BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON. Docket No. UM 1566 ) ) ) ) ) ) ) ) PATU WIND FARM, LLC S RESPONSE LEGAL BRIEF

Transcription

1 BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON Docket No. PATU WIND FARM, LLC, Complainant, vs. PORTLAND GENERAL ELECTRIC COMPANY, Defendant. ) ) ) ) ) ) ) ) PATU WIND FARM, LLC S RESPONSE LEGAL BRIEF December 20, 2013

2 TABLE OF CONTENTS I. INTRODUCTION AND SUMMARY...1 II. RESPONSE TO FACTS...3 A. PATU HAS NOT RECEIVED AVOIDED COST RATES FOR ALL OF ITS OUTPUT, AND PGE WOULD HAVE PATU RECEIVE AVOIDED COST RATES FOR EVEN LESS OF ITS OUTPUT....5 B. PATU IS NOT MADE WHOLE FOR THE COSTS OF DELIVERING A WIND INTEGRATED PRODUCT....8 C. PATU S SCHEDULING ACCURACY IS NOT UNREASONABLE....9 III. RESPONSE TO ARGUMENT...10 A. FEDERAL AND STATE LAW AND REGULATIONS REQUIRE PGE TO PURCHASE ALL DELIVERED ENERGY BECAUSE PATU S PURCHASE OF IMBALANCE SERVICE TO DELIVER BALANCED DELIVERIES TO PGE IS NOT A SALE FOR RESALE OF NON-QF POWER UNDER FEDERAL LAW B. PATU IS ENTITLED TO RELIEF UNDER CLAIM SIX BECAUSE PGE IS IN BREACH OF CONTRACT The Standard Contract Unambiguously Requires PGE to Pay the Only Rate in the Contract for All Electricity PaTu Causes to Be Delivered to the Point of Delivery Even If the Contract Is Ambiguous, the OPUC Must Construe Ambiguous Terms against PGE and Require Payment at the Contract Rate for All Deliveries Made Under the Contract PGE Has Prevented PaTu From Performing In the Manner PGE Requires, Thus Requiring PGE to Pay the Contract Rates for All Deliveries Under the Contract The Duty of Good Faith and Fair Dealing Included in All Oregon Contracts Requires PGE to Pay the Contract Rates For All Deliveries Under the Contract At a Minimum, the Commission Should Soundly Reject PGE s Daily Settlement Period PAGE i

3 C. PGE S CLAIM THAT PATU BREACHED THE STANDARD CONTRACT THROUGH IMPRECISE SCHEDULING IS MERITLESS D. PGE S INTERPRETATION OF THE STANDARD CONTRACT VIOLATES PURPA IV. CONCLUSION...37 PAGE ii

4 I. INTRODUCTION AND SUMMARY Pursuant to the procedural schedule in this case, PaTu Wind Farm, LLC ( PaTu ) hereby respectfully submits this response legal brief. The Oregon Public Utility Commission ( Commission or OPUC ) should grant PaTu relief on its remaining claims by declaring PGE in violation of PURPA and/or the standard contract. Portland General Electric Company ( PGE ) is obligated by the Public Utility Regulatory Policies Act of 1978 ( PURPA ) to purchase all of PaTu s net output. The OPUC is charged with enforcing this mandatory purchase requirement and with overseeing the power purchase agreement ( PPA or standard contract ) between PGE and PaTu. PGE is frustrating the purpose of this contract (and acting inconsistently with PURPA) by insisting on a method of delivery that ensures that the goal of the contract the effectuation of PURPA s mandatory purchase requirement cannot actually be achieved. PGE s onerous delivery requirements are unnecessary, unexplained, and ensure that PaTu cannot achieve its only goal: the sale of its net generation to PGE at avoided cost. Delivery requirements matter to a contract. PGE s behavior is like a party agreeing to buy a truckload of widgets at a certain fixed contractual price, then, when the delivery truck arrives, cracking the door slightly and agreeing to pay such contractual price only for the few widgets the seller can jam through the door. The unreasonable delivery requirements amount to a refusal to honor an agreement to purchase all deliveries at the contract price. PGE complains about PaTu s scheduling practices, but the convoluted scheduling that PGE refers to are PaTu s best effort to make sure that it has the opportunity to sell at least a good portion of its generated output, to PGE, under PGE s impossible requirements. PaTu agrees with PGE that the dispute is simple. PaTu delivers a product to PGE. By PAGE 1

5 PGE s demand, the product PaTu delivers is an integrated and balanced amount of pre-scheduled electric energy in whole megawatt-hour ( MWh ) increments each hour. PaTu and Bonneville Power Administration ( BPA ) could deliver PaTu s precise qualifying facility ( QF ) generation in kilowatt hour ( kwh ) increments. Such deliveries would assure PaTu that it would be able to deliver all of its precise net output (but no more) and be paid the avoided cost rates for the same. But PGE has refused to allow such deliveries. Thus, PaTu delivers a product that provides substantial wind integration benefits to PGE, at PaTu s expense. PGE s standard contract and its QF tariff attached thereto require PGE to pay a single price for the product PGE receives the fixed price avoided cost rates per MWh of electricity delivered. That is the price PGE must pay for all of the electricity it receives. PGE attempts to deflect the focus from its unfair delivery and settlement practices by asserting that PaTu is engaged in a sophisticated energy arbitrage operation. This theory fails. As PaTu s request for dynamic scheduling makes clear, PaTu wants to sell the precise amount of its QF net generation to PGE at avoided cost, nothing more. PGE s unilaterally imposed delivery and settlement requirements create nearly insurmountable scheduling challenges, and an incentive for slight over-scheduling in order for PaTu to receive the benefit of the bargain in its standard contract. There is no nefarious motive behind PaTu s scheduling efforts. Moreover, the salient point here is that BPA and the Federal Energy Regulatory Commission ( FERC ) have already devised a persistent deviation penalty to deter and penalize inaccurate scheduling. And BPA has concluded PaTu never violated those FERC-approved criteria. No further investigation is necessary. The standard contract entitles PaTu to sell its entire output to PGE and requires PaTu to use commercially reasonable efforts to schedule and PAGE 2

6 deliver an amount in each hour that matches its generation. PGE has forced PaTu to schedule on an hourly basis, a scheduling protocol that FERC has found to be unduly discriminatory for intermittent generators, such as PaTu. 1 Yet PaTu has managed to conduct its scheduling in a commercially reasonable manner and fully complied with the persistent deviation policies. Thus, PGE must pay for all delivered electricity at the only rate in the contract. The Commission should order PGE to pay PaTu the only rate in the standard contract for all electricity delivered to PGE under the contract. Alternatively, even if the Commission agrees with PGE that PaTu must equalize its over-deliveries and under-deliveries during some period of time to receive avoided cost rates in the contract, the Commission should reject PGE s punitive daily settlement period. Instead, the Commission should require PGE to implement an annual or at least a monthly settlement period within which PaTu could reasonably attempt to equalize its under and over deliveries in the future. Further, the Commission should reject PGE s argument that the standard contract s delivery terms mandate that PaTu must attempt to deliver under the unjust and unreasonable hourly MWh block scheduling protocol. In response to PGE s argument, the Commission should clarify that the standard contract is not a barrier to PaTu s right to use all scheduling and delivery options available to other generators, including PGE itself. II. RESPONSE TO FACTS The root problem in this case is that PGE s delivery and settlement requirements unfairly and unnecessarily prevent PaTu from selling its entire output to PGE at avoided cost rates, despite PGE s statutory and contractual obligation to buy that entire output. No wind QF could 1 Integration of Variable Energy Resources, Order No. 764, FERC Stats. & Regs. 31,331, at PP 20-22, 77 Fed. Reg. 41,482 (July 13, 2012) PAGE 3

7 avoid the problems PaTu is facing under the strictures PGE has imposed. PaTu s schedules cannot be perfect under PGE s implementation of the contract, because (1) the wind does not blow consistently with any wind QF s hourly scheduling, and (2) PGE s daily settlement periods do not allow scheduling errors to even out over time. Reasonable delivery and settlement requirements would account for these issues, which are inherent to wind plants. PGE complains in its brief about PaTu s over-scheduling, painting it as some sort of arbitrage or intentional gaming, but PaTu s singular goal is to sell all of its net output at avoided cost, nothing more. PaTu respects the Commission s disavowal of jurisdiction over PaTu s request for dynamic scheduling. The very existence of that request, however, makes PaTu s actual goals clear, because the only point of dynamic scheduling is to ensure that PGE purchases precisely PaTu s amount of net generation at avoided cost, nothing more. As it stands, PGE s practices make the sale of PaTu s full net output at avoided cost impossible, and create an incentive for PaTu to err on the side of over-scheduling to ensure that PGE buys as much of the plant s output as reasonably possible. PGE unfairly paints PaTu s 9 megawatt ( MW ) wind project operated on the Hilderbrand family s farm as a sophisticated energy arbitrage operation. PGE also paints PaTu s efforts to sell its generation as some sort of scheme to game BPA s persistent deviation penalty provisions. Under this theory, PaTu intentionally over-schedules just enough intermittent wind power to handsomely profit off of Excess Energy sales but not so much that it would trigger a persistent deviation penalty from BPA. PGE also theorizes, incorrectly, that PGE s proposed revision to the contract is equitable because it makes PaTu whole for the wind integration benefit that PaTu provides to PGE. PaTu will not burden the record with a response PAGE 4

8 to each and every one of PGE s allegations, but will instead correct the most inaccurate statements in PGE s brief. A. PATU HAS NOT RECEIVED AVOIDED COST RATES FOR ALL OF ITS OUTPUT, AND PGE WOULD HAVE PATU RECEIVE AVOIDED COST RATES FOR EVEN LESS OF ITS OUTPUT. PGE s conduct prevents PaTu from receiving payment at avoided costs for all of its QF output, undermining PURPA. Throughout its brief, PGE repeats the mantra that PGE has paid the required avoided cost prices under the PPA (the Contract Price ) for delivered Net Output. PGE s Reply Brief at 2. Although PGE repeatedly argues that it must only purchase delivered Net Output, it fails to mention that the contract specifically states: Seller shall sell and PGE shall purchase the entire Net Output.... PaTu/301, Hearing Exhibit/1 (emphasis added). The root problem in this case is that PaTu is prevented from selling its entire output to PGE at avoided cost rates. Even though PGE claims that PaTu has habitually over-scheduled, the record demonstrates that PaTu has still not been able to avoid circumstances of under-delivery during PGE s two separate daily settlement periods of eight hours and sixteen hours. See Tr For example, in the month of July 2011, there were sixteen separate days wherein PaTu underdelivered on a heavy load and/or light load basis, and therefore for the majority of the days in that month, PaTu did not receive the avoided cost rates for all of its output. PaTu/103, Hilderbrand There were also multiple days wherein PaTu under-scheduled during both the eight-hour light load period and the sixteen-hour heavy load period, ultimately resulting in 2 Mr. Hilderbrand testified at the hearing that there were eleven days of under-scheduling in July 2011, but the numbers here reflect a closer review of PGE s corrected data for that month comparing kwh generation to MWh deliveries. Tr. at 135:19-20; PaTu/103, Hilderbrand 31, 34, 46. PAGE 5

9 nineteen separate settlement periods during which PaTu under-scheduled in that month. See id. PGE dismisses such events as rare, see PGE s Reply Brief at 18, but the risk of these financial hits to PaTu is real and significant. The record demonstrates that even in each of the months in the period prior to PGE s letter on September 29, 2011, PaTu under-scheduled during many of PGE s unilaterally imposed daily settlement periods. See PaTu/103, Hilderband/ PGE s data demonstrates that PaTu under-scheduled during the following number of settlement periods in those months: December 2010: 13 settlement periods January 2011: 12 settlement periods February 2011: 7 settlement periods March 2011: 5 settlement periods April 2011: 6 settlement periods May 2011: 7 settlement periods June 2011: 1 settlement period July 2011: 19 settlement periods August 2011: 15 settlement periods. Id. PaTu over-scheduled in the aggregate in each of these months. See PGE/104. Yet the record demonstrates that there were 85 daily heavy load or light load settlement periods wherein PaTu scheduled less output than its Net Output, and consequently did not receive avoided cost rates for its entire output. PGE asks the Commission to ignore events of under-scheduling because BPA buys such underscheduled energy from PaTu based on the Index Prices. See PGE s Reply Brief at PAGE 6

10 This only further demonstrates PGE s heavy handed and unfair approach. PaTu did not contract to sell its QF output to BPA at a market index rate; it contracted to sell its entire output to PGE at the avoided cost rates. PGE s implementation of the contract stands as an insurmountable obstacle to PaTu s ability to achieve that objective. To further illustrate, consider the eight-hour settlement period in the light load hours on August 29, 2011 a day whereby, according to PGE s allegations, PaTu should have had maximum incentive to over-schedule because PGE had not yet implemented its contract correction. PaTu pre-scheduled 52 MWh in the eight light load hours that day, but the wind apparently picked up beyond anticipation and PaTu actually generated 74 MWh of Net Output. See PaTu/103, Hilderbrand/47. Thus PaTu did not receive avoided cost rates for 22 MWh of its generation during that eight-hour settlement period. The avoided cost rate during light load hours that day was $50.55 per MWh, but PGE evaded its obligation to pay that amount to PaTu for 22 MWh of QF generation. See id. PGE argues that is fine, however, because BPA essentially paid PaTu the market index rate, which was $29.12 per MWh an amount over $20 per MWh less than the contract entitles PaTu to sell to PGE. Id. PGE also suggests that PaTu should intentionally bias its scheduling downward from the way it currently schedules. See PGE s Reply Brief at But the record irrefutably demonstrates that would only result in additional daily light load or heavy load periods whereby PaTu does not get paid the avoided cost rates for all of its QF generation. Mr. Hilderbrand testified as follows: Q. If you intentionally biased your scheduling downwards from the way you practice right now, do you think there would be more days or less days where you don t get paid the avoided cost rates for all of your generation? PAGE 7

11 A. There would be many more days I would not get paid the avoided cost rate according to the PPA and the tariff. Tr. at 138. These facts are uncontested, and demonstrate that PGE s recommended solution would only serve to unfairly increase PaTu s losses under PGE s daily settlement period. B. PATU IS NOT MADE WHOLE FOR THE COSTS OF DELIVERING A WIND INTEGRATED PRODUCT. After the standard contract was executed, PGE told PaTu that it would not accept dynamic scheduling, and in fact would require PaTu to deliver a wind integrated product. PGE acknowledges that PaTu incurs significant expense to purchase wind integration services from BPA to deliver a balanced whole MWh product. See PGE/100, Bettis-Macfarlane-True/18: However, PGE claims that, under PGE s method of payment for Excess Energy, PaTu is essentially made whole for such overscheduled energy. PGE s Reply Brief at 2. PGE theorizes that it pays PaTu the same market index rate for that Excess Energy that PaTu must pay to BPA in the form of generator imbalance service, and therefore, according to PGE, PaTu is compensated for the wind integration benefit PaTu provides. PGE is incorrect. PaTu s payment for wind integration to BPA includes two separate services generator imbalance service and wind integration service. See PaTu/100, Hilderbrand/16; PaTu/200, Hilderbrand/ These are two different charges. PGE s formulation of Excess Energy accounts only for the generator imbalance charge, and not the wind integration charge. And, as PGE itself acknowledges, its reasoning overlooks that BPA s generator imbalance charge does not credit PaTu the full index rate in hours when the schedule differs from actual generation by more than 2 MW. See PaTu/100, Hilderbrand/21, 24. In fact, the record demonstrates that there would be no harm to PGE s ratepayers by PAGE 8

12 requiring payment at the contract rate for delivery of all of the balanced energy PGE requires. The cost to PaTu to provide PGE with the benefit of a balanced delivery through wind integration and imbalance charges ($720,530) is roughly the same as the amount that PGE claims it would be overpaying if it paid the contract rate for the Excess Energy ($716,040). PaTu/200, Hilderbrand/29. PGE s ratepayers should be indifferent to payment at the contract rate because it places them in the same position as if PaTu were a directly connected small wind QF, or if PGE otherwise honored the Commission s policy in docket UM 1129 that small QFs do not pay for wind integration. Payment at the contract rate for Excess Energy would compensate PaTu for the wind integration benefit it provides, but PGE s unilaterally imposed market index rate does not. C. PATU S SCHEDULING ACCURACY IS NOT UNREASONABLE. PGE tries to paint PaTu s scheduling accuracy as unreasonable in order to undermine PaTu s claim. But PaTu has never violated the FERC-approved persistent deviation penalty provisions that set the bar for commercially reasonable scheduling. Despite this objective measure of scheduling accuracy, PGE makes unfair and inaccurate allegations about PaTu s scheduling based on out-of-context data. The Commission should give these allegations no weight. Many of the arguments PGE repeats in its brief have already been thoroughly rebutted in PaTu s reply testimony, such as the grossly inaccurate comparison of the capacity factor at Biglow Canyon to PaTu s scheduled output. Compare PGE s Reply Brief at 11 to PaTu/200, Hilderbrand/ Other incorrect analyses now appear for the first time in PGE s brief, providing no opportunity for responsive testimony or cross examination. For example, in a chart in PGE s PAGE 9

13 brief, PGE attempts to demonstrate excessive over-scheduling by relying upon a P50 planning projection of revenues. See PGE s Confid. Reply Brief at PGE fails to mention, however, that these planning projections rely upon historical data typically used to finance a wind plant. See Confid. Tr. at These monthly financial planning projections are entirely separate from the hourly, real-time generation forecasts PaTu receives from 3Tier based upon current weather conditions and which PaTu utilizes for scheduling purposes. See PaTu/100, Hilderbrand/17-20 (describing the 3Tier data and other indicators PaTu utilizes for scheduling purposes). It is highly misleading for PGE to compare these historical P50 data to generation in any given month for purposes of evaluating scheduling accuracy because wind output varies from year to year. 3 Nobody relies upon financial planning projections based upon historical data to schedule output in real time. PGE s reliance on this data seriously undermines the credibility of all of its factual assertions. PaTu has expended substantial resources in its attempt to comply with PGE s delivery requirements. BPA is the only independent third party to evaluate the reasonableness of PaTu s scheduling from the start of operations, and BPA has never voiced a concern with PaTu. III. RESPONSE TO ARGUMENT PGE asks for unbridled discretion to read into its standard contract a set of impossible requirements for a small off-system QF. In its reply brief, PGE again tries to have the Commission ignore the directly relevant evidence by mischaracterizing PaTu s arguments as a request that the Commission require PGE to accept a dynamic scheduling arrangement. PaTu 3 PGE itself argued as such in a recent docket. See PGE s Prehearing Legal Brief, OPUC Docket No. UM 1182, at 26 (filed Feb. 1, 2013) (arguing Adopting [an] artificial adder based on very limited data, especially when the driving factor - wind - is recognized to vary from year to year, is likely to lead to inaccurate estimates. ). PAGE 10

14 does not ask the Commission to require PGE to accept a dynamic schedule. As PaTu argued and Administrative Law Judge ( ALJ ) Kirkpatrick agreed in denying PGE s motion to strike vast sections of PaTu s testimony, the evidence of the availability of a dynamic scheduling arrangement from PaTu to PGE is relevant to PaTu s remaining claims. See ALJ Ruling (May 16, 2013). Those remaining claims regard the price to be paid per MWh of electricity delivered to PGE. PGE has not contested the relevant facts with regard to dynamic scheduling, including: Dynamic scheduling is the only way to deliver PaTu s precise kwh output to PGE each hour. A dynamic scheduling arrangement is in fact available from PaTu to PGE. PGE never voiced any objection to PaTu delivering via dynamic scheduling until after execution of the standard contract. The only impediment to the dynamic scheduling arrangement is that PGE has now refused to cooperate with PaTu and BPA. The undisputed basis for PGE s refusal to cooperate is that PGE desires that PaTu pay for wind integration services by delivering balanced whole MWh blocks of electricity each hour rather than precise but intermittent kwh generation each hour. PGE s refusal of a dynamic scheduling arrangement and implementation of a daily settlement period have resulted in days whereby PaTu cannot sell all of its QF output at the avoided cost rates to PGE. In light of these undisputed facts, PGE s refusal to pay the only price in the contract for all deliveries PGE receives in MWh violates PURPA and constitutes a breach of contract. The Commission should therefore grant PaTu s complaint. /// /// /// PAGE 11

15 A. FEDERAL AND STATE LAW AND REGULATIONS REQUIRE PGE TO PURCHASE ALL DELIVERED ENERGY BECAUSE PATU S PURCHASE OF IMBALANCE SERVICE TO DELIVER BALANCED DELIVERIES TO PGE IS NOT A SALE FOR RESALE OF NON-QF POWER UNDER FEDERAL LAW. PaTu explained in its opening brief that PGE must purchase any energy and capacity which is made available from a qualifying facility. See PaTu s Opening Brief at (quoting 18 C.F.R (a); see also 16 U.S.C. 824a-3(a)(2); ORS ). Put simply, the energy PGE receives is not non-qf energy, and therefore PURPA requires PGE to pay the avoided cost rates for the entire delivery. PGE misreads FERC decisions to conclude otherwise. Even under the law in effect prior to the Energy Policy Act of 2005, when PaTu overschedules to PGE and BPA makes up the difference, PaTu is not acquiring power to make a sale for resale to PGE. See Midland Cogeneration Venture Limited Partnership, 92 FERC 61,226 (2000); Central Hudson Gas & Electric Corporation, 90 FERC 61,231 (2000); Conn. Valley Elec. Co., Inc. v. Wheelabrator Claremont Co., L.P., et al., 82 FERC 61,116, at 61, , reh'g denied, 83 FERC 61,136 (1998), aff'd, 208 F. 3d 1037 (D.C. Cir. 2000). If there is no sale for resale of imbalance energy, there is no sale of non-qf imbalance energy to PGE. Instead, the entire balanced delivery is part and parcel with the sale for resale of QF generation. Indeed, whatever the case may have been prior to 2005, FERC has clarified what types of deliveries constitute non-qf power subsequent to passage of the Energy Policy Act of See Revised Regulations Governing Small Power Production and Cogeneration Facilities, Order No. 671, FERC Stats. & Regs. 31,203, at P 101, 114 FERC 61,102, clarified, 114 FERC 61,128 (2006), order on reh'g, Order No. 671-A, FERC Stats. & Regs. 31,219, 115 FERC 61,225 (2006). FERC included a list of the types of QF deliveries that would be non-qf energy. Id. But FERC did not include imbalance energy or wind integration services that a purchasing utility PAGE 12

16 requires the QF to finance as among the list of examples of non-qf energy. Id. PaTu has not decide[d] to produce electric energy by burning a non-small power fuel, or engaged in a purchase and re-sale of non-qf power produced by others. See id. PaTu s supply of balanced deliveries of QF output at PGE s insistence is entirely distinguishable from FERC s examples. PURPA therefore requires PGE to purchase the entire delivery at avoided cost rates. PGE relies heavily on the arguments and orders from docket UM But these orders and arguments were clearly based on the law that existed prior to the time FERC finalized its implementation of the Energy Policy Act of For example, PGE quotes Order No for the proposition that FERC precedent firmly establishes that a QF may sell no more than net output under PURPA. See PGE s Reply Brief at 46. That statement is no longer correct. See Order No. 671, FERC Stats. & Regs. 31,203, at P 101. ( Removal of the ownership prohibition removes the bar to a QF selling non-qf electric energy while retaining QF status. ). These orders have limited applicability on this issue because the law has changed since the issues were briefed and argued in docket UM FERC clarified the types of deliveries that constitute non-qf power in Order No. 671, and the law is now clear that PaTu does not engage in a sale for resale of non-qf power. PGE s argument also ignores that its conduct prohibits PaTu from being able to even sell all of its Net Output to PGE. PGE s refusal to enter into arrangements that would allow for precise kwh deliveries of PaTu s entire output in each hour does not entitle PGE to evade its legal obligation to purchase all deliveries to it. See Xcel Energy Service, Inc. v. Southwest Power Pool, Inc., 118 FERC 61,232, at P 27 (2007) (discussing coordination arrangements not specifically required by PURPA, but nevertheless stating, failure to enter into such PAGE 13

17 arrangements will not excuse utilities from the obligations to interconnect with and purchase from QFs, imposed by PURPA and our regulations implementing PURPA. ). PGE fails to address the rule that it is obligated under PURPA to purchase the output of a QF as long as the QF can deliver its power to the utility. Kootenai Elec. Coop., Inc., 143 FERC 61,232, at P 33 (2013), reh g den d 145 FERC 61,229 (2013). PGE has frustrated PaTu s ability to deliver its pure QF power to the utility, and therefore must purchase the deliveries PaTu makes. The entire predicate of PGE s defense in this case is the assumption that FERC orders allow a utility to discriminate against QFs for the provision of a dynamic scheduling service, while actively pursuing dynamic scheduling for its chosen resources. See PGE s Reply Brief at 52-53; see also PGE/100, Bettis-Macfarlane-True/17:1-12. In essence, PGE argues that PURPA allows it to refuse a dynamic schedule solely on account of QF status and at the same time refuse to pay the avoided cost rates for deliveries the QF is able to make with PGE s chosen scheduling mechanism. PGE s only basis for this contention is its misinterpretation of a footnote in Connecticut Valley Electric Co. v. Wheelabrator Claremont Co., 82 FERC 61,116, at n.13 (1998). That case addressed whether a QF s sale of more than its net output violated the criteria for QF status not whether utilities could discriminatorily refuse to accept QF deliveries via dynamic scheduling. See id at 61,416-61,423. There is no indication in that decision whether the utility even had the capability to accept a dynamic schedule from any generator. The language relied upon by PGE merely sets forth the unremarkable proposition that FERC does not generally require transmission providers to develop dynamic scheduling capability. In fact, FERC s more recent orders are directly contrary to PGE s position that PURPA entitles it to expressly discriminate against QFs with regard to available scheduling PAGE 14

18 opportunities. FERC s policies intend[] to benefit customers by treating QFs who wish to participate in the market for the wholesale sale of electric energy comparably to other sellers in that market. Entergy Services, Inc. v. FERC, 400 F.3d 5, 6 (D.C.Cir. 2005) (affirming Entergy Servs., Inc., 103 FERC 61,125 (2003); on reh g 104 F.E.R.C. 61,061 (2003)). Even since the time of filing PaTu s opening brief, FERC has again confirmed that utilities cannot discriminate against QFs. See Pioneer Wind Park I, LLC, 145 FERC 61,215, at P 37 (2013) (determining that a proposed curtailment provision violates the non-discrimination protections for QFs, included in PURPA and the Commission s regulations, by granting a preference in curtailment priority to PacifiCorp s existing Network Resources.... ). FERC has unequivocally stated, Under Order Nos. 888 and 888-A, transmission providers may not raise unreasonable obstacles to dynamic scheduling. New Horizon Electric Cooperative, Inc. v. Duke Power Company, 95 FERC 61,146, at 61,470 (2001). Although PaTu does not ask the Commission to order PGE to accept a dynamic schedule, FERC s orders demonstrate that PURPA provides no justification for PGE s conduct and instead requires PGE to pay the avoided costs for all electricity PaTu causes to be delivered to PGE. B. PATU IS ENTITLED TO RELIEF UNDER CLAIM SIX BECAUSE PGE IS IN BREACH OF CONTRACT. Independent of PaTu s claims under PURPA and related state law, Claim Six is a breach of contract claim. As PaTu noted, even if the Commission agrees with PGE that PaTu delivers non-qf power outside the context of PURPA, contract law governs the rate that PGE must pay for all of the deliveries PaTu is able to make to PGE. See Order No. 671, FERC Stats. & Regs. 31,203, at P 101. PGE does not dispute that point. In this case, contract law unquestionably requires PGE to pay the only rate in the contract for all electricity it receives. PAGE 15

19 1. The Standard Contract Unambiguously Requires PGE to Pay the Only Rate in the Contract for All Electricity PaTu Causes to Be Delivered to the Point of Delivery. PaTu demonstrated in its opening brief that the contract price in the tariff is the purchase price per MWh the Company will pay for electricity delivered to a Point of Delivery (POD). PaTu/301, Hearing Ex./23 (emphasis added). Although PGE claims that it must only purchase delivered Net Output measured in kwh, the contract contains no price per kwh to implement PGE s interpretation. The only price provided is a price per MWh, which is consistent with PaTu s interpretation that the contract and the tariff require PGE to pay the contract rate for each MWh delivered to PGE. PGE ignores that the tariff is part of the contract. Instead, PGE argues that the Standard Off-System PPA does not incorporate all the terms of Schedule It does not incorporate the entire 15-page text of Schedule 201. PGE s Reply Brief at 29. PGE theorizes that the standard contract only incorporates the prices set out in Schedule 201, not the statement in the tariff that those are the prices per MWh the Company will pay for electricity delivered to a Point of Delivery (POD). PaTu/301, Hearing Ex./23 (emphasis added). PGE s argument is unpersuasive because under the heading SECTION 5: CONTRACT PRICE, the standard contract states: PGE shall pay Seller for the price options 5.1, 5.2, 5.3, or 5.4, as selected below, pursuant to the Tariff. PaTu/301, Hearing Ex./9 (emphasis added). The contract refers to the tariff for purposes of the price paid per MWh of electricity delivered. Furthermore, PGE fails to even address, and therefore concedes, that in Oregon a referenced document becomes a part of the contract even without a statement in the contract that the referenced document is expressly incorporated into the contract. See Northwestern Pacific PAGE 16

20 Indem. Co. v. Junction City Water Control Dist., 295 Or. 553, 668 P.2d 1206 (1983), reh'g denied and opinion modified on other grounds, 296 Or. 365, 677 P.2d 671 (1984). Where a written instrument refers in specific terms to another writing, the other writing is a part of the contract. Id., 295 Or. at 558, 668 P.2d at 1209 (emphasis added). The standard contract repeatedly references the tariff and even includes it as Exhibit D. See PaTu/301, Hearing Ex./5 ( 1.29, regarding definitions), id. at 7 ( , regarding ownership and control criteria); id. at 9 ( 5, regarding contract price); id. at (Exhibit D). The tariff is unquestionably a part of the standard contract. In Asbury Transp. Co. v. Consolidated Freightways Corp. of Del., Inc., 263 Or. 53, 59-60, 501 P.2d 321, 324 (1972), the defendant made the same argument as PGE. There, the defendant argued that a lease agreement did not incorporate the terms of a related union agreement. The Oregon Supreme Court rejected this argument, stating: It is difficult to understand defendant's position that the union agreement is completely inapplicable to the fuel and use taxes when the lease agreement specifically refers to it in several places, including that portion of the lease which deals with the expenses in question. 263 Or. at 59, 501 P.2d at 324. The court explained that the lease agreement states that certain expenses, including the Federal Highway Use tax or other road or mile taxes, are to be paid in accordance with the union agreement. Id. The court concluded, If the union contract is inapplicable and surplusage as defendant contends, it would result in rendering Paragraph 4 of the lease absolutely meaningless. 263 Or. at 60, 501 P.2d at 324. The same is true here. Just as in Asbury Transportation Co., PGE s standard contract expressly refers to the tariff with regard to the disputed issue. Under the heading SECTION 5: PAGE 17

21 CONTRACT PRICE, the standard contract states: PGE shall pay Seller for the price options 5.1, 5.2, 5.3, or 5.4, as selected below, pursuant to the Tariff. PaTu/301, Hearing Ex./9 (emphasis added). If PGE wished to only incorporate the price table into its standard contract, PGE could have attached just the prices and not attached the entire tariff as an exhibit to the contract. Instead, PGE repeatedly referred to the tariff and attached it to the contract. Thus the tariff s statement that PGE will pay the prices in the tariff for each MWh of electricity delivered to PGE is a part of the contract and controls PGE s obligations to PaTu. Perhaps recognizing that the tariff is a part of the contract, PGE next argues that the tariff refers back to the standard contract. See PaTu/301, Hearing Ex./23 ( Pricing options represent the purchase price per MWh the Company will pay for electricity delivered to a Point of Delivery (POD) within the Company s service territory pursuant to a Standard Contract up to the nameplate rating of the QF in any hour. (emphasized language relied upon by PGE)). PGE s argument is circular, at best, because as noted above the standard contract directs the reader to the tariff for purposes of the only contract price for electricity received. Furthermore, the clause pursuant to the Standard Contract qualifies the phrase electricity delivered to the Point of Delivery. This is consistent with PaTu s theory of the case so long as PaTu makes commercially reasonable efforts in its scheduling and delivery as required by Section 4.4 of the standard contract, PGE will pay the only price in the contract for each MWh delivered. PGE s interpretation reads the purpose of the requirement that PaTu use commercially reasonable scheduling efforts out of the contract. Moreover, PGE reads words into the contract. It is important to point out what the contract and tariff do not contain. The contract and tariff do not contain one price for electricity PAGE 18

22 generated in kwh or Net Output and a second price for Excess Energy. They do not even contain the term Excess Energy. The contract and tariff do not contain a daily settlement period within which PaTu must attempt to precisely over-schedule and under-schedule whole MWh blocks of its intermittent wind output so as to avoid sending PGE any accumulation of Excess Energy on a daily light load and heavy load basis. According to PGE, PaTu s contract with PGE does not required [sic] PGE to buy this imbalance energy from PaTu, let alone specify that PGE must buy it at some particular price. PGE s Reply Brief at 17. Under PGE s theory, the contract entitles PGE to receive Excess Energy for no charge because, according to PGE, it need only pay for delivered Net Output. This is not a reasonable or fair interpretation of the contract. PGE must pay the contract price in the tariff for all MWh of electricity delivered. 2. Even If the Contract Is Ambiguous, the OPUC Must Construe Ambiguous Terms against PGE and Require Payment at the Contract Rate for All Deliveries Made Under the Contract. As PaTu argued in its opening brief, PGE s argument is, at best, an argument that the contract is ambiguous on the price that must be paid for Excess Energy. See PaTu s Opening Brief at Under black letter contract law, ambiguities must be construed against the drafter which is PGE. Yet, in response, PGE argues, In modern contract interpretation, this maxim of contract construction applies (if at all) to contracts of adhesion take it or leave it contracts like insurance policies, where the insurance company drafts the contract that offers no possible alteration and no alternative. PGE s Reply Brief at 31. PGE s argument is without merit for several reasons. First, PGE cites no legal authority for its theory of modern contract interpretation. PGE has not demonstrated that the Oregon courts have modified the rule quoted in PaTu s PAGE 19

23 opening brief to apply only to contracts of adhesion. See PaTu s Opening Brief at 23 (quoting Northwestern Pacific Indem. Co., 295 Or. at 559, 668 P.2d at 1210 (holding that Oregon law dictates that the contract is construed against its author (emphasis added)); Derenco v. Benj. Franklin Federal Savings and Loan Association, 281 Or. 533, 552, 577 P.2d 477, 489 (1978) (same)). Moreover, even assuming arguendo that PGE s summation of modern contract interpretation is accurate, PGE s standard contract must still be construed against the drafter because it mirrors the boiler plate form of a take-it-or-leave-it insurance contract. As PaTu previously explained, the standard contract is a take-it-or-leave-it offer that a QF under 10 MW must accept in order to exercise its federal right to sell at standard rates. See PaTu s Opening Brief at If PaTu had chosen to negotiate a non-standard contract, PaTu would have lost its right to standard rates and would have had to negotiate complex pricing issues with a much more sophisticated counter party. The Commission has itself found that QFs under 10 MW lack the resources to successfully negotiate such a contract with a utility. See In re Staff s Investigation into Electric Utility Purchases from Qualifying Facilities, OPUC Docket No. UM 1129, Order No , (2005). PGE also claims it did not draft its contract because the contract was the result of a public process in docket UM But that same public process resulted in an entirely different standard contract drafted by PacifiCorp, which expressly stated that PacifiCorp would not pay for excess energy associated with imbalance energy and provided an express settlement period within which the QF could attempt to ensure its over-deliveries and under-deliveries equalized. See generally PaTu/201, Hilderbrand/6-7 (discussing PacifiCorp s implementation of a monthly PAGE 20

24 to annual settlement period in Addendum W to its standard contract). Although Commission Staff recommended changes to PGE s standard contract, PGE did not implement those changes. See id. at 6-8. In short, PGE drafted the contract, and the Commission should construe it against PGE. PGE also misconstrues the extrinsic evidence. PGE s employee, Doug Kuns, represented to the Commission at the time of developing the standard contract that, QF production may be higher or lower than the scheduled amount in an hour but PGE will purchase the scheduled and delivered energy. PaTu/201, Hilderbrand/14 (emphasis added). PGE now argues that Mr. Kuns did not state PGE will pay the avoided costs for the scheduled and delivered energy. See PGE s Reply Brief at 33. PGE s position is unpersuasive. Mr. Kuns did not state PGE reserved the right to pay nothing for Excess Energy, as it now asserts is its right under the contract. Nor did he state that PGE would pay a reduced market rate for any amount of power. 4 The only reasonable interpretation is that PGE would pay the only price in the standard contract and tariff for all delivered electricity. 3. PGE Has Prevented PaTu From Performing In the Manner PGE Requires, Thus Requiring PGE to Pay the Contract Rates for All Deliveries Under the Contract. PaTu explained in detail that, even if PGE s interpretation of the pricing terms of the contract were correct, PGE s prevention of PaTu s ability to sell all of its output at avoided cost rates is a breach of contract that requires PGE to pay the contract price for all delivered electricity. See PaTu Opening Brief at PGE responds by ignoring contract law and 4 Additionally, PaTu asked PGE to provide any other correspondence from Mr. Kuns to Commission Staff, but PGE provided no further evidence that supports the position it now takes. See PaTu/200, Hilderbrand/3:1-11; PaTu/202, Hilderbrand/1. PAGE 21

25 PaTu s argument. See PGE s Reply Brief at The basic problem with PGE s position is that contract law dictates that a strict and literal interpretation of a contract cannot be applied where the conduct of one party to the contract has prevented compliance by the other party with the contract terms and such conduct is, therefore, the efficient cause of the failure to comply strictly and literally with the contract. Richard A. Lord, 11 Williston on Contracts 39.3 (4 th edit., 2011). PGE offers a very strict and literal reading of the contract to conclude that: (1) the contract only requires PGE to buy delivered Net Output, measured in kwh; (2) thus, PGE has no obligation to pay for Excess Energy that constitutes the difference between MWh deliveries and the kwh generation; and (3) moreover, the contract imposes no obligation on PGE to purchase Net Output that PaTu is unable to deliver to PGE. Without a dynamic scheduling arrangement, PGE s requirements to precisely schedule and deliver Net Output in kwh is not possible, and PaTu is deprived of its right to sell all of its QF output at the avoided cost rates. Thus, PGE s strict and constrained reading of the pricing and payment provisions of the contract cannot apply. PGE proceeds as though the standard contract provides it with the express right to require PaTu to schedule and deliver hourly MWh blocks, and therefore justifies any harm to PaTu. In doing so, however, PGE misconstrues the Commission s prior orders, which stated, The contract presumes transmission of energy from the QF to the utility, but does not address the details of that transmission. Order No at 8-9. The contract does not control the form of scheduling and transmission (be it hourly, intra-hourly, or dynamically). PaTu does not need to prove PGE is obligated to accept a dynamic transfer for PaTu to prevail on its prevention of performance theory. A dynamic schedule is clearly an available form of delivery PGE could PAGE 22

26 accept if it truly wanted to effectuate the purpose of the contract that: Seller shall sell and PGE shall purchase the entire Net Output.... PaTu/301, Hearing Exhibit/1 (emphasis added). PGE cannot implement the contract to penalize PaTu for alleged scheduling inaccuracies after PGE required the most imprecise form of scheduling and delivery available. Moreover, PGE failed to refute the fact that PaTu s attempts to precisely underschedule and over-schedule its kwh output into MWh blocks has resulted in many daily light load and heavy load periods whereby PaTu has under-delivered. See Tr. at ; supra Section II. A. On these days, PaTu is unable to sell all QF output at the avoided cost rates notwithstanding the fact that both federal law and the contract entitle PaTu to do so. [W]here the conduct of the defendant has prevented the performance of a contract provision by the plaintiff, he cannot avail himself of any such failure to perform. Anderson v. Allison, 256 Or. 116, 121, 471 P.2d 772, 774 (1970). PGE has prevented PaTu s ability to sell all of its output at the avoided cost rates, and thereby breached the contract. The remedy is to require PGE to pay the avoided cost rates in the contract for all deliveries PaTu is able to make in a commercially reasonable manner. 4. The Duty of Good Faith and Fair Dealing Included in All Oregon Contracts Requires PGE to Pay the Contract Rates For All Deliveries Under the Contract. PaTu also explained in detail that PGE has acted in bad faith by refusing to pay the only rate in the contract for the balanced deliveries PGE requires. See PaTu s Opening Brief at In response, PGE addresses an argument PaTu did not make. See PGE s Reply Brief at 35 (incorrectly stating, PaTu argues that PGE has violated the implied duty of good faith and fair dealing by refusing to allow PaTu to dynamic transfer. ). Nowhere does PaTu make the PAGE 23

27 argument in its brief that the Commission should order PGE to accept a dynamic transfer. PaTu s argument is simply that PGE could accept a dynamic schedule of a precise intermittent kwh delivery each hour, and thus the duty of good faith requires PGE to pay the contract rate for all balanced whole MWh deliveries that PGE requires. PGE concedes that the contract does not address the appropriate price for Excess Energy, but ignores the Oregon Supreme Court s ruling in Best v. U.S. Nat. Bank of Oregon, 303 Or. 557, 562, 739 P.2d 554, 557 (1987). The rule established in Best is that when writing new terms into the contract, PGE s obligation of good faith limits PGE s apparently unlimited authority to set the rate for Excess Energy, and PaTu can recover for the breach of this obligation just as [it] could for the breach of any other contractual obligation. Best, 303 Or. at 561, 739 P.2d at 557. In light of the benefits of wind integration PGE receives from Excess Energy, the duty of good faith dictates payment at the contract rate. In fact, the contract and tariff even suggest that if there is any reduced rate for energy in excess of net output, that rate should be the Off Peak avoided cost rates and not a market index rate. Specifically, the tariff contemplates a reduced payment in only one circumstance when the QF delivers an amount that exceeds the QF s nameplate capacity. PaTu/301, Hearing Ex./23. However, even that circumstance requires reduced payments at the Off Peak avoided cost rates, not the typically lesser market index rate. Id.; see also PaTu/103, Hilderbrand/ (containing PGE s monthly true ups, which demonstrate the Off Peak avoided cost rate is typically higher than the market index rate). Deliveries in whole MWh increments made in excess of nameplate capacity would frequently include deliveries in excess of Net Output in PAGE 24

28 any hour. 5 If PGE s own tariff calls for payment at the Off Peak avoided cost rates for deliveries of Excess Energy above the nameplate capacity, good faith certainly requires payment at no less than that amount for deliveries of Excess Energy below nameplate capacity. Instead of even trying to distinguish the Oregon decisions cited by PaTu, PGE rests upon the claim that it did not specifically agree to accept dynamic schedules prior to execution of the standard contract. See PGE s Reply Brief at This argument runs counter to Oregon appellate court precedent. In Elliott v. Tektronix, Inc., 102 Or.App. 388, 396, 796 P.2d 361, 366, rev. den., 311 Or. 13, 803 P.2d 731 (1990), the defendant made the identical legal argument PGE makes that a finding that there was no breach of the express terms of the contract necessarily meant that there was no breach of implied duty of good faith. The Oregon Court of Appeals rejected this argument, holding, The jury's finding that defendants did not breach the contract does not necessarily resolve the implied duty claim, because a party may violate its duty of good faith and fair dealing without also breaching the express provisions of a contract. Id. 6 PGE s refusal to accept a dynamic schedule need not rise to the level of a breach of contract to be 5 PGE itself argued that Scheduling above the nameplate capacity demonstrates the degree of unreasonableness in scheduling.... PGE/100, Bettis-Macfarlane-True/13:4-5; compare to PaTu/200, Hilderbrand/20-21 (explaining circumstances where scheduling in excess of nameplate can be necessary to deliver all output). 6 In fact, the only case PGE cites on this point stands for the opposite proposition stated by PGE. See PGE s Reply Brief at 35 n. 129 (citing Kasberg v. Davis Wright Tremaine LLP, 351 Or 270, 283, 265 P.3d 777, 784 (2011)). The Kasberg decision addresses an attorney malpractice claim related to a potential breach of contract claim. PGE argues that the Kasberg decision held that the duty of good faith cannot impose on a party a substantive obligation not imposed by the contract. See PGE s Reply Brief at 35. PGE has misread the decision. In fact, the Kasberg decision notes that the contract at issue was silent as to time of performance, but the court nevertheless invoked the doctrine of good faith to rule that plaintiff had a cognizable legal argument that the agreement required the Wheelers to remove the crop lien within a reasonable time by a date that would permit plaintiff to plant wheat by the February 15 deadline and that the Wheelers had a duty of good faith and fair dealing that prohibited them from depriving plaintiff of the benefit of his bargain. 351 Or at 284, 265 P.3d at 785. In other words, the court determined that the good faith doctrine could impose an affirmative duty with regard to an issue not directly addressed by the contract. PAGE 25