Recently in Bonneville Power Administration Category

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 As originally enacted by the voters in 2006, I-937 required all covered utilities to obtain all "achievable cost-effective conservation."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.

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

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.

Continue reading "BPA Attempts to Split the Baby on Oversupply Management Costs" »

"The California ISO-PacifiCorp Energy Imbalance Market Experiment: Can Public Power Avoid Assimilation?" Eric Christensen Publishes Article in January NWPPA Bulletin

January 28, 2014

We're proud to announce that GTH partner Eric Christensen has published an article in the January 2014 Northwest Public Power Association Bulletin. The article is available electronically here. We've inserted the text below:

Regulatory Update: The California ISO-PacifiCorp Energy Imbalance Market Experiment: Can Public Power Avoid Assimilation?
By Eric Christensen, Partner Gordon Thomas Honeywell

PacifiCorp and the California ISO are now cooperating to create an Energy Imbalance Market ("EIM") encompassing their collective service territories, which stretch from Utah to Southern California. For public power managers who follow "Star Trek", this development bring visions of the Borg, perhaps the most frightening foe dreamed up by the imaginative writers of "Star Trek: The Next Generation." The Borg is a half-technological, half-biological alien race with a collective hive-mind. With machine-like implacability, the Borg assimilates all other intelligent species, turning them into cyborgs without independent thought. When the heroic Captain Picard is captured and assimilated, and programmed to instruct the human race "you will be assimilated, resistance is futile," all hope appears lost. Development of the EIM forces public power to consider whether assimilation into the ISO and its mind-numbingly complex system of regulations and "structured" markets, is inevitable, whether resistance is futile, and what can be done to protect core public power values.

As envisioned in the PacifiCorp-ISO scheme, the EIM would create a short-term market for balancing and regulating reserves, scheduled every 15 minutes and dispatched at 5-minute intervals. The core functions of the EIM would be provided by the ISO's automated 15-minute market. Dispatch would be optimized across the footprint of the Balancing Area Authorities ("BAAs") participating in the EIM, principally as a means of optimizing the use of balancing reserves to integrate wind generation and other intermittent resources. The PacifiCorp-ISO EIM is designed to allow other BAAs to easily join, with reduced balancing costs held out as an incentive. It is almost certain that NV Energy, the IOU serving Nevada, will join the EIM once regulators approve its sale to Warren Buffet's business empire, making it part of the same corporate family as PacifiCorp. It is easy to anticipate that other BAAs in the West might follow suit. The assimilation of BAAs across the West makes the assimilation of public power seem all the more inevitable.

It now appears nearly certain we will see some form of EIM in the West. Public power should take proactive steps to prevent assimilation, to achieve a peaceful co-existence with the EIM, and, ideally, to move the EIM in a direction that benefits public power. To achieve these goals, public power will need to engage actively in the ongoing PacifiCorp-ISO process and the parallel Northwest Power Pool process. Public power should also consider creative structural solutions that can both insulate us from the problems of an EIM and allow us greater control of our own destiny.

Assimilation by the ISO creates a number of problems for public power. These include, for example, "mission creep," the concern that an EIM would establish a beachhead for a much intrusive entity, such as a west-wide RTO long opposed by public power. Similarly, there is concern that the EIM will lead toward substantially increased regulation by the Federal Energy Commission ("FERC"), particularly over the Bonneville Power Administration.

Two examples demonstrate the potential problems. First, Southern California public power entities operating within the California ISO have been subject to FERC regulation of their transmission rates where it was adjudged that their rates were an element of the ISO's FERC-jurisdictional rates. Second, attempts by both Maryland and New Jersey to deal with the inadequacies of the PJM market, which lacks a coherent mechanism for load-serving entities to secure long-term power supplies, have recently been struck down by federal courts as inconsistent with FERC's exclusive jurisdiction over the wholesale power market. Thus, experience with other RTO/ISO markets suggests that expansion of the EIM to a west-side RTO could create both greater FERC jurisdiction over western public power entities and undermine the ability of public power to secure long-term power supplies. These outcomes are, of course, antithetical to public power's core value of local control and its primary mission of assuring reliable and economical power to public power customer-owners.

The problem of expanded FERC jurisdiction is, in light of recent events, a particular concern with respect to Bonneville Power Administration ("BPA"). If BPA joins the EIM as an active participant, FERC may well assert that the rates it charges for power dispatched into the EIM are a component of FERC-jurisdictional wholesale rates charged by the EIM. This would subject BPA to greater FERC jurisdiction, shifting the focus of control over the agency toward Washington, DC, and away from the Pacific Northwest. And it may provide a lever for FERC to exert greater pressure on BPA to move toward a west-wide RTO.

As discussed in my May 2013 Bulletin article, the risks of mission creep and expanded FERC jurisdiction can be limited by including specific safeguards in the documents governing the EIM. In this article, I propose additional safeguards, including a publics-only EIM and additional measures that should be included in the EIM's governing documents.

By moving aggressively to create its own EIM with membership limited to public power entities, public power can create a structural mechanism to limit both damaging proposals from the EIM and FERC jurisdiction over BPA and other publicly-owned utilities. Fundamentally, the proposed structure would bring together public power utilities, including but not necessarily limited to publics operating BAAs, to pool regulation and balancing reserves and to interact with the PacifiCorp-ISO EIM.
A publics-only EIM would have several advantages over an EIM with mixed public and IOU participation. Perhaps most importantly, the publics-only structure would create an attractive option for BPA, capturing most or all of the advantages that an EIM might create for BPA, but creating a bulwark against expanded FERC jurisdiction over the agency.

In addition, the publics-only EIM would keep public power's fate squarely in its own hands. Because FERC generally has no authority over public power, a publics-only EIM will be able to resist top-down mandates from FERC. If FERC attempts to force a publics-only structure into an expanded mandatory market along the lines of a West-wide RTO, the publics can resist without the same fear of regulatory consequences that would be inherent in an EIM where FERC-jurisdictional IOUs are participants.

Similarly, when faced with the question of adding new functions that would move the EIM toward a full-scale RTO, a publics-only RTO can consider adding new functions on the basis of their own merits, without concern that mandates from FERC would force their hand. Thus, this structure allows public power greater control of its own fate, limiting the extent to which FERC can use its expansive jurisdiction over IOUs as a lever to force its will on the West.

As currently planned, the EIM will operate using the ISO's 15-minute market system. This creates the danger that the ISO will become the default operator of the EIM across the West. With this underlying market structure, ensuring that public power, especially public power entities operating outside California, have an adequate voice in the EIM's operation becomes a challenge.

PacifiCorp and the ISO propose a "Transition Committee" to move toward an independent governing structure for the EIM, but it is not clear the proposed structure would result in fully representative governance. The Transition Committee would be composed of seven members, but, apart from EIM participants, there is no requirement that any particular segment of the industry be represented. This is particularly a problem for public power utilities without BAAs, which are likely to ultimately foot the bill for EIM costs but will not directly participate. And the long-term governance structure of the EIM is still to be developed. This process merits public power's careful attention.

In addition, public power should insist on a "Circuit Breaker" that would require the EIM to suspend operations if there are indications that the market is being manipulated or is otherwise functioning improperly. Circuit breakers of this type are a common feature of most commodity markets. When there are indications that a market participant is attempting to "corner" the market in particular commodity or is otherwise manipulating market prices or outcomes, the circuit breaker kicks in and trading is suspended in that market until appropriate measures are put in place to end the market abuse and make whole those market participants who have suffered from the manipulation.

A circuit breaker is particularly important for the EIM because credible concerns have been raised about market power in the transmission markets covered by the EIM and because the cost-benefit analyses performed so far suggest, at best, modest benefits for the EIM. It is simply not worth the risk of repeating the disaster of the 2000-01 Enron crisis in order to obtain these relatively modest benefits. A circuit breaker would provide market participants with the kind of immediate protection that was lacking in 2000-01, when Western public power waited for more than a year for FERC to take meaningful action to end widespread manipulation and dysfunction of the power markets, which cost hundreds of thousands their jobs and reduced regional economic output by tens of billions of dollars.

When all hope of avoiding assimilation by the Borg appears lost, Star Fleet throws all its remaining ships into a blockade around the inner Solar System. With some clever last-minute thinking by the crew of the U.S.S. Enterprise, the Borg's invasion is stopped and the human race is saved from assimilation. In the same way, the measures suggested here can create a blockade that protects core public power values, and prevents assimilation into FERC and the ISO.

Department of Energy Names Elliot Mainzer Permanent BPA Administrator

January 27, 2014

Perhaps signaling the beginning of the end of the turmoil that has gripped the Bonneville Power Administration ("BPA") since then-Administrator Bill Drummond was abruptly suspended last July, the U.S. Department of Energy today named Elliot Mainzer as the new BPA Administrator. By making Mr. Mainzer's appointment permanent -- he was named Acting Administrator amidst the chaos of Mr. Drummond's sudden suspension -- DOE put in place a critical piece of the puzzle that is BPA's future. The DOE appointment implicitly endorses the course Mr. Mainzer has set for BPA to navigate the problems that led to Mr. Drummond's removal, and may therefore signal a return to normalcy for the agency. With the explicit endorsement of key political figures and interest groups, Mr. Mainzer is now appears well-positioned to refocus the agency's attention on its core missions and responsibilities.

This is welcome news for the region. As marketer for the enormous federal hydropower system in the Columbia River Basin and operator of the majority of high-voltage electric transmission in the Pacific Northwest, BPA plays an outsized role in the region's economic and environmental health. And the BPA Administrator plays an outsized role in the agency's operations because the Administrator is clothed with broad powers nearly unparalleled in other federal agencies.

Continue reading "Department of Energy Names Elliot Mainzer Permanent BPA Administrator" »

Eric Christensen to Speak at 19th Annual Buying & Selling Electric Power Conference

January 7, 2014

Please join us on January 13 and 14, 2014, for the 19th Annual Conference on Buying and Selling Electric Power in the West. The conference brings together leading energy attorneys, expert consultants, industry executives, government officials, and many others to discuss cutting-edge issues affecting the electric industry in the West.

On January 14, Eric Christensen, Chairman of GTH's Energy, Telecommunications and Utilities practice group will present a lecture on Columbia River Treaty, the current status of the treaty, and how future changes are likely to affect electric power production and transmission in the Pacific Northwest.

We look forward to seeing you there.

End of a Litigation Era? Ninth Circuit Upholds Bonneville Power's Residential Exchange Settlement

October 29, 2013

The U.S. Court of Appeals for the Ninth Circuit on Monday approved a Bonneville Power Administration settlement of the "Residential Exchange" litigation, which may finally bring a few years of peace to a decades-long legal war over the distribution of benefits from the low-cost resources of the federally-owned hydroelectric dams on the Columbia River system. The Ninth Circuit's opinion rejects a number of challenges to the settlement under the Northwest Power Act, putting to rest most questions about the Residential Exchange for the settlement's duration, through 2028. (Association of Public Agency Customers v. Bonneville Power Administration, No. 11-73178 (issued Oct. 28, 2013)).

The Residential Exchange is the result of a "grand bargain" between Bonneville's public agency customers and the region's investor-owned utilities ("IOUs"), which was encapsulated in Sections 5(c) and 7(b) of the Northwest Power Act of 1980. The Residential Exchange was intended to allow the IOUs a share of the benefits of low-cost power from the federal hydroelectric system. The language of the Act is quite turgid, but at base, the Exchange provides the residential and small farm customers of the IOUs with a cash subsidies from Bonneville. But those benefits are subject to a "ceiling," set forth in Section 7(b)(2). The 7(b)(2) rate ceiling is the keystone of the "grand bargain," and is intended to protect Bonneville's public customers, who pay for most costs of the Residential Exchange as an element of their wholesale power rates, by ensuring that their rates are no higher than they would have been had the Residential Exchange not been enacted. Rather than a direct sale of power, the Exchange is a paper transaction in which the IOUs "exchange" power with Bonneville, and receive a cash payment from Bonneville which is calculated as the difference between the IOU's average power cost ("Average System Cost" in Bonneville-speak) and Bonneville's wholesale rate, as adjusted in accordance with the rate cap and other requirements of Section 7 (the "PF Exchange Rate"). The IOUs are then obligated to pass this cash payment through to their residential and small farm customers through rate reductions for these customer classes.

Continue reading "End of a Litigation Era? Ninth Circuit Upholds Bonneville Power's Residential Exchange Settlement" »

How the Federal Shutdown Affects Federal Energy Agencies

October 2, 2013

With the opposing sides entrenched in inflexible positions, it appears that the shutdown of the federal government won't end anytime soon. Because of differences in how the agencies are funded, a couple of energy-related agencies are operating normally for the time being. Here is a quick summary of how the federal shutdown will affect federal agencies of concern to the energy industry:

1. Power Marketing Agencies: By virtue of the fact that it is self-funded, the Bonneville Power Administration will continue to operate as normal. The Bonneville Fund, a permanent revolving fund created by the Federal Columbia River Transmission Act of 1974, allows BPA to operate without the necessity of annual Congressional appropriations. Even other federal power marketing agencies are not so lucky. For example, the Western Area Power Agency will operate with only 77 employees, retained to perform functions related to the protection of human life and property.

2. Federal Energy Regulatory Commission: For the time being, FERC will operate normally, relying on funds collected from filing fees and other types of user fees that do not require Congressional appropriations. Once those funds are exhausted, FERC will drastically curtail its operations. According to press reports, Chairman Jon Wellinghoff has estimated that FERC may continue to operate for somewhere between two weeks and one month before available funds run dry.

3. Environmental Protection Agency: Like most federal agencies, EPA has furloughed a large majority of its employees. Hence, permitting and rulemaking activity is on hold for the duration of the shutdown.

4. Department of Energy: With the exception of employees involved in nuclear safety, nearly all Department of Energy employees have been furloughed, including, for example, all but two employees at the Pacific Northwest National Laboratory. In fact, the DOE's website has been taken offline except for a detailed statement about the Department's furlough policy.

In short, with the exception of the BPA and FERC, nearly all federal activity related to energy and environmental protection has come to a halt. FERC will enjoy a short reprieve from the shutdown, but the reprieve will last only a few weeks, perhaps less.

If you have questions about the federal shutdown, the affected agencies, or other questions related to energy or environmental law, please contact a member of GTH's Energy, Telecommunications, and Utilities practice group or Environment & Natural Resources practice group. We are 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.

Ninth Circuit Orders Amendments to Northwest Power & Conservation Council's Sixth Power Plan

September 19, 2013

While rejecting the potentially most far-reaching claim of the environmental petitioners, the U.S. Court of Appeals for the Ninth Circuit yesterday remanded the Northwest Power and Conservation Council's ("Council") Sixth Power Plan to correct two perceived errors. The opinion is the latest chapter in the Pacific Northwest's "salmon wars," a decades-long political and legal struggle to balance the health of the region's iconic salmon runs with its economically vital hydroelectric power system. Northwest Resource Information Center, Inc. v. Northwest Power & Conservation Council, No. 10-72104 (issued September 18, 2013).

The Council is the body designated under the Northwest Power Act to develop a plan that provides a robust regional fish and wildlife conservation program, while preserving the value of the regional hydroelectric system. The power planning process is the core mechanism employed by the Council to achieve this balance. Hence, changes to power planning process can have far-reaching consequences.

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Pacific Northwest Could Be Ground Zero In Fight Over FERC Order No. 1000 Authority

July 26, 2013

Political and legal battle lines have now been drawn around implementation of the Federal Energy Regulatory Commission's ("FERC") Order No. 1000 in the Pacific Northwest. The outcome of these battles will go far toward defining the extent to which FERC can exert its authority in this region and others where public power predominates. Indeed, absent deft handling of the issues by FERC, collapse of the Order No. 1000 process in the region appears to be a real possibility.

As we have described in earlier posts, Order No. 1000 is a major FERC initiative aimed at opening the market for transmission development to new players and new sources of investment. To accomplish this goal, Order No. 1000 requires several changes to regional transmission planning and cost allocation. For example, FERC-jurisdictional transmission utilities are required to open regional transmission planning processes to non-incumbents, to improve transmission planning between regions, to eliminate the right of first refusal for incumbent utilities to construct transmission within their service areas, and to create a mechanism for allocation of the costs of transmission projects chosen in the regional transmission planning process. While other elements in Order No. 1000 have provoked little controversy in the Pacific Northwest, the mandatory cost allocation requirement has become a serious point of contention.

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BPA Administrator Suspended, Stunning Power Industry

July 16, 2013

According to several press accounts, Bill Drummond, Administrator of the Bonneville Power Administration ("BPA"), was suspended and escorted from his office on Monday, along with the agency's Chief Operating Officer, Anita Decker. On Monday afternoon, BPA issued a terse announcement stating that Mr. Drummond had been placed on administrative leave and that Elliot Mainzer had been named interim Bonneville Administrator. Suspensions at the highest level of BPA are unprecedented in the agency's history, which dates back to the New Deal.

Today, a few parts have begun to appear in the clouds of mystery surrounding the suspension. According to a "Management Alert" issued earlier today by Department of Energy ("DOE") Inspector General Gregory H. Friedman, the suspensions arise from a whistleblower complaint filed in June 2012 alleging that BPA engaged in improper hiring practices that failed to give required preferences to veterans. The preliminary results of the investigation arising from that complaint, as reported in the Management Alert, determined that Bonneville committed one or more errors in 95 of 146 hirings between November 2010 and June 2012, a rate of 65%. Based on the "major errors" found in "the vast majority of files reviewed," DOE suspended BPA's independent authority to make its own hirings.

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As Decision Day for the Columbia River Treaty Looms, BPA and Corps Seek Comments On Draft Recommendations

July 3, 2013

As previously discussed here, the impending decision about whether to seek termination or renegotiation of the Columbia River Treaty next year carries with it enormous long-term implications for the Pacific Northwest and the region's power industry. In preparation for this decision, the "U.S. Entity" -- Treaty-speak for the Bonneville Power Administration and the U.S. Army Corps of Engineers, which jointly administer the Treaty on behalf of the U.S. -- is seeking comments by August 16 on the its "Working Draft of a Regional Recommendation: Improving the Columbia River Treaty Post-2024", which was released late last month.

The Working Draft Recommendation is primarily the product of input from the "Sovereign Review Team," composed of representatives from the four Columbia Basin states, eleven federal agencies, and fifteen Native American tribes. Those entities have not yet reached full agreement, so the Draft remains a work in progress. The comments the U.S. Entity solicited will be part of an ongoing process of refining the recommendations that will be made by the U.S. Entity to the Department of State in December 2013. Ultimately, the Department of State will be responsible for terminating or renegotiating the Treaty.

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"EIM, RTOs, and FERC Jurisdiction: Does Participation in a Regional Energy Imbalance Market Subject Public Power to FERC Jurisdiction?": Eric Christensen Publishes Article in May NWPPA Bulletin

May 15, 2013

We're proud to announce that GTH partner Eric Christensen penned the cover story in the May 2013 issue of the Northwest Public Power Association Bulletin. Here is the text of the article:


Does Participation in a Regional Energy Imbalance Market
Subject Public Power to FERC Jurisdiction?

By Eric Christensen, Partner Gordon Thomas Honeywell

The rapid rise of variable renewable resources, especially wind power, has put increasing pressure on the West's electric system to balance the rapidly fluctuating output often produced by these resources. In response, a regional Energy Imbalance Market ("EIM") is now under active consideration. The EIM would allow Balancing Area Authorities ("BAAs") to obtain balancing reserves from across a broad region, in theory allowing more economic and reliable operation of the region's balancing capacity. Public power has greeted EIM with considerable skepticism, observing that Regional Transmission Organizations ("RTOs") and other "organized markets" have often failed to produce expected benefits.

Public power is equally concerned that an EIM could subject public power systems to Federal Energy Regulatory Commission ("FERC") jurisdiction. Centralized control by FERC is, of course, the antithesis of local control, one of public power's keystone values. FERC's recent tendency to pursue its jurisdiction aggressively on behalf of renewable producers heightens this concern. For example, FERC in 2011 for the first time asserted its "FERC-lite" jurisdiction, invalidating the Bonneville Power Administration's approach to managing periods of excess wind generation.
As this article explains, public power is right to be concerned that an EIM could result in both expanded FERC jurisdiction and a broader push toward a West-wide RTO. Both risks, however, can be mitigated by insisting on specific structures and conditions for EIM participation.

Relevant Precedents: FERC Jurisdiction Over Consumer-Owned Utilities Operating in Organized Markets

In the industry's first few decades, federal jurisdiction was of little concern to public power. Public power operated in its own sphere, governed by elected representatives of the citizens it serves, generally free from either state or federal rate regulation. With increasing integration of the industry and regulatory restructuring, these jurisdictional lines have blurred. In some cases, Congress added new statutory authority giving FERC jurisdiction over specific aspects of consumer-owned systems. In other cases, FERC leveraged its existing statutory authority. For example, to enforce its "open access" transmission regime, FERC required consumer-owned transmission systems to adopt "Safe Harbor" open access tariffs so that they could obtain "reciprocal" access to IOU-owned transmission facilities.

An examination of recent precedents from Western RTOs and cooperative transmission ventures demonstrates that there is some basis for concern that participation in an EIM could subject a consumer-owned utility to new FERC jurisdiction. Perhaps most notoriously, after the meltdown of Western power markets in 2000-01, FERC attempted to force public power entities that had participated in the California ISO and PX markets to disgorge refunds. Ultimately, the Ninth Circuit rejected those attempts, concluding that the Federal Power Act plainly prohibits FERC from exercising its refund authority over public power entities. The Court, however, left the door open for California to pursue refunds in court. This opening has proved costly for public power. For example, in April, the U.S. Court of Claims allowed California's contract-based lawsuit against the Bonneville Power Administration ("BPA") to move forward. This is a particularly bitter pill for Northwest public power ratepayers, many of whom suffered greatly from California's missteps during the 2000-01 market meltdown and were generally denied relief by FERC. They now face the prospect of paying again for California's mistakes, this time through inflated BPA rates.

The Courts have also concluded that consumer-owned utilities participating in the California Independent System Operator ("ISO") may be subject to just-and-reasonable rate regulation where the rates charged by the consumer-owned utility affect the FERC-jurisdictional rates charged by the ISO. When the City of Vernon, California's municipal utility joined the ISO, the rates charged by Vernon for ISO-administered access to Vernon's transmission system became an element of the transmission rates charged by the ISO. FERC concluded that, because Vernon's transmission rates were an element of the ISO's transmission rates, Vernon's rates must be subject to FERC oversight to ensure that the resulting transmission rates charged by the ISO are just and reasonable. After extended litigation, the Ninth Circuit ultimately upheld this result.
FERC has asserted a similar form of jurisdiction over public power entities in other regions, as well. For example, where Basin Electric Cooperative entered into a joint-use transmission arrangement with a FERC-jurisdictional IOU, FERC asserted jurisdiction to review Basin's transmission rates because Basin's rates are a component of the rates charged by the joint-use system.

On the other hand, the courts have flatly rejected FERC attempts to force changes in the management structure of the RTOs and ISOs. Following the 2000-01 crisis, FERC concluded that the ISO's management structure was partly to blame for market dysfunctions, and attempted to force a change in the composition of the ISO Board. The U.S. Court of Appeals for the D.C. Circuit rejected FERC's assertion of authority. Of particular interest, the Court of Appeals rejected FERC's claim that its authority to regulate the "practices" of jurisdictional utilities allows FERC to order specific changes in the management of those utilities. FERC's reading of the statute, the Court concluded, ignores the surrounding statutory language, which is aimed at providing FERC with authority to regulate rates, not every aspect of utility operations. Thus, the Court reasoned, FERC can regulate utility "practices" only if they are directly connected with the utility's rates. Because there was no clear connection between the structure of the ISO's board and the rates it charged, the Court concluded, FERC's attempt to dictate the structure of the ISO's governing board exceeded its statutory authority.
In summary, the participation of consumer-owned utilities in "organized markets" such as the California ISO is a mixed bag. FERC has on a number of occasions asserted jurisdiction over consumer-owned utilities participating in ISOs or RTOs. And, while the Courts have rejected some of these assertions, they have upheld others. Consumer-owned utilities contemplating participation in the EIM are therefore well-advised to exercise caution if they wish to avoid becoming subject to increased FERC jurisdiction.

Limiting FERC Jurisdiction in an EIM
While exposure to FERC jurisdiction is a valid concern, expanding FERC jurisdiction need not follow inevitably from a decision to participate in the EIM. For example, a number of consumer-owned utilities participate along with FERC-jurisdictional IOUs in regional transmission bodies such as ColumbiaGrid and WestConnect. FERC precedent regarding these and similar regional ventures demonstrate that, with appropriate safeguards, FERC's assertion of jurisdiction over consumer-owned participants can be limited.

Such safeguards include:

Defining off-ramps for consumer-owned utilities. Perhaps the best safeguard for consumer-owned utilities is a clear "off-ramp," allowing them to terminate their participation in EIM if FERC attempts to extend its jurisdiction over them. For example, WestConnect proposed a transmission pilot project aimed at reducing the "pancaking" of transmission rates across the systems of its members, which included both jurisdictional IOUs and non-jurisdictional co-ops and consumer-owned utilities. FERC approved an agreement allowing participants to withdraw at any time prior to the start-up of the pilot, at any time after start-up as a result of adverse regulatory action, and after ninety days' notice for any other reason occurring after start-up. Similarly, the Nebraska Public Power District ("NPPD") and Omaha Public Power District ("OPPD") in the Southwest Power Pool are authorized to withdraw from the Southwest Power Pool if FERC does not accept their rates or transmission revenue requirements. The ability to withdraw from the organization administering EIM in response to an unjustified claim of FERC jurisdiction gives consumer-owned participants powerful leverage to prevent FERC from overstepping its bounds.

De-coupling jurisdictional and non-jurisdictional rates. It may be possible to structure an EIM so that the rates paid to non-jurisdictional utilities remain separate and distinct from the rates paid to FERC-jurisdictional IOUs. For example, before the WestConnect transmission pilot discussed above went into effect, FERC declared that the rates charged by non-jurisdictional utilities were not subject to FERC review because they did not affect rates charged by jurisdictional IOUs and additional safeguards, such as rate caps, were in place to ensure that jurisdictional rates remain just and reasonable. Similarly, FERC has approved participation of NPPD and OPPD in the Southwest Power Pool subject to agreements that explicitly limit FERC's authority to review the NPPD's and OPPD's rates or revenue requirements. As these examples demonstrate, it may be possible to limit FERC jurisdiction by separating EIM rates paid to non-jurisdictional utilities from rates paid to jurisdictional utilities, or by insisting upon specific contractual limits on FERC jurisdiction over public power.

De-coupling the EIM market from transmission rates. The EIM should be limited to the specific function of allowing regional exchange of regulating reserves and other sub-hourly products. It should not operate a centrally-administered transmission market. Limiting the EIM's functions in this manner will prevent FERC from attempting to leverage its jurisdiction over interstate transmission.

Recognizing public power authorities. The authority of public power governing bodies to set their own rates and policies is, of course, a cornerstone of the public power movement. Similarly, consumer-owned utilities operate under unique limitations arising from, for example, state law and from federal rules governing municipal bonds. Consumer-owned utilities participating in the EIM should insist on language in governing agreements that will prevent the actions of the EIM from violating state law, putting tax-exempt financing at risk, or displacing the basic functions of publicly-elected governing bodies. Such mechanisms not only assure consumer-owned utilities that they are operating within the boundaries of existing law, but also serve to limit FERC jurisdiction by requiring FERC to abide by the legal limits faced by consumer-owned utilities.

It is important to recognize that, in the Energy Policy Act of 2005, Congress granted FERC new refund authority over consumer-owned utilities. This new authority allows FERC to order refunds from consumer-owned utilities for short-term sales (sales for periods of less than one month) if the sales are "through an organized market in which the rates for sale are established by [FERC]-approved tariff (rather than by contract)" and the sale violates that tariff. FERC has yet to provide any clear guidance as to the meaning of this new authority. Hence, consumer-owned entities contemplating participation in an EIM must recognize the existence of the new authority, devise strategies for limiting the authority, and consider the possibility that their short-term sales on the EIM could be subject to FERC-ordered refunds.

Limiting EIM Expansion
As with FERC jurisdiction, public power is rightly concerned that, even if an EIM is wise, it could pave the way for a full-fledged RTO, with its attendant costs, complications, and market manipulation risks. In the same way that public power participants in an EIM should insist on limits to FERC jurisdiction, they should also insist on limits that prevent EIM from becoming a "slippery slope" to a West-wide RTO.

Two considerations are key. First, there is no reason that the EIM itself should be considered an RTO. On the contrary, if the functions of the EIM are strictly limited to its core mission, it would not be an RTO because it would not operate all the functions of an RTO. Rather, it would be more like ColumbiaGrid or WestConnect, organizations which perform limited transmission functions but are neither registered as an RTO nor considered to be an RTO by FERC.

Second, the governing documents of EIM should either prohibit expansion of the organization or else require a supermajority to move forward with any new functions. For example, ColumbiaGrid's governing documents allow it to take on new functions only with a super-majority vote of its members. Such a supermajority requirement can prevent movement toward in RTO unless a strong regional consensus, which necessarily must include public power, develops in favor of RTOs.

Public power has good cause to be concerned that participation in an EIM could result in expanded FERC jurisdiction over consumer-owned utilities and could be a step toward a West-wide RTO. These are not inevitable consequences of an EIM, however, and a number of proven safeguards are available to prevent these outcomes if consumer-owned utilities elect to participate in the EIM.

(Note: While the article is officially the "Cover Story" of the May NWPPA Bulletin, the photo on the cover is in fact a vendor from NWPPA's recent Engineering and Operations Conference. This is because, despite a valiant effort, NWPPA's editors could not find a compelling graphic concerning the EIM or FERC jurisdiction.)

Iberdrola's Proposed Wind Balancing Tariff May Offer A Path Out of the Wind Integration Woods

March 12, 2013

Bonneville Power Administration ("BPA") and the Pacific Northwest's wind producers have been frequent and intense antagonists in the region's ongoing wind wars. But a tariff filing last week by one of the primary antagonists, Iberdrola Renewables, LLC, provides one avenue for relieving the pressure on BPA to integrate the region's large and growing wind fleet. And, because the difficulties of integrating the wind fleet are the ultimate cause of the wind wars, the Iberdrola tariff suggests the problem may be soluble without pursing litigation to the bitter end.

Iberdrola's proposed tariff (FERC Docket No. ER13-1058) would allow it to supply wind balancing services to third parties. The proposed wind balancing service is based on a successful pilot program Iberdrola has used to balance its wind resources since 2011 using its own natural gas resources, in addition to contracted resources owned by TransAlta Corp. and Grant County PUD. Iberdrola now proposes to expand this service by offering wind balancing services to other wind producers. The new service is being encouraged by BPA, which is now allowing third parties to supply wind balancing services.

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FERC Proposes Changes to Small Generator Interconnection Process Designed To Encourage Solar, Distributed Resources

February 4, 2013

Responding to a petition filed by the Solar Energy Industries Association last year, the Federal Energy Regulatory Commission ("FERC") at its January meeting issued a Notice of Proposed Rulemaking ("NOPR") soliciting comments on changes to its rules governing interconnection of small generators. Citing the rapid growth of solar photo-voltaic ("PV") systems and expanding state renewable portfolio standards, FERC argues that changes in the Small Generator Interconnection process are necessary to keep up with changes in the industry. The proposed changes are aimed at encouraging distributed generation by streamlining the interconnection process, especially for generators with capacity of 5 MW or less. Comments on the NOPR are due June 3, 2013. FERC will hold a technical conference on the proposals prior to that date.

Under the current process, small generators (defined as generators with no more than 20 MW of capacity) may interconnect with FERC-jurisdictional transmission utilities by following the pro forma Small Generation Interconnection Procedures ("SGIP") and signing a pro forma Small Generator Interconnection Agreement ("SGIA"). Under the existing SGIP process, small generators with a capacity between 2 and 20 MW are required to follow the "Study Process," in which they file a request for a study with the interconnecting utility, which then carries out system impact studies to identify any reliability or safety problems that might be created by the new generator and the system upgrades that the generator must pay for to remedy these problems.

Rather than going through the Study Process, generators under 2 MW of capacity go through the "Fast Track Process." The Fast Track Process relies on a series of "technical screens," rather than studies, to identify potential safety and reliability concerns. If no problems are identified, the generator can then sign a SGIA and interconnect. If problems are identified, then the interconnecting utility generator can work through options with the interconnecting utility to resolve those problems. Finally, very small generators, with 10 kW of capacity or less, can interconnect using the "10 kW Inverter Process," which allows them to interconnect if they use a certified inverter designed to avoid safety and reliability issues and pass the "technical screen" process.

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A Lump of Coal in Bonneville's Stocking: FERC Rejects BPA's Plans to Address Overgeneration During High-Wind/High-Water Events

December 22, 2012

As it was wrapping up business for 2012 and heading off for the holidays, the Federal Energy Regulatory Commission ("FERC") left a lump of coal in Bonneville Power Administration's stocking in the form of two orders rejecting Bonneville's efforts to address wind generation curtailments during periods of over-generation. Together, the orders put Bonneville's efforts to address the over-generation problem nearly back to square one.

As we have previously explained in greater detail, the rapid growth of the Pacific Northwest's wind industry in the last decade has, at times, produced too much of a good thing. When high spring-time flows on the Columbia coincide with high winds in the Columbia Gorge, the combined output of the region's wind generation fleet and the hydroelectric dams exceeds regional electric demand. The situation is further complicated because Clean Water Act standards on dissolved gases designed to prevent gas bubble trauma in aquatic species limit the extent to witch Bonneville can spill water, requiring it to run water through hydroelectric turbines instead.

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