Oversupply Litigation Milestone: FERC Approves BPA Oversupply Management Protocol

October 20, 2014

At its monthly meeting last week, the Federal Energy Regulatory Commission ("FERC") approved the Bonneville Power Administration's "Oversupply Management Protocol," marking a major litigation milestone in Bonneville's controversial efforts to address those periods when the combined output of federal dams and wind generation in the Pacific Northwest exceeds electric demand in the region and in areas where power can be exported. While FERC's decision does not resolve the litigation, it is a major step toward final resolution of the matter.

As we have previously discussed at length, the oversupply problem arises when heavy spring runoff in the Columbia Basin coincides with high spring-time winds, producing a simultaneous surge in power production from the region's hydroelectric dams and wind generators. While Bonneville can generally manage these events through, for example, backing down the region's thermal generators and providing them with free or nearly-free replacement power from federal dams, this solution does not work for wind generation. Even when output is replaced with free or low-cost power, forced curtailments of wind generation can impose substantial costs on wind generators from lost tax credits based on production, as well as lost RECs and, in some cases, violations of contractual minimum production requirements.

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Governor Inslee to Keynote Washington Future Energy Conference

October 17, 2014

Please join us at the Washington Future Energy Conference on November 5. Gordon Thomas Honeywell is proud to be a major sponsor of this event. Now in its fifth year, the Future Energy Conference brings together energy innovators, utilities, scientists, investors, and many others to discuss the future of the energy industry in our state.

Washington Gov. Jay Inslee will present the keynote address at this year's conference. In addition, key officials from Gov. Inslee's administration will conduct a featured panel discussion entitled "Washington's Climate and Energy Future." The panel will be moderated by Keith Phillips, Gov. Inslee's Special Assistant on Energy and Climate Change. Three officials with critical responsibilities for Gov. Inslee's energy and climate agenda will participate in the panel: Brian Bonlender, Director of the Washington State Department of Commerce; David Danner, Chairman of the Washington Utilities & Transportation Commission; and, Lynn Peterson, Director of the Washington State Department of Transportation.

Because energy and climate issues are central to Gov. Inslee's agenda and are likely to be major topics of discussion in the upcoming session of the Washington legislature, these presentations are timely and of great interest to anyone interested in energy, climate issues, and related issue of economic and environmental policy.

Navy Seeks Renewable Resources Through a WAPA RFP

October 7, 2014

Last week, the Western Area Power Administration ("WAPA") issued a Request for Proposals ("RFP") seeking renewable energy for Navy bases located in WAPA's California service territory. The RFP seeks bids for new renewable generation projects with up to 150 MW of capacity.

Several details of the RFP are worthy of note. First, rather than seek to purchase renewable project output directly, the Navy has employed WAPA to purchase energy on its behalf. Because WAPA, rather than the Navy, is the purchaser, the Federal Acquisition Regulations do not apply, which should significantly simplify the purchasing process. In addition, the Navy will benefit from WAPA's expertise in the energy markets. The unique arrangement could serve as a useful model for purchases by the Department of Defense in other parts of the country served by federal power marketing administrations. Such administrative innovations may be necessary if the Department of Defense is to reach its ambitious goals of obtaining 25% of its energy from renewable resources by 2025.

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Ninth Circuit Orders BPA To Reconsider Recovery of Improper Payments to DSIs

September 26, 2014

Last week, the U.S. Court of Appeals for the Ninth Circuit ordered the Bonneville Power Administration to reconsider whether it should seek recovery of improper payments made to certain Direct-Service Industrial ("DSI") customers. The Court's decision (Industrial Customers of Northwest Utilities v. BPA, 9th Cir. Nos. 11-71368 et al (issued September 18, 2014)) is an important landmark on the long-running battle between Bonneville's competing customer groups over access to low-cost federal hydroelectric resources.

The DSIs are large, energy-intensive industries, primarily aluminum smelters, that receive power directly from Bonneville rather than from a local distribution utility. At one time, the DSIs consumed more than 3,000 average MW of power in the Pacific Northwest, but that load has declined precipitously in recent years, especially after the Enron Crisis of 2000-01 produced a surge in regional power prices. The Northwest Power & Conservation Council expects that the DSIs will consume only about 700 aMW for the foreseeable future. The dispute addressed by the Ninth Circuit arises from the growing economic pressures faced by the DSIs, Bonneville's attempts to ameliorate those pressures, and the resulting burdens on other Bonneville customers, especially Bonneville's preference customers (that is, public utility districts, municipally-owned utilities, rural electric cooperatives, and other publicly-owned utilities that have statutory preference rights to Bonneville power).

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Join Maj. Gen. (ret.) Tim Lowenberg for APPA's Grid Security Summit

September 25, 2014

We cordially invite you to attend the American Public Power Association's Grid Security Summit on November 12-13 in Arlington, Virginia. Our colleague, Maj. Gen. (ret.) Timothy Lowenberg, one of the nation's leading experts on cybersecurity and terrorism matters, will make a presentation entitled "Emerging Threats and Vulnerabilities in the Electric Sector." Gen. Lowenberg recently retired after a 44-year career in the U.S. Air Force and, among many other accomplishments, was the longest-serving Adjutant General in Washington's history. In that role, in the wake of the September 11 attack, he developed leading-edge systems to coordinate military and civilian responses to terrorist attacks. He was also instrumental in developing one of the nation's leading cyber-defense centers and now represents the National Governors Association on cybersecurity matters.

After retiring, Gen. Lowenberg joined our sister organization, Gordon Thomas Honeywell Governmental Affairs as Vice President. He is, we're proud to say, also Of Counsel to the Gordon Thomas Honeywell law firm.

Regulators Revolve: FERC Says Hello to Honorable, Ciao to Norris

September 12, 2014

Earlier this week, the White House officially nominated Collette Honorable to become the next Commissioner of the Federal Energy Regulatory Commission ("FERC"). Ms. Honorable is currently Chairman of the Arkansas Public Service Commission and President of the National Association of Regulatory Utility Commissioners. If confirmed by the U.S. Senate, Ms. Honorable would fill the term of Commissioner John Norris, who left FERC in August to become minister-counseler for the U.S. Department of Agriculture at the U.S. Embassy in Rome. Ms. Honorable would serve the remaining three years of Commissioner Norris's term, which expires in 2017.

Ms. Honorable would bring considerable expertise in natural gas matters, especially pipeline safety, to the Commission. FERC's focus in recent years has been on electricity matters such as demand response, integration of renewable resources, and improving transmission planning. Ms. Honorable's nomination may bring a greater focus back to natural gas issues, and may also help the Commission resolve issues straddling the natural gas and electricity markets, such as the coordination of gas and electric trading days and the expansion of gas pipeline capacity to accommodate the nation's expanding natural gas generation fleet.

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Latest Round in PURPA Wars: Fifth Circuit Upholds Texas Rule Limiting PURPA Rights of Wind Generators

September 11, 2014

Earlier this week, the United States Court of Appeals for the Fifth Circuit issued the latest salvo in the PURPA wind wars, this time handing wind producers a painful defeat. The Fifth Circuit's opinion upholds a rule issued by the Public Utility Commission of Texas ("PUCT") preventing non-firm resources from forming Legally Enforceable Obligations under PURPA. If the Fifth Circuit opinion stands, it could limit the ability of wind producers to obtain access to electricity markets under PURPA (the Public Utility Regulatory Policies Act), a 1978 law aimed at allowing small independent and renewable energy producers (referred to as "Qualifying Facilities" or "QFs") access to electricity markets controlled by regulated utility monopolies.

The Fifth Circuit opinion, however, may not be the final word. The Fifth Circuit's opinion is at odds with the Federal Energy Regulatory Commission's ("FERC") 2009 declaratory order in the same dispute, which found the PUCT rule to be contrary to FERC regulations requiring that "[e]ach qualifying facility shall have" the option to sell energy under a "legally enforceable obligation." In addition, a lengthy dissenting opinion issued by Judge Edward C. Prado suggests that the majority's reasoning may be vulnerable, both in its primary conclusion and in supporting conclusions related to the degree of deference owed to FERC's interpretation of PURPA and federal regulations.

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Join GTH at the Washington Future Energy Conference

September 9, 2014

Please join us at the Washington Future Energy Conference on November 5. Gordon Thomas Honeywell is proud to be a major sponsor of this event. Now in its fifth year, the Future Energy Conference brings together energy innovators, utilities, scientists, investors, and many others to discuss the future of the energy industry in our state.

Speakers include GTH partner Eric Christensen, who will moderate a panel discussing the electrification of Washington's transportation system. The panel will include Steve Marshall of the Center for Advanced Transportation and Energy Solutions, Charles Knutson, Senior Policy Advisor to Washington Governor Jay Inslee, and John McCoy, Legislative Director for the Seattle Electric Vehicle Association.

We look forward to seeing you November 5.

Pot and Power: Power Planning Council Estimates Demand Growth and Conservation Potential

September 9, 2014

As Washington's experiment in legalization of recreational marijuana use moves gradually toward full implementation, the consequences for Washington's utilities are begining to come into focus. Confirming more general studies we've discussed previously, the Northwest Power & Conservation Council ("NPCC") this week will be discussing a staff report that quantifies the range of increases in electric consumption that may arise from marijuana legalization in Washington, as well as other Northwest states that may follow Washington's lead.

Consistent with other studies, the NPCC study recognizes that, although indoor marijuana cultivation offers a number of advantages to the grower, it is extremely energy intensive. This fact is dramatically illustrated by comparing the energy intensity of indoor marijuana production with the energy intensity of aluminum production, perhaps the most energy-intensive of the Northwest's traditional industries. Aluminum production, the study notes, requires roughly 16 kWh of electricity to produce one kilogram of aluminum, while indoor grow operations require a whopping 4,000-6,000 kWh to produce one kilogram of marijuana. All told, the NPCC estimates, marijuana legalization in Washington will produce an increase in electricity consumption in the range of 60 to 160 average MW over the next two decades, while demand will grow approximately 240 aMW in the four-state region by 2035. In addition, the study notes, the demand from grow operations varies significantly over the course of the day, and a proliferation of grow operations may therefore add to utility peak-hour demands.

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U.S. Appeals Court Concludes FERC Lacks Authority to Fine Federal Entities for Reliability Violations

August 22, 2014

In a ruling that could have far-reaching implications for the electric reliability here in the Pacific Northwest, the U.S. Court of Appeals for the District of Columbia Circuit today found that the Federal Power Act does not authorize the Southwest Power Administration ("SWPA") to pay fines for admitted violations of mandatory electric reliability standards.

The decision turns on the doctrine of sovereign immunity. In its modern form, the doctrine bars federal government liability unless Congress provides a clearly-expressed statutory waiver of sovereign immunity. Today's decision applies this doctrine to Section 215 of the Federal Power Act, the provision Congress added to the Act in 2005 to create a system of mandatory electric reliability standards. Section 215 authorizes the Federal Energy Regulatory Commission ("FERC") to impose fines on "users, owners and operators" of the Bulk Electric System if they violate electric reliability standards developed by the North American Electric Reliability Corporation ("NERC"). Carefully parsing the language of Section 215, today's decision finds no clear expression of Congressional intent to allow federal entities such as SWPA to pay fines for violations of reliability standards.

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Regulating Emergency Generators: EPA Denies Rehearing of RICE Rule, Appeals Court is Next Stop

August 20, 2014

On August 15, the U.S. Environmental Protection Agency ("EPA") issued a notice denying petitions for rehearing of its new rules governing air emissions from stationary Reciprocating Internal Combustion Engines ("RICE"). RICE, especially diesel engines, are widely used for emergency backup generation for hospitals, factories, and other facilities requiring an uninterrupted supply of power. They are also an important source of power to stabilize the electric grid in certain types of emergencies. Developments concerning the RICE emissions rule are therefore of great concern to electric utilities and a multitude of end-use electric consumers who rely on diesel back-up generators.

The rehearing petitions stem from EPA's 2010 proposal to extend its regulation of hazardous air pollutants emitted by stationary RICE from the previous 500 horsepower limit down to engines as small as 100 HP. As we reported early last year, in response to concerns related to the mismatch between the proposed RICE rule and NERC reliability standards, EPA modified the proposed rules to allow generators that have not been retrofitted with expensive pollution control equipment to operate for up to 100 hours per year during declared electrical emergencies, and for such generators to operate for up to 50 hours per year to prevent voltage collapse or overloads in local transmission or distribution systems.

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Milestone in Transmission Regulation: U.S. Court of Appeals Upholds Order No. 1000

August 18, 2014

On Friday, the U.S. Court of Appeals for the District of Columbia Circuit rejected a host of challenges to the Federal Energy Regulatory Commission's ("FERC") Order No. 1000, upholding the order in its entirety. As we've previously discussed, Order No. 1000 aims to create a level regulatory playing field for independent transmission developers, thus encouraging new sources of badly-needed investment in the nation's transmission infrastructure. The D.C. Circuit's 97-page opinion upholding the order represents an important milestone in the evolution of regulation in the electric industry.

Order No. 1000 changed the planning and cost allocation regime for interstate transmission projects in three major requirements:

(1) Each FERC-jurisdictional transmission provider must participate in a regional transmission planning process that identifies the most cost-effective regional and inter-regional transmission projects, and provides for a method of cost-allocation for the selected projects meeting six specific principles. Independent transmission developers and other non-incumbents need not participate in this process, but it must be open to their participation.

(2) The planning process must provide for transmission expansion driven by public policy requirements, along with economic and reliability needs. State renewable portfolio standards and other public policies favoring the development of renewable energy are the largest public policy factor driving the need for new transmission.

(3) The federal "right of first refusal" ("ROFR") must be removed from FERC-approved transmission tariffs. The ROFR allows incumbent utilities to construct transmission projects proposed by other entities within the incumbents' service territories. FERC views this as a major barrier to entry for independent transmission developers, whose investment in planning and permitting is essentially wiped out if the incumbent exercises its ROFR. Although not common in the Northwest, the ROFR requirement proved extremely controversial in other parts of the country.

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Eric Christensen Quoted in EnergyWire Article on Utility Service to Marijuana Producers

August 11, 2014

GTH Partner Eric Christensen was quoted in Friday's lead EnergyWire article, which addresses the problems utilities face in serving energy-hungry marijuana grow operations under new marijuana legalization regimes in Washington and Colorado. The article can be found here. EnergyWire is the energy-centered daily trade magazine of highly-respected Environment & Energy Publishing.

New Era of Hydropower Regulation? Corps of Engineers Agrees to Seek NPDES Permits for Hydro Equipment

August 5, 2014

On August 4, in response to a series of lawsuits brought by the environmental advocacy group Columbia Riverkeeper, the U.S. Army Corps of Engineers agreed to regulatory measures aimed at preventing oil leaks from eight dams on the Columbia/Snake River system. The agreement may be a harbinger of significantly increased regulatory compliance burdens under the Clean Water Act for hydroelectric projects.

Apparently sparked by a leak of transformer oil containing PCBs from the Corps' Ice Harbor Dam and several similar incidents, Columbia Riverkeeper last summer filed three citizen suits, later consolidated, under the Clean Water Act. Asserting that oil spills constitute a regulated "point source," the lawsuits sought to force the Corps of Engineers to obtain NPDES permits to regulate potential leaks and spills of oil into the River. In a settlement agreement submitted to the federal court yesterday, the Corps agrees to:

1. Apply for NPDES permits to address potential discharges of pollutants from a number of different facilities at the eight affected dams, including powerhouse drainage sumps, unwatering sumps, navigation lock sumps, wicket gate bearings, turbine blade packings and seals, and cooling water systems. This goes well beyond existing practice, where NPDES permits are in place or have been sought only for limited facilities at Bonneville and The Dalles Dams.

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Sending Up a Flare, Washington UTC Provides Guidance on Jurisdiction for Third-Party Solar Leases

August 1, 2014

This week, the Washington Utilities & Transportation Commission ("UTC") issued its long-awaited policy statement concerning UTC jurisdiction over third-party owners of net-metered electric facilities, such as roof-top solar systems. The Interpretive Statement indicates that the UTC likely would assert at least limited jurisdiction over third-party owners of rooftop systems who contract with ordinary homeowners. Much of the Interpretive Statement, however, is a cry for help addressed to the Washington legislature, urging it to enact legislation addressing the unique jurisdictional and regulatory issues arising in this unique context.

As noted here, the UTC last year concluded that Washington's net metering statute allows for third-party ownership of rooftop solar systems, opening the door to innovative financing structures that have allowed rapid growth of distributed solar power in other states. However, the UTC left open one critical legal question -- whether the third-party owners of net metered systems operating under such leasing structures would be subject to UTC jurisdiction, and therefore potentially subject to the full range of utility-style regulation. While the Interpretive Statement is likely to disappoint those looking for a definitive statement from the UTC, it provides useful guidance both as to the UTC's concerns with third-party financing arrangements and the type of regulation the UTC likely would impose in those situations where it asserts jurisdiction. While not definitive, the Interpretive Statement, along with Washington's lucrative incentives for solar development and a recent change in the state's building code reducing upfront engineering costs, should spur development of distributed generation in the state.

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