Too Much of a Good Thing Creates Legal Havoc

As last winter’s abundant snowfall in the Pacific Northwest melted, rivers swelled and hydroelectric operators enjoyed substantial increases in generation. That bountiful clean and cheap power generation was a blessing, but it also triggered a host of legal issues.

Free Power, Anyone?

So much water flowed down the Columbia and other Northwest rivers in May and June that more hydropower was generated at times than there was electric demand in the region. Due to transmission constraints, the Bonneville Power Administration (BPA)—the region’s marketer for federal hydropower and the primary grid operator—could not dispose of all the power flowing into its system, even when it offered to give the power away for free. Because power going into a system needs to be balanced with power going out of the system, BPA had an “overgeneration” problem.

The seemingly obvious remedy of allowing the river water to spill over the dams rather than run through turbine generators was not available due to environmental restrictions. Spilling water causes air to be dissolved in the water, and too much dissolved gas can kill fish, including federally protected endangered salmon in the Columbia River. According to BPA, it was bound by the Endangered Species Act and Clean Water Act to limit spill and concluded that it had no choice other than to run the river flow through turbine generators, which inject less air, but also generated unneeded power.

Hydro Versus Wind

To solve its problem, BPA adopted an “Environmental Redispatch” policy, which, in part, claimed authority to unilaterally amend its interconnection agreements with non-BPA generators to allow BPA to shut those generators down whenever regional supply exceeded demand. BPA would then substitute, for free, its excess power for the power that would otherwise have been produced by the shut-down generators.

Although this policy was generally a good deal for thermal generators, which would save fuel costs by shutting down and receiving free power to serve their customers, it was not a good deal for the owners of thousands of megawatts of wind generation that had been recently connected to BPA’s grid. Wind generators have no fuel costs to save, and many lose money when they are not generating because of lost production-based federal tax credits and/or state renewable energy credits (RECs). Thus, BPA’s redispatch policy collided directly with governmental policies encouraging wind power.

BPA could have disposed of its excess power by letting the market decide who could absorb the power most economically, but this would likely have required BPA to pay customers to take the power (that is, “negative pricing”). BPA, however, declared as part of its new policy that it would not pay customers to take its excess power, because that would impose extra costs on its regular power customers. Instead, BPA decided to use its authority over the grid to protect its power customers from additional costs, and to push the responsibility for excess hydropower onto other generators in the region, primarily wind generators with government-provided incentives. Because no one argued that fish should not be protected, but only who should pay for protection, BPA’s policy was not so much “environmental” redispatch as it was “cost-shifting” redispatch.

BPA’s Remedy Raises Complex Issues

A number of wind generators filed a complaint against BPA at the Federal Energy Regulatory Commission (FERC) under the Federal Power Act, arguing, among other things, that BPA: had no authority to unilaterally amend interconnection agreements; was illegally discriminating against wind projects; was violating “open access” principles by using its transmission grid to benefit its power marketing function; was manipulating the power markets; and was violating the Constitution and other laws by confiscating wind projects’ transmission rights to ship more BPA power out of the region. Interestingly, fishery interests intervened to say that fish could withstand, and even benefit from, higher levels of spill over the dams, and they blamed BPA for advocating for the lower spill limits in other proceedings where they were adopted.

BPA responded to the FERC complaint, arguing, among other things, that FERC had no jurisdiction over BPA to grant the remedies requested; BPA was legally authorized to implement its policy; there was no discrimination against wind; and that all appeals of BPA’s actions were required by law to go exclusively to the 9th Circuit Court. In fact, in proceedings separate from the FERC complaint, 10 petitioners filed court appeals of BPA’s actions.

Thus, in Rube Goldberg–like manner, the beneficial high spring river flows in the Northwest have resulted in the forced shutdown of over 97,000 MWh of wind generation; the loss of tens of millions of dollars in tax and REC wind production credits; the initiation of a hotly contested FERC proceeding with approximately 50 participants; the filing of 10 petitions for court review; and the raising of a host of thorny legal and policy issues. As of the date this article was written, the FERC and court actions were pending.

Brian R. Gish (briangish@dwt.com) is of counsel in Davis Wright Tremaine’s Energy Practice Group.