Environmental Redispatch, Round 2

On December 7, 2011, the Federal Energy Regulatory Commission (“FERC”) issued an order granting the relief requested by a group of Complainants against the “Environmental Redispatch” policy adopted earlier that year by the Northwest’s dominant transmission provider, Bonneville Power Administration (“BPA”). Iberdrola Renewables, Inc., et al., v. BPA, FERC Docket No. EL11-44-000. The Complainants are largely wind generators whose contractual rights to access the BPA transmission system had been denied by BPA during the spring of 2011 whenever, and for as long as, BPA chose to replace renewable, wind energy generation with additional hydro power it could generate using unusually high water levels affecting the Columbia River hydroelectric system. BPA’s stated reason for confiscating both the firm-transmission rights and wholesale power loads of these wind generators was the avoidance of elevated levels of dissolved gasses associated with hydro spill, which can be toxic to anadromous fish. In its order, FERC held that the confiscatory nature of Environmental Redispatch violated Section 211A of the Federal Power Act (“FPA”), which requires transmission providers, otherwise outside FERC’s FPA jurisdiction, to treat their transmission customers comparably to the way it treats its own generation. FERC held that Environmental Redispatch was unlawful and ordered BPA to provide comparability under a new tariff filing to be submitted to FERC by March 6, 2012.

BPA has now put out for informal comment the proposal tariff filing it intends to submit to FERC. If acceptable to FERC, the new filing would consist of a new “Attachment P” to BPA’s Open Access Transmission Tariff. Under Attachment P, BPA would continue its practices rejected by FERC, but under terms it hopes FERC will accept as legally sufficient. Specifically, Attachment P would:

1. Require each generator operating in the BPA Balancing Authority to submit detailed information about its operating costs, opportunity costs, eligibility for renewable energy credits and production tax credits, which BPA would then use to develop its “Lease-Cost Displacement Cost Curve” for use in curtailing non-hydro generation in times of abnormally high water. These data would be subject to audit by a firm selected by BPA, and to the threat of significant penalties based on audit results.
2. Thermal generators within BPA’s Balancing Area would be offered BPA replacement energy priced below their operating costs, as documented in their data submissions to BPA, in an effort by BPA to cause them to curtail generation voluntarily. Curtailment instructions to thermal generation would reflect minimum-generation levels and maximum ramp rates of each thermal generator.
3. Wind generators that have begun to produce energy for sale on or before March 6, 2012 (BPA’s FERC compliance filing date) would be compensated by BPA, in the event of forced curtailment, with payments (negative prices) equal to the opportunity cost of generation (including power, RECs and PTPs), as documented to BPA.
4. A second class of wind generators (those that have not commenced energy sales by March 6, 2012) would receive little if any compensation in the event they were forced by BPA to curtail output. BPA claims that the distinction between classes is intended to incentivize developers of new wind projects to negotiate power sale contracts that would compensate them for BPA hydro energy substituted for wind generation during times of BPA curtailment.
5. BPA would recover its costs of negative pricing through a new ancillary service charge, to be developed later in 2012 in a BPA rate proceeding and then submitted to FERC for review. BPA intends that half of these costs be recovered from the power customers of its hydro system and the other half from those transmission customers it would subject to involuntary curtailment under Attachment P.

Attachment P can be expected to lead to further proceedings before FERC. Separately, a number of BPA customers last year sought judicial review of Environmental Redispatch before the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit cases have been stayed temporarily, pending outcome of FERC proceedings.