1. Smart Grid Primer: Legal Issues Derek A. Dyson Duncan, Weinberg, Genzer & Pembroke, P.C. Energy Bar Association December 4, 2009

2. 2 Agenda I. Introduction II. Grant Agreement  Negotiate Terms  Key Provisions III. Reporting IV. Regulatory Requirements V. Other Issues VI. Conclusions

3. 3 I. Introduction: What Are Smart Grids? Source: Electric Power Research Institute

4. 4 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

5. 5 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

6. 6 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

7. 7 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)

8. 8 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)

9. 9 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.

10. 10 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

11. 11 Flow of Reimbursement and Data Reporting Example: Department of Energy Cooperative Members Contractor, Supplier, Etc. Sub-RecipientVendor Contractor, Supplier, Etc. $$ Electric Cooperative Recipient*Grantor *Recipient maintains duty of reporting (can delegate to Sub-Recipient, but ultimately responsible for ALL data reported) $ $ Report Jobs and Cost Data at FederalReporting.gov Report on VIPERS

12. 12 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

13. 13 IV. Regulatory Requirements  Recovery Act  DOE Financial Assistance Rules (10 CFR Part 600)  Accounting and Audit Requirements

14. 14 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

15. 15 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

16. 16 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

17. 17 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/dbr a.htm http://www.dol.gov/compliance/guide/dbr a.htm

18. 18 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

19. 19 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_mai n_02.tpl http://ecfr.gpoaccess.gov/cgi/t/text/text- idx?c=ecfr&tpl=/ecfrbrowse/Title10/10cfr600_mai n_02.tpl

20. 20 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)

21. 21 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.govwww.epls.gov

22. 22 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

23. 23 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

24. 24 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

25. 25 Supplemental Slides

26. 26 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

27. 27 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.)

28. 28 ALSouthern Company Services ARWoodruff Electric AZSalt River Project Southwest Transmission Coop Navajo Tribal Utility Association CASacramento Municipal Utility District Burbank Water and Power San Diego Gas and Electric City of Glendale City of Anaheim Modesto Irrigation District COCity of Fort Collins Black Hills/Colorado Electric CTConnecticut Municipal Electric Energy Coop DCPEPCO FLFlorida Power & Light Lakeland Electric JEA City of Leesburg, FL City of Tallahassee Talquin Electric Cooperative Intellon Corporation City of Quincy, FL GACobb Electric Membership Municipal Electric Authority of GA Georgia System Operations Corp. Tri State Electric Membership Corp. GUGuam Power Authority HIHawaii Electric Co. IAIowa Ass’n of Municipal Utilities IDIdaho Power Company M2M Communications ILCity of Naperville, IL INIndianapolis Power and Light Company City of Auburn, IN KSWestar Energy, Inc. Midwest Energy, Inc. KYSouth Kentucky Rural Electric Cooperative LACleco Power LLC Lafayette Consolidated Government Entergy New Orleans, Inc. Entergy Services, Inc. City of Ruston, LA MAHoneywell Int’l NSTAR Electric Co. Town of Danvers, MA ISO of New England Marblehead Municipal Light Department Vineyard Energy Project MDBG&E Smart Grid Investment Grant Awardees:

29. 29 MECentral Maine Power Co. MIDetroit Edison Company Whirlpool Corp. MOCity of Fulton, Missouri MSSouth Mississippi Electric Power Ass’n NCDuke Energy (x2) Progress Energy NECuming County Public Power District Stanton County Public Power District NHNew Hampshire Electric Cooperative NJAtlantic City Electric Co. NVNV Energy NYConEd NYISO OHFirst Energy Service Company City of Wadsworth, OH City of Westerville, OH OKOklahoma Gas and Electric Co. ORPacific Northwest Generating Cooperative Central Lincoln People’s Utility District PAPECO PPL PJM PAWellsboro Electric SDBlack Hills Power, Inc. Sioux Valley Energy TNElectric Power Board of Chattanooga Memphis Light, Gas and Water Knoxville Utilities Board TXCenterPoint Energy TXReliant Energy Retail Services Golden Spread Electric Cooperative Denton County Electric Cooperative El Paso Electric UTWECC VARappahannock Electric Cooperative Northern Virginia Electric Cooperative VTVermont Transco WAAvista Utilities Snohomish County Public Utilities District WIAmerican Transmission Company (x2) Madison Gas and Electric Wisconsin Power and Light WYCheyenne Light, Fuel and Power Company Powder River Energy Corporation Smart Grid Investment Grant Awardees, Cont’d.:

30. 30 CALADWP SCE (x2) Primus Power Corporation Seeo, Inc. Amber Kinetics, Inc. PG&E MANSTAR Electric & Gas (x2) Premium Power Corporation Beacon Power Corporation MIDetroit Edison Company MOKansas City Power & Light Boeing Company NCDuke Energy NHSustainX, Inc. NMKtech Corporation PSCo. Of New Mexico NYConEd Long Island Power Authority New York Power Authority New York State Electric & Gas OHAEP Ohio City of Painesville PAEast Penn Manufacturing Co. 44 Tech Inc. Smart Grid Demonstration Grant Awardees: TXCenter for the Commercialization of Electric Technologies Pecan Street Project Oncor Electric Delivery Company VANat’l Rural Electric Cooperative Ass’n WABattelle Memorial Institute, Pacific Northwest Division WIWaukesha Electric Systems

31. 31 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

32. 32 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

33. 33 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

34. 34 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

35. 35 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

36. 36 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 http://www.cio.energy.gov/documents/4600- 2.pdf

37. 37 Additional Smart Grid Related Reporting to DOE o Management Reporting o Earned Value Progress Reporting o Technical Reporting o Cost/Benefits Data Metrics o Financial Reporting o Financial Status Report (Long or Short Form) o Closeout Reporting o Patent Certification o Property Certification o Other Reporting o Annual Indirect Cost Proposal o Annual Inventory of Federally Owned Property, if any

38. 38 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

39. 39 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

40. 40 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/formop tions.html http://harvester.census.gov/fac/collect/formop tions.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

41. 41 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 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

42. 42 Key References  American Reinvestment & Recovery Act of 2009 www.recovery.govwww.recovery.gov  Department of Energy www.energy.govwww.energy.gov  Office of Management & Budget (OMB) http://www.whitehouse.gov/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