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Legal Expert Sees Little Risk To Pud

Attorney contends there is no significant financial risk to PUD

Responding to recent news coverage regarding the Klickitat Public Utility District's involvement in the Goldendale Energy Center plant, the utility's attorney contends there is no significant financial risk to the PUD.

Harvey Spigal, a partner with Portland law firm Preston, Gates & Ellis, believes the PUD is on solid legal grounds as it works through a snag related to the 248-megawatt energy project under construction near Goldendale.

The plant is being built by Goldendale Energy, Inc. (GEI), a subsidiary of the Calpine Corp. Recently, many Calpine employees were laid off, and plant construction slowed, for reasons unrelated to the transmission line issue.

At issue is what would happen if the PUD-owned transmission line connecting Calpine's new, gas-fired energy plant with a Bonneville Power Administration substation is not completed.

Spigal said the risk of the PUD getting stuck with a big bill is very small.

"The PUD is likely to make a condemnation decision about acquiring the easement. If the attempt to condemn fails, it is a `force majeure' -- an event not within the control of the party," Spigal explained. "In that event, GEI is not released from its payment obligation, and the letter of credit is sufficient to obtain payment. We don't know of any reason that would prohibit the PUD from drawing on the letter of credit."

Spigal conceded that Calpine could take legal action to try to prevent the PUD from using the letter of credit, but he does not believe that would be a successful strategy on Calpine's part.

"There is no reason to believe there would be any problem drawing on the letter of credit," Spigal said.

He noted that there is no way to be sure when the easement issue will be resolved.

"I should be in a different business if I knew that," he commented.

Jim Smith, the PUD's engineering manager, pointed out that GEI is obligated to repay the PUD's project expenses.

"Our proposal included KPUD financing the transmission line and the substation," said Smith. "GEI would repay these costs over time through a transmission services contract."

The easements were to be signed with the PUD. A total of 12 easements were needed for the 10 miles of transmission line. The PUD obtained nine of the required easements, and GEI arranged for two other easements. That left only the GAC segment. Originally, that segment was two miles long, but GAC authorized construction of the first mile on its property to keep the project on schedule. Since then, GAC and GEI have not been able to come to an agreement for the remaining stretch of land.

Later this week, the PUD Board of Commissioners are expected to proceed with condemnation of the short parcel (less than one mile) of property, owned by the Goldendale Aluminum Co., in order to complete a transmission line linking the new plant with a substation near the Goldendale Aluminum plant.

To date, the company has balked at agreeing to provide use of its land to build the transmission line.

Spigal, who drafted the contract between Calpine and the PUD, said that at the time the contract was written, the understanding was that GEI would "get the easements that were difficult to get."

"Now, they will dispute that," Spigal said, "notwithstanding that they obtained easements from two property owners who were at first unwilling to grant easements across their land."

According to Spigal, if a judge found that the PUD did not have authority to condemn this private (GAC) easement for the purpose of siting a transmission line, that would not relieve GEI of its payment obligation, and would not prevent the PUD from drawing on the letter of credit.

The PUD Commissioners will vote on whether to proceed with condemnation on the afternoon of Feb. 26.

If the vote is to proceed with condemnation, and if GAC challenges the proceedings, a court would eventually decided whether the PUD has authority to condemn GAC's property to construct the transmission line. If the PUD is held to have the authority, the court would set a "fair market value" for the land in question and allow the transmission line to be completed.

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