BPA Attempts to Split the Baby on Oversupply Management Costs

February 28, 2014

In its latest effort to put to rest the years-long controversy that has swirled around its efforts to address excessive electricity production during periods when high winds coincide with high water in the Columbia River system, the Bonneville Power Administration ("BPA") recently issued a draft Record of Decision ("ROD") allocating the costs of such events. While wind generators argued for allocating all such costs to BPA's power customers and BPA's power customers urged BPA to assign all such costs to its transmission customers, BPA chose a third path. In the recent draft ROD, issued by newly-minted BPA Administrator Elliot Mainzer, BPA concluded that it should allocate oversupply costs to those generators operating within its balancing authority area that have scheduled power during an oversupply event. BPA's chosen alternative was supported by only one out-of-region entity, so it is unlikely to end either the controversy or the protracted litigation that has resulted.

As we have previously reported, the oversupply problem is an unintended consequence of the rapid expansion of wind generation in the Pacific Northwest. The wind fleet's capacity in the region now exceeds 7,000 MW, with 4,500 operating in BPA's balancing authority area. The oversupply problem arises when strong spring winds coincide with high spring runoff in the Columbia River Basin. In this situation, the combined electric power produced by federal dams on the Columbia River and wind generators in the region can exceed electrical loads. Further, the obligation to maintain dissolved gases within limits set by environmental authorities in order to avoided gas bubble trauma in fish (especially endangered salmon and steelhead runs), limits the amount of water dam operators can release over spillways, which adds to dissolved gas loads, requiring them instead to run the water through generators.

Prior to the rise of wind generation, BPA managed this problem by displacing the region's thermal generation, allowing thermal generators to back down or shut off, while providing free or nearly-free power from federal dams to meet those generators' load obligations. This approach does not work with wind generators, however, because they lose Production Tax Credits tied to amounts produced when generation is curtailed, and wind generation customers may also lose Renewable Energy Credits needed to meet Renewable Portfolio Standards such as Washington's Initiative 937.

When BPA initially faced an oversupply problem in the spring and early summer months of 2011, its first attempt at managing the problem, dubbed "Environmental Redispatch," required wind generators to curtail generation to keep power production balanced with loads while also allowing federal dam operators to comply with dissolved gas limits. The losses suffered by wind generators provoked them to file a complaint at the Federal Energy Regulatory Commission arguing that BPA violated the non-discrimination provisions of Section 211A of the Federal Power Act by forcing wind generators to curtail production while federal generators were not curtailed. FERC agreed and, for the first time, applied Section 211A to assert jurisdiction over BPA.

BPA responded by adopting an "Oversupply Management Protocol," which compensates generators for losses suffered when they are forced to curtail generation. Under the Oversupply Management Protocol, BPA proposed to split the costs incurred for curtailment 50-50, with half the costs to be paid by BPA's power customers and half to be paid by wind generators. While FERC accepted much of BPA's approach in the Oversupply Management Protocol, it rejected the 50-50 cost-spreading proposal, concluding that this would disproportionately burden wind generators.

The new BPA ROD, issued after a proceeding to establish "oversupply" rates under the Northwest Power Act, attempts to satisfy FERC's concerns. BPA reasons that oversupply costs are caused by both the presence of a large wind fleet within its balancing authority and the need for its power system to meet environmental obligations. Further, BPA reasons, it incurs oversupply costs when power is scheduled to move across its transmission system during an oversupply event and it must curtail that power to keep its system within applicable reliability and environmental limits. The result is to require BPA's power customers, wind generators, and thermal generators all to bear a share of oversupply costs. BPA staff estimates that, if BPA's new policy had been in place during the 2012, BPA's federal power generation would have paid 72% of oversupply management costs, and wind generators and thermal generators would each have borne 14% of the costs. In light of this outcome, further litigation can be expected at BPA, at FERC, and in the Ninth Circuit Court of Appeals.

If you have any questions about BPA, the Columbia River and its water resources, water quality regulation, or other matters related to energy, natural resources, or the environment, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. We're proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and practice group members Don Cohen, Bill Lynn, and Brad Jones were all named among Seattle's Best Lawyers.