacation time, severance pay, or dismissal pay then the claimant would normally be prevented from recovering unemployment payments during the time period corresponding with the payments being received, however, under the Proclamation these disqualifiers are temporarily suspended.

The Proclamation also contains a provision requiring hotels, motels, and other places of lodging to prioritize lodging for first responders, healthcare workers, and other individuals performing emergency related tasks.

These provisions expire on September 24, 2021 as written.

The following is prepared by the Kean Miller LLP Utilities Regulation team on important topics affecting consumers of electrical power in Louisiana related to recent and current proceedings of the Louisiana Public Service Commission (“LPSC”).  For more information, please contact us at client_services@keanmiller.com

Entergy Formula Rate Plan (“FRP”) Extension: In May 2021, the LPSC approved an extension and modification of Entergy’s FRP for annual filings and rate adjustments in 2021, 2022, and 2023, subject to settlement terms reached by Entergy, LPSC Staff and intervenors.  The settlement terms included, among other things: a 9.50% ROE; a $63 million rate reset for 2021; a 9.0-10.0% earnings bandwidth subject to a $70 million cumulative rate cap for 2022/2023; resolution of lost revenue claims from covid and hurricanes; a distribution investment cost recovery rider; and a transmission investment cost recovery rider.

 Entergy Storm Restoration Cost Securitization and Recovery:  Proceedings are underway at the LPSC to consider Entergy claims for securitization financing and recovery for $2 billion of restoration costs from Hurricanes Laura, Delta, Zeta and Winter Freeze Uri.  By category, the costs consists of approximately 72% Distribution, 27% Transmission and 1% Generation.

LPSC Audit of Additional Fuel Adjustment Costs From Winter Freeze Uri: Audit proceedings are underway at the LPSC on $163 million of additional fuel adjustments costs incurred during the February 2021 freeze event.  The $163 million additional costs are currently being recovered from ratepayers through the fuel adjustment, amortized over the months of April-August 2021.

LPSC Rulemaking on Demand Response: In May 2021, the LPSC approved a new rule that emphasizes the importance of Demand Response in Louisiana and requires electric utilities to pursue Demand Response tariffs or justify why they are not.

Entergy Market Value Demand Response (“MVDR”) Tariff: In September 2020, the LPSC approved a new Entergy tariff that allows customers and aggregators to access MISO Demand Response products.

Entergy Proposed Experimental Interruptible Option (“EIO”) Tariff: In July 2021, the LPSC approved new Entergy tariffs that provide interruptible rate options for industrial customers.

LPSC Rulemaking on Customer-Centered Options:  The LPSC has a proceeding underway to research and evaluate customer-centered options.  In the proceeding, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”), has proposed an Industrial Customer Market Option that would provide access to off-site CHP generation, the bilateral wholesale power market and the MISO energy, capacity and operating reserve markets.  LEUG proposes the option as a means to offset some of the need for Entergy to replace aging generation fleet, and thereby help avoid or reduce costs for all ratepayers, while also helping industrials maintain competitive rates in Louisiana.

LPSC Rulemaking on Renewable Generation Options:  The LPSC has an ongoing rulemaking proceeding to consider customer options to access renewable generation.  In the proceeding, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”), has proposed tariff options for industrial customer participation in renewable projects through “sleeve transactions” and “virtual PPAs”.

Louisiana Task Force on Climate Change: Through participation in the Power Production Committee, an industrial customer trade association – – the Louisiana Energy Users Group (“LEUG”) is pursuing interests that include long-term reliable and competitive power supply for Louisiana, exploring access to renewable power, and use of cogeneration to increase efficiencies and reduce emissions.

Entergy Proposed Green Pricing Option (“GPO”):  Proceedings at the LPSC are underway to consider an Entergy application seeking approval of new tariffs for the sale of Renewable Energy Credits (“REC”s).

Entergy Proposal for Distributed Generation: Proceedings at the LPSC are underway to consider an Entergy application seeking approval to deploy 120 MW of utility-owned distributed natural gas fired generation ranging in size from 100 kW to 10 MW, including a rate schedule to charge host customers for a portion of the generators as back-up power costs.

LPSC Rulemaking on New Generation Deactivation Transparency Rule:  In October 2018, the LPSC issued a rule which requires electric utilities to report generation unit deactivations and retirements 120 days prior to implementation, including support for the decisions and continuing reports on units that are placed in deactivation status for possible return in the future. The final rule creates more transparency and accountability on the part of utilities.

Entergy Integrated Resource Plan (“IRP”):  The next Entergy IRP process is scheduled to begin in October 2021.  In October 2019, the LPSC approved an acknowledgment that Entergy completed the required process for its IRP for the years 2018 through 2038.  The objective of the IRP process is for the utility to provide its evaluation of a set of potential resource options that offers the most economical and reliable approach to satisfy future load requirements of the utility. However, the IRP process does not result in LPSC approval of the proposed resource plan or approval of construction or acquisition of any particular resources. Rather, LPSC consideration of resource approvals occurs in separate certification proceedings on individual proposals submitted by the utility on a case-by-case basis.

Entergy 980 MW Power Plant in St. Charles Parish:  In December 2016, the LPSC approved Entergy’s proposal to construct a 980 MW CCGT unit located in Montz, Louisiana (near New Orleans), at a site adjacent to the existing Little Gypsy generation units.  The project was selected as a self-build project in a Request-for-Proposals (“RFP”), was estimated to cost $869 million, and went into service in 2019.

Entergy 994 MW Power Station in Lake Charles, Louisiana:  In July 2017, the LPSC approved Entergy’s proposal to construct a 994 MW CCGT unit located in Westlake, Louisiana.  The project was selected as a self-build project in a Request-for-Proposals (“RFP”), was estimated to cost $872 million, and went into service in 2020.

Entergy 361 MW Combustion Turbine in Washington Parish:  In May 2018, the LPSC approved Entergy’s acquisition of the Washington Parish Energy Center, a new 361 MW simple cycle combustion turbine (“CT”) to be constructed in Bogalusa, Louisiana by a subsidiary of Calpine Corporation (“Calpine”) for a purchase price of approximately $222 million.  Calpine had submitted an unsolicited offer to Entergy to construct the CT and sell it to Entergy for a turn-key price.  The acquisition and related assets was estimated to cost $261 million, and the unit went into service in 2020.

Trippe Hawthorne, a partner, and construction lawyer at Kean Miller, was a featured author for the American College of Real Estate Lawyers (ACREL), where he wrote on the subject of contractors and what it means to be licensed, insured, and bonded. Many property owners see this nomenclature in marketing and promotional materials for General Contractors, but may be unclear as to what it all means.

With the aftermath of Hurricane Ida, being educated on the nuances of these designations are of critical importance to both the property owner and the contractors.

Following is the full-text of the article, originally published in the August 2021 issue of the ACREL News and Notes monthly newsletter.

Every property owner who has endeavored to undertake a construction, renovation, or repair project has heard or seen the phrase “licensed, bonded, and insured”. But what does this mean, and does it really matter? Like all good questions, the best answer is, “it depends”.

Licensing: Many but not all states require contractors to be licensed. If the project is in a state where a contractor’s license is required, the importance of observing the licensing laws is critical. Violations of state licensing law can have catastrophic consequences to the unlicensed contractor and to the project. While owners do not typically have direct liability for a contractor’s violation of state licensing law, a project employing unlicensed contractors is subject to being shut down by licensing board investigators and authorities, which will undoubtedly cost the owner significant time and money. Also, it is generally the case that where a license is required for a particular type of work, a contract for such work with an unlicensed person may be subject to nullification.

The licensing process varies from state to state, but it is generally structured to require proof that a contractor has basic financial, business, and technical competency to perform the work for which the license in a particular classification has been issued in a responsible way. Technical competency is typically addressed through testing and/or required levels of experience in the specific area for which the license is sought. Many states have a tiered or subdivided contractor license system under which the state’s requirements for licensing are differentiated based on the monetary value of the contractor’s contracts and/or the type of services the contractor offers. Contractors that are licensed for large commercial construction contracts may hold a different type of license than subcontractors who are not dealing directly with owners, or contractors that only perform residential construction or home remodeling. Contractors and subcontractors performing inherently dangerous work which can threaten life, health, and safety (such as plumbing or electrical work) might need still other types of licenses.

Financial and business competency and viability is typically addressed through minimum asset requirements, examination of basic financial records, and background checks. The background checks may be for the licensed contractor and its key employees and agents, and will include review for things like bankruptcies or unsatisfied judgments.

The structure and purpose of most state contractor licensing systems is to ensure basic competency and basic levels of financial stability. State licensing requirements help create, identify, and illuminate the channels available to customers, creditors, and the government to hold a contractor accountable, particularly where there is a public threat to life, health, or safety. Nevertheless, a contractor’s ability to obtain a license should not be overvalued, particularly with regard to competency, and state licensing law is generally of little help to owners in the event of a contractual dispute with a licensed contractor. A license (where required) is the bare minimum that any responsible contractor needs before they begin to accept contracts.

Bonded: While, as discussed below, traditional insurance is not intended to guarantee a contractor’s performance under a construction contract, certain types of surety bonds are. “Bonded” means that a surety will stand behind the contractor for some obligation owed by the contractor. The surety guarantees some aspect of the contractor’s performance to someone. The key questions then are “what performance has been guaranteed” and “to whom”?

Generally, when the words “licensed, bonded, and insured” are used in an advertisement for a contractor, the word “bond” generally refers to a license and/or permit bond. This license and/or permit bond guarantees that the contractor will abide by the terms of the license issued and/or the permit they have pulled, protecting some or all of the licensing board, the public works department, the owner, or the general public. The existence of and requirements for obtaining a license and permit bond vary greatly by state, county, or municipality. In the event of a troubled contractor, though, the proceeds of these bonds are likely to be claimed by a number of different people, and the amount of the bond may not be likely to be sufficient to cover the contractor’s liabilities. In other words, while it could be nice that a bond of general applicability exists, owners should not place any reliance on such a bond in their decision-making process.

For a significant project, the owner will want to dictate the terms and conditions of the bond and have it dedicated to the project and that particular owner. Typically, this is done through a “payment and performance bond” issued for a specific project. The payment bond guarantees payment to subcontractors, material suppliers, laborers, and others that have worked on the project, and who may have lien rights against the owner. The performance bond generally serves as a guarantee by the surety to the owner that the contractor will perform the work pursuant to the terms and conditions of the contract. The performance bond does not entitle the owner to anything more than is owed under the construction contract, but does provide security that the project will be completed for the contract sum, even if not by the contractor.

Insurance: Whether a contractor is “insured” may be the most important or least important part of the trio, depending on the risk at issue. Insurance is the most valuable tool in protecting against the risks to third parties created by a construction project, but is not particularly useful in protecting the owner for its own damages caused by the contractor’s breach or bad work.

The most common risks addressed by a contractor’s liability insurance include property damage, injuries, and workers’ compensation claims. Many states’ contractor licensing laws require a minimum amount of general liability and workers’ compensation insurance in order to obtain and maintain a license. Liability and worker’s compensation insurance is important to protect owners from claims by third persons arising out of or related to their project, and insurance for these claims is of critical importance if they arise. While an owner can ascertain and determine a contractor’s available insurance through review of an insurance certificate supplied by the contractor’s insurance agent, for more significant projects, the owner will want to be added as an “additional named insured” to the contractor’s liability insurance policies and ensure that the available insurance has appropriate coverage and limits for the work at issue, and will defend the owner and contractor in the event of a claim.

While a contractor’s liability insurance may protect the contractor and even the property owner from claims for damages to third parties arising out of the project, it is not intended to protect the owner against breach of contract by the contractor or bad workmanship. In other words, “insured” means that a contractor has insurance to protect against risks to people other than the owner, and it is not likely to protect the owner from the owner’s own damages that may arise out of or relate to the project.

Construction projects also typically involve different types of property insurance, ranging from the owner’s property insurance policy or program to a builder’s risk policy, which protects the project and the materials and component parts thereof while the work is incomplete.

It’s important to understand the difference between being bonded and insured. For a contractor, one of the biggest differences between insurance and bonding is which entity takes on the risk; an insurance policy transfers the risk to the insurer, while a bond ultimately keeps the risk with the bonded contractor. For an owner, the main difference is in which types of circumstances are covered by bonds versus which are covered by insurance. Bonds should generally be associated with the Contractor’s performance of its obligations under the contract, whether to perform the work, or to pay subcontractors and material suppliers. Insurance should be associated with personal injury or property damage, typically to third parties.

The cost of licensing and insurance for a contractor is typically a general cost of doing business, while the cost of a project specific bond is… project specific. So, for projects where cost is a key factor (are there any where it is not?) many times, eliminating bonding requirements is a way to reduce project costs.

Surety bonds protect the interests of the project owner and ensure that the projects are completed correctly, securing the completion of the job and the security of the owner’s investment. Many surety bond companies won’t issue a bond without having sufficient security from the contractor and unless the contractor is sufficiently insured. If an incident occurred, causing property damage or personal injury, the surety would want to be confident that the contractor’s insurance would protect the continued viability of the contractor and its ability to complete the project, which the surety has guaranteed.

From a planning perspective, knowing that a contractor is “licensed, bonded, and insured” is certainly better than hiring a contractor that is not licensed, is not insured, and can’t get a bond, but prudence will always suggest consideration of the requirements and ramifications of the particular project, and at least some analysis of whether the protections offered by this contractor for a particular project are appropriate and sufficient.