Alexandra Mertens
Alex Mertens is an associate with a practice focus on corporate and transactional counsel, including mergers and acquisitions, capital raising, governance and commercial contract negotiation. She is also experienced in renewable energy corporate and project finance matters, and advises developers on issues concerning the acquisition, development and financing of renewable energy projects.
U.S. District Judge Rules on Ralls Corp Challenge to President Obama's Divestiture Order
There has been a new development in the effort by Ralls Corporation, a company owned by two Chinese nationals, to challenge President Obama’s September 2012 order requiring it to divest its interests in four wind projects in Oregon and to remove any equipment and infrastructure it had placed on the sites of the proposed projects. The President’s order, issued pursuant to section 721 of the Defense Production Act of 1950 (“Section 721”), had cited unspecified national security risks as the reason for blocking Ralls Corporation’s acquisition of the wind projects, but the sites of the four proposed projects are near or within restricted airspace of U.S. Naval Weapons System Training Facility Boardman.
On Friday, U.S. District Judge Amy Berman Jackson ruled that she could not overturn President Obama’s order. In her opinion, Judge Jackson said that the law "is not the least bit ambiguous about the role of the courts: 'The actions of the president . . . and the findings of the president . . . shall not be subject to judicial review.'" Therefore, the judge declined to review the President’s findings on the merits. However, she did determine that the court has jurisdiction to determine whether the President followed proper procedures in implementing Section 721. The judge will rule on that due process issue following further briefing by the parties. If Ralls Corporation wins on the merits of the due process claim, it may be entitled to hear the reasons for the President’s decision to block the acquisition of the wind projects.
*Update: Ralls Corp reacted to Judge Jackson's ruling by insisting they would "persist in the lawsuit to the end and will appeal to the circuit court or the supreme court [sic] of the United States if necessary." See here for more of the company's reaction.
Download a full copy of the opinion here (PDF). See our prior posts for more background on the case.
CFIUS Annual Report: National Security Trends in Foreign Investment and M&A in the United States
The Committee on Foreign Investment in the United States (CFIUS) recently issued its 2012 Annual Report to Congress. My colleague CJ Voss has summarized some of the report's key findings.
CFIUS is charged with reviewing acquisitions of U.S. businesses for national security implications. As we reported last fall, President Obama blocked Chinese-owned Ralls Corporation’s acquisition of wind farm projects in Oregon following intervention by CFIUS in the deal.
According to CJ, the report provides important insights for foreign companies considering investment and M&A transactions that could raise national security considerations, including:
- CFIUS believes foreign governments or companies likely have a “coordinated strategy” to acquire U.S. companies involved in research, development and production of critical technologies
- Filings with CFIUS have increased 70% since 2009
- Filings involving Chinese buyers have increased
- CFIUS has imposed various mitigation measures on transactions
- Certain industry sub-sectors accounted for more than half of all filings between 2009-2011
Read on for CJ's detailed summary of the report and its implications.
Justice Department Moves to Dismiss Ralls Corp Lawsuit over Blocked Oregon Wind Projects
On October 29, 2012, the U.S. Justice Department filed a motion to dismiss the lawsuit filed by Ralls Corp (“Ralls”), an affiliate of Chinese-owned Sany Group, challenging President Obama’s September 28, 2012 order that blocked four planned Oregon wind projects on national security grounds. See our previous posts for more background on the Ralls Corp. v. Committee on Foreign Investment in the U.S. case.
In its filing, the Justice Department argued the Defense Production Act prohibited judicial review of presidential orders that suspend or prohibit the acquisition of a U.S. business by a foreign person. “Neither the president’s findings nor his actions in the presidential order fall outside his extremely broad discretion, and Rall[s]’s constitutional claims are nothing more than disguised challenges to his exercise of that discretion,” wrote U.S. Attorney Joel McElvain in the filing.
Ralls has argued the Presidential Order could cost the company $20 million in lost design and construction costs. Ralls also argues it will also lose $25 million in federal tax incentives if the wind projects are not placed in service by December 31, 2012.
Stay tuned to Renewable + Law blog for more developments in this case.
Video Interview: Discussing the Obama-Blocked Chinese Wind Energy Project with LXBN TV
Following up on our posts on the subject, I had the chance to speak with Colin O'Keefe of LXBN regarding President Obama's blocking of a Chinese-owned wind energy project out of concerns for national security. In the brief interview, I explained what exactly happened and whether or not the companies involved have any kind of legal recourse.
Obama Blocks Chinese-Owned Wind Project
President Obama issued an order on Friday blocking the construction and ownership of a wind project by Ralls Corporation (“Ralls”), due to national security concerns including “credible evidence” that Ralls or its affiliates, including the Sany Group (“Sany”), “might take action that threatens to impair the national security of the United States.” Ralls was in the process of developing a proposed 40-megawatt wind project in Oregon, through its acquisition of four Oregon limited liability companies (the "Oregon Projects"). The President’s order imposes numerous requirements on Ralls, its two owners, both of whom are Chinese nationals, and Sany, including:
- within 90 days, Ralls must divest of all interests in the Oregon Projects and the assets of the Oregon Projects;
- within 14 days, Ralls and Sany must remove all structures and installations of any kind (including concrete foundations) on the Oregon Projects’ property, and the owners of Ralls must provide CFIUS with a signed statement certifying that such requirements have been met;
- Ralls, Sany and any of their affiliates and representatives may not access the site, except for U.S. citizens contracted by Ralls or Sany and approved by CFIUS, who may access the site solely for the purpose disassembling the facility;
- Sany, Ralls, and the owners of Ralls may not sell or facilitate the sale of any Sany equipment for use at the Oregon Projects’ sites, and
- a sale of the Oregon Projects or their assets may not be completed until all structures and installations have been removed, Ralls notifies the Committee on Foreign Investment in the United States (“CFIUS”) in writing of the intended buyer or recipient, and CFIUS does not object.
Although the order does not specify the basis of the concern, it is likely due to the proximity of the Oregon Projects to a U.S. Navy facility that conducts training missions with unmanned drones and electronic-warfare planes. In response, Sany has accused the President of electioneering, according to a report in WindPower Monthly, and Sany may continue to pursue a legal challenge to the order. This may prove to be an uphill battle for Sany, given that the Defense Production Act bars judicial review of presidential orders issued upon recommendation by CFIUS. In light of the presidential order, foreign investors should consider making CFIUS approval a condition to closing under any agreement by which they acquire US energy assets, particularly if the acquisition involves a project located near military facilities and regardless of whether the project or company has defense-related contracts or owns sensitive information.
For more background, see our prior post regarding Ralls’s lawsuit in response to the initial CFIUS mitigation measures: http://www.lawofrenewableenergy.com/2012/09/articles/wind-energy/cfius-intervenes-in-chineseowned-wind-project/.
CFIUS Intervenes in Chinese-Owned Wind Project
On September 12 a U.S. wind project development company, Ralls Corporation ("Ralls"), owned by two Chinese nationals, filed suit against the Committee on Foreign Investment in the United States ("CFIUS"), an inter-agency U.S. government body charged with assessing the potential national security effects of foreign acquisitions of U.S. businesses. National security concerns may arise in a number of ways when a foreign entity acquires a U.S. renewable energy business. However, the CFIUS order to which the lawsuit responds marks an unprecedented intervention by the U.S. government in renewable energy project development, which, since its inception, has benefitted from substantial investment by foreign investors.
The Ralls complaint alleged that CFIUS exceeded its authority by blocking Ralls’ investment in and development of a proposed 40 megawatt wind project in Oregon, through its acquisition of four Oregon limited liability companies (the "Oregon Projects"). Ralls and CFIUS subsequently reached an agreement regarding the resumption of preliminary construction activities but, by September 28, President Obama is expected to decide whether to let the Oregon Projects proceed or to require divestiture on terms specified by CFIUS. In light of this order, such "national security" risks may potentially prove a greater risk to renewable energy transactions than previously understood.
Click here to read more on the scope of a CFIUS review and what puts a transaction at risk.
Bill to Stabilize New Jersey Solar Market Signed into Law
On July 23, New Jersey Governor Chris Christie signed into law a bill which amends the state's solar energy incentive program in an effort to increase the demand for solar renewable energy credits (SRECs), stabilize the market for SRECs, which has seen a substantial decline in price over the last year, and support the development of solar projects within the state.
The primary features of the law include an increase in the solar renewable portfolio standard (SRPS) in the near term to accelerate utilities' purchase of SRECs and reduce the current oversupply, and an extension of the "shelf-life" of SRECs for up to 5 years, from 3, permitting developers more flexibility to sell SRECs into the market at advantageous times. To prevent an over-supply of RECs and protect ratepayers, the law also calls for the Board of Public Utilities (BPU) to establish an approval process for large non-net metered projects to qualify for SRECs, changes the SRPS from a fixed megawatt requirement to a variable percentage reflective of the demand for energy, and significantly reduces in the penalties for failure to comply with the SRPS to effect a lower ceiling price on SRECs.
In addition, the New Jersey law provides certain incentives for brownfield development, such as an exemption from the BPU approval process, authorizes certain public entities to aggregate net metering to permit such entities to offset electricity costs at non-connected buildings, and clarifies that large net metered systems can connect to higher voltage lines to create more space for all systems on the distribution system.
According to the trade group Mid-Atlantic Solar Energy Industries Association, construction activity in New Jersey’s solar sector could increase 30% over the next two years on account of the new law. However, some remain concerned that the program may not yield sufficiently consistent and attractive prices to draw banks and financiers after a similar SREC initiative enacted in Massachusetts at the end of 2010 has so far met with skepticism from banks. Until the financial players are satisfied, the benefit of this law will be realized by very small-scale projects.
