FERC Proposes To Clarify Open Access Obligations for Owners of Generator Tie Lines

May 19, 2014

In a proposal that should clarify federal rules concern access to generator tie-lines, and therefore provide assurance to project developers and their financial backers, the Federal Energy Regulatory Commission ("FERC") at last week's monthly meeting proposed new rules to govern third-party access to such tie-lines. While at first blush, this issue may seem obscure, it has far-reaching consequences for both open access to and investment in the nation's electric system. The proposed rule also clarifies how FERC will reconcile two of its most important policy goals -- investment in new generation resources and open access to the nation's transmission grid.

The proposed rules are important because generator tie-lines often cover hundreds of miles and operate at extremely high voltages, especially when delivering power from generation resources located in remote, rural areas that otherwise have limited access to the backbone transmission grid. The proposed rules are therefore particularly important for wind generation and utility-scale solar, where the best resources are often located far from existing transmission lines. FERC's proposal notes several cases where tie-lines to link, for example, large wind generation projects to the grid span hundreds of miles and operate at voltages as high as 345-kV, and therefore look much like backbone transmission assets.

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New National Lab Study Identifies Huge Hydropower Potential, Especially in the Pacific Northwest

May 16, 2014

Recently, the U.S. Department of Energy ("DOE") and the Oak Ridge National Laboratory ("ORNL") released a comprehensive analysis of the potential for new hydroelectric development in the United States, finding that up to 65,500 MW of new hydro capacity could be built, nearly equal to the country's existing hydro capacity of 79,500 MW. The Pacific Northwest (defined in the report as the U.S. portion of the Columbia-Snake River Basin) contains the largest share of this capacity, nearly 26,000 MW. Major resources are also available in Alaska and Hawaii.

The analysis employs advanced geographical and mapping techniques to identify stream potential, and provides an array of advanced resources to developers wishing to identify sites that offer both favorable hydrological characteristics and characteristics favorable to permitting projects. For example, the study identifies stream reaches that have been designated as critical habitat for a federally-listed endangered species.

When considered together with the DOE/ORNL's 2012 report showing that up to 12,000 MW of new generation could be added to existing dams that do not presently have generation installed, the analysis demonstrates the great potential for new hydropower development, which can help supply the nation's need for carbon-free electricity using a mature and well-understood technology.

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Who Holds the Almighty and Powerful Ring? 13 Steps for Utility Cyber Security Protection

May 13, 2014

We are happy to announce that Eric Christensen and Maj. Gen. (Ret.) Tim Lowenberg of GTH-Governmental Affairs have published the cover story in the May 2014 Northwest Public Power Association Bulletin. Here is a link to the article on the NWPPA's website. The text of the article follows:

Cover Story
Who Holds the Almighty and Powerful Ring in the Cyber World?
Thirteen Steps for Utility Cybersecurity Protection


By
Eric Christensen, Partner
Gordon Thomas Honeywell

and

Maj. Gen. (Ret.) Tim Lowenberg, Vice President
Gordon Thomas Honeywell Governmental Affairs

While computer and internet technology create enormous benefits for twenty-first century utilities, they also expose utilities to new and sinister cyber threats. For utility managers, entering the cyber world can feel like entering J.R.R. Tolkien's "Middle Earth", a strange land filled with treacherous creatures like orcs, ring-wraiths, and wargs. Like Middle Earth, the cyber world is inhabited by peculiar and threatening forces ranging from amateur hackers to organized criminal enterprises searching for valuable financial information to politically motivated actors and nation-states capable of using malicious computer codes as weapons systems. And like Gollum, the hobbit twisted beyond all recognition by the power of the One Ring, threats in the cyber world often go undetected, arise from nebulous but nefarious motives and can unleash powerful, destructive effects beyond all expectation.

In light of the near-universal consensus among defense analysts, policy makers and computer experts that the electric utility sector is among the most vulnerable of sectors to cyber-attacks, how should utility managers address these threats? We recommend the following thirteen steps that all utilities, regardless of size, should take to mitigate risk in the complex and ever changing world of cyber-security.

Step 1: NIST Cybersecurity Framework
On February 12, 2014, the National Institute of Standards and Technology ("NIST") released the first version of its Framework for Improving Critical Infrastructure Cybersecurity. The Framework, issued in response to President Obama's Executive Order No. 13636, is intended to create common, voluntary industry standards and best practices for addressing cyber-security threats. The Framework provides a standardized approach for identifying cyber-security threats and protecting organizations against those threats through technological fixes and education of management and front-line operators. While the Framework is an ongoing and evolving document, it is a useful starting point for developing a cyber security strategy. The steps we recommend here are consistent with the NIST Framework.

Step 2: NERC CIP Standards
Because they are mandatory and violations can lead to substantial penalties, NERC Reliability Standards are, of course, of primary concern to electric utilities. NERC's Critical Infrastructure Protection ("CIP") standards define utility obligations to address threats in the cyber-security realm and should therefore be a prime focus of every utility. After a long period of flux, the Federal Energy Regulatory Commission ("FERC") in November 2013 adopted Version 5 of the CIP standards, with certain reservations. Utilities with "High and Medium Impact" assets (as defined in NERC's "BES Cyber Asset" definition) must come into compliance with Version 5 by April 2016 and those with "Low Impact" assets must come into compliance by April 2017. Utility managers should therefore pay careful attention to these standards, as well as refinements to the standards now under development in response to FERC's November 2013 order. In addition, NERC is conducting a pilot program with results due in the near future that should provide useful information for utility compliance managers.

Utility managers should also pay close attention to physical security standards. In reaction to damage caused by a sophisticated physical attack on the Metcalf Substation in California's Silicon Valley, FERC on March 7 ordered NERC to develop standards to secure key electrical facilities against physical attack. Compliance with these standards could be extremely expensive. In raising this concern, FERC Commissioner John Norris recently noted that just three utilities reported to him they may have to spend more than $500 million for physical security enhancements in the wake of the Metcalf incident. As is also obvious, under-reaction could prove even more costly for the utility and for our national security.

Step 3: Develop a Cyber-Security Strategy
In compliance with the NIST Framework and CIP standards, utility management should develop a cyber-security strategy that identifies cyber-risks, provides clear guidance and training to utility employees to effectively address those risks, and ensures the strategy is carried out and documented through continuous feedback to utility managers. As discussed below, it is important that the strategy include coordination with affected municipal and state governments, first responders, and Federal Information Sharing and Analysis Centers ("ISACs").

Step 4: CEO Briefings
The Cyber-Security Strategy developed in Step 3 should include a requirement for regular briefings of the utility's chief executive officer and relevant senior management by cyber security personnel, including updates on newly-identified cyber threats, progress in implementing CIP standards and other mitigation measures, and adaptations to the Strategy to address new threats, vulnerabilities and emerging challenges. Such briefings demonstrate the importance of cyber-security to the rest of the organization and ensure senior management is aware of cyber-related issues. Full awareness of cyber threats should, in turn, help assure the organization is devoting adequate resources to addressing those threats, and build the "culture of compliance" NERC looks for in assessing adherence to Reliability Standards.

Step 5: Legal Review of IT Contracts
The utility should conduct a legal review of its IT equipment and services contracts to ensure compliance with CIP standards, the Security Development Lifecyle guidelines discussed below, the utility's internal Cyber-Security Strategy, and other relevant requirements.

Step 6: Review IT Procurement
The utility should also ensure it is procuring computer software and hardware in a "secure" manner in conformity with Security Development Lifecycle ("SDL") processes and other best practices. Such procurement practices guard against incorporation or introduction of unsafe equipment and malicious software into the utility's computer systems.

Step 7: Procurement Staff Training
Consistent with Steps 5 and 6, the utility's procurement and acquisition staff, as well as its IT security staff, should receive training on SDL and other requirements relevant to IT acquisition and should be given resources sufficient to ensure effective cyber security provisions are incorporated into all IT acquisition contracts.

Step 8: Verify Implementation of Cyber-Related Contract Requirements
To ensure the measures discussed in Steps 5 through 7 are properly implemented, the utility should review its contractual relationships with third party IT service providers to verify that security-related requirements of IT contracts are actually being carried out in conformity with contractual and industry standards. Substandard computer installations and non-conforming contract services can give hackers, cyber-criminals, and cyber-attackers access to critical computer-controlled infrastructure.

Step 9: Use Information Sharing and Analysis Centers ("ISACs")
ISACs (mentioned in Step 3 above) are sector-specific organizations developed voluntarily in cooperation with the Department of Homeland Security to facilitate detection and prevention of cyber-intrusions, vulnerability scanning, penetration testing, and training and education services. The Department of Homeland Security coordinates the flow of information to, from and among fifteen national ISACs. Utility managers and security officials should pay particular attention to ES-ISAC, the ISAC for the electricity sector. Information from other ISACs may also enhance awareness of cyber-threats as well as the tactics, techniques and procedures employed by nefarious actors. These collateral sources include the Multi-State ISAC, which provides cyber threat information and cyber response assistance to state and local governments including utility commissions; the Supply Chain ISAC, which focuses on threats identified in the acquisition/procurement process; the Water ISAC, which provides useful information for water utilities; the Nuclear Energy ISAC, which covers nuclear energy cyber issues; and the Financial Services ISAC, which has information helpful to protecting the financial information of utility customers as well as the utility's own financial information.

Step 10: Develop Disaster Recovery Plans
Most utilities have extensive business continuity and recovery plans that describe how the utility will deal with natural disasters such as earthquakes and major storms. Disaster preparedness also requires development of plans to assure the utility's recovery from a major cyber-attack or series of attacks. The threat of such attacks is so real that a cyber mitigation, response and recovery plan should be the subject of a separate, detailed Annex to the utility's continuity plan. NARUC's Cybersecurity for State Regulators 2.0 (February 2014) provides a comprehensive set of criteria and recommended actions (from a wide variety of sources) for utility commissions to use as assessment tools. These sources and others are helpful in developing an effective Cyber Annex to the utility continuity and recovery plan.

Step 11: Build a Relationship With Law Enforcement
Federal, state and local law enforcement agencies and some state military departments have important roles in identifying cyber intrusions, developing coordinated responses to such intrusions, apprehending or assisting in the apprehension of cyber criminals and recovering from major cyber incidents. Utilities should strive to build strong relationships with these agencies. To be effective, the utility must pre-identify the specific law enforcement officials it will contact in case of a suspected terrorist attack or cyber intrusion. The utility should go beyond the minimum requirement of compiling a contact list to create active, ongoing relationships with the law enforcement officials it will need to rely on in the event of a major cyber-attack.

Step 12: Practice Cyber Incident Responses
As with most utility functions, the adage "practice makes perfect" applies to cyber incident preparedness and cyber incident response. Fortunately, the Department of Homeland Security's "Cyber Storm" program offers excellent opportunities for utilities to participate in a realistic simulation of a major cyber-attack. The Cyber Storm exercise series provides an opportunity for more than 1,000 local entities to participate in a coordinated, week-long national cyber exercise, the results of which are used to develop other progressively challenging exercises and enhance the nation's cyber response systems. Washington utilities such as Snohomish County PUD played an active role in the 2013 Cyber Storm exercise. The next Cyber Storm exercise is scheduled for 2015.

Step 13: Support Your Local Emergency Response Plan
Finally, the utility should determine if its state government has developed a cyber response plan. If a plan exists, the utility at a minimum should become thoroughly familiar with it and, even more important, should offer to participate in the development and continuous testing and refinement of the plan.

The State of Washington, for example, leverages its "cyber security centers of excellence" and lessons learned from Cyber Storm exercises to integrate cyber security planning by state agencies ranging from the Washington Military Department (including its civilian State Emergency Operations Center and Air and Army National Guard cyber operations units) to the Office of the State Chief Information Officer, the Washington State Patrol, the Washington State Fusion Center, the Utilities and Transportation Commission, state universities, municipalities such as the City of Seattle, aerial and maritime port authorities and public utilities. These and other stakeholders, participating as members of a Washington State Cyber Integrated Project Team, have contributed to development, testing and refinement of a Washington State Cyber Incident Annex that is based on the National Cyber Incident Response Plan. The Washington Cyber Incident Annex includes provisions for convening a Cyber Unified Coordination Group to oversee cyber incident responses, which representatives from utilities and other critical infrastructure sectors that could be subject to cyber attack.

CONCLUSION
The conflict between good and evil in Middle Earth was finally resolved when Gollum, still madly clutching the One Ring, falls into the fire at the Cracks of Doom. With the malevolent force of the Ring destroyed, the forces of evil were shorn of their power and collapsed, allowing the hobbits and other peaceful residents of Middle Earth to return to normal life. The moment when the forces of evil in the cyber world will be shorn of their power is a long way off. Until that time comes, dealing with malevolent forces in the cyber domain will be an omnipresent and growing challenge. Because electric power is so critical to the functioning of our modern society, utilities are, willingly or not, thrust into the role of front-line players in the battle for control of cyberspace. The thirteen steps described above, if implemented, will help utilities protect their own assets, and help secure the nation against potentially crippling cyber attacks.

U.S. District Court Rejects Broad Commerce Clause Attack on Colorado's Renewable Portfolio Standard

May 13, 2014

On May 9, the Judge William J. Martinez of the U.S. District Court for the District of Colorado summarily dismissed a broad-based challenge to the Colorado Renewable Portfolio Standard ("RPS"), which argued that the RPS per se violates the "dormant" Commerce Clause of the United States Constitution. The decision supports the view that a RPS will pass muster under the Commerce Clause as long as it regulates in-state and out-of-state generators in an even-handed way, and does not impose restrictions on RPS eligibility that favor in-state generators over out-of-state generators. Energy & Environmental Legal Inst. v. Epel et al., No. 11-cv-00859-WJM-BNB (issued May 9, 2014).

Enacted by Colorado voters in 2004 and amended several times since, the Colorado RPS now requires Colorado's investor-owned utilities to obtain 30% of their electricity from renewable sources by 2020, while cooperatives serving 100,000 or more meters must meet a 20% standard, and smaller cooperatives and municipal utilities must meet a 10% standard. In 2011, plaintiff Energy and Environmental Legal Institute (then known as the American Traditions Institute) filed a lawsuit seeking to invalidate Colorado's RPS statute on Commerce Clause grounds. Last week's decision rejects that challenge in its entirety, although plaintiffs have indicated they plan to appeal to the U.S. Court of Appeals for the Tenth Circuit.

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Governor Inslee Issues Comprehensive Executive Order on Climate Change

April 29, 2014

Washington Governor Jay Inslee today issued an Executive Order that will address Washington's greenhouse gas ("GHG") emissions on many different fronts. Issued in apparent response to the legislative logjam that has developed around the Climate Legislative and Executive Workgroup, the Executive Order (No. 14-04), requires actions in the following areas:

Cap-and-Trade Legislation: The Executive Order creates a new Carbon Emissions Reduction Task Force to develop a legislative recommendation for a "cap and-market" mechanism, which would limit carbon emissions and establish an emissions allowance trading system designed to achieve GHG reductions in the most efficient manner. The Task Force, which includes 21 members from business, labor, health, and public interest organizations, meets for the first time today. It is instructed to provide recommended legislative by November 21, 2014.

Coal-Fired Electricity: The Executive Order directs the Governor's Legislative Affairs and Policy Office ("LAPO") to seek "negotiated agreements with key utilities and others" to reduce coal-fired electricity imported from outside the state and transition to cleaner sources. With the transition of Washington's only coal-fired plant at Centralia now well underway, Washington's remaining sources of coal-fired electricity will be generators located in states to the east, such as the Colstrip plant in Montana. Addressing the "coal-by-wires" issue is therefore the last remaining front for attacking significant GHG emissions in the electricity sector. The Executive Order requests help from the Washington Utilities and Transportation Commission ("UTC") and the Northwest Power and Conservation Council to "actively assist and support" the transition away from coal-fired electricity, although, as we've previously discussed, the UTC has already moved significantly in this direction.

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Getting a CLEW from the IPCC: Can IPCC's Policy Analysis Break the Olympia Logjam on Climate Policy?

April 25, 2014

The recently-released Fifth Assessment Report of the United Nations Intergovernmental Panel on Climate Change ("IPCC") has received widespread coverage for its conclusion, expressed with "high confidence," that global emissions of greenhouse gases ("GHG") are continuing to grow and that "without additional mitigation," will "result in global mean surface temperature increases in 2100 from 3.7 to 4.8°C compared to pre‐industrial levels." Similarly, the IPCC's conclusion that limiting GHG emissions will have relatively modest impacts on global economic growth, well below the costs of unmitigated climate change, has been widely reported.

The IPCC's conclusions regarding climate mitigation policy have, regrettably, received very little coverage in the popular press. This lack of attention is unfortunate because IPCC's report provides a detailed and well-documented discussion of many different climate change policies that have been tried around the world. Here in Washington State, the IPCC's report may offer a way forward for climate policy, which is currently bogged down in a partisan impasse reached by the Climate Executive Workgroup ("CLEW").

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Complicating "Coal By Wires" Regulation, Minnesota Court Strikes Down Greenhouse Gas Regulation

April 21, 2014

In a ruling with potentially far-reaching consequences for state-level attempts to regulate greenhouse gases, the U.S. District Court for the District of Minnesota on April 18 issued a ruling striking down key elements of Minnesota's Next Generation Energy Act ("NGEA"). For the Pacific Northwest, in particular, the ruling could complicate efforts by Washington, Oregon, and California to limit "coal by wires" -- the importation of coal-generated electricity from plants located in states like Montana and Arizona. State of North Dakota et al. v. Heydinger et al., No. 11-cv-3232 (SRN/SER) (issued April 18, 2014).

Passed by Minnesota's legislature in 2007, the NGEA is aimed at reducing the carbon footprint of electricity consumed in the state. The statute prohibits new power plants within Minnesota that "would contribute to state power sector emissions." To address the "coal by wires" problem, the statute also broadly prohibits importing power generated outside Minnesota if that generation "would contribute to statewide power sector carbon dioxide emissions," and also prohibits long-term power purchase contracts from facilities larger than 50 MW that would contribute to Minnesota's power sector carbon dioxide emissions.

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Pot, Power & Pollution: The Overlooked Impacts of Marijuana Legalization on Utilities and the Environment

April 17, 2014

Last month, Washington issued its first license for a legal marijuana grow operation under Initiative 502 ("I-502"), the marijuana legalization measure adopted by Washington voters in November 2012. A wave of additional operations will follow, as about 2,800 producers have applied for licenses to grow marijuana. While the implications of I-502 for the criminal justice system, land use, taxation and many other issues have been widely debated, the potentially significant changes in electricity and water use that are likely to follow from I-502's implementation have received almost no scrutiny. Nor have the important implications for environmental protection. Given the stakes, Washington utilities and environmental regulators should pay close attention to I-502 and the ongoing process of implementing the initiative.

At the outset, it is important to understand that the United States already produces huge amounts of cannabis. Official estimates suggest that U.S. production was somewhere in the range of 10,000 to 24,000 metric tons in 2001, making it America's largest cash crop by value. A more recent study suggests that production may actually be far higher - 69,000 metric tons. Given that marijuana production generally remains illegal, these estimates are highly uncertain. But there is little doubt that, as marijuana production comes out of the shadows and into the realm of legitimate business, power and water utilities will need to confront a number of serious and complex issues.

Implications for Electric Utilities
For electric utilities, legalization is a major concern because cannabis production, which generally relies on energy-intensive indoor growing operations, uses huge amounts of electricity. One recent study estimates that marijuana production may account for as much as 1% of the nation's entire electric consumption, accounting for a total bill of approximately $6 billion. In California, the numbers are even higher. Marijuana production in that state is estimated to use 3% of all electricity consumed there, equivalent to 9% of all residential electricity use.


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I-937 Updates: New Legislation and New Administrative Rules May Alter Washington's Renewable Portfolio Standard

April 7, 2014

As a result of both legislative and administrative action, several notable changes to Washington's Initiative 937 ("I-937", also known as the Washington Energy Independence Act) are on the horizon. While rejecting large-scale reform, the legislature made significant course corrections related to treatment of conservation and conduit hydro projects under the initiative. Those changes, and possibly several others, will be addressed in ongoing rulemaking proceedings at the Washington Department of Commerce and Washington Utilities & Transportation Commission ("UTC").

Two changes to I-937 were enacted in the 2014 session of the Washington Legislature. First, HB 1643, popularly known as the "conservation smoothing" legislation, allows utilities that achieve conservation in excess of specified targets to credit the excess toward future compliance periods, within limits. As originally enacted by the voters in 2006, I-937 required all covered utilities to obtain all "achievable cost-effective conservation." This mandate was carried out in a two-year process, which requires utilities first to identify conservation targets, then to adopt a plan to achieve those targets. In carrying out this mandate, many utilities, especially smaller utilities, found that conservation is not achieved in neat blocks, but instead is often achieved in major increments that may exceed specific biennial conservation targets. In these circumstances, I-937 both denied utilities the benefit of conservation achieved above biennial targets and created a perverse incentive to delay these conservation achievements.

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Texas Supreme Court Blows Away Wind Generator Claims, Finds Contracts Assigned Risk of Transmission Congestion to Generators

April 2, 2014

Transmission congestion between the wind-rich plans of western Texas and population centers to the east frequently force curtailment of deliveries of electricity from Texas wind farms. In a contract dispute worth tens of millions of dollars, the Supreme Court of Texas recently concluded that wind energy producer FPL Energy assumed the risk of transmission curtailments and therefore must pay contractual damages for delivery failures caused in large part by transmission curtailments. The decision, which turns on specific language addressing transmission curtailments in a contractual "Uncontrollable Forces" clause, once again underscores the peculiar importance of such clauses in energy contracts.

The Court also disallowed a lower court's $29 million judgment against FPL Energy under the liquidated damages provisions of the relevant contracts. The Court found that the liquidated damages clause was intended to compensate the purchaser for undelivered Renewable Energy Credits ("RECs"). The clause provided for recovery of $50 per each undelivered REC, an amount based on the penalty to be paid by utilities in Texas if they do not purchase enough RECs or renewable energy to satisfy the state's Renewable Portfolio Standard. The Court concluded that the liquidated damages provision crossed the line from an acceptable estimate of actual contract damages to an unacceptable contractual penalty for breach because it assumed TXU would pay the $50 penalty rate for all RECs not delivered, but in fact the Texas regulatory scheme excuses compliance for any RECs not delivered because of transmission constraints or curtailments. As a result, the liquidated damages provision required FPL Energy to pay approximately $29 million, whereas the actual losses suffered because the RECs were not delivered was only about $6 million, possibly less. Thus, there is an "unacceptable disparity" between the results of the liquidated damages provision and the actual damages incurred by TXU as a result of FPL's failure to deliver.

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Please Join Us for "Clean Water and Stormwater" Conference

March 25, 2014

We're pleased to announce that Eric Christensen will be speaking at Law Seminars International's 14th Annual Comprehensive Conference on Clean Water and Stormwater. Eric will be participating in a panel discussing renewal of the Columbia River Treaty and how this may affect water flows and water quality in the Columbia. We hope to see you there!

More Clouds for Coal: Oregon PUC Questions PacifiCorp Expenditures on Coal Fleet

March 24, 2014

March 17 was not a happy St. Patrick's Day for PacifiCorp's coal fleet. Echoing recent actions by the Washington Utilities & Transportation Commission ("WUTC"), the Oregon Public Utility Commission ("OPUC") expressed serious reservations about the assumptions embedded in PacifiCorp's Integrated Resource Plan ("IRP") concerning anticipated expenditures for pollution control equipment at its fleet of coal-fired generators. While the OPUC did not take any specific action, it made clear that PacifiCorp will be required to engage in a substantially more robust modeling of the costs of pollution control and other upgrades for its coal generators.

The stakes for PacifiCorp's coal fleet, which consists of 26 units scattered across five Western states, are substantial. According to current estimates, PacifiCorp will be required to invest more than $4.2 billion for pollution control retrofits before 2023, not including any upgrades that may be required to comply with limits on greenhouse gas emissions. Based on a report from the Commission's staff, as well as comments from interest groups ranging from the Oregon Department of Energy to the Sierra Club, the OPUC raised a number of serious questions about the IRP's economic modeling, baseline assumptions, and timing of proposals for coal-related upgrades embedded in PacifiCorp's 2013 IRP update.

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LEO Still Roars: FERC Declares Montana PURPA Rules Illegal

March 21, 2014

After the Federal Energy Regulatory Commission's ("FERC") recent lawsuit against the Idaho Public Utilities Commission ended in something of a whimper, many industry observers speculated that FERC would retreat from aggressively challenging states that attempt to unduly restrict the rights of power sellers on the Public Utility Regulatory Policies Act of 1978 ("PURPA"). A long-awaiting FERC decision, issued yesterday, suggests this speculation may have been premature. The decision declares that Montana's PURPA program, which requires many PURPA-eligible projects to win irregularly-scheduled competitive bidding processes and also imposes a 50-MW limit on wind generation acquired under PURPA, does not comply with FERC's "legally enforceable obligation" or "LEO" rules. Hydrodynamics, Inc., 146 FERC P 61,193 (issued March 20, 2104).

The controversy centers on how to interpret PURPA's basic mandate, which requires utilities to purchase power from PURPA-eligible generators, called "Qualifying Facilities" or "QFs", at avoided-cost rates. Generally, QFs are small, renewable generators owned by independent power producers. The law was designed to help non-utility developers overcome barriers to entry in the power generation market created by vertically-integrated utility monopolies. Hence, a basic requirement of FERC's PURPA rules is that, if an independent producer presents a utility with a PURPA-eligible contract, it creates a LEO, requiring the utility to honor the contract, even if the utility refuses to sign the contract. This prevents utilities from defeating PURPA's intent by dragging their feet on signing contracts that otherwise meet all PURPA requirements.

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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.

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Bully for Biomass: Washington Supreme Court Rejects Greenhouse Gas Claims, Upholds Finding of No Significant Environmental Impact for Biomass Facility

February 27, 2014

The Washington Supreme Court today rejected claims that the potential for greenhouse gas ("GHG") from a biomass facility triggers the requirement to prepare a full Environmental Impact Statement under Washington's State Environmental Protection Act ("SEPA"). Today's decision promises to greatly simplify the permitting process for projects planning to use woody biomass and should help clarify how GHG emissions are treated for biomass-fired facilities, a question that has bedeviled courts and regulators in other contexts. PT Air Watchers et al. v. State of Washington et al., No. 88208-8 (issued Feb. 27, 2014).

The controversy arose from Port Townsend Paper Company's plans to modernize the boiler at its paper mill by increasing the use of woody biomass to fuel the boiler, increase the boiler's firing efficiency, and adding a 25 megawatt generator to produce electricity. The paper company prepared a SEPA "checklist" in accordance with WAC 197-11-960. The checklist concluded that, because the project would reduce burning of fossil fuels by burning woody biomass instead, it would produce a net reduction in GHG emissions. The Department of Ecology agreed, concluding that no EIS was required because the project would not produce significant environmental impacts. A coalition of local environmental groups challenged this finding, but the challenges were rejected both in an administrative appeal and by the reviewing courts. The Washington Supreme Court accepted review and today affirmed Department of Ecology's finding that no significant environmental impacts requiring preparation of an EIS would result from the project.

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