This is a second post summarizing the Berkeley Center for Law, Business and the Economy and Philomathia Foundation Forum on unlocking capital for energy efficient improvements. The previous post is here.

Throughout the forum, many presenters agreed that multifamily units present an especially appealing opportunity for increasing investments in green renovations.  With reasonable up-front capital costs, these improvements often drive down operating expenses and generate an attractive return at relatively low risk for both property owners and independent investors.

Sadie McKeown, senior vice president of The Community Preservation Corporation, stressed that savings from energy efficient retrofits to multifamily units often exceed the additional loan payments, especially when the projects are financed with inexpensive mortgage capital.  Once the industry has developed energy savings benchmarks, McKeown predicted that many building owners would be willing to go forward with such projects.  From her own experience, she noted that many multifamily properties only require $1,500 to $4,000 per unit, but yield consistent cost savings.  If financed through traditional mortgage markets, with capital improvements amortized over 20 or 30 years, even modest energy expense reductions will cover the costs. (more…)

IV.  The JOBS Act’s Implications

The Act makes it easier for smaller companies to gain access to financing through the public market. These small companies will be able to expand, generating more jobs and leading to economic growth. However, some companies may not be ready to go public from a disclosure standpoint. If a small company wants to have the advantage of being a publicly traded company, the Act provides a way to do that, but there is much more regulatory scrutiny involved, so the company must be sure it has an experienced general counsel and an effective corporate secretary able to file all the necessary paperwork and deal with required disclosures. Companies should be wary and make sure they are properly prepared to go public, and not do so just because they have this window of opportunity. It is too soon to tell what will happen when the capital markets are made more accessible to smaller firms. (more…)

I.  Background of JOBS act.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “Act”) (H.R. 3606) into law. This bipartisan legislation is intended to stimulate jobs growth in the United States by allowing smaller companies to raise capital, both privately and publicly, with greater ease and fewer restrictions by relieving them of some of the regulations currently applicable to private offerings, initial public offerings, and certain newly public companies. This Act focuses on emerging growth companies, as defined, by allowing them flexibility as to the timing of entering the public offering market.

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On Friday September 29, Judge Wilkins for the U.S. District Court for the District of Columbia vacated a Dodd-Frank rule issued by the CFTC setting limits on the number of derivatives contracts that an individual trader or group of traders can own during a given period of time. The Court’s ruling turned on whether Dodd-Frank “clearly and unambiguously” mandated the creation of position limits on derivatives contracts with or without first determining whether those limits were necessary and appropriate.

Two trade groups brought suit, arguing that the correct interpretation of the statute requires a determination of necessity before setting position limits. The CFTC argued that there was no substantive necessity requirement at all. Both the trade groups and the CFTC argued that the statutory language was clear and unambiguous, and that their different interpretations were correct. (more…)

On Friday, October 5^th, the Berkeley Center for Law, Business and the Economy is sponsoring the 2012 Philomathia Foundation Forum at the Ritz-Carlton in San Francisco. The topic of the Forum is “Where is the Money? Unlocking Capital for Real Estate Efficiency Improvements.” The event will take place from 8:30am-4:30pm.

The forum will explore what has been hindering the deployment of capital to energy efficient developments, including the need for energy considerations in risk and asset management decisions and a liquid secondary market for existing and proposed energy financing products.

Participants are encouraged to engage in an active discussion of the solutions to these impediments with leaders in real estate, finance, and technology.  The impressive speaker list includes Senator Ron Wyden (D-OR) and California Controller, John Chiang. Michael R. Peevey, President of the California Public Utilities Commission and Richard Kauffman, a Senior Advisor at the US Department of Energy will also present. These speakers and more will focus on assessing and managing the energy risk that is critical to unlocking the trillions of dollars necessary to achieve energy efficiency benefits.

The event is also sponsored by Manatt, Phelps & Phillips and the Fisher Center for Real Estate & Urban Economics and Haas School of Business at the University of California Berkeley.

If you would like more information, please contact BCBLE@law.berkeley.edu.

On August 30^th, the Securities and Exchange Commission published a study regarding financial literacy among investors, as required by the Section 917 of the Dodd-Frank Act. In a 182 page report, the SEC examined 1) the existing level of financial literacy among retail investors; 2) methods to improve disclosures regarding financial intermediaries, investment products, and investment services, 3) information that retail investors need to make informed financial decisions, 4) methods to increase transparency of expenses and conflicts of interests, 5) existing efforts to educate investors, and 6) ways to increase investor financial literacy.

The study found that retail investors lack an understanding of basic financial concepts, such as diversification or the differences between stocks and bonds. Investors consider fees, investment strategies, and conflict of interest to be essential in their investment decisions and prefer clearly written disclosure documents that are easy to understand, with tables and graphs.

The study suggests that using the table format to explain fees and compensation is likely to = increase the transparency of expenses. The most effective existing efforts to educate investors were goal-oriented and research-based methods that are easily accessible to investors. In an effort to increase financial literacy of investors, the Office of Investor Education and Advocacy and organizations within the Financial Literacy and Education Commission will aim to create investor-specific programs, promoting the importance of checking the background and costs of investing.

While these findings may not be surprising, they come at a time when opportunities for retail investors are likely to expand through implementation of the JOBS Act, including both the SEC’s proposal to ease the general solicitation prohibition of private offerings and the JOBS Act’s  potential for relaxed regulations regarding crowdfunding.

On Wednesday, September 12^th, Professor Nicholas Howson will present “Dangerous Liaisons: China’s Indirect Investment Structures and the Shaky Foundations of “China Plays” on the Global Capital Markets.” The Berkeley Center for Law, Business and the Economy and the Center for Chinese Studies are cosponsoring the event. Lunch will be provided and CLE credit is available.

Professor Howson, visiting from the University of Michigan, will analyze the rise of “Variable Interest Entities,” an indirect method of investing in Chinese companies designed to circumvent Chinese government restrictions on foreign investment.  This investment form involves a foreign holding company creating a wholly owned subsidiary in China to effectuate the foreign company’s investment in a Chinese company.  The investment form, however, has proven risky for American investors.

Professor Howson will analyze the phenomenon as it has grown over nearly two decades, the way in which it underpins the great majority of apparently “Chinese” issuers raising money on the global capital markets, the very serious legal and financial risks arising from it, and several case studies where those risks have ripened into collapse or quasi-expropriation. Professor Howson will conclude with a discussion of the legal, professional and ethical obligations of corporate and securities lawyers and underwriters — Chinese and foreign — in connection with the structuring and facilitation of these transactions, and the introduction of such risk-laden issuers into the world’s capital markets.”

The event will take place in Boalt Hall, Room 110 at 12:45pm. Please RSVP to BCLBE@law.berkeley.edu.

With the development of new technology for drilling natural gas in shale formations, both economists and oil & gas experts are projecting shifts in American natural gas usage and supply. What does this mean for the energy market, American energy consumers, and environmental groups?

In 2010, natural gas generated 33.1% of the energy produced and 25.2% of the energy consumed in the United States. The United States Energy Information Administration’s (EIA) Annual Energy Outlook 2012 estimated that domestically produced natural gas will increase by 29% between 2010 and 2035 (from 21.6 trillion cubic feet in 2010 to 27.9 trillion cubic feet in 2035); while still highly speculative, almost all of this increase is attributable to projected growth in shale gas production.

This projected increase is in stark contrast to the turn of the millennium, when U.S. natural gas needs exceeded supply and U.S. companies invested billions into liquefied natural gas (LNG) import facilities. As recently as 2007, more than sixty LNG import projects were proposed in North America. Now, many of these same companies are moving to convert existing import facilities into natural gas exporting centers. Only one LNG export facility has received approval from the Federal Energy Regulatory Commission (FERC) and the U.S. Department of Energy: the Sabine Pass LNG export terminal in Louisiana.

Currently, experts are debating whether America should export natural gas to nations like South Korea and China. In January 2012, the EIA released a study analyzing the effect of increased LNG exports on domestic energy markets, concluding that exporting LNG would raise the price of natural gas domestically while increasing production. Proponents of increased exports (and lower regulatory hurdles) argue that exporting natural gas is vital to stabilizing the price of natural gas in the United States and to stimulating the economy in the long run. Opponents point to the EIA study, arguing that higher domestic prices for natural gas will slow the economy. Environmental groups such as the Sierra Club also oppose LNG exports, arguing that increasing natural gas exports will have negative environmental impacts due to the controversial “hydraulic fracturing” process used to extract gas from shale.

Both Republicans and Democrats are steering clear of this highly contentious issue. Unlike most black-and-white political issues, LNG exports affect not only U.S. consumers concerned with higher prices, but also America’s international allies, rivals, and largest corporations. Furthermore, it pits America’s traditional free-trade orthodoxy against the domestic need for cheaper and longer-term fuel solutions. The U.S. Department of Energy is currently finalizing a study analyzing the commercial effects of exporting LNG to worldwide markets, including China and other Asian economies. The DOE and FERC have declined to approve any more LNG export facilities until the study is released.

Who gets the water in the California Bay Delta has been a controversy spanning multiple decades primarily because of the estuary’s importance as a unique environmental habitat and as a valuable natural resource for Central Valley farmers. Near continuous litigation has spawned over the Delta’s designation as a “critical habitat” for a number of endangered species that live in the watershed like the Delta smelt and Chinook salmon. The Central Valley Project (“CVP”) is one of many Bureau of Reclamation water projects that divert northern California’s water from this watershed to Central Valley farmers. However, while these diversions provide necessary water to the agricultural industry, they simultaneously diminish the survival of endangered fish species.

Currently, environmentalists use the Endangered Species Act as the basis for lawsuits seeking to reduce the amount of diverted water. Reducing diversions helps fish species by inhibiting the spread of disease, lowering river temperatures to promote breeding, and increasing the optimal habitat range.

However, disputes arise when there is not enough water to satisfy user demands and protect endangered species at the same time. Drought has exacerbated this problem. For instance, the National Oceanic and Atmospheric Administration has found that recent weather patterns have caused the worst drought in America since 1956. Farmers have responded with increasing challenges to fish protection in order to receive their contractual water allocations from the state and federal water projects. For farmers, limitations on water supply create dire economic consequences, primarily felt by most Americans in the form of increased prices.  Additionally, farmers facing restrictive water allocations react by pumping water from wells, fallowing lands, and switching crops to less water-intensive plants. These usage restrictions negatively affect job creation, access to credit, air pollution, and consequently, the economic viability of central valley farming.

However, there are also economic consequences in satisfying cities’ and farmers’ demands for water.  For example, when salmon fisheries were closed due to lack of water during the early 2000s, California’s economy lost about $150 million.

This year, the drought has stretched beyond California affecting mid-west farmers. As grains become more expensive due to increases in water prices, farmers that rely on these grains to feed their livestock cannot afford to pay these skyrocketing prices, so they pass the expense along to consumers.

The constant polarization of this controversy has served only to make these water allocation disputes more adversarial than necessary. California has to recognize that choosing sides cannot be a viable solution going forward. Interests must be balanced to accommodate California’s growing water demand. If such a balanced solution is not reached, the consequences could be drastic going forward; especially considering California’s population is expected to exceed 40 Million by 2018.

California Governor Jerry Brown’s administration has proposed a plan to try to build a “peripheral canal” around the Delta to satisfy both water users and environmentalists. This next step in California’s water battle is an extensive environmental undertaking with the potential to restore many endangered species populations. However, the project also has a significant price tag ranging from 17 to 50 Billion dollars. The potential gains are plentiful, but critics argue that the price is too high and the positive effects are too uncertain.

Despite these concerns, it’s important that California moves forward in developing a solution that satisfies farming and environmental stakeholders rather than keeping the status quo. Policy makers must recognize that leaving controversial decisions such as this to the judicial system, as has been the tendency in the past, only undermines the state’s long term interests by creating long litigation and leaving important policy decisions to a judiciary ill-suited for the task.