When Grant County PUD applied in 1955 for a federal license for the Priest Rapids Projects, there was no market premium for carbon-free resources. So when Grant PUD agreed to compensate owners of the upstream Rock Island Dam for any generation lost due to the downstream Priest Rapids Project, the agreement talks about power and energy, and does not specify it must be carbon-free or come from hydropower generation.
Changes to Grant's dispatch accounting in November mean Chelan County PUD cannot be sure the compensation power it receives is from carbon-free resources. And that potentially means lost revenue, Chelan said in a complaint filed May 29 in Chelan County Superior Court.
Without that attribute, Grant is not making good on its obligation to compensate for losses at Rock Island Dam, Chelan said in the complaint.
In its lawsuit, Chelan said it wants the court to order Grant to deliver carbon-free hydropower.
A spokesman for Grant PUD said it is abiding by the agreed-to terms—to make up for lost energy and capacity.
Rock Island Dam generated two products—energy and capacity—for its owners Chelan PUD and Puget Sound Power and Light Company, a predecessor of Puget Sound Energy. The reservoir behind Grant's proposed Wanapum Dam threatened to reduce Rock Island Dam's tailwater, thereby reducing generation and revenue for its co-owners.
In the agreement signed in 1955, Grant pledged to "fully compensate Puget and Chelan and each of them or their successors in interest in the Rock Island Project for all loss, damage and expense" attributable to Wanapum Dam's encroachment on Rock Island's tailwater. In return, Puget and Chelan agreed to not oppose Grant's application for a federal hydropower license. The document was dubbed the Encroachment Agreement.
The following year, Chelan bought out Puget's interest in Rock Island.
After Wanapum Dam's completion in 1964, the two PUDs negotiated an implementation agreement, which was signed in 1967. The agreement spelled out how the losses would be calculated and delivered. It also said the Encroachment Agreement required Grant to "compensate . . . Chelan for all loss in the generation of power and energy at the Rock Island Project" due to the Wanapum Dam's backwater and that those losses would be identified as "Encroachment Power," according to the complaint.
The implementation agreement was superseded by a 1974 settlement that included compensation for a second powerhouse Chelan planned to build at Rock Island Dam.
For the following four decades, the arrangement proceeded smoothly. Grant delivered encroachment power to Chelan via the Hourly Coordination Agreement that included all hydroelectric projects owned by the mid-Columbia utility districts. The last vestige of the coordination agreement ended in November 2019. That same month, "the delivery mechanism for encroachment power changed and Grant now delivers power to Chelan by a dynamic schedule, instead of a pseudo-tie," states the Chelan complaint.
The change was dubbed the "November Cut-Over."
While dynamic scheduling is similar to a pseudo-tie, Grant cannot guarantee the encroachment power it sends to Chelan comes from carbon-free resources.
"Due to the recent November Cut-Over, Grant now has the capability to deliver encroachment power from non-hydropower resources, and Grant has not committed to continuing to deliver hydropower following the November Cut-over," Chelan PUD said in its complaint.
If encroachment power's source cannot be identified or it comes from carbon-based fuel, that means lost revenue, Chelan's complaint said.
Chelan has two demands. First, the utility wants a judge to declare Grant is obligated to deliver power generated with hydroelectricity. Second, Chelan wants the court to issue an injunction requiring Grant deliver encroachment power from a hydroelectric source. If Grant delivers power that cannot be confirmed as carbon-free, Chelan will take a severe blow, according to the complaint.
In recent typical years, the annual encroachment amount is 72 aMW, Chelan spokesman Neil Neroutsos told Clearing Up.
If Grant delivers non-carbon-free power, it "will not put [Chelan] in danger of violating any power sales contracts," he said. "Chelan does detailed carbon-free tracking to assure all contact conditions are met."
So far in 2020, Chelan cannot guarantee all encroachment power transferred from Grant is from a carbon-free resource, he said.
"We assert that under the contract the returns from Grant need be to hydropower since that is what is lost from the Wanapum encroachment upon the Rock Island Project," he said. "Given the difference in market value and demand between carbon-free electricity and non-carbon-free electricity, if Grant does not deliver carbon-free electricity, it reduces the monetary value of the electricity delivered to Chelan PUD."
Grant reads it differently.
"Under the terms of the agreement, which is a contract between the parties, Grant provides Chelan with certain energy and capacity on a monthly basis," Grant PUD spokeswoman Christine Pratt said. "Chelan now interprets the contract as requiring Grant to provide more than energy and capacity, which is at odds with the written contract."
Grant likely will file its reply sometime in mid- to late June, she said.
"Grant does not oppose providing Chelan with energy and capacity as stated in the contract," Pratt said. "It does not agree Chelan can re-interpret the contract to require Grant to provide more than what is stated in the contract."