the legal framework of the settlement agreement key concpets and approaches compatibility model

8/22/2019 The Legal Framework of the Settlement Agreement Key Concpets and Approaches Compatibility Model

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NWPPA Presentation

Legal Framework of the Final Settlement Agreement

Presented by:

Terry Mundorf, PartnerMarsh Mundorf Pratt Sull ivan & McKenzie


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Introduction

Final Residential Exchange Settlement Agreement ( Agreement ) on

the street

Its a big deal and a topic on which reasonable people can differ

Special role today - DDA

Alternative view of Settlement

Want to do four things

z Describe basic elements of deal

z Review ways this Agreement differs from prior settlements

z Talk about what happens if you do sign, and what happens if you do not

z Summary of some pros and cons of the Agreement


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Elements of the Deal

IOUs get

z Fixed REP payments of $2.1 billion over next 17 years

z No repayment of benefits received under prior Settlement of about $500 million

z Idaho Power does not repay deemer account balance of $250 million

z Payment of interim amounts of about $52 million

z Get 14% of environmental attributes of FBS, if any

Preference customers

z Shielded from future REP cost increases

z Dismiss claims to additional repayment amounts arising from prior IOU REP

Settlement of about $1.0 billion All signers seek Congressional action to prevent legal challenges


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Specific Agreement Provisions

Agreement contains provisions not included in prior BPA settlements

These provisions are worthy of consideration before we take the plungez Execution

9 Required to execute before BPA decides if Agreement is legal and if it is a better dealthan statutory rate test

9 Once you have signed, you are bound if BPA signs it

z

Pending Litigation9 Requires dismissal of signers pending claims

9 Also designed to moot pending claims of non-signers whether or not they want themdismissed

z Legal Challenges to the Agreement

9 Signers prohibited from challenging directly or indirectly the Agreement

9 Agreement requires pursuit of Congressional ratification purpose is to preclude legalchallenges by non-signers

9 Designed to eliminate any opportunity to test legality of Agreement


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z Agreement Enforceabi lity

9 With Congressional ratification binding arbitration with BPA at cost of losing right toget legal review of Agreement

9 Without Congressional ratification retain right to get legal review of Agreement, butbinding arbitration with BPA only if BPA wants to

9 There is limited binding arbitration with IOUs source of mischief likely BPA, not IOUs

z Waivers

9 Signers agree to continue to live under settlement deal even if BPA lacks authority tosign the Agreement

9 First time I have seen a BPA deal that the parties agree to continue when BPA cannot

z Contract for Statute

9 Terms of the Agreement will supplant provisions of the Regional Power Act (5(c),

7(b)(2) & (3))9 Replace statutory protection with a contract for both those who want to also for those

who do not want to

z Need to think about how these precedents may be used in the future

Specific Agreement Provisions(contd)


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What Happens If You Sign What Happens If You Dont

If you sign you accept certain obligations, some before BPA signs and some

after

z Support adoption of Agreement by BPA in current rate case

z Support efforts to dismiss (or stay) pending litigation of signers and non-signers

z Support effort to obtain Congressional ratification can back out of effort if you think itis detrimental

z Without Congressional ratification, help defend Agreement if it challenged in court

If you decide not to sign, what happens to you depends

z For sure you do not have to support adoption, seek dismissal, supportCongressional ratification or defend in court

z If nobody challenges Agreement, you get same rates as signers but without theobligations court

z Odds of no challenge to the Agreement are small


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Result potentially different for non-signers if Agreement is challenged

z

All non-signers get outcome determined by Court whether you challenged theAgreement or not

z What that means depends on how challenge turns out

9 If BPA prevails, get same rates as signers

9 If challengers prevail, get outcome as determined by the Court

9 Could be that signers get the Agreement rates, non-signers get statutory rates

9 Court outcome could be better or worse than settlement - depends in part on

treatment of pending claims

One interesting aspect of Agreement for non-signers

z Agreement designed to moot all claims and litigation arising from REP since 2002

z If mootness argument gets preference customer claims dismissed, will have sameimpact on IOU claims

z Includes IOU threat to retrieve Lookback payments received by non-signers

What If You Sign What If You Dont (contd)


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PROs

z Fixed REP Payment Obligation REP payment fixed for 17 years. More certainthan currently, where REP payment is determined in each rate case and issubject to BPA policies shifts.

z IOU Cost Escalation Fixed REP payments protects from IOU ASC increasesfrom carbon taxes, resource portfolio standards, cap and trade legislation and

resource additions.z Lower REP Payment Obligation The Settlement REP payments are lower than

BPAs current 7(b)(2) rate test implementation. IOU REP payment at the end ofthe Settlement ($286M in FY2028) is about the same as BPAs REP payment incurrent rate period REP ($295M in FY2013).

z Less Litigation After litigation of pending claims (if not dismissed) and thevalidity of the Settlement (if no ratification), likely less litigation and rate casecontroversy over the REP.

Agreement Pros and Cons


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PROs (contd)

z Escape Clause Agreement can be terminated by preference customers if basicassumption of deal (embedded cost rates, ASC above PF rate) is changed by outside actionin a material amount, and two-thirds of publics agree to do so.

z Focus on Other Matters Ending litigation over REP will afford preference customers moretime to address other pressing issues, such as preserving FBS capability for preferenceload service, resolving transmission constraints and controlling BPA costs as examples.

Agreement Pros and Cons (contd)


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CONs

z Fixed REP Payment Fixed REP payments shields IOUs from CRACs and BPAcost increases caused by dam removal, CGS retirement, or escalating BPA orfish costs. Statutory REP payments subject to these cost increases.

z Settlement Benefits in the Future Forecasts are always perfect, future iswrong. Whether future events show the Agreement to be a benefit or a burden

only time will tell.z Settlement and BPA Authority Agreement to stick to terms if BPA lacks

authority to sign likely result in differing REP obligations for signers and non-signers, splitting public power.

z Certainty of Agreement Agreement certainty depends on enforceability. If

Agreement ratified (with loss of judicial review), likely enforceable against BPA. Ifnot ratified (with retention of judicial review), Agreement likely not enforceableagainst BPA, subjecting Agreement to BPA policy shifts like Rate Test.

Pros and Cons (contd)


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CONs (contd)

z Litigation Peace Agreement designed to dismiss pending REP litigation, andpreclude challenges to the Agreement, but will spark new round of litigation. Iflitigation peace achieved, comes at the cost of part of public power deprivinganother of relief from BPAs prior unlawful acts and right to test the lawfulness ofthe Agreement. This is divisive to public power, and sets troubling precedent.

z Substitutes Contract for Statute Congress fashioned REP to protect BPAsfinancial health and preference to the lowest cost federal power. Agreementsubstitutes BPA contract for these statutory protections. Substituting BPAcontract for statutory cost protection may be an unwise policy choice, and mayset a bad precedent for the future.

Please note that the number of Pros and Cons are identical

Pros and Cons (contd)

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