An extra copy of this cover letter is enclosed. Please date stamp the extra copy and return it to

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1 LOVINGER KAUFMANN LLP 825 NE Multnomah Suite 925 office (503) Portland, OR fax (503) June 1,2010 Via Electronic Filing and First Class Mail Public Utility Commission of Oregon Attention: Filing Center PO Box 2148 Salem, OR Re: ENERGY RECOVERY GROUP, LLC, Complainant, vs. PACIFICORP dba PACIFC POWER, Respondent OPUC Docket No. UCB 44 Attention Filing Center: Enclosed for filing in the above-captioned docket are an original and one copy of PacifiCorp's Reply to Energy Recovery Group's Response to PacifiCorp's Motion for Summary Judgment. An extra copy of this cover letter is enclosed. Please date stamp the extra copy and return it to me in the envelope provided. Thank you in advance for your assistance. Sincerely, Jeffxovpger cc: UCB 44 Service List Enclosures

2 BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON UCB44 ENERGY RECOVERY GROUP LLC, Complainant, vs. PACIFICORP dba PACIFIC POWER, PACIFICORP'S REPLY TO ENERGY RECOVERY GROUP'S RESPONSE TO PACIFICORP'S MOTION FOR SUMMARY JUDGMENT Respondent. 1 Pursuant to OAR , PacifiCorp d/b/a Pacific Power submits the 2 following reply to Energy Recovery Group LLC's ("ERG") Response to PacifiCorp's 3 Motion for Summary Judgment. 4 A. Summary of Parties'Arguments 5 In its complaint, ERG asks the Commission to order PacifiCorp to enter into a 6 power purchase agreement ("PPA") at the avoided cost rates in effect prior to 7 September 9, On April 26, 2010, PacifiCorp filed a Motion for Summary 8 Judgment. PacifiCorp noted that ERG is entitled to the avoided cost rates in effect prior 9 to September 9, 2009 only if ERG had a legally enforceable obligation ("LEO") to sell its 10 power to PacifiCorp at those rates before the rates changed on September 9, PacifiCorp noted that under the Commission's regulations and decisional law, ERG could 12 establish a LEO in only three ways: (1) enter into a written and fully executed PPA with 13 PacifiCorp before rates changed on September 9, 2009; (2) enter into a written agreement 14 with PacifiCorp that a LEO existed prior to September 9, 2009; or (3) demonstrate to the 15 Commission's satisfaction that PacifiCorp negotiated in bad faith or with undue delay

3 1 and therefore ERG should be considered to have established a LEO prior to September 9, No one maintains that the parties have entered into a PPA or an agreement 3 regarding the existence of a LEO. As a result, the only way that ERG can be entitled to 4 pre-september 9, 2009 rates is if PacifiCorp negotiated in bad faith or with undue delay. 5 In its Motion for Summary Judgment, PacifiCorp argued that no bad faith or 6 undue delay occurred, as a matter of law, because: (1) as the result of functional 7 separation sanctioned under Schedule 37, ERG's contact at PacifiCorp Transmission 8 Services was not aware of Advice No until she was informed about the rate 9 change by ERG's Mike Carpenter in October 2009; (2) Mr. Carpenter had not initiated 10 negotiations with PacifiCorp regarding a PPA at the time Advice No was filed or 11 at any time prior to September 17, 2009; and (3) PacifiCorp Commercial and Trading 12 notified Mr. Carpenter of the change in avoided cost rates immediately upon receipt of 13 his initial request for a PPA on September 17, Because the parties did not begin 14 the Schedule 37 PPA process before September 17, 2009, and because PacifiCorp never 15 intended to conceal from Mr. Carpenter any information about Advice No , any 16 failure to notify Mr. Carpenter of Advice No did not constitute bad faith as a 17 matter of law. 18 ERG also filed a Motion for Summary Judgment on April 26, ERG argued 19 that, pursuant to OAR (3)(c), PacifiCorp was required to provide ERG with 20 advance notice of Advice No ERG argued that in failing to do so, PacifiCorp 21 prevented ERG from obtaining a PPA before avoided cost rates changed on September 9, ERG therefore urged the Commission to order PacifiCorp to enter into a PPA at 23 the old avoided cost rates.

4 1 On May 10, 2010, ERG filed its Response to PacifiCorp's Motion for Summary 2 Judgment. In its response, ERG essentially argued that PacifiCorp's motion should be 3 denied because it ignores the controlling fact that PacifiCorp violated OAR (3)(c). 5 On May 17, 2010, PacifiCorp filed its Response to ERG's Motion for Summary 6 Judgment. In its response, PacifiCorp argued that OAR (3)(c) does not 7 control the outcome in this case because: (1) the rule did not apply to PacifiCorp during 8 the relevant period; (2) contrary to ERG's contention, the rule does not require advanced 9 notice of specific rate changes; and (3) the rule does not require a utility to provide any 10 information or notice regarding avoided cost rate changes made pursuant to OAR (8) (the rule motivating Advice No ). PacifiCorp also argued that even 12 if OAR (3)(c) had applied in the way advocated by ERG, ERG's assertion 13 that it would have obtained a PPA before September 9, 2009, if only it had received 14 notice of Advice No , is too speculative to support the relief requested. 15 PacifiCorp further argued that, even if OAR (3)(c) had applied, and even if 16 causation was not too speculative, the critical question remains whether PacifiCorp 17 engaged in bad faith negotiations. As PacifiCorp argued, the facts of the case, together 18 with the poor fit between Schedule 37 and OAR , demonstrate that 19 PacifiCorp did not act in bad faith or with undue delay. Finally, PacifiCorp noted that 20 ERG's request for relief appears to be moot. After PacifiCorp filed its Motion for 21 Summary Judgment, the parties met on May 6, 2010 and ERG informed PacifiCorp that it 22 would not agree to a standard Schedule 37 PPA (with pre-september 9, 2009 prices)

5 1 because the PPA did not allow ERG to terminate if it fails to obtain project financing.1 2 For all of these reasons, PacifiCorp urged the Commission to grant its Motion for 3 Summary Judgment and to deny ERG's motion. 4 B. ERG is asking the Commission to extend existing Oregon PURPA law in a 5 direction that is unsupported by PURPA policy. 6 ERG argues that PacifiCorp should have provided ERG with specific notice of 7 Advice No because ERG had applied to PacifiCorp Transmission Services for an 8 interconnection agreement before PacifiCorp filed Advice No This position 9 seeks an unwarranted expansion of existing Oregon law and would deviate from sound 10 public policy. As PacifiCorp explained in its Response, OAR does not 11 require notice of specific rate change requests. Indeed, Oregon law establishes no 12 specific requirement to notify qualifying facilities ("QFs") when a utility applies to 13 modify avoided cost rates - an outcome which is consistent with PURPA and which 14 represents sound public policy.2 Other state utility commissions have rejected claims by 15 QFs that PURPA or due process require that QFs be given advance notice of changes to 16 avoided cost rates.3 1 A contract that allows ERG to terminate in the event it cannot find financing suitable to its liking is tantamount to giving ERG an option to sell power to PacifiCorp if, and only if, it wants to. Options are not required by the Public Utility Regulatory Policy Act of 1978 ("PURPA"), 16 U.S.C. 824a-3 et seq. See PacifiCorp Response, at 14 n This is not to say that a utility never has an obligation to disclose to a QF that an advice filing to change avoided cost rates is pending. Where a utility and a QF are engaged in the Schedule 37 process of developing and finalizing a PPA and the utility files an advice filing seeking new avoided cost rates, the utility's obligation to negotiate in good faith may mandate that the utility inform the QF of the pending advice filing. 3 Order Instituting Rulemaking... Including Pricing for Qualifying Facilities, California PUC Decision , 2008 Cal. PUC LEXIS 276, *8-10 (upholding change to avoided cost rates without notice); In the matter of the Adjustment of Avoided Cost Rates, Idaho PUC Order No , 8-12 (May 28, 2010) (finding that avoided cost rate change without prior notice did not violate state or federal law), available at 00 l/ordnotc/ reconsideration_ ORDER_NO_31092.PDF; see also In Re IPUC Order Nos , and 25787, 131 Idaho 1, 951

6 1 PURPA requires that QFs not be paid more than a utility's avoided cost. 2 Connecticut Light and Power Company, 70 F.E.R.C. *\ 61,012 (1995). To do otherwise 3 would harm customers who ultimately bear the cost of QF power. The Federal Energy 4 Regulatory Commission has recognized that advanced notice can jeopardize the goals of 5 PURPA by triggering a "gold rush" of last minute QF applicants.4 In other words, formal 6 advance notice of an avoided cost rate change could cause QFs to rush to obtain contracts 7 to sell at prices that no longer reflect a utility's actual avoided cost. As a result, advance 8 notice of an application to modify published avoided cost rates could actually work to 9 frustrate the purposes of PURPA and Oregon's PURPA-related law and regulation by 10 effectively delaying the Commission's ability to implement new avoided cost rates when 11 market conditions change.5 P.2d 521 (Idaho Public Utilities Commission did not violate the developer's rights to due process and fundamental fairness by failing to give the developer notice and a meaningful opportunity to be heard before the rates were changed). 4 See New PURPA Section 210(m) Regulations Applicable to Small Power Production and Cogeneration Facilities, Order No. 688, 117 F.E.R.C. 1(61,078, (2006). In the Energy Policy Act of 2005, Congress created a mechanism whereby a utility may petition to the Federal Energy Regulatory Commission ("FERC") to be excused from the buy/sell obligations of PURPA. See 16 U.S.C. 824a- 3(m); PURPA 210(m). When promulgating regulations to implement that new provision in FERC Order No. 688, FERC determined that a QF should not be given any advanced notice of a utility's exemption from PURPA. One of FERC's primary motivations was to prevent the possibility of a "gold rush" of QFs seeking contracts between the date of notice and the date of the general exemption. Order No. 688, 117 F.E.R.C. 1161,078,1( See California CPUC Decision , 2008 Cal. PUC LEXIS 276, *17 ("PURPA purchase obligation 'must balance the PURPA mandate that utilities purchase energy and capacity from QFs with the overarching requirement that electric utilities may only charge just and reasonable rates for the power they supply to their customers.'" (internal citation omitted)); Idaho PUC Order No at 3, 2010 Ida. PUC LEXIS 83, *5 ("In our 2002 Order approving the present methodology, we noted the then recent extreme volatility in gas prices, acknowledged that gas prices had returned to more normal levels and expressed concern that our failure to adjust avoided cost rates to reflect the lower gas costs could result in unreasonable and unfair high costs being borne by the regulated utility. If left in place, these higher than reasonable avoided costs ultimately would be paid by utility ratepayers. Order No at 4. nl"), aff'd, IPUC Order No

7 1 When a utility's actual avoided cost decreases, any policy that promotes a QF's 2 ability to create a LEO at rates that are known to be obsolete necessarily causes 3 customers to pay more than they would if the QF did not qualify for the old rates. 4 PURPA is not intended to favor QFs at the expense of customers; rather, PURPA seeks to 5 balance their interests. As a result, PURPA requires rules that neither prop the door open 6 for QFs racing to achieve a LEO prior to a rate change nor close the door in the face of a 7 QF that is on the cusp of finalizing a PPA. In this case, PacifiCorp did not slam the door 8 shut on ERG; the door never opened because ERG failed to knock until after the avoided 9 cost rates had already changed. 10 WHEREFORE, PacifiCorp respectfully requests that the Commission grant 11 PacifiCorp's Motion for Summary Judgment. Dated this 1st day of June Respectfully submitted, yosb Kenneth E. Kaufmann, OSB Lovinger Kaufmann LLP Of Attorneys for PacifiCorp 825 N.E. Multnomah, Suite 925 Portland, Oregon (503) lovinger@lklaw.com Jordan A. White, OSB Senior Counsel PacifiCorp 825 N.E. Multnomah, Suite 1800 Portland, Oregon (503) Jordan.White@PacifiCorp.com

8 CERTIFICATE OF SERVICE I hereby certify that, on June 1, 2010, I served a true and correct copy of the foregoing PacifiCorp's Reply to Energy Recovery Group's Response to PacifiCorp's Motion for Summary Judgment on the following named persons/entities by First Class Mail: MIKE CARPENTER MANAGING DIRECTOR ENERGY RECOVERY GROUP LLC PO BOX SALEM OR ED DURRENBERGER PUBLIC UTILITY COMMISSION OF OREGON PO BOX 2148 SALEM OR I hereby certify that, on June 1, 2010,1 served a true and correct copy of the foregoing PacifiCorp's Reply to Energy Recovery Group's Response to PacifiCorp's Motion for Summary Judgment on the following named persons/entities by electronic mail: JORDAN A WHITE (W) SENIOR COUNSEL PACIFIC POWER & LIGFIT 1407 W NORTH TEMPLE STE 320 SALT LAKE CITY UT jordan.white(o)/pacificorp.com OREGON DOCKETS (W) PACIFICORP OREGON DOCKETS 825 NE MULTNOMAH ST STE 2000 PORTLAND OR oregondockets(2>pacificorp.com THOMAS H NELSON (W) PO BOX 1211 WELCHES OR nelson(a>fhnelson.com zigzagtom(s>gmail.com Atto