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FERC Responds Positively to Chelan P.U.D. Rehearing Request on Cost Cap and Project Boundary Issues

By Daniel M. Adamson, Brian Gish and Lisa B. Zycherman

On April 19, 2007, the Federal Energy Regulatory Commission (FERC) granted rehearing in part to the Public Utility District No. 1 of Chelan County, Washington (“District”) of the Nov. 6, 2006 Commission staff order issuing a new license for the 48-megawatt Lake Chelan Hydroelectric Project (“Project”). The rehearing order includes improvements in the Commission’s treatment of license article cost-caps arrived at as part of negotiated relicensing settlements. The cost-cap issue has been a major issue for licensees who have negotiated cost-caps on certain obligations with agencies and stakeholders which have then been overridden by the Commission.

In the rehearing order, the Commission affirmed its authority to “add provisions that are supplemental to, or more stringent than, the mandatory conditions,” to ensure that cost capping provisions for funding conditions do not render implementation of a needed measure “incomplete.” However, FERC agreed with the District’s argument that any exercise of FERC’s authority to require a licensee to surpass cost caps must be subject to notice and opportunity for hearing. Accordingly, FERC modified Article 402 of the District’s new license to explicitly include notice and opportunity for hearing for any changes to funding levels for specific measures. This change will provide the District a valuable tool for preserving the benefits of the cost caps it negotiated as part of its relicensing settlement.

In addition, FERC agreed with the District that when a settlement cost cap is included in a mandatory license condition that FERC determines is not in the public interest under Section 10(a)(1) of the Federal Power Act (FPA), the reservation of authority in Article 402 does not apply to those cost caps. The District had argued that if the Commission believed a license measure was not in the public interest there was no reason for the Commission to reserve its authority to require a licensee to spend more on such a measure. FERC agreed. In the case of the Lake Chelan Project new license, this is a significant change because the Commission held that a number of the license articles included as mandatory FPA Section 4(e) were not in the public interest under Section 10(a)(1). Consequently, the spending limits in these articles are now “hard caps.”

FERC’s Order also addressed several Project lands issues raised by the District. With respect to wildlife habitat lands, FERC denied rehearing on the District’s request that Article 406 of the new license be revised to delete a provision for bringing lands requiring ongoing maintenance to ensure the success of wildlife habitat measures into the Project boundary. The Commission stated that it retained the authority to bring such lands within the Project boundary, even if the lands at issue are not “contiguous with the project or are located some distance from the project.” However, the FERC clarified that it “generally do[es] not require lands on which one-time measures are implemented to be included within project boundaries.”

Finally, FERC affirmed the conclusion in the original license order that, given the value of whitewater resources associated with the Project, a three-year whitewater conditions monitoring study in an extremely hazardous river reach may not be indefinitely delayed while the District seeks to resolve liability concerns. Consistent with its relicensing settlement agreement the District had sought to delay the whitewater releases and monitoring study until it had obtained liability insurance or until an applicable state statute had been amended to include an extension of immunity protections for recreational whitewater releases.

For more information, please contact:

	Daniel M. Adamson Washington, D.C. (202) 973-4240 danadamson@dwt.com		Brian Gish Washington, D.C. (202) 973-4289 briangish@dwt.com
	Lisa B. Zycherman Washington, D.C. (202) 973-4280 lisazycherman@dwt.com

This advisory is a publication of the Energy Department of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent developments in energy law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2007, Davis Wright Tremaine LLP.

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