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Review process has seen energy projects get derailed

Conditions, economics and timing all play a role

By Brooks Johnson, Columbian Business Reporter
Published: March 20, 2016, 6:00am

It’s not supposed to be easy for Vancouver Energy to build the nation’s largest oil terminal on the banks of the Columbia River. Washington’s environmental regulations guarantee that. But there is a path through the regulatory labyrinth of the Energy Facility Site Evaluation Council that the company might be able to follow.

The route through the hedgerows isn’t easy to find, as the council’s history shows. In the 46 years of the council’s existence, just five of 20 energy projects that have undergone the council’s review are now operating. Many of the others either fell short of winning full state approval, missed a narrow window in the market or just gave up trying to get past the regulatory gatekeepers.

So when pondering the fate of the rail-to-marine terminal proposed to handle 360,000 barrels of oil per day at the Port of Vancouver, the council’s past may help predict the project’s future.

The council is a one-stop permitting shop that balances energy and environmental priorities. But the team of state officials doesn’t simply hand over a simple yes or no — it often lands somewhere in between.

“The most common result of the process is to approve the project — with conditions that may or may not make the project economically feasible,” said Jim Luce, a Vancouver man who chaired the council from 2001 to 2013. “That’s an important caveat.” For example, the council’s approval of a Skamania County wind farm a few years ago came with conditions that all but killed the project.

The Vancouver Energy terminal is by far the largest and most contentious project the council has seen, drawing a quarter-million comments and two dozen intervenors who will argue for or (mostly) against the project in court-like hearings this summer.

Still, the council is using the same process and rules as it did for the other energy projects it has overseen. Of the projects reviewed by the council to date, most were given at least a conditional green light by Washington’s governor.

Vancouver Energy, meanwhile, could see a decision from Gov. Jay Inslee, who has final say after receiving a recommendation from the council, by the end of the year.

Whatever Inslee decides, he knows as well as anyone how high the stakes are for Southwest Washington and beyond.

While opponents raise the spectre of environmental disaster from oil spills or explosions, supporters of the Tesoro Corp. and Savage Cos. joint venture say the terminal will bring jobs to the area and taxes to state and local governments.

More than a battle between the economy and the environment, the ultimate decision on the terminal could signal whether Washington, with its strong energy sector, is still willing to approve big energy projects as they become increasingly controversial.

‘Resolving conflicting interests’

In 1971, a year after the Legislature created the Energy Facility Site Evaluation Council, a former federal employee penned his thoughts on the brave new siting process.

“The choice between environment and power is not an either-or proposition — it is a matter of adjusting and resolving conflicting interests,” wrote Charles R. Ross in the Washington Law Review.

In 2012, Gov. Christine Gregoire used that rationale in approving the Whistling Ridge wind farm in the Columbia River Gorge.

“A modified project with 35 wind turbines would help meet our need for clean energy and bring needed jobs and revenue to Skamania County, while preserving the aesthetic and recreational benefits of the Gorge,” Gregoire said.

Her balancing act in modifying the project, and that of the evaluation council, ended up tipping the scale to all but kill the wind farm.

The problem? The original proposal by SDS Lumber Co. called for 50 wind turbines, and its backers said any fewer just wouldn’t be economically viable.

Today — eight years after the project was proposed and four years after it was conditionally approved — not a single turbine is blowing on the Whistling Ridge farm, to the delight of those who thought it would ruin the view at the Columbia River Gorge Natural Scenic Area.

“There’s no question in my mind it was limited due to widespread public opposition to the project,” Friends of the Columbia River Gorge attorney Nathan Baker said of the conditions put on the wind farm. “Up until that time, it was the most controversial project to be reviewed by the council.”

Wind projects don’t have to go through the evaluation council, and most don’t. But wind developers can opt in to take advantage of the council’s sole authority over the process. That is supposed to be part of the appeal of the council — its review supersedes all local oversight, leaving just one jurisdiction for applicants and other interested parties to contend with.

Decision on oil terminal possible by year’s end

First proposed in 2013, the Vancouver Energy rail-to-marine oil terminal is deep into the Energy Facility Site Evaluation Council process and could see a decision on its fate by the end of the year.

The evaluation council in November issued a draft environmental impact statement that received 250,000 comments from the public in 60 days.

While that environmental review is getting finalized, five weeks of adjudication — court-like hearings in which different sides argue for or against the project in front of the council — are set to start late in June.

At the end of those processes, the council will make a recommendation to Gov. Jay Inslee on whether to approve or deny the project — or approve it with conditions. The governor can then follow the recommendation or decide on his own to approve, deny or remand the project back to the council for further study.

The proposed Vancouver Energy terminal is a joint venture between Tesoro Corp. and Savage Cos. It would handle 360,000 barrels of crude oil per day via an average of four 120-unit trains. The crude, largely sourced from North Dakota’s Bakken region, would be loaded onto ships and taken to West Coast refineries.

— Brooks Johnson

Still, Baker said, “The process is very long and complex,” and not every compromise works for all sides.

Natural gas crash

When California was facing high electricity prices and blackouts during its energy “crisis” 15 years ago, a few companies got dollar signs in their eyes and came to Washington state with plans to take advantage of the increased energy demand.

Although the Energy Facility Site Evaluation Council approved three natural gas plants around that time, none were built. Each crashed for different reasons.

For a project near Bellingham, the market window was too brief.

In tiny Wallula in Walla Walla County, a behemoth plant was derailed after it couldn’t meet the costs of conditional approval or connect to the power grid.

“You could build the plant, but the power wasn’t going to go anywhere … because transmission was not available,” said Luce, who was council chair at the time. “That and the market for natural gas facilities fell off the cliff.”

And in Sumas, at the Canadian border, an initial rejection by the council saw the company resubmit its plans to meet every complaint — successfully.

While such responsiveness is welcome, the council recognizes it must be careful about what it asks for. An applicant’s acceptance of all conditions “can leave the council between a rock and a hard spot,” Luce said.

Unless new information emerges in a rehearing that would support a second denial, a polished application leaves little room for the council to do anything but recommend approval to the governor, Luce said. However, the governor is under no such obligation.

“The governor could still deny the application,” Luce said.

When the Sumas plant known as SE2 finally won state approval in 2002, three years after it was proposed, the Canadians wouldn’t let it connect to the transmission system.

The project was canceled “in light of the continuing high cost of natural gas, the slowness of utilities to commit to new power sources and the denial of SE2’s application to construct a portion of the associated transmission line into Canada,” reads a council letter from 2006.

There are a million moving parts involved in building multimillion-dollar energy facilities, but timing can be everything.

All three of those gas plant proposals were terminated and are too old to be revived. Council approval lasts 10 years at the most before another environmental review is needed, starting the whole process over again.

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Possible outcomes

Not every energy proposal under the council’s purview ended with a whimper, of course. Two gas plants, two wind farms and a 45-year-old nuclear facility made it through the council’s rigmarole and are operating today.

Whether Vancouver Energy’s oil terminal joins them is anyone’s guess.

The company has maintained that the terminal, if approved, will be built regardless of the state of the crude oil market, which remains stubbornly weak. Demand remains at West Coast refineries regardless of the price, officials say. And though they won’t say there are plans to export oil to foreign countries, the terminal will likely have the ability to do so.

But what if the state approves the terminal with steep conditions? Maybe the council okays a 180,000-barrel-per-day terminal — cutting it in half — or only allows one train to serve it per day, reducing it to a fourth of the current proposal.

In its initial proposal to the port, Tesoro and Savage had pitched a 140,000-barrel-per-day project, which would have cost $74 million, according to a document obtained by The Columbian through a public records request. Now the company says it would resist shrinking the size of its terminal.

“Vancouver Energy does not plan to expand or reduce the proposed capacity of the terminal,” said spokeswoman Tina Barbee.

Aside from dying from complications related to conditional approval, the project could get delayed to death. Inslee could ask the council to take a closer look at certain issues after a recommendation. That could set up an infinite though improbable ping-pong game between the council and the governor.

“That is highly unlikely; I can’t conceive of it, but the rules seem to provide for it unless the governor flatly denies the application,” Luce said. “A governor’s denial is game, set, match unless there is an appeal to the (state) Supreme Court, and the Supreme Court has indicated it is very reluctant to reverse the governor.”

Just like in Sumas, an initial rejection from the council could be met with a “We’ll do whatever it takes” from Vancouver Energy in a revised application. For now, the company said it has its eyes squarely on the current application.

“We continue to be committed to a thorough permitting and review process, which is still ongoing,” Barbee said.

Even with the state’s rules-driven process, there’s plenty of room for outside forces, including state and local politics, to have influence.

In 2007, for example, state legislators beefed up carbon rules that stopped a $1.5 billion coal gasification plant in Kalama. But a decade earlier, they made sure Clark Public Utilities’ River Road Generating Plant in Vancouver wouldn’t have to fall under the council’s jurisdiction.

There’s no hiding the potential political overlay in the Vancouver Energy decision: Inslee is an eco-friendly governor up for re-election this year, and he gets final say on the project. An anti-terminal candidate was handily elected to the Port of Vancouver board of commissioners last year, and there is pressure on the three commissioners to cancel the terminal’s lease before it even gets to the governor.

But the process could just play out as intended, with the council and the governor simply balancing energy needs with environmental protections. That may be as pie-in-the-sky as some of the proposed projects that never made it past the council — but it could fulfill what University of Washington law professor William Rodgers had hoped for when he critiqued the creation of the council in 1971.

“By going this far, the state has supported procedures that are essential to the wise use of our dwindling resources and the responsible stewardship of an expanding economy.”

Columbian Business Reporter