February 19, 2016 Washington Update

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Williams & Jensen – Washington UpdateFebruary 19, 2016

TAX

Levin to Introduce Earnings Stripping Legislation

Key Point

  • House Ways and Means Committee Ranking Member will introduce legislation targeting earnings stripping to address corporate inversions

House Ways and Means Committee Ranking MemberSander Levin (D-MI) said he will introduce legislation to curb earnings stripping next week. While details of the upcoming legislation have not been released, Levin previously targeted earnings stripping in 2014 releasing a discussion draft on the issue. The 2014 discussion draft would have tightened the earnings stripping rules of Section 163(j) and expand the rules under Section 956 that require current U.S. tax on certain earnings of controlled foreign corporations (CFCs). The bill was intended to address inversions; however, the provisions in the discussion draft were not limited to companies that have engaged in inversion transactions. The discussion draft’s proposals would have affected foreign-owned U.S. companies more generally, meaning there would have been potential implications for all foreign companies investing in the U.S.

For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Laura Simmons contributed to this section.

FINANCIAL SERVICES

FHFA Director Speaks on Fannie Mae and Freddie Mac Capital, Conservatorship

Key Points:

  • FHFA Director Mel Watt raised concerns with the duration of the conservatorship of Fannie Mae and Freddie Mac.
  • Watt expressed concern with the lack of capital held by the GSEs.

On February 18, Federal Housing Finance Agency (FHFA) Director Mel Watt spoke at a Bipartisan Policy Center (BPC) event to provide an update on the conservatorship of Fannie Mae and Freddie Mac. Watt, in a statement, stressed the need for bipartisan cooperation on housing finance issues. He stated that an eight year conservatorship of the two Government Sponsored Enterprises (GSEs) is unprecedented and asserted that “thechallenges and risks we are managing are escalating and will continue to do so the longer the Enterprises remain in conservatorship.” He stated that the most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital. Watt stated that starting January 1, 2018, the Enterprises will have “no capital buffer and no ability to weather quarterly losses… without making a draw against the remaining Treasury commitments” under the Preferred Stock Purchase Agreements.

FINRA CEO Speaks on Capital Market Structure

Key Points:

  • FINRA CEO Richard Ketchum urged the SEC to engage in a review of multiple issues, including opening processes at the exchanges, the limit up/limit down regime, the use of stop orders, and market maker quoting obligations.

On February 17, FINRA CEO Richard Ketchum gave a speech at the Exchequer Club on “Essential Elements of Sound Capital Market Structure.” He suggested that there are three areas market participants and regulators should always be looking to strengthen: (1) market transparency; (2) market liquidity; and (3) market fairness. He emphasized FINRA’s commitment to ensuring transparency in the stock and bond markets, pointing to the success of the TRACE program in enhancing transparency for corporate bonds.

MSRB Announces Municipal Advisors to be Subject to New Pay-to-Play Regulations

Key Points:

  • The Municipal Securities Rulemaking Board (MSRB) announced that new pay-to-play regulations will go into effect later this year for the municipal advisors.

On February 17, the Municipal Securities Rulemaking Board (MSRB) announced that its proposed amendments to Rule G-37 relating to pay-to-play practices were deemed approved and will go into effect on August 17, 2016. The new regulations will extend the municipal securities dealer pay-to-play rules to municipal advisors, including those acting as third-party solicitors. Consistent with the rule for dealers, the amended Rule G-37 prohibits “municipal advisors from engaging in municipal advisory business with municipal entities for two years if certain political contributions have been made to officials of those entities who can influence the award of business.” An educational webinar on the rule will be presented by the MSRB on Thursday, July 7, 2016.

FDIC Approves Notice of Proposed Rulemaking on RecordkeepingRequirements for Timely Deposit Insurance Determination

Key Points:

  • The FDIC Board approved a Notice of Proposed Rulemaking related to recordkeeping requirements for timely deposit insurance determinations.

On February 17, the Federal Deposit Insurance Corporation (FDIC) Board at its open meeting voted to approve a memorandum and resolution regarding a Notice of Proposed Rulemaking (NPR) Regarding Recordkeeping for Timely Deposit Insurance Determination. The proposed rule would require a covered depository institution that has more than two million deposit accounts to: (1) maintain complete and accurate data on each depositor’s ownership interest for all of the bank’s deposit accounts, and (2) ensure that its information technology system is capable of calculating within 24 hours after failure the deposit insurance available to each owner of funds on deposit. Chairman Martin Gruenberg stated that in the aftermath of the financial crisis, the FDIC worked to improve its capabilities and manage the resolution of a large failed bank. He suggested timely access to insured deposits when a bank fails is critical to maintaining public confidence in the banking system. He stated the proposal will foster the FDIC’s ability to provide depositors of banks with at least 2 million accounts with the same rapid access to their insured funds as the FDIC does when a smaller institution fails. Gruenberg noted that the proposal is not intended to apply to community banks and will be subject to a 90 day comment period.

SEC Chair Discusses 2016 Agenda for the SEC

Key Points:

  • Chair White discussed the SEC’s accomplishments and outlines the agenda for the SEC in 2016.

On February 19, SEC Chairman Mary Jo White gave remarks at the 45th annual “SEC Speaks” event. Chair White discussed the SEC’s recent accomplishments and the agenda for 2016. She noted the SEC will remain focused on finalizing the remaining security-based swap rules required by Title VII of the Dodd-Frank Act (DFA), but Chair White also laid out several other goals for 2016 including: initiatives related to asset management; initiatives related to Equity market Structure; and reforms to the disclosure regime.

For more information about financial services issues you may email or call Joel Oswald at 202-659-8201. Rebecca Konst and Alex Barcham contributed to the articles.

ENERGY AND ENVIRONMENT

Congress and Regulators Respond to California Natural Gas Leak

Key Points:

  • The highly-publicized methane leak from a Southern California underground natural gas storage facility garnered the attention of federal legislators and regulators.
  • While federal pipeline safety regulators have issued non-binding guidance on storage facility safety, Congress is expected to direct the establishment of mandatory safety standards.

The recent methane leak from the Aliso Canyon natural gas storage facility has triggered legislative and regulatory efforts to regulate underground natural gas storage. While the Pipeline and Hazardous Materials Safety Administration (PHMSA) has recently published guidance outlining best practices for ensuring the safety of gas storage, Congress is very likely to direct the agency to establish binding safety standards.

Wrap-Up of FERC Meeting

Key Points:

  • FERC held its monthly meeting on Thursday, considering 22 items, mostly related to electric markets and natural gas pipelines.

On February 18, the Federal Energy Regulatory Commission (FERC) held its monthly meeting and issued orders on a number of electric and natural gas matters. FERC’s actions (as described in the Commissions “Meeting Summary”) included:

  • A Notice of Inquiry (NOI) seeking public “comment on the need for reforms to its rules and regulations regarding the provision and compensation of primary frequency response.” In a press release, the Commission explains: “Reliable operation of the grid requires maintaining system frequency within predetermined boundaries above and below 60 Hertz. Frequency response is a measure of an interconnected grid’s ability to arrest and stabilize frequency deviations within those boundaries following the sudden loss of generation or load.” The NOI that observes that “the nation’s electric supply portfolio has transformed to the point where fewer resources may now be providing primary frequency response.”
  • An Order Instituting a Section 206 Proceeding “to determine whether, in light of the significant changes in California’s wholesale markets over time, the must offer obligation originally imposed in the Western Electricity Coordinating Council during the California energy crisis of 2001 is no longer necessary and therefore has become unjust and unreasonable.”
  • An Order Approving Fuel Tracker Mechanisms Subject to Conditions that: “accepts, subject to conditions, Gulf South’s proposal for a fuel tracker as required by its recently approved rate case settlement”; “requires Gulf South to modify how it calculates fuel on its Southeast Market Expansion facilities…in order to address protests to its original calculation methodology”; and “directs Gulf South to specify in its tariff the methodology it will use to convert electric compression costs to a natural gas equivalent, and to make other adjustments that Gulf South agreed to make.”
  • An Order Granting Clarification and Dismissing Alternative Rehearing Request as Moot that “grants Tres Palacios’ request for clarification of the Commission’s March 19, 2015 order that denied the company’s request for authorization under section 7(b) of the Natural Gas Act to abandon up to 22.9 billion cubic feet of certificated working gas storage capacity in its salt dome natural gas storage facility located in Matagorda and Wharton counties, Texas…[clarifying] that Tres Palacios is not required to show evidence of structural changes to its storage facility in order to request authorization to change its certificated working gas capacity.”

For more information about energy and environment issues you may email or call Frank Vlossak at 202-659-8201. Updates on energy and environment issues are also available on twitter.

DEFENSE

GAO Denies Boeing’s Long-Range Strike Bomber Bid Protest

Key Points:

  • Boeing’s initial challenge of Northrop Grumman’s win failed
  • While Northrop moves ahead on $21 billion contract, Boeing mulls court challenge

On February 16, the Government Accountability Office denied Boeing’s bid protest of the Air Force’s award of the Long-Range Strike Bomber contract to Northrop Grumman. Northrop Grumman won the Engineering and Manufacturing Development contract in October 2015 against a team comprised of Boeing and Lockheed Martin that could be worth as much as $21.4 billion in 2010 dollars and an option for the first 21 aircraft. However, the total potential dollar value of the option has not been released other than the Air Force specifying that the per-unit cost of the Air Force’s next generation Long Range Strike Bomber should be $511 million per aircraft. The Air Force is projecting that the Long-Range Strike Bomber will deploy in the middle of the next decade and would replace B-52s and B-1s.

For more information on defense issues you may email or call Michael Kans at 202-659-8201. Kevin Prior contributed to this section.

HEALTH

Senate Prepares to Confirm FDA Commissioner

Key Points:

  • Senate will hold a procedural vote on February 22 at 5:30 p.m. requiring 60 votes
  • Senators on both sides of the aisle have expressed concern about the nomination

On February 11 before leaving for recess, Senate Majority Leader Mitch McConnell (R-KY) filed cloture on Dr. Robert Califf’s nomination to be Commissioner of the Food and Drug Administration (FDA). Senators will take a procedural vote at 5:30 p.m. on February 22 when they return from recess. Sixty votes will be needed to overcome the procedural hurdle, but several Senators have already expressed reservations about proceeding with the confirmation.

For more information about healthcare issues you may email or call Matthew Hoekstra or George Olsen at 202-659-8201.

TRANSPORTATION AND INFRASTRUCTURE

FTA Releases FAST Act Guidance and FY 2016 Apportionment

Key Points:

  • FTA begins implementing surface transportation reauthorization programmatic changes and announces funding for FY 2016 formula programs as changed by FAST Act

On February 16, the Federal Transit Administration (FTA) issued interim guidance “about new FTA programs and changes to existing FTA program statutes...as amended by the “Fixing America's Surface Transportation (FAST) Act” (P. L. 114-94).” The FTA explained that the notice also “provides full year apportionments for FTA formula and discretionary programs that are available in FY 2016 pursuant to the“Consolidated Appropriations Act, 2016”(P. L. 114-113)...[and] contains information on how FTA plans to administer its transit programs in FY 2016 and how funds appropriated and allocated prior to FY 2016 will be treated.” The FTA stated that “[t]his notice highlights important changes to FTA programs, including new discretionary programs...[and] describes definitional changes and cross-cutting requirements, identifies repealed programs and provides specific information about FTA's statutory programs as amended by the FAST Act.”The FTA stated that for each program it “has provided information on the FAST Act authorized funding levels for FY 2016, the basis for apportionment or allocation of funds, requirements specific to the program, period of availability of funds, and other program information.”

For more information on transportation issues you may emailor call Michael Kans at 202-659-8201. Lucas Rogers contributed to this section.

TECHNOLOGY

DHS and DOJ Release Guidelines and Guidance For New Information Sharing Regime

Key Points:

  • DHS and DOJ meet first deadline in implementing Cybersecurity Act of 2015
  • Notably, guidelines are released for procedures for sharing information with federal government and the federal government sharing information with private sector

On February 16, the Departments of Homeland Security (DHS) and Justice (DOJ) released four guidance documents per the “Cybersecurity Act of 2015” (P.L. 114-113),” which required that these documents be released within 60 days of enactment. DHS and DOJ met this ambitious timeline and issued the following documents:

  • Sharing of Cyber Threat Indicators and Defensive Measures by the Federal Government under the Cybersecurity Information Sharing Act of 2015
  • Guidance to Assist Non-Federal Entities to Share Cyber Threat Indicators and Defensive Measures with Federal Entities under the Cybersecurity Information Sharing Act of 2015
  • Interim Procedures Related to the Receipt of Cyber Threat Indicators and Defensive Measures by the Federal Government
  • Privacy and Civil Liberties Interim Guidelines

For more information on technology issues you may emailor call Michael Kans at 202-659-8201.

This Week in Congress was written by Laura Simmons.

Williams & Jensen, PLLC

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