The Law of Wind-Guide To Biz & Legal Issue

A GUIDE TO BUSINESS AND LEGAL ISSUES
Third Edition w w w. s t o e l . c o m
Compliments of Stoel Rives Attorneys

S T O E L R I V E S A T T O R N E Y S
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Wind We Know
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THE LAW OF Wind
TA B L E O F C O N T E N T S
Welcome to the Law of Wind

1 Wind Energy Lease Agreements
2 Siting and Permitting Wind Projects
3 Power Purchase Agreements and Environmental Attributes
4 Design, Engineering, Construction & Turbine Purchase Agreements
5 Project Finance for Wind Power Projects
6 Tax Issues
7 Choice of Corporate Structure & Entity
8 Labor Issues
9 Regulatory & Transmission-Related Issues
THE LAW OF WIND is a publication of the Stoel Rives Wind Team for the benefit and information of any interested
parties. This document is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended
for informational purposes only. Copyright 2006 Stoel Rives LLP.
WELCOME TO
T H E L AW O F Wind
Dear Member of the Wind Power Community,
As the world’s fastest growing energy source, wind can help power our homes and businesses
and buttress local agricultural economies while leaving cleaner skies for our children. Major
global corporations, new sources of investment capital, and power buyers large and small have
been drawn to wind. States across the U.S. have moved to fill the federal leadership vacuum,
in many cases enacting renewable portfolio standards and state renewable energy tax credits.
The industry is vibrant.
Nonetheless, wind projects like other major projects are subject to a plethora of real property
issues, regulatory and permitting requirements, interconnection, transmission and power
purchase negotiations, financing challenges, tax matters, construction contracting and labor
management issues.
Recognizing these challenges, and as part of our commitment to the growth and success of the
renewable energy industry, in 2003 the Stoel Rives Wind Team developed THE LAW OF Wind:
A GUIDE TO BUSINESS AND LEGAL ISSUES. This guide contains insights we have gained
during the last 10 years serving the U.S. wind power industry.
You have in your hands the Third Edition of THE LAW OF Wind, updated in 2006 to reflect the
current state of play on the legal and policy issues most likely to impact the wind industry
generally and the development of individual wind projects. We hope you find it useful.
Peter Mostow, Chair

Stoel Rives Renewable Energy Practice
pdmostow@stoel.com
503.294.9338 direct
503.220.2480 fax
Chapter One
The Law of Wind
—Wind Energy Lease Agreements—
Samuel J. Panarella
The security, flexibility, financeability, and cost-effectiveness of a wind energy project’s land rights are a key part
of the project’s overall value. The tool for capturing this value is the wind energy lease agreement or wind energy
easement agreement (the “Wind Energy Land Agreement”).
Like agreements for the use of retail or industrial space, a Wind Energy Land Agreement has provisions that set
out the term, the purposes for which the developer may use the property, the amount and method of payment for
the leasehold or easement interest, the manner in which the costs of insuring the property will be allocated
between the parties, the conditions constituting a default, and the manner by which such default may be cured
by the defaulting party.
However, in a Wind Energy Land Agreement, several of these “standard” provisions must be tailored to the
unique requirements and realities of wind energy development. Moreover, a Wind Energy Land Agreement ought
to have certain provisions that typically are not present in most other kinds of leases or easements. These unique
and tailored provisions are the focus of this chapter.
I. The Scope of the Property Subject to the Wind Energy Land Agreement. The portion of the
landowner’s real property that will be subject to the Wind Energy Land Agreement is frequently the first and most
contentious issue during negotiations. There is a natural tension between a developer’s wish to include as much
of the real property in the Wind Energy Land Agreement as possible and a landowner’s desire to limit the property
subject to the agreement to only those portions necessary for the construction, maintenance, and operation of the
wind power facilities on the property.
A. Basic Issues. There are several reasons that a developer may want to maximize the amount of
property that will be subject to the Wind Energy Land Agreement:
• In today’s competitive environment, developers often begin acquiring rights in real

property before they have enough wind data and information about the property’s
topography, access to suitable transmission lines, and environmental attributes to
accurately determine the most productive and cost-effective layout for the wind power
facilities on the property. By leasing most or all of the landowner’s property, the
developer gains flexibility to respond to changes in the project layout and design that
may become necessary as a result of, for example, gathering more complete wind data
for the property, landowner concerns about the impact on the landowner’s continued
use of the property, the requirements of governmental permitting authorities, and the
desire to minimize the time and expense required to construct the wind energy project.
• Economies of scale play a role. By maximizing the amount of property subject to the
agreement, the developer can maximize the size and efficiency of the wind energy
project on the property and benefit from economies of scale in reducing development
costs and increasing productivity.
STOEL RIVES LLP © 2006 Ch. 1 – Pg. 1

• The effective generation of wind energy from wind turbines is largely dependent on the
annual average wind speed over the property. Any obstruction (e.g., a tall building or
silo) that interferes with the flow and speed of the wind over the property can have a
dramatic, negative impact on the ability of the wind turbines on the property to generate
energy. A developer will want control over the size and kind of structures that can be
constructed on the property by the landowner and/or third parties during the term of the
Wind Energy Land Agreement. An effective way to gain this control is to encumber as
much of the property as possible and have noninterference covenants in the Wind
Energy Land Agreement that limits the landowner’s right to interfere with the wind flow
over the property.
The landowner’s primary motivations for limiting the amount of its property that is subject to the Wind Energy
Land Agreement are to limit the impact of the wind energy project on the landowner’s other activities on the
property (especially when the landowner is a farmer or rancher and plans to continue using the property in this
manner while the wind energy project is operating on the property), to preserve the opportunity to lease the
excluded land for other purposes (e.g., cell towers), and a basic reticence to give up a measure of control over too
much of the property.
B. Potential Resolutions. There are several devices that may be helpful in resolving a conflict
between landowner and developer over the amount of property to be included in the Wind Energy Land
Agreement:
• Tie a portion of the payments required under the Wind Energy Land Agreement to the
total number of acres to be encumbered.
• During the planning stage, consult with the landowner regarding the location of the
proposed wind power facilities on the property. This may reassure the landowner and
can provide the developer with useful information about the property.
• Offer a phased approach under which the landowner will agree to lease or grant
easements over all or most of the property to the developer during the construction
phase of the wind energy project. After construction has been completed, the developer
will quitclaim to the landowner its interest in the portions of the property that are not
part of the wind energy project, minus a reasonably large buffer around the wind power
facilities to allow ample room for operation and maintenance activities and possible
future repowering of the wind turbines. In such an arrangement, a developer will want
to include terms in the Wind Energy Land Agreement that clarify that the landowner’s
commitment not to interfere with the wind speed and flow over the property also
applies to the released property for the term of the agreement. Further, a developer
may demand a right of first refusal for the released property, so that the landowner may
not re-lease it for a purpose that will interfere with the wind project. Before taking this
approach, however, the parties should make sure that this arrangement will not violate
local land use laws.

Finally, the developer may agree to encumber only those portions of the property that it believes will be necessary
for the wind energy project (e.g., strips of land for wind turbines, transmission lines, roads, and related facilities).
This can be risky if the developer does not have enough information to accurately determine the most
advantageous locations for its wind power facilities.
II. Purpose of Agreement/Use of Property. Another contentious issue involves the purpose of the Wind
Energy Land Agreement and the uses the developer may make of the property to accomplish this purpose. Of
course, the obvious purpose of a Wind Energy Land Agreement is the construction and operation of a wind energy
project. However, the developer and landowner may disagree about the scope and extent of the rights in the
property that the developer needs in order to accomplish this goal.
A developer will want the right to take any action on, and make any use of, the property that the developer
believes is necessary to accomplish the goal of constructing and operating a wind energy project on the property.
For its part, the landowner may wish to see these rights limited to only those clearly delineated activities and
facilities necessary to construct and operate the wind energy project on the landowner’s property.
A. What Facilities Go on Whose Land? For most large wind energy projects, a developer must
control the properties of several neighboring landowners in order to aggregate the large number of acres it takes
to site the project. Few landowners own enough windy land (with access to transmission lines) to have a “stand-
alone” wind energy project on their property. Inevitably, once the developer has conducted its wind,
transmission, environmental, and construction studies on each of the properties, some of the properties will stand
out above the others as better candidates for wind turbines, while the others may be more suitable for
transmission lines and roads that serve the wind turbines. No landowner wants to be the one who has few or no
wind turbines on its property but plenty of transmission lines and roads that serve wind turbines on a neighbor’s
property. A landowner may try to avoid this scenario by making the developer’s right to extend the term of the
agreement beyond the initial evaluation and development phases conditional on the developer’s installation and
operation of a fixed number of wind turbines on the landowner’s property. Alternatively, the landowner may
negotiate to receive special minimum payments under the agreement if its property is used primarily for
transmission lines and roads. Generally, the landowner will want such minimum payments to be large enough to
compensate for the fact that the landowner will not be receiving royalty payments on the sale of electricity from
wind turbines on the property.
A landowner may also require that the developer pay additional compensation for the right to place certain
special facilities on the subject property. For example, when the developer wants to place a substation that will
serve the entire wind energy project on one landowner’s property, the landowner may feel that it is entitled to
additional compensation for the added burden and loss of usable property caused by construction of a substation
on the property. In most cases, a developer will agree to pay such compensation.
B. Landowner’s Continued Use of the Property. A unique and attractive feature of wind energy
projects is that, in most cases, even after the project is built and operating, the landowner may continue to use a
great majority of the subject property in the same manner as the landowner had been using it before entering into
the Wind Energy Land Agreement. This is because only a small portion (usually between 2 and 4 percent) of the

subject property is used for wind turbines, roads, transmission lines, and related facilities. The remaining
property suffers little or no impact from the wind energy project. For this reason, most Wind Energy Land
Agreements will provide that the landowner may continue to conduct its farming or ranching activities on the
property throughout the life of the project on the property, provided that such activities do not and will not
interfere with the construction and operation of the wind energy project.
III. Term. A Wind Energy Land Agreement usually provides for an initial term lasting anywhere from 3 to 10
years. The purpose of this initial term is to give the developer time to study the feasibility of wind energy
conversion on the property by collecting wind data from anemometer towers installed on the property and by
performing geotechnical, environmental, and other studies on the property and (assuming that the wind data and
studies demonstrate that the property is suitable for development) time to obtain a permit and construct the wind
energy project on the property.
The Wind Energy Land Agreement generally provides that the developer will have the automatic right to extend
the agreement for an extended term lasting approximately 30 to 50 years if the developer (i) agrees to pay the
landowner an annual minimum payment during the extended term, (ii) pays the landowner a one-time lump-sum
payment upon commencement of the extended term, or (iii) installs a certain number of wind turbines on the
property that generate electricity during the initial term of the agreement (the parties may disagree on the number
of wind turbines that the developer should be required to install on the property to trigger the automatic right to
an extended term, with the landowner pushing for a high number and the developer arguing for a low number).
Many Wind Energy Land Agreements also give the developer the right to extend the extended term for a period
ranging from 20 to 30 years if the developer “repowers” at some point during the extended term by replacing all
or a significant portion of the wind turbines on the property and/or by installing additional wind turbines on the
property. The net result of these successive terms is an agreement that has the potential to run for more than 70
years. The unusual length of the agreement is often troubling to a landowner, especially when the property is a
family farm or ranch that the landowner envisions being passed down to successors or heirs. A landowner may
be reluctant to sign an agreement that has the potential to continue encumbering the property long after the
landowner has handed control of the property to successors. Further, the length of the agreement may give rise
to concerns about the landowner’s ability to sell the property at some later date and questions about the long-
term viability of the developer.
IV. Payments. In general, Wind Energy Land Agreements provide that the developer will pay the landowner
either a lump-sum payment or annual payments for the rights granted in the agreement.
A. Lump Sum Payment. Occasionally a developer will offer the landowner a one-time lump-sum
payment as consideration for the rights granted in the Wind Energy Land Agreement. This lump-sum payment
will be paid upon mutual execution of the agreement and, with a few minor exceptions, is the only payment the
landowner will receive under the agreement. A lump-sum payment may be attractive to a landowner because it
provides the landowner with a large amount of money right away, without concerns about the developer’s
ongoing financial health and ability to make annual payments. However, attempting to calculate the time value

of the lump-sum payment against future annual payments can be difficult and time-consuming. Further, such
payments can have undesirable tax consequences for a landowner.
B. Annual Payments. Annual payments from the developer to the landowner are the most
common payment structure for Wind Energy Land Agreements. Typically, the payments are structured as
follows:
1. Initial Payment/Signing Bonus. The developer will pay the landowner an up-front
payment for signing the agreement. The amount of this signing bonus varies widely, depending on factors such
as the perceived potential of the property for wind power generation, the degree of competition between
developers for the property, and the negotiating skills of the landowner and/or its attorney.
2. Annual Preoperation Rental Payments. These are annual (or monthly) rental payments
from the developer to the landowner for the period of time during which the developer is measuring the wind flow
over the property, performing studies, obtaining a permit to construct the wind energy project, and constructing
the project. Again, the amount of these payments is dependent on several factors. It is not uncommon for the
parties to agree that the payments will be calculated by multiplying the number of acres of property subject to the
agreement by an agreed dollar figure. A landowner may prefer to be paid on a monthly basis, but developers
typically prefer to pay annually to decrease the chance of missing a payment and risking defaulting under the
agreement. In most cases, these annual or monthly rental payments will cease once the wind energy project is
operating and the landowner begins receiving royalty payments from the sale of electricity generated by the wind
turbines on the property.
3. Installation Fees. Many Wind Energy Land Agreements provide that the developer will
pay the landowner a one-time installation fee for each wind turbine installed on the property by the developer.
Landowners often insist that the installation fee is calculated using the total megawatts of installed capacity of
wind turbines or other power-generation facilities constructed on the property, rather than on a per-turbine basis.
This is particularly true when the wind turbines installed on the property have a manufacturer’s nameplate rating
of more than one megawatt.
4. Operating Fees. The operating fees paid to the landowner by the developer are usually
the most lucrative aspect of the Wind Energy Land Agreement for the landowner, and, for that reason, the
operating-fees provision is often the most heavily negotiated provision in the agreement. If and when wind
turbines are installed on the property and begin delivering electricity on a commercial basis to a purchasing utility
or other purchaser pursuant to a power purchase agreement or similar document, the developer will begin paying
the landowner operating fees based in some form on the output of those wind turbines. These operating fees
may be (a) a percentage of the gross revenues received by the developer from the sale of the electricity generated
by wind turbines on the property; (b) a millage rate per kilowatt-hour of electricity generated by wind turbines on
the property, with the millage rate being determined by the capacity factor of the wind turbines on the property;
or (c) a per-turbine annual lump-sum payment that has no strict relationship to the amount of electricity
generated by wind turbines on the property.

V. Wind Energy Rights-of-Way with the Bureau of Land Management. In October 2002, the Bureau of
Land Management (“BLM”) issued an Interim Wind Energy Policy (Instruction Memorandum No. 2003-020)
intended to help the agency respond to the growing interest in the commercial development of wind energy on
the nation’s public lands. One purpose of the interim policy is to speed up processing of wind energy right-of-
way applications and to provide greater certainty to applicants as to the terms and scope of wind energy right-of-
way grants from BLM. BLM received considerable input from wind energy developers, environmental interest
groups, and other federal agencies in formulating the interim policy. The interim policy applies only to wind
energy right-of-way applications submitted after the interim policy’s effective date, but entities holding existing
wind energy right-of-way grants from BLM can amend their right-of-way grants to include the provisions of the
interim policy.
The interim policy provides for two types of wind energy right-of-way grants for short-term testing and monitoring
-- one for site-specific wind energy site testing and monitoring with a single meteorological tower, and the other
for monitoring of a larger “project area” with one or more meteorological towers. Project area right-of-way grants
are for areas larger than one-acre and/or that involve more than a single meteorological tower, and have a term of
three years that may be renewed in certain circumstances. Of the two wind energy right-of-way grants for short-
term testing and monitoring, only the project area right-of-way grant allows the holder to retain an interest in the
underlying land. The interest retained, however, is only an interest to preclude other wind energy right-of-way
applications for the subject property during the term of the grant. The holder of a project area right-of-way grant
has established no right to develop a commercial wind energy project on the subject property and, before the
expiration of the term of the project area right-of-way grant, must for BLM’s approval submit a plan of
development and an amended right-of-way application for a commercial wind energy facility right-of-way grant.
VI. Conclusion. While critical to every Wind Energy Land Agreement, the matters discussed above are by no
means the only issues a developer must consider. For example, issues related to indemnities, assignments, and
financing are often key components of a Wind Energy Land Agreement. Crafting a Wind Energy Land Agreement
that provides a developer with the necessary flexibility and security to develop a wind energy project requires
experience, creativity, and skill.

Samuel J. Panarella
Law Practice
Sam Panarella practices in the areas of land use, natural resources, real estate
development and environmental law. Sam advises clients on the development,
acquisition, sale, finance, construction and operation of projects and the
structuring and negotiation of contracts, with particular expertise in acquiring
land and obtaining permits for utility and energy facilities including wind energy
projects throughout the western United States and natural gas storage facilities.
Sam has extensive experience in the acquisition and sale of power plants, power
plant project development and financing, and the acquisition, sale, financing,
development, permitting and leasing of commercial real estate.
503-294-9223 Direct
Prior Legal Experience
503-220-2480 Fax
Law clerk to Judge Otto R. Skopil, Jr., U.S. Court of Appeals for the Ninth Circuit sjpanarella@stoel.com
(1998-99).
Education
J.D. cum laude, Northwestern School of Law
Professional Activities of Lewis & Clark College, 1998
Volunteer attorney, Sponsors Organized to Assist Refugees; attorney partner, Associate editor, Environmental Law
Northwestern School of Law of Lewis & Clark College First Year Partnership Review, Business & Tax Law Scholar
Program. 1997-98
B.A., honors, liberal studies, University of
Montana, 1994
Publications
“Just Starting Out: Leasing, Siting, and Permitting Geothermal Projects”, in Lava Admission
State bars of Oregon, Washington; State bar
Law: Legal Issues in Geothermal Energy Development (Stoel Rives 2004). of California (pending)
“Wind Energy Lease Agreements”, in The Law of Wind: A Guide to Business and
Legal Issues (Stoel Rives 2004).
“Creating Landowner Value with Lease Agreements”: The Finer Points Explained
for a Document that could be Valid for Years, North American Windpower,
(September 2004)
Comment, “Not in My Backyard: The Clash Between Native Hawaiian Gathering

Rights and Western Concepts of Property in Hawaii”, Environmental Law
(Winter 1998).
Chapter Two
The Law of Wind
—Siting and Permitting Wind Projects—
Timothy L. McMahan, Peter D. Mostow
While wind energy projects are commonly praised for producing green power, they rarely receive preferential
permitting treatment. Wind energy projects raise local land use, environmental, and community concerns similar
to those raised by other commercial and industrial projects. Several of the country’s largest proposed wind
projects face such concerted local opposition that not only are their schedules and pro formas being impacted,
but their very futures are in doubt. This has sensitized potential project purchasers and financiers, who usually
scrutinize permitting and environmental issues very closely.
In this climate, project developers can achieve a significant competitive advantage by doing permitting right:
imposing a disciplined focus on site assessment and fatal flaw analysis, “permitability” oriented project design,
and strategic consultation with interested agencies, communities, and interest groups.
I. The Permit Process. Wind energy facility siting processes are highly local. There is enormous variation
from state to state and even from location to location. Factors such as the need for transmission lines or access
roads, facility size, facility and equipment location, land ownership, and federal involvement may determine the
number of agencies and the level of government involvement for a particular project.
A. Federal Siting. Proposed wind projects on federally managed land must secure land rights
(typically called “rights of way”) and undergo the associated environmental review under the National
Environmental Policy Act (“NEPA”) and related statutes. This is particularly relevant in those western states such
as Utah and Nevada where much of the land, including much of the prime wind area, is located on federal lands.
B. State Siting. A few states, including Oregon and Minnesota, have state siting councils or boards
that have “one-stop” mandatory siting jurisdiction over permits for wind energy facilities exceeding certain sizes.
Washington has a siting council that may take jurisdiction over issuing permits for wind energy facilities of any
size but only if requested by the applicant. California has a state siting body that has no jurisdiction over wind
energy facilities.
C. Local Siting. In states where projects do not trigger state siting jurisdiction, and in states with
no state siting process, wind energy projects are permitted by the local jurisdiction, which, for typical rural wind
energy projects, is almost always a county (as opposed to a city governing body). Windy states with no state
siting process include Colorado, Idaho, Iowa, Nevada, Texas, and Utah.
D. Comparative Advantages. On average, siting wind energy facilities through a state siting
process takes longer than doing so through a local process, as more documentation typically is required at the
state level. In Oregon, for instance, the issuance of a site certificate for a wind project may take from 12 to 18
months. However, Oregon now allows for an expedited (nine to 12 months) review process for wind energy
projects that will have up to 300 MW of nameplate capacity. In comparison, siting at the local level can occur in
three to six months if there are no significant environmental reviews required.

Despite the longer period of time required for state siting, it offers several advantages over local siting. Generally,
these advantages are important for difficult or highly contentious projects, and are less important for
straightforward, locally-supported projects. First, review and approval tend to be based on more objective criteria
and to be less subject to potential political bias. Second, the process for appealing site approvals can be
expedited under state permitting.
There is a commonly held view that it is easier to permit wind energy projects at the local level, but this may not
be true for all projects. When the option exists, a decision to pursue a particular permitting route should be
made carefully and on a case-by-case basis.
State siting typically requires a higher level of involvement from other state departments such as fish and wildlife,
environmental quality, water resources, parks, and cultural resources agencies. State siting is typically far more
costly to the applicant due to significantly more complex regulatory barriers, required studies, agency review costs
passed on to the applicant, and added processing and review time. In local permitting, such agencies may not
even be notified and, if they are, their recommendations often do not carry the force of law.
II. Local Permitting. For local siting applications, an applicant may be required to work with local planning
commissions, zoning boards, and county boards. The county governing body, typically a board of commissioners,
generally must approve and issue a permit, usually a conditional use permit. In most counties throughout United
States, a wind power project is conditionally allowed in rural land use zones—it is not expressly allowed or
prohibited, but rather subject to a discretionary review by the appropriate local authority.
To secure a conditional use permit, an applicant typically must show that the project will be compatible with
adjacent land uses (typically farming or ranching). Some counties have developed, or are developing, utility or
wind overlay zones that further dictate where and how wind energy projects can be sited. Some counties,
including several in Utah, have adopted ridgeline overlay zones that impose certain restrictions on ridgeline
construction. Additionally, conditional use ordinances often required review by and consultation with state or
federal agencies in the permitting process. For instance, if the project could negatively impact wildlife species
listed by state or federal agencies as threatened or endangered, the appropriate state and/or federal agencies will
have to be consulted. State and federal wildlife agency review may also occur as a matter of course through the
environmental review process. Locally permitted wind energy projects typically require three to six months to be
completed, depending on the complexity and level of environmental review required and the presence or absence
of project opponents.
In addition to the applicant’s securing a conditional use permit, some states require that the local permitting body
conduct environmental review based on state environmental review statutes modeled after NEPA. Washington
and California require this review, Washington under its State Environmental Policy Act (“SEPA”), and California
under its California Environmental Quality Act (“CEQA”). Oregon, Nevada, Wyoming, Utah, New Mexico, and
Idaho do not have comprehensive environmental review statutes. The net effect of state statutes like SEPA and
CEQA is to increase process time and cost and, likely, to result in the imposition of additional mitigation
requirements.

III. Federal Environmental Review. Wind energy projects that require a federal agency to take action or
make a decision “enabling” the project trigger NEPA review. NEPA is a procedural statute that requires federal
agencies to consider the environmental impacts of a proposed decision before making the decision. In the
context of wind energy projects, NEPA can be triggered by the need to acquire a right of way or special use
permit from the Bureau of Land Management (“BLM”), the U.S. Forest Service, or another land-managing federal
agency; the need to interconnect with a Bonneville Power Administration (“BPA”) or Western Area Power
Administration (“WAPA”) main transmission line or substation; entering into a power purchase agreement with
BPA or WAPA; and the need to secure a Clean Water Act section 404 removal/fill permit from the U.S. Army
Corps of Engineers. Depending on the level of review required, the review can take a month (for decisions that
have been Categorically Excluded from individual NEPA review), two to six months (for an Environmental
Assessment (“EA”) to be prepared that concludes that the federal action will not significantly impact the
environment), or more than a year (for an EIS that analyzes in much more detail the impacts of projects in areas
that are considered to be environmentally sensitive). When a state level environmental review is already under
way for a wind energy project, the federal agency may piggyback on the state process and incorporate the
environmental documentation from the state process into the federal NEPA review. In appropriate situations, the
federal agency may also “tier” a decision to a prior NEPA review and thereby reduce the amount of time and
material that must be prepared for the new decision. An example of this would be BPA relying on a prior
“programmatic” EIS that evaluated future energy development in the Northwest in order to support a decision as
to whether to allow an interconnection to a BPA transmission line as part of a specific wind project.
In late 2003, the BLM announced the intention to develop a programmatic EIS for siting wind energy projects on
federally-managed lands. Initial scoping meetings have been held, but there still is a significant chance for input.
Developers with projects on federal lands should involve themselves in the BLM’s process.
IV. Key Substantive Issues. Substantive issues are important to developers for two reasons: cost and risk.
Accordingly, fatal-flaw analysis of the following “big-ticket” items should be part of any project planning.
A. Avian Impacts. Avian mortality has traditionally been the single biggest issue in the siting of
wind energy projects. This is due in large part to the number of birds killed, particularly at Altamont Pass in
California, when turbine technology consisted of fast-moving blades and perching opportunities, too little was
known about flyways, and migration patterns were not adequately considered in siting decisions. At other sites
around the country, avian mortality rates are dramatically lower due to advances in turbine technology and better
siting decisions. Nonetheless, avian impact concerns remain an important issue for wind project permitting.
Many permitting agencies still require at least one year’s worth of avian data before issuing a site permit. In
addition, conditions of permit issuance may require follow-up monitoring of avian impacts.
Avian baseline data is gathered to provide information about bird and bat use of a potential wind project site.
The baseline data may allow a developer to avoid placing a project in a key flyway or other area of heavy avian
use, thus reducing the possibility of high avian mortality. Post-construction avian fatality monitoring is performed
to determine the bird and bat impacts of an operating wind project. In accordance with fairly well-developed
statistical concepts, the monitoring is often done on only part of the operating project. Fatality data provide a
means of confirming the siting decisions that were made on the basis of baseline avian use data. In addition,

fatality data can identify specific turbines or groups of turbines with higher than expected impacts and can be
used as the basis for adaptive management decisions. Tubular turbine design, technology advances in turbine
design, including slower turbine tip rotation speeds, increased use of underground power transmission cables,
and reduced use of guyed wires and other facilities where birds can roost lessen the risk of avian collisions.
B. Other Wildlife. Wind energy projects can also disturb other wildlife and plant species. It is
important to assess whether any of the species present in the project area are listed as federal or state threatened
or endangered species or state species of concern. This is generally determined through a database inventory of
species likely to occur in the project vicinity, combined with site visits that typically require a spring survey for
plants and some animal species.
C. Habitat (Including Soil Erosion). Wind energy projects typically involve substantial grading for
road and turbine base construction, with impacts upon a wide variety of plant and animal species. In active
agricultural areas, this issue may be of minimal importance. However, most productive wind energy sites will
likely include some areas of native habitat or native species occupying previously undisturbed areas. In many
western states, wildlife habitat is classified one of several categories based on its importance to various species,
and mitigation ratios are set accordingly; in some cases, no disturbance at all is allowed to the most valuable
habitat types.
Soil erosion due to road and facility construction can also be a problem. Project planning should include an
attempt to avoid sensitive habitats, consider mitigation for habitat impacts that cannot be avoided, and provide
for soil conservation and any necessary erosion-control measures.
D. Visual Impacts. Modern onshore wind turbines can be 60 to 80 meters tall at the hub, with
blades extending the total to over 100 meters. They are sited in open areas and on ridge lines, with little
available in the way of visual buffers. Lights on the turbines, which are typically required by the Federal Aviation
Administration, can have nighttime visual impacts as well. In addition, associated substations and transmission
lines can add to the visual impact of a wind project.
There appears to be a split in sensibilities between those who consider wind turbines an eyesore and those who
like the visual effect of the turbines. From either perspective, for areas with broad vistas, wind energy projects
can result in a fairly dramatic change to rural landscapes, with turbines typically standing in a sentinel-like
manner along ridge lines or in rows through pastures and fields. According to studies by the U.S. Forest Service,
visual impacts are typically greatest within three miles of the facilities and decrease significantly at greater
distances. However, under certain atmospheric conditions, wind turbines can be discerned from many miles
away. When wind energy projects are sited in relative close proximity to populated areas or areas of scenic
importance, visual impacts may be particularly important. Visual modeling is usually required to assess the
potential impacts of wind energy projects. Mitigation for visual impacts typically includes painting turbines a
neutral color that blends into the landscape. However, aside from avoidance, options for full mitigation of visual
impacts are limited.
E. Cultural Resources. It is not uncommon to discover fossil and cultural resources, including
those of significance to Native American tribes, at potential wind project sites. A thorough site evaluation is

generally necessary before and during construction. When appropriate, the early and constant involvement of
local Native American tribes is advisable. Mitigation may also be necessary. Such mitigation typically requires
avoiding protected sites and moving the sites if they cannot be avoided. In addition, it may be necessary to have
an expert in native culture or paleontology on-site during construction to protect identified sites and alert the work
crew to additional sites that may be unearthed during construction.
F. Storm Water and Federal Water Crossing Permits. Factors such as road construction, steep
terrain, and the proximity of streams and rivers require storm water management, including compliance with
local, state, and federal storm water regulations. The presence of wetlands and streams will raise numerous
other concerns relating to habitat and water resource management and may involve Endangered Species Act
(“ESA”) issues through Clean Water Act section 404 consultation and/or state removal or fill laws. In addition,
some wind energy projects will need to cross water bodies subject to federal Army Corps of Engineers jurisdiction.
This includes streams flowing into navigable waters and river power line crossings. A myriad of issues may arise,
including salmon habitat impacts and potential impacts upon bird species listed under the ESA (e.g., potential
bald eagle injuries due to new power lines crossing rivers). Federal Rivers and Harbors Act section 10 permits
can often lead to the need to consult with federal wildlife agencies as well.
G. Land Use Compatibility. Compliance with applicable land use criteria will be required. Each
county has its own land use criteria, which may be dictated by statewide land use requirements. County land
use codes often have vague standards and criteria, requiring (or allowing) highly discretionary determinations of
public need, public safety, and “compatibility” with other land uses. In Oregon, statewide planning goals must
be met. The statewide goal for agricultural lands (Goal 3) limits the amount of land that can be taken out of
production by a wind energy facility to 12 acres for high-value farmland and 20 acres for non-high-value
farmland. When more than the allowed amount would be taken out of production, an exception to the goal must
be secured. Fortunately, Oregon recently determined that access roads for wind energy facilities should not be
included in assessing these acreage impacts, and thus an exception is rarely needed.
H. Noise. Some states, particularly Oregon and California, have statutes that limit the amount of
noise that can be emitted by a wind energy project. Wind turbine noise decreases rapidly over distance and
tends to be masked by the background noise of the wind itself. However, wind energy projects are typically sited
in locations with very low ambient noise levels, which can make limits on the allowed increased in ambient noise
generated by the project difficult to meet. Noise-related concerns tend to be expressed by those with homes
located closest to the wind turbines. In Oregon, the noise statutes do not expressly allow an applicant to simply
get permission from a nearby resident to have noise exceed the statutory limits (such as through a noise
easement). As a result, applicants may be required to purchase the residence or refrain from siting turbines near
the residence. Noise modeling and ambient baseline noise monitoring may be required as part of the permitting
process.
I. Federal Leases and Easements. Because the United States owns and manages many acres of
rural land in the western states (usually through the Bureau of Land Management (“BLM”)), developers are
increasingly interested in securing leases for preliminary wind monitoring and for long-term wind energy projects
on these sites. In addition, wind turbines sited on private land may require an electrical transmission line to

cross federal land in order to gain access to the main grid. In those cases, an easement over the federal land
may be required.
The BLM has revised its policy on temporary and long-term wind energy monitoring and development in an effort
to encourage and streamline the permitting process. The policy notes that long-term development applications
should be processed under an EA for purposes of NEPA review, unless there is significant public controversy over
the project or significant and unique environmental concerns have been identified.
V. Timing.
In order to develop a project-specific assessment of issues that may cause permitting delay, consider whether any
of the following apply:
• Whether avian baseline data will be required and, if so, whether a full year (four
seasons) or more of baseline data will be required as part of the permit application.
• Whether any surveys in spring or other seasons will be required for certain plant or
wildlife species as part of the permit application.
• Whether a state environmental process (e.g., SEPA/CEQA) or federal NEPA process will
be required and, if so, whether an EIS (which in the case of NEPA typically takes at
least a year to prepare) or a less comprehensive environmental document will be
required.
• Whether a cultural and archaeological site survey will be required and how long it will
take to complete such a survey (if the survey will completed by a Native American tribe,
it may take much longer than expected).
• Whether the locality will require a conditional use permit for installation of
meteorological towers to assess the wind feasibility of the site. If so, this may add
weeks or months to the site evaluation process.
• Whether an easement or lease from the BLM or other federal agency will be required for
the project (and, if so, what level of NEPA review will be required).
An early assessment of potential public opposition and appropriate strategies to respond to controversies and
opposing environmental opinions.

Timothy L. McMahan
Law Practice
Tim McMahan practices in the areas of land use, real estate development,
environmental, and municipal law. He has offices in Portland, Oregon and
Vancouver, Washington.
Tim has extensive experience in representing energy facility developers,

property owners and municipal clients in Washington and Oregon. Tim’s practice
focuses on permitting shoreline developments, utility and energy facilities
including pipelines, natural gas generation and wind energy facilities, and
commercial and industrial facilities. Tim’s experience on behalf of public sector
clients includes planning and permitting municipal water and wastewater
facilities. He has represented developers and public sector clients both through
the permit process and in administrative and judicial litigation, including 503-294-9517 Direct Portland
360-699-5900 Vancouver
Washington’s State Environmental Policy Act (SEPA), NEPA, Shoreline
503-220-2480 Fax
Management Act and Growth Management Act compliance. Tim represents tlmcmahan@stoel.com
energy facility developers in Washington and Oregon, including the Oregon
Energy Facility Siting Council (EFSC) and the Washington Energy Facility Site Education
Evaluation Council (EFSEC). M.A., University of Washington, 1991
Urban planning, Tau Sigma Delta
Tim regularly speaks at conferences regarding permitting major facility projects architecture and allied arts honor
in highly contested settings, particularly rural area energy facilities. society
J.D., Willamette University College of Law
Prior Work Experience 1986
Prior to joining Stoel Rives, Tim served as the Port Townsend City Attorney for Case note editor, Willamette Law
Review
over five years, during which he guided Port Townsend through Growth
Management Act implementation, successfully defended the city’s B.A., European History, University of Puget
Sound, 1983
Comprehensive Plan and Shoreline Master Program in agency and judicial
litigation and developed innovative strategies to protect Port Townsend’s Admissions
municipal water supply from spiraling demands. State bars of Oregon, Washington
Professional Organizations and Community Activities

Member, Washington State Association of Municipal Attorneys; Washington State
Bar Land Use and Environmental Law Section; Oregon State Bar Real Estate and
Land Use Section; University of Washington Department of Urban Design &
Planning Professionals Council; Member of Board of Directors, Columbia-
Willamette United Way and Chair of United Way’s. Community Impact Cabinet;
Pro bono attorney for the Columbia Land Trust, Vancouver Washington.
Peter D. Mostow
Law Practice
Peter Mostow is a partner in the firm, where he concentrates his practice in
the areas of natural resources and land use law. He guides clients through the
siting and environmental permitting process for gas-fired, wind, geothermal
and hydroelectric power plants as well as underground natural gas storage
facilities and gas pipelines. He assists a variety of public and private clients
with Endangered Species Act (ESA), National Environmental Policy Act (NEPA),
water rights, and water quality issues associated with their development
projects. Peter has extensive experience providing counsel on project site
evaluation, advising client/consultant teams in application preparation and
record building, and representing clients in all phases of local, state, and federal
503-294-9338 Direct
permitting. He has successfully defended clients’ rights on appeal before the 503-220-2480 Fax
Land Use Board of Appeals, Oregon Court of Appeals, Oregon Supreme Court, and pdmostow@stoel.com
U.S. Ninth Circuit Court of Appeals.
Education
J.D., Yale Law School, 1993
Professional Activities
Editor, Yale Law Journal; managing editor,
Vice-Chair, ABA Energy Facilities and Siting Committee; Member, Governor’s Yale Journal on Regulation
Carbon Allocation Task Force, Northwest Hydroelectric Association, Oregon J.W. Goethe Universität, Frankfurt,
Water Resources Congress, Oregon Genetic Privacy Advisory Committee; board Germany
member, National MS Society of Oregon, Oregon Health Decisions, Legacy Health Fulbright Scholar, 1989-90
Systems Institutional Review Board; volunteer attorney, Sponsors Organized To B.A., Reed College, 1987
Assist Refugees.
Admissions
State bar of Oregon; State bar of California
Publications and Presentations (pending)
“An Assessment of Wind Project Siting Regimes," Proceedings of the American
Wind Association (2002); Water Supply Easement Protection Workbook (Oregon
Water Resources Congress (1997); “An Evaluation of State Energy Facility Siting
Acts,” 3 Rocky Mountain Mineral Law Series (1996); “Senate Bill 674: Increasing
the Flow Rate of Oregon’s Water Rights Permitting Process,” 32 Willamette Law
Review 187 (1996); “Reassessing the Scope of Federal Biotechnology
Regulation,” 10 Pace Environmental Law Review 227 (1993); conference
presentation, National Conference of State Legislatures, Salt Lake City, Utah
“Siting Wind Projects,” (2004).
Background
Law clerk to The Honorable Betty B. Fletcher, U.S. Ninth Circuit Court of
Appeals, Seattle, Washington (1993-94).
Chapter Three
The Law of Wind
—Power Purchase Agreements and Environmental Attributes—
William H. Holmes
I. The Basics.
A. The Parties.
1. The Seller. The seller is often the developer and owner of a wind plant that will
generate energy and environmental attributes (“output”). But the seller may also be a power marketer that is
buying the output of a plant and selling it to one or more purchasers. If a company is reselling output, the resale
power purchase agreement (“PPA”) will usually track the relevant terms of the underlying PPA because the
marketer will not want to promise more than it has the right to deliver. As a result, the marketer will often use a
“back-to-back” PPA for the resale. The resulting terms will be almost the same as those in the underlying project
PPA, except for price or other unique items that the marketer does not wish to pass through to the ultimate
buyer.
2. The Buyer. The buyer is often a utility that purchases the wind project’s output to serve
its load. The utility may also be motivated by a “renewable-portfolio standard” or other regulatory policy that
encourages the development of wind power and other forms of renewable energy. In a state that permits direct
access, the buyer may be a retail purchaser, such as a manufacturing facility that wishes to hold itself out as a
green company. Power marketers may also buy output for resale to one or more third parties. Power marketers
sometimes can purchase all of a project’s output (something that no other single market player may be able to
do), enabling the owner to finance the plant.
3. Credit Support Provider. The PPA will require the buyer to buy the output that the
seller delivers. It may also require the seller to pay the buyer if the project is not built on schedule or fails to
achieve certain performance standards. Each party will be concerned about the other’s ability to satisfy these
payment obligations. If one party is not creditworthy, the other may require it to provide a guaranty or post a
letter of credit or other security to ensure that amounts due under the PPA will be paid.
B. Regulatory Concerns.
1. Exempt Wholesale Generator and Market-Based Rates. Unless the wind plant is a
“qualifying facility” or “QF”, or is owned directly by a utility to serve its customers, the project owner will need to
apply to the Federal Energy Regulatory Commission (“FERC”) for a determination that the owner qualifies as an
exempt wholesale generator (“EWG”) under section 32 of the Public Utility Holding Company Act of 1935
(“PUHCA”). If the owner were to sell the plant’s output without obtaining EWG status, the owner would be an
“electric utility.” As a result, the seller and its affiliates would be subject to extensive regulation under PUHCA,
something that most companies prefer to avoid. It usually takes about 60 days from the date the EWG
application is filed to get a determination from FERC. The seller will also need to obtain authorization from FERC
under section 205 of the Federal Power Act to enable the seller to charge market-based rates, even if all sales
are made under a single contract.

2. Qualifying Facility. If the wind plant is a “qualifying facility” under the Public Utility
Regulatory Policies Act of 1978 (“PURPA”), the wind energy that it generates can be sold at wholesale rates.
Under PURPA, the local utility must buy the output of a QF at a price not less than the utility’s avoided cost. QF
status may also give a project certain advantages in securing transmission rights and thus may be valuable even
if the “strong-arm” provisions of PURPA are not used to force a utility to buy the output.
To be a qualifying facility, a wind plant must be either:
• an “eligible wind facility,” in which case its application for QF status or self-certification
of QF status must have been filed with FERC not later than December 31, 1994 and
construction must have commenced not later than December 31, 1999 (or reasonable
diligence was exercised to complete the project); or
• a wind facility that has a power production capacity that, together with the production
capacity of any other facilities located at the same site, is not greater than 80 MW.
In addition, a facility is not a qualifying facility if the project owner is primarily engaged in the production or sale
of electricity other than through cogeneration facilities or small power production facilities. For example, unless
otherwise exempted, no utility or holding company or affiliate or subsidiary thereof may own more than a fifty
percent equity interest in a qualifying facility.
3. Retail Sales. With certain exceptions, power sold to an end user (e.g., to a residential
customer or an industrial user) is a retail sale that may make the seller subject to regulation as a public utility
under state law. Because such regulation is costly, plant owners usually avoid retail sales of wind energy. In
states that have implemented deregulation, it may be possible to sell power at retail rates to certain end users.
The law of the state in which the end user is located must be checked to see if any retail sales are permitted and,
if so, under what circumstances.
II. The Term.
A. Project Financing. If the wind plant is financed with limited recourse financing, the term of the
PPA should be sufficient to amortize the project debt. Capital costs per megawatt hour (“MWh”) of energy
produced are relatively high for wind plants because they produce only when the wind is blowing. Thus a wind
farm with an installed capacity of 100 MW and a 33 percent capacity factor will, on average, produce only 33
aMW of electricity. To produce the revenues needed to amortize the project debt, the term of the PPA must
usually be at least 20 years.
If the term of the PPA is 20 years, lenders will generally be willing to amortize the debt over a 15- to 17-year
period. In project financings, the debt amortization period generally needs to be shorter than the PPA term, to
allow “work-out time” in case the project encounters financial difficulties in later years. Generally, only the base
term of the PPA is taken into account, because the lender has no assurance that the purchaser will elect to
continue the PPA into a renewal term.
B. Useful Life. Wind plants generally have an economic life of at least 25 to 30 years. Since the
purchaser under a PPA effectively pays for the entire capital cost of the project (plus a profit to the owner), the
purchaser normally will want the PPA to capture the entire value of the project by covering the entire economic

life of the facilities. Therefore, typical PPA terms are either a 20-year base term with two five-year renewal
options, or a 25-year base term with one five-year renewal option. Because the entire capital cost of the wind
farm will generally be amortized over the base term of the PPA, it is possible to eliminate the cost elements that
relate to the project debt from the power price during the renewal terms, making it less than the power price
during the base term. The project owner thus preserves its return on the project but does not get a windfall
return during the renewal terms.
C. Effective Date. The PPA will be binding on the date it is signed (often called the “effective
date”). This ensures that the purchaser will buy the output once the project is built and that the project owner
will build the project and not sell its output to anyone other than the purchaser.
D. Commercial Operation Date. The term of the PPA usually begins on the effective date, but the
length of the term is often defined by reference to a “commercial operation date.” For example, the term might
end on the 25th anniversary of the January 1 next following the commercial operation date. Thus, if the term
were 25 years and commercial operation began on November 1, 2001, the term would end on January 1, 2027.
In other PPAs, the term begins on the commercial operation date and extends for a specified number of years.
Because the commercial operation date often sets the term (and sometimes the point at which the price switches
from a “test energy rate” to a “contract rate”), it is important to define “commercial operation date” carefully.
“Commercial operation date” can be defined as the date on which all of the turbines in the project and all other
portions of the project necessary to put it into operation with the interconnection facilities and the transmission
system have been tested and commissioned and are both authorized and able to operate and deliver energy to
the transmission system in accordance with prudent utility practices.
In some cases, “commercial operation date” is defined in a manner that allows the project owner to achieve
commercial operation even if it has installed fewer than all of the turbines called for by the PPA. For example,
the PPA may call for an installed capacity of 50 MW, but the commercial operation date may occur when 48
MW of capacity have achieved commercial operation (i.e., when the project has been “substantially completed”).
Such PPAs typically require the seller to continue building the project until all of the project’s installed capacity
has achieved commercial operation.
E. Termination Before the Commercial Operation Date. PPAs usually include “off-ramp”
provisions that enable one or both of the parties to terminate the PPA if certain events occur or fail to occur.
Common reasons for early termination include the (1) failure of a public utility commission to approve a PPA; (2)
inability to obtain an interconnection agreement or needed transmission rights; (3) inability to obtain wind leases,
rights-of-way, or other land rights required to build the project; (4) inability to obtain permits required to build or
operate the project; (5) inability to obtain an EWG determination or an authorization to sell power at market-
based rates; (6) the project’s failure to reach a certain minimum size by a certain date; and (7) the project’s
failure to achieve commercial operation by a certain date. Termination rights require careful negotiation to make
sure that all possibilities have been considered. A party is usually required to use diligent or reasonable efforts to
satisfy the conditions set forth in the PPA before it can invoke the failure to satisfy such a condition as a reason
to terminate the PPA (e.g., the seller could not assert the inability to obtain a permit as a basis for terminating
the PPA unless the seller had used diligent efforts to obtain the permit).

III. Purchase and Sale.
A. Delivery Point. The PPA will require the sale of energy to occur at a specified delivery point. If
the energy is to be delivered at the plant in a “busbar” sale, the delivery point will usually be the high side of the
transformer at the project’s substation. In a busbar transaction, the buyer provides the transmission required to
transmit the energy from the plant to the point where the buyer intends to use it (or to deliver it to another party
in a resale transaction). The PPA may also require the seller to deliver energy to a specific point some distance
from the plant, in which case the seller will be responsible for securing the required transmission to the delivery
point, and the buyer will be responsible for obtaining the transmission required to take the energy at the delivery
point. Transmission ancillary services can be fairly costly and should be specifically allocated in the agreement.
Title and risk of loss pass from seller to buyer at the delivery point.
B. Pricing.
1. Contract Rate. Price is usually the most important part of the PPA. The price may be
flat, escalate over time, or contain other features. An escalating price is often tied to a “contract year” that begins
at a specified point after the commercial operation date is achieved, thus encouraging the seller to lock in the
initial price and the escalation rate by achieving commercial operation as soon as possible.
2. Test Energy Rate. Because a wind turbine can generally function independently of
other wind turbines, the PPA may require the purchaser to buy power from the turbines as they are installed,
connected to the transmission grid, and made operational, even though the project as a whole has not achieved
its commercial operation date. To encourage the seller to achieve commercial operation as soon as possible,
such energy is often sold at a test energy rate, which is often lower than the contract rate that will be paid once
the commercial operation date is reached.
3. Excess Rate. A PPA often requires the seller to specify how many MWhs the plant is
expected to produce each year. This output estimate may form the basis of an output guarantee or a
mechanical-availability guarantee. To encourage the seller to make an accurate estimate of expected output, the
seller may be paid less than the contract rate for each MWh of energy in excess of, for example, 110 percent of
the estimated annual output.
C. Environmental Attributes. Environmental attributes are the credits, benefits, emissions

reductions, environmental air-quality credits and emissions-reduction credits, offsets, and allowances resulting
from the avoidance of the emission of a gas, chemical, or other substance attributable to the wind project during
the term of the PPA, together with the right to report those credits. Environmental attributes are sometimes
called “green tags,” “green tag reporting rights,” or “renewable-energy credits.” The PPA usually makes clear that
production tax credits and wind energy incentives (such as those provided by the California Energy Commission)
are not part of the environmental attributes and thus are not being conveyed to the purchaser.
The PPA should clearly state whether energy is being sold with or without the environmental attributes. If
environmental attributes are being sold, the seller will usually warrant title to the attributes but will not warrant
the current or future use or value of the attributes or whether and to what extent they will be recognized at law.

D. Allocation of Taxes and Other Charges. The PPA should specify who pays any sales, excise, or
other taxes arising from the transaction. Although most states do not tax wholesale energy sales, the parties may
wish to consider allocating the tax liability resulting from future legislation.
IV. Permitting and Development.
A. Commitment to Develop. The PPA will make the project owner responsible for developing and
constructing the project. The seller usually prefers a PPA that requires it to sell the project’s output only if the
project is actually built. A buyer tends to view such a PPA as a put and will usually insist that the seller make
some commitment to develop the project. Many tense negotiations revolve around what the seller will or will not
be required to do to develop the project, as well as the off-ramps that each party has if the project does not
achieve certain stated milestones.
B. Status Reports. The buyer is typically interested in the development of the project, since it
needs to know when the energy will be deliver onto its system or when it will need to take a hedge position. As a
result, the PPA usually requires the seller to deliver regular reports to the buyer about the status of permitting and
construction.
C. Milestones and Delay Damages. The PPA often includes a schedule of certain project
milestones (e.g., the date by which the seller must secure project financing, the date by which turbines must be
ordered, the date by which all permits and the interconnection agreement must be in place, and the commercial
operation date). If the seller fails to achieve a milestone, the buyer may have a right to terminate the PPA,
collect delay damages, or require the seller to post additional credit support. The seller will therefore want to
limit the number of milestones and bargain for some flexibility, especially in cases where a delay in achieving an
interim milestone is not likely to delay a project’s completion date. Sellers sometimes prefer PPAs that provide
that the buyer’s only remedy if the seller fails to meet a project milestone is to terminate the PPA without
recovering damages. Buyers are concerned that this gives the seller a right that resembles a put and strongly
prefer to require the seller to suffer some consequences if project milestones are missed. Many interesting
negotiations revolve around the off-ramps that the seller will have, versus the damages it will pay to the buyer if it
fails to build the project in accordance with the PPA.
V. Interconnection and Transmission.
A. In General. The PPA usually requires the seller to bear the cost of interconnection (including
any network upgrades required by the new project) and all costs of transmitting the energy to the delivery point.
If the seller is the project owner (as opposed to a marketer), it will also be responsible for negotiating the
interconnection agreement with the transmission provider. The buyer will be responsible for arranging and
paying for transmission from the delivery point.
B. Shaping. Transmission is often very expensive for wind projects because the intermittent nature
of the resource can produce generation imbalance penalties and the transmission owner has to pay for the
maximum transmission capacity that the project can produce, even though the project will deliver that much
energy only part of the time. To reduce these costs, a project owner may enter into an integration and exchange
agreement (often called a “shaping agreement”) with a utility that has a load that can be served by the project.

In general, a shaping agreement allows a project to deliver energy into the utility’s system as the energy is
generated. The intermittent energy serves the utility’s load. In the following week or month, the utility redelivers
the energy that it has received as a flat product at an agreed-upon point of delivery. Not surprisingly, the utility
will charge a fee for this service.
VI. Performance Incentives. A seller will usually prefer to enter into an “as-delivered” PPA, which means
that the seller is obligated to deliver only what the project actually produces. A buyer will often require the seller
to warrant or guarantee that the project will meet certain performance standards. Such guarantees usually
enable the buyer to recover all or part of its incremental cost of purchasing replacement power in the market to
the extent that the project fails to perform as expected. Performance guarantees enable the buyer to plan around
the plant’s expected output and strongly encourage the seller to maintain a reliable and productive project.
A. Output Guarantees. The PPA may include an output guarantee to the buyer. An output
guarantee requires the seller to pay the buyer if the project’s output over a specified period fails to meet a
specified level. The period may be biannual, annual, or seasonal. The PPA usually allows the owner to operate
the project for one or two years before the output test is applied, enabling the owner to fix any problems at the
project. The owner should offer such a guarantee only if very confident about the project’s wind regime, wind
variability and capacity factor.
Wind turbine manufacturers generally do not provide output warranties to project developers. Rather, the project
owner assumes the risk that the wind at the project will produce enough energy to meet the project’s revenue
requirements.
B. Availability Guarantees. The owner of the wind project is usually more willing to offer the
purchaser a mechanical-availability guarantee than to offer an output guarantee. Such an availability guarantee
requires the wind turbines in the project to be available a certain percentage of the time, after excluding hours
lost to force majeure and a certain amount of scheduled maintenance. Mechanical-availability percentages
usually range from 90 percent to 95 percent, but they may decline over the life of the project in order to reflect
wear and tear on the turbines.
Wind turbine manufacturers typically provide availability warranties that support the project owner’s mechanical-
availability guarantees for the first few years of the project. However, such warranties generally last only five
years, and the seller is usually on its own if it chooses to give a mechanical-availability guarantee that covers the
period after the manufacturer’s warranty expires.
C. Power-Curve Warranties. Wind turbine manufacturers also may warrant the ability of the
turbines to produce a specified output at specified wind speeds. The power curve represents a calculation of the
amount of energy that the turbines are rated to produce at different wind speeds. Power-curve warranties are
intended to compensate the project owner for lost revenues resulting from inefficient turbine operation, i.e., the
failure of turbines to operate within a certain percentage (typically 95 percent) of the power curve. Power-curve
warranties are not typically passed through to buyers under PPAs.
D. Liquidated Damages. If a guarantee is not met, the PPA usually provides a mechanism for
determining the damages suffered by the buyer. First, the parties determine the output shortfall (stated in

MWhs) relative to the amount of output that the buyer would have received had the project lived up to its
guarantees. Second, the shortfall is multiplied by a price per MWh determined by reference to an agreed-upon
index. Because market indexes cover only power prices and do not include the value of environmental attributes,
the PPA may include an adjustment to account for the assumed value of the environmental attributes or may use
a firm price index as a proxy for the value of the energy plus the environmental attributes. The amount of
liquidated damages is usually determined once per year. The seller pays the liquidated damages to the buyer or
credits the damages against amounts owed by the buyer under the PPA.
E. Termination Rights. To protect against chronic problems at an unreliable wind plant, the PPA
usually allows the buyer to terminate the PPA if the output or mechanical availability of the project is below a
stated minimum for a certain number of years.
VII. Curtailment and Force Majeure.
A. Curtailment. The PPA often describes circumstances in which either party has a right to curtail
output. For example, the seller may have a right to curtail deliveries if the plant is affected by an emergency
condition. The PPA may permit the buyer to curtail for convenience, in which case the PPA usually requires the
buyer to pay the purchase price for the curtailed generation and the after-tax value of the PTCs that the seller
would have earned had the buyer not curtailed the plant’s output.
B. Force Majeure. If energy is curtailed at a party’s discretion or because the party is at fault, the
PPA usually requires the curtailing party to pay damages to the other. If curtailment is caused by an event
beyond a party’s control, the party’s duty to perform under the PPA will be excused. For example, if a disaster
disables the transformer at the delivery point, the seller would be excused from delivering energy, and the buyer
would be excused from taking and paying for energy, until the transformer is repaired. The party responsible for
maintaining the transformer would, of course, be required to use diligent efforts to make repairs.
Parties often heavily negotiate force majeure provisions. Good provisions should carefully distinguish between
events that constitute “excuses” (which relieve the affected party from its duty to perform) and those that are
“risks” (which are simply allocated to a party). The ability to buy energy and environmental attributes at a lower
price or sell them at a higher price is generally not a force majeure event. Moreover, a party’s inability to pay
should not constitute a force majeure event under the PPA.
VIII. Operation and Metering.
A. Operation and Maintenance. The PPA generally outlines the seller’s responsibility to operate
and maintain the project in accordance with prudent utility practices. Such duties typically include regular
inspection and repair, as well as completion of scheduled maintenance.
B. Metering. The metering provision is one of the most important in the PPA because it is used to
determine the quantity of output for which the seller will be paid. The PPA usually requires one party (typically
the seller) to install and maintain a meter. The other party typically has the right to install a check meter. If the
seller’s meter is out of service or generating inaccurate readings, the PPA should specify how the parties will
determine the project’s output. Tests should be conducted regularly to verify the accuracy of the seller’s meters.
The PPA usually states how often such tests will occur, at whose expense, and what form of notice will be given

to each party. The PPA should specify how much variance in the meter’s accuracy will be permitted and how
repair or replacement of defective meters will be handled.
C. Real-Time Data; Maintenance, Records, and Project Data. The PPA may require the seller to
provide the buyer with real-time data (including meteorological data, wind speed data, wind direction data, and
output data).
IX. Billing and Payment.
A. Billing and Payment. The PPA typically determines how invoices are prepared, when they are
issued, and how quickly they are paid. The billing provision often states that an invoice is final if not challenged
within a period of time. The PPA usually sets forth procedures for raising and resolving billing disputes and the
interest rate and penalties that apply to late payments.
B. Right to Audit. The buyer will typically have the right, upon reasonable notice, to access those
records of the seller necessary to audit the reports and data that the seller is required to provide to the buyer
under the PPA.
X. Defaults and Remedies. The PPA will usually list events that constitute defaults. These may include:
• failure by any party to pay an amount when due;
• other types of material defaults, such as the seller’s failure to use commercially
reasonable efforts to achieve a material project milestone;
• the bankruptcy, reorganization, liquidation or other similar proceeding of any party;

and/or
• a material default by a party’s guarantor.
The default clause should specify how long the defaulting party has to cure a default. If the default is not cured
within the agreed-upon period, the nondefaulting party usually has the right to terminate the agreement and
pursue its remedies at law or in equity, to suspend performance of its obligations, or to seek specific performance
and injunctive relief. The remedies clause may also limit remedies—for example, in some PPAs the buyer’s only
remedy for the seller’s failure to achieve a given milestone is to terminate the PPA without seeking damages.
XI. Boilerplate and Examples. The PPA will also address the following “boilerplate” matters, such as
confidentiality, representations and warranties, the right to pledge the PPA to project lenders, governing law, the
limitation of consequential damages, dispute resolution, consent to jurisdiction and waiver of jury trials. Because
the transaction between the parties may involved complex calculations, the PPA should also include a number of
carefully considered examples that illustrate how those calculations will work in certain scenarios.

William H. Holmes
Law Practice
Bill Holmes concentrates his practice in the area of energy law, with a special
emphasis on wind and renewable energy. He also has extensive experience with
water law, mining and oil and gas law, real estate law, and general corporate
transactions.

Mr. Holmes joined Stoel Rives as an associate in 1985 and has been a member of
the firm since 1992. Before joining the firm, he served as Law Clerk to Judge
Louis F. Oberdorfer, United States District Court for the District of Columbia
(1984-85).
503-294-9207 Direct
503-220-2480 Fax
Representative Transactions and Energy Clients whholmes@stoel.com
Mr. Holmes has represented clients in the negotiation of numerous major power
purchase agreements on both the "buy" and the "sell" sides. This experience Education
J.D., magna cum laude, University of
includes work on many major wind power purchase agreements, including the Michigan Law School, 1984
agreement under which PPM Energy, Inc. purchases the output of the 300-MW Certificate in water law; certificate in
Stateline Wind Project in Oregon and Washington. Mr. Holmes has also advised environmental law
clients in the negotiation of fuel supply agreements, coal supply agreements, Associate editor, Michigan Law Review,
O&M agreements, management agreements, LLC agreements, energy project 1982-83
development agreements and related documentation. Representative clients Editor in chief, Michigan Law Review,
1983-84
include PPM Energy, Inc., PacifiCorp, and NRG. Mr. Holmes manages the PPM
Henry M. Bates Memorial Scholarship
Energy, Inc. Client Services Team at Stoel Rives.
Abram W. Sempliner Memorial Award
B.A. with highest honors, Plan II honors
Professional and Firm Activities program, Order of the Coif; Phi Beta Kappa
American Wind Energy Association; Member, Oregon State Bar Public Utility Law University of Texas, 1981
Section; Member, American Bar Association Energy and Natural Resources Admissions
Section; Practice Group Leader, Stoel Rives LLP, Energy and Telecommunications State bar of Oregon
Practice Group; Chair, Stoel Rives LLP Technology Committee.
Civic and Charitable Activities

United Way Leadership Giver; President of the Board of Directors, Portland
Habitat for Humanity (1995-1997); member of the Board of Directors of Portland
Habitat for Humanity (1992-1997); pro bono counsel, Portland Habitat for
Humanity (1987-1995, 1997-2000).
William H. Holmes
Publications
"Power Purchase Agreements and Environmental Attributes," in Chapter 3 of The Law of Wind (Stoel Rives); Co-author,
"Water Rights and Transactions," Fundamentals of Real Estate Transactions (2001 Cumulative Supplement); Author, "Dams for
Sale: The Ins and Outs of Federal Facility Transfers," 43 Rocky Mt Min L Inst 24-1 (1997); coauthor, "Bureau of Reclamation
Contract Renewal and Administration: When is a Contract Not a Contract?" 41 Rocky Mt Min L Inst 23-1 (1995); coauthor,
"Employee Benefits and ERISA Considerations in Natural Resources Transactions," 34 Rocky Mt Min L Inst 5-1 (1989); coauthor,
"Natural Resources, Energy and Environmental Law," 1987 Oregon Legislation § 21 (Oregon CLE 1987); coauthor, "Reporting
Violations of Hazardous Substances Law: Mandatory Self-Incrimination," Or Envtl & Nat Resources L News, at 4 (fall 1986).
Chapter Four
The Law of Wind
—Design, Engineering, Construction,
and Turbine Purchase Agreements—
Alan R. Merkle, John F. Pierce
This chapter provides an overview of the contractual structures that often apply to the construction of wind
energy projects, including design and engineering, procurement of wind turbine generators and related
equipment, the erection of wind turbine generators and the construction of ancillary facilities. This discussion is
written from the perspective of a wind energy project developer; however, the information set forth below should
interest design and engineering, construction, and operations and maintenance contractors as well. As with any
complex negotiated transaction there is a large amount of value to be won or lost by all parties, and often the
potential for using creative legal strategies to increase value on both sides of the table.
I. Construction-Related Agreements. Critical to the actual development of any wind energy project are the
various agreements a project developer must enter into in relation to:
• design and engineering;
• procurement of necessary equipment (wind turbine generators and related components

such as nacelles, blades, towers, control systems and transmission equipment) and
materials to construct “balance-of-plant” facilities such as foundations, roads, crane
pads, lay-down areas, transformers and maintenance facilities;
• obtaining construction, erection, installation and balance-of-plant services necessary to

construct the wind turbine generators and the ancillary facilities; and
• warranty and insurance arrangements set forth in the agreements.
Engineering, procurement, and construction agreements are often collectively referred to as “EPC agreements.”
These agreements may also provide for, or anticipate, other services such as warranty services or operations and
maintenance services for the wind turbine generators and related facilities.
There are occasions when the design and engineering, procurement, and construction/erection services are
addressed in a single agreement (a “full-wrap agreement”), usually when there is a single general contractor for
the project. However, it is also common to have separate agreements such as design and engineering
agreements, construction/erection agreements (“balance-of-plant agreements”) and procurement/sale agreements
using one or more contractors for each of the various services. Depending on contractual structure, warranties,
insurance and other matters may be addressed in a single master agreement or in each individual agreement.
II. Design and Engineering Services. Wind power projects require certain design and engineering expertise
that is unique to this sector of the power generation industry. For instance, a relative few firms (Bonus, GE Wind
Energy, Nordex, Suzlon and Vestas design, engineer and manufacture wind turbine generators. There is also
a certain degree of standardization in the design of wind turbine generators, and the existing producers

manufacture a limited range of wind turbine generators to suit market requirements;1 those requirements are in
part dictated by the operating parameters of a project, which are, in turn, dictated by the project’s location and
meteorological conditions. A turbine supplier may offer a project developer several variations of a wind turbine so
that the developer may select different tower/hub heights, blade lengths, control systems and related equipment.
Each of these variations is designed and engineered by or for the turbine supplier. When a developer acquires
wind turbine generators, it also acquires the producer’s design and engineering services. These services may
include the turbine producer’s design legacy arising from its previously sold and in-use product, turbine control
and monitoring system experience, components and materials experience, and weather mitigation packages.
III. Balance of Plant Design, Engineering and Construction Services. As described above, the developers of
wind energy projects generally acquire certain design and engineering services along with the wind turbine
generators supplied by the turbine manufacturer. This still leaves substantial design and engineering work to be
performed at the project site, including geotechnical studies, micro-siting, the design and engineering of turbine
and crane pads and foundations, road design and other earthworks, environmental mitigation and related
activities. These design and engineering services, and related procurement and construction work (often
described as “balance-of-plant” work), may be performed by the supplier of the wind turbine generators under
one or more agreements or by a third party on behalf of the project developer.
IV. Typical EPC Contractual Structure for a Wind Project. Given the multiple factors influencing the
development of a wind energy project, no single contractual structure would apply to all such projects. However,
the following example of a contractual structure used for a particular wind project development illustrates, in a
limited way, how a project developer and a turbine supplier addressed certain concerns.
In this example, a U.S. project developer wanted to acquire a turbine supplier’s wind turbine generators, (the
design and engineering of which were proprietary) and to use the turbine supplier’s services in the erection and
installation of such wind turbine generators, as well as related services for the commissioning, start-up, and
testing of such wind turbine generators. The project developer also wanted to acquire either the turbine
supplier’s control and monitoring system or the system of a third-party supplier. Additionally, the turbine supplier
possessed certain interests in land (such as access and/or wind easements) and related meteorological data that
the project developer wished to acquire. The project developer also sought to acquire certain (a) operations and
maintenance and (b) warranty-related services from the turbine supplier.
The project developer and the turbine supplier entered into a turbine supply agreement whereby the project
developer agreed to purchase a specific number of wind turbine generators from the turbine supplier, along with
the turbine supplier’s services to erect, install, commission, start-up and test the wind turbine generators at the
project developer’s site (the site was acquired by the project developer from the turbine supplier, as a condition to
entering into the agreement). Pursuant to their agreement, the turbine supplier agreed to deliver the wind turbine
generators to the project developer’s site and to provide the personnel and materials (excluding the balance-of-
plant work) necessary to erect, install, commission, start-up, and test the wind turbines.
1
For instance, a popular utility wind turbine for onshore use is 1.3 to 1.5 MW with a 65- to 80-meter hub height, whereas
3.2- to 5.0-MW wind turbines with an 80- to 140-meter hub height have been designed for offshore use. Small (e.g. 25 kW)
wind turbines are available for nonutility use.

The project developer then entered into a balance-of-plant agreement with a general contractor wherein the
contractor agreed to design and construct the other necessary facilities for the project, such as foundations,
roads, crane pads, lay-down areas, transformers and maintenance facilities. Care was taken in both sets of
agreements to avoid interference, duplication or omission between the scopes of work of the turbine supplier and
the balance-of-plant contractor, and to ensure that, collectively, the agreements would result in a fully-
constructed, integrated and operational project.
The issues that the parties addressed in the turbine supply and balance-of-plant agreements included the scope
of work, measures of completion, warranty obligations of the turbine supplier and balance-of-plant contractor,
limitation of liability (particularly as it related to the turbine supplier’s and balance-of-plant contractor’s failure to
complete their obligations by certain key dates, such as certain power purchase commitments and production tax
credit deadlines), and related insurance issues. These issues are discussed below as follows:
A. Scope of Work. In the example above, great emphasis was placed by the parties on the
description of the scope of work set forth in the agreement. The scope of work should describe, in detail, the
actual design, engineering and construction obligations of the turbine supplier/contractor. Generally, whatever is
not provided for in the turbine supplier’s/contractor’s scope of work is the project developer’s responsibility to
complete or to contract with third parties to complete. A turbine supplier’s scope of work typically includes the
design and engineering of the wind turbine generators, including its principal parts and components such as
nacelles, generators, hubs, blades and tower, as well as the installation, commissioning, start-up and testing of
the wind turbine generators. The turbine supplier’s services could also include control systems, lighting, weather
mitigation packages and related warranty work. The balance-of-plant contractor’s scope of work is typically more
limited, as it usually excludes wind turbine installation-related services, and focuses on crane pad and wind
turbine foundation engineering and construction, road design and construction, earthworks, and related work. As
with other aspects of such an agreement, the scope-of-work provisions will probably be heavily negotiated.
B. Completion/Start-up Obligations. By whom, when and how the wind turbine generators are to
be commissioned is usually set forth in the scope-of-work provisions of the relevant agreement. Given a turbine
supplier’s in-depth knowledge of its products, the turbine supplier is often the party delegated to erect, install and
commission the wind turbine generators it supplies. However, this work is at times undertaken by the project
developer (with assistance from the turbine supplier) or by a third-party contractor on behalf of the project
developer. In either case, attention is given in the agreement to the stages of completion, such as actual delivery
of the wind turbines to the project site, erection and installation of the wind turbine generators, and
commissioning, start-up and testing of the wind turbines. Once these progress milestones are established,
completion is generally evidenced by the turbine supplier’s certifications of, for example, “substantial turbine
mechanical completion,” “final turbine mechanical completion,” and “final sign-off”; each such certification is
considered an incremental measure that each wind turbine generator must satisfy in order to progress to the next
measure. As with other supply/construction-related agreements, progress payments by the project developer to
the turbine supplier/contractor (as set forth in the relevant agreement) would be based, in part, on the milestones
described above. For instance, the project developer would typically pay the turbine supplier a certain amount
toward the agreed-on contract price when its order is submitted and make additional payments upon (a) the
delivery of the wind turbine generators and related components to the project site, (b) the erection/installation of

the wind turbine generators, (c) the installation and related testing of the control and monitoring system, and
(assuming the foregoing stages are executed properly), (d) the final sign-off by the parties on the project.
C. Warranty Obligations. Warranty-related obligations are likely to be an issue of substantial

negotiation between parties to turbine supply, installation, and balance-of-plant agreements. The nature and
scope of a contractor’s warranties will, however, depend on what services, materials, and/or equipment the
contractor is contracted to provide. A turbine supplier’s warranties generally include such things as a general
parts warranty (the definition of a defect can be important when determining what is included or excluded as a
defective or nonconforming part or component in a wind turbine or related facility), a power curve warranty (this
refers to the. measurement of a wind turbine generator (or a group of wind turbine generators) power
performance), an availability warranty (this refers to the minimum percentage availability of the wind turbine
generators supplied and installed), a sound-level warranty, and related matters. For a contractor providing non-
turbine services and materials, such as balance-of-plant services, the warranties would be limited in scope
relative to those of a turbine supplier, but would still include warranties relating to parts and materials used in
construction and any engineering services provided.
The issues that contracting parties consider in respect of warranties include (a) the period or term of a particular
warranty and whether the term can be extended (it is common in wind turbine supply arrangements for the
turbine supplier to offer certain extended warranty services for an agreed-on price), (b) the definition of a defect
and a serial defect (important in wind projects in which wind turbine generators use identical parts and
components; whether a defect is a serial defect is often determined by calculating the number or percentage of
the same part or component containing the same defect), (c) limitations on a warranty due to third-party services
(such as operation and maintenance services), and (d) the remedial measures a contractor may take to cure any
defect. Additionally, a project developer may desire that any third-party or subcontractor warranties that the
turbine supplier/contractor possesses in respect of any parts or components used in its wind turbine generators,
are “passed through” to the project developer.
D. Limitation of Liability. As with any other construction-services and procurement agreements, a

turbine supplier or other contractor will seek to limit its liability to a project developer. The provisions in a
relevant agreement will usually exclude liability for consequential, indirect, incidental, or special damages. A
contractor will usually seek to have whatever damages it may be liable for limited to liquidated damages of a
certain value, usually an agreed-on percentage of the value of the relevant agreement. In any event, the parties
may specify the actual maximum aggregate liability a contractor may have; however, the parties can, by
agreement, carve out of any such limitation additional liability for the contractor. For instance, the contractor
could agree that it would be liable for certain delay-related damages arising from the project developer’s failure to
(a) satisfy its contractual commitment(s) (under a power purchase agreement), due to an event in the contractor’s
control or as a risk assumed by the contractor, or (b) obtain a certain time-sensitive benefit or credit (such as a
production tax credit).
E. Production Tax Credits. A wind energy project’s economic viability is often dependent on
obtaining certain benefits provided under state and federal law for renewable-resources energy projects, including
the federal production tax credit (“PTC”). The PTC is a tax credit for a percentage of the taxable income
generated by a project’s wind turbines that qualify for such credit. PTCs were extended through December 31,
2005 and, as of this writing, there is legislation in Congress to extend PTCs for five years. The loss of the PTC,
or of any similar state or federal benefit, can adversely affect the development, as it may not be remediable
(unlike other delay-related damages for failure to achieve a benchmark under a power purchase agreement – the
related damages would likely be limited to whatever damages, charges, or other costs the project developer
would, generally, have to pay to the power purchaser), and would have long-term economic consequences for a
project. PTC-related damages are usually the subject of much negotiation between the turbine
supplier/contractor and the project developer. Insurance coverage may be available for certain delay-related
risks, including failure to qualify for a PTC.
V. Other Issues.
A. Financing Issues. As with other power projects, the construction and start-up costs associated
with new wind energy projects are likely to require some form of substantial debt financing or joint venture
financing to finance the design, engineering, procurement, construction, and initial operations of the project.
Financial institutions and/or potential investors asked to finance or invest in a project will demand the opportunity
to review and comment on a project’s design and engineering, procurement, and construction agreements (as
well as related operations and maintenance and warranty agreements, if separate) before committing funds. Of
special interest to prospective lenders and/or investors are the provisions in the agreements that provide the
lender/investor with the ability to enter into the project if the project developer (as the borrower) or the project
defaults and that specify the extent and nature of any damages available to a project developer from a contractor.
Additionally, financial institutions will want to comment on the payment plans, security, warranty, and inspection
provisions set forth in the project agreements.
Due to such involvement, and to avoid issues arising from any potential inconsistencies, the project developer
should be prepared to present a consistent and cogent set of project agreements to lenders/investors and to listen
to their suggestions for such agreements. Further, a project developer should be prepared for the possibility that
lenders/investors may want to make substantial changes in the negotiated agreements. For instance, lenders will
often be interested in the project’s financial and operational viability (as may be reflected in a feasibility study),
and much of that interest will necessarily focus on the project developer’s rights and/or recourse under the
relevant agreements. In particular, lenders will be interested in the extent, limitation, and operation of any
contractor warranties, contractor indemnities, insurance policies, progress or performance-test milestones and
payments, and performance and payment guarantees (if any). Lenders will also want to know whether the
various agreements are entered into on an “arm’s-length” basis, usually meaning that the terms and conditions of
such agreements are based on typical commercial terms and standards.
B. Performance and Payment Guarantees Issues. A project developer should the cause the
various contractors to procure, for the benefit of the project developer, performance and payment guarantees, or
bonds, to ensure (a) the timely performance of contractors (whether engineers, constructors, or procurement
contractors), (b) that such performance on the project has been completed pursuant to the terms of the relevant
agreements, and (c) that no liens or undesired security interests are lodged against the project in relation to
unpaid subcontractors. These guarantees are described below.
• Performance Guarantee: a performance guarantee is usually issued by a bank, selected

or approved by the project developer, for an agreed-on sum. This sum is payable upon
the project developer’s demand in the event that the contractor has failed to (a) perform

its contractual obligations and/or (b) perform such duties in a timely manner as
specified in the relevant agreement. For instance, when the contractor defaults or
cannot complete the project, the project developer may call on this bond or guarantee
to pay another contractor to complete the project. The project developer will want to
reserve its other rights against a defaulting contractor in the event that the performance
bond does not fully cover the project developer’s costs (i) of completing the project or
(ii) associated with damages the project developer may owe to a third party as a result
of any default by the project developer.
• Payment Guarantee/Bond: a payment guarantee or bond is intended to ensure that, in

case the contractor defaults on the project, no liens or other security interests will
attach to the project developer’s property, or the project. A lien claim, normally filed
against the project developer’s property, may be “bonded-over” so that it attaches
instead to the payment guarantee or bond. Lenders, upon their review of the
agreements, may demand or require such payment guarantees to enhance the lenders’
security interests in the project.
The project developer or the lenders may require other security from contractors, such as parent guarantees,
standby letters of credit, and other forms of assurance that the contractors will perform. The contractors will
demand to be given ample opportunity to cure any default or delay and will seek to limit a project developer’s
ability to call in performance or payment bonds or other assurances (such as a standby letter of credit) that a
project developer may possess. Further, contractors will usually demand some form of reciprocal security issued
by the project developer or its parent company, including parent guarantees, payment guarantees, and the like.
C. Liens/Releases Issues. When the project developer makes periodic payments to contractors, the
developer should obtain a lien release from each contractor. A lien release will help protect the project developer
from liens being filed on the project by subcontractors who have not been paid by a primary contractor. Such
liens are undesirable because once filed, they can delay or interfere with the project’s financing. Worse still, if a
lien claimant is successful, such a lien could be used to force the sale of the project, or part of it, as well as to
interfere with the sale of the project by the project developer.
D. Insurance and Indemnity Issues. A project developer should obtain appropriate indemnities
and insurance coverage from the various parties with whom it contracts, including the turbine supplier and
balance of plant contractor, and should require those parties to obtain similar protections from their
subcontractors and material suppliers for the benefit of the project developer. Relevant indemnities include a
general indemnity for personal injury, death and property damage claims, contractor and subcontractor lien
indemnities, an indemnity for taxes (other than those attributable to the developer), an indemnity for violation of
applicable laws and an indemnity for intellectual property infringement claims. Appropriate insurance policies
include commercial general liability, workers’ compensation and employer’s liability, automobile, errors and
omissions (for design and engineering services) and builder’s all risk (for the project). Such policies should name
the developer and its financing party as additional insured and contain appropriate waivers of subrogation.
Appropriate policy limits will vary with respect to the nature of the work being performed by the insured and the
scope of the project. It is advisable for project developers to consult with an insurance or risk management
specialist to ensure that appropriate types and levels of coverage are obtained.

Alan R. Merkle
Law Practice
Alan Merkle practices primarily in the areas of energy, construction and design
and government contracts. He represents project developers, owners,
engineers, architects, contractors and suppliers in a wide array of business
matters with particular emphasis on development of renewable resource energy
projects. He is experienced in the drafting, negotiation and administration of
contracts. He also handles bid protests, claims, litigation, arbitration,
mediation and other alternative dispute resolution matters for a broad range of
clients. In addition to serving as an advocate, he regularly serves as a neutral on
Dispute Review Boards and as a mediator. Before practicing law, Alan gained
extensive experience in technical and business matters involving major
construction, engineering, manufacturing, and energy projects. He has been
206-386-7636 Direct
named one of Washington’s “Super Lawyers” by Washington Law & Politics and 206-386-7500 Fax
one of Seattle’s top 100 lawyers by Seattle magazine (2003). armerkle@stoel.com
Professional Activities Education

J.D. cum laude, Northwestern School of Law
Past chair, Public Procurement and Private Construction Law Section,
of Lewis & Clark College
Washington State Bar Association; past board member and Legal Affairs
Certificate of Environmental and
Committee chair, Associated General Contractors of Washington; member, WSBA Natural Resources Law, 1982
Litigation Section, Oregon State Bar Association Construction Law and Litigation
Associate editor, Environmental Law
Sections, American Bar Association Public Contract Law and Litigation Sections,
M.B.A., University of Idaho, 1971
Federal Energy Bar Association; Board member, American Institute of Architects;
B.S., mechanical engineering, 1969
graduate, American Arbitration Association mediator training program.
A.S., civil engineering, Boise State
University, 1967
Sample Publications and Presentations
Author, “Licensing and Registration” chapter, Oregon State Bar publication, Admissions
Construction Law; author, “Damages” chapters and chair of WSBA program State bars of Oregon, Washington
“Architect and Engineer Liability;” author, “Construction Liens” chapter for
WSBA; author and speaker, “Public Contracting in Washington”; chair, Public
Works Symposium; author and speaker, “Advanced Construction Law,” National
Business Institute; author and speaker, “Washington Construction Law,” Law
Seminars International.
Professional Background
Registered professional engineer in Washington, Oregon, and Idaho. Active in
the power generation, construction, engineering and manufacturing industries
for 12 years while managing various General Electric Company operations.
Community Activities
Council member and Mayor, City of Mercer Island.
John F. Pierce
Law Practice
John Pierce’s primary areas of practice are international business transactions
relating to project finance, energy (oil and gas – onshore and offshore), including
renewables (such as wind, geothermal and biofuels), and related infrastructure
such as pipelines and other transportation systems, aviation and aviation finance,
telecommunications (wireless and satellite), mergers and acquisitions, corporate
matters and privatizations. John usually represents project sponsors but has also
represented lending institutions including private, bilateral and multilateral
institutions such as the export credit agencies, (OPIC) and development banks.
John has extensive experience throughout Southeast Asia, Northeast Asia and the
Middle East.
206-386-7514 Direct
206-386-7500 Fax
Prior Legal Experience jfpierce@stoel.com
Senior associate, Vinson & Elkins, Singapore (1999-2002); Managing Partner, LWA
Consultants Limited, Yangon, Myanmar (1995-99); associate, Tilleke & Gibbons Education
J.D. with high honors, University of
R.O.P., Bangkok, Thailand (1995); associate, Law Office of Dr. Mujahid Al- Washington School of Law (1993)
Sawwaf, Saudi Arabia (1993-95). Co-founder and Editor-in-Chief, Pacific
Rim Law & Policy Journal
Professional Activities Chulalongkorn University, Bangkok, Thailand
Member, Washington State Bar Association; member, Rocky Mountain Mineral (1992)
Law Foundation; member, Inter-Pacific Bar Association; member, International B.S. magna cum laude, San Francisco State
University (1990)
Bar Association; member, American Bar Association; trained as arbitrator,
Monterey Institute of International Studies
Singapore International Arbitration Centre. (1988)
Admissions
Community Activities State bar of Washington
Chair, Boys and Girls Club, King County (Southwest) (2004-present); member,
Foreign Languages
American Chamber of Commerce, Singapore (1999-2002); chair, American
Basic Chinese (Mandarin), Thai, Burmese
Chamber of Commerce, Myanmar (1996-99). Acted as foreign legal counsel to and Vietnamese
Daw Aung San Suu Kyi, the democratic opposition leader in Myanmar (Burma)
and involved in related democratic and legal reform activities. Also involved
with Myanmar community groups in the United States.
John F. Pierce
Publications and Presentations

Co-author, “Setting Up Shop: Design, Engineering, Construction and Turbine Purchase Agreements,” Lava Law: Legal Issues
in Geothermal Energy Development (Stoel Rives, 2004); co-author, “Design, Engineering, Construction, and Turbine Purchase
Agreements,” The Law of Wind: A Guide to Business and Legal Issues (Stoel Rives 2004); lecturer, University of Washington
School of Law, “International Commercial Transactions”; author, “Philippine Foreign Investment Efforts: The Foreign
Investments Act and the Local Government Code,” Pacific Rim Law & Policy Journal (1992); regular contributor, AsiaLaw;
Euromoney’s Asian Investment Law Directory; Asia: A Legal Guide; founding member and contributor to Asian Commercial
Law Review; Journal of International Banking Law; Oil and Gas Law and Taxation Review; member, International Advisory
Board, Pacific Rim Law & Policy Journal.
Chapter Five
The Law of Wind
—Project Finance for Wind Power Projects—
Edward D. Einowski
I. Introduction.
A. The Search for Credit. The essence of wind farm debt financing—as with other electric
generation projects—is the search for credit: the fashioning of a loan package that provides adequate assurance
(creditworthiness) that the loan will be repaid in a timely manner. Alternatively stated, it is the fashioning of a
loan/credit package such that the risk of default (nonpayment) is minimized—reduced or mitigated to bring the
risk within levels acceptable to the lender. Creditworthiness and risk are thus two sides of the same coin: the
greater the risk, the lower the creditworthiness, and vice versa.
B. Risk Shifting. To the extent there is drama involved in putting together wind farm debt
financing, much of it derives from the efforts of each participant to shift the various risks to others, while
retaining the benefits from the transaction that the participant seeks. The project owner seeks to shift the
technology risks to the turbine manufacturer and the construction contractor, while preserving for itself as much
of the cash flow and appreciation in project value as possible. The lender seeks to shift the risks to the project
owner by taking paramount positions in the project revenues and assets, and to third parties such as the turbine
manufacturer and construction contractor by getting the benefit of the warranties and contractual obligations of
these participants, all to enhance the prospects of the loan being repaid on schedule.
This risk shifting is accomplished by various legal undertakings by the participants: mortgages and security
interests granted in the project assets, revenues, and key project agreements; warranties and contractual
requirements for the equipment and the work performed in making it operational; requirements for various types
of insurance requirements to cover certain adverse events; and guarantees of each participant’s obligations from
creditworthy entities. The negotiation and documentation of these risk-shifting devices is the focus of activity in
project debt financing, resulting in loan documentation of substantial heft and complexity.
In broad terms, there are two basic approaches to addressing the credit/risk allocation issues in a manner that
can be made to work (more or less) for all the participants involved: full recourse (or balance sheet) financing,
and limited recourse (or project) financing.
II. Full Recourse (Balance Sheet) Financing.
A. Defined. With balance sheet financing, the payment of the debt is backed by the legal
obligation of an entity with sufficient financial resources (i.e., its balance sheet) to underwrite the risk that
the project will be successful and the debt will be repaid. It is “full” recourse in that the lender can enforce
payment of the debt out of any and all unencumbered assets of the entity providing the balance sheet support,
rather than being limited to the project assets or other specific collateral. On the other hand, balance sheet
financing is usually unsecured, with the lender taking no lien on or security interest in any tangible or intangible
assets of the borrower.

The balance sheet backing rarely comes from the entity that will serve as the project owner, as these
tend to be single-purpose entities (“SPE”) with no substantial assets other than the project. Rather, it most
typically is provided by an affiliate of the project owner—an upstream parent or other affiliate with the requisite
financial profile.
B. Who Can Access Balance Sheet Financing. Balance sheet financing is generally available
only to the more substantial players in the electric industry—investor-owned utilities, power marketers, turbine
manufacturers, and others whose long-term unsecured debt is rated at least investment grade by one of
the national rating agencies.2 In a very real way, the reason balance sheet financing works is highlighted by the
old joke:
Question: What does it take to get a $100 million loan from a bank?
Answer: $1 billion in cash collateral!
Indeed, backing a loan with the balance sheet of an entity that has substantial liquid and tangible assets,
acceptable levels of debt, and a proven track record of earnings can result in a risk posture to the lender that, in
many respects, is the functional equivalent of overcollateralizing a loan with cash collateral.3
C. Focus Shifted Away from Project. With balance sheet financing, the focus is on the financial
position and prospects of the entity providing the balance sheet, rather than on the legal, economic, and
technical viability of the wind farm. The reason is simple: when a lender is primarily relying on the overall credit
strength of the balance sheet provider and has recourse to all of its unencumbered assets and revenues to enforce
payment of the debt, the viability of project to be financed is only one small piece of the credit picture, and thus
should not be the primary focus in evaluating the credit. Whether the particular project will be successful is less
of a concern than if the success of the project were the only route to repayment of the debt.
D. Limiting Factors. However, in many cases balance sheet financing simply is not an option for
wind farms. Many developers of wind farms are smaller, independent companies that do not have the type of
balance sheet lenders require. This is changing somewhat in recent years as more substantial companies (e.g.,
unregulated affiliates of investor-owned utilities) enter the field as wind farm developers.
But even in those situations, there is often an unwillingness to use the balance sheet to support the debt. It is a
question of opportunity cost: the more the balance sheet is used to support project debt, the less it will be
available for other corporate purposes (such as the acquisition of other companies or the maintenance of a
balance sheet debt posture that will not adversely affect the company’s stock price). Thus, even for the more
financially well-heeled players in the wind industry, balance sheet financing may not be an attractive course to
pursue. The alternative is limited recourse financing (often called “project financing”).
2
The minimum investment grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation are “Baa3” and
“BBB-”, respectively.
3
Though, as any lender will be quick to point out, cash collateral in the hands of the lender is better security than any
balance sheet—the difference between a bird in the hand (the cash collateral) and one in the bush (the earnings value of the
balance sheet.).

III. Limited Recourse (Project) Financing.
A. Defined. With limited recourse, or “project,” financing, the debt is backed only by the project
assets and the revenues they are able to generate.4 If the project fails to produce the revenues needed to pay
expenses and service the debt, the lender cannot pursue the nonproject assets or revenues of those who own the
equity interests in the project owner. Recourse is limited to the project owner and the project assets and
revenues.
Indeed, this limited recourse nature is generally reinforced by the ownership structures for wind farms, which
tend to utilize SPEs to own the project. An SPE is set up to have no assets other than its interest in the wind
farm. Furthermore, the SPE is typically a legal form of entity (e.g., corporations, limited liability companies, and
limited partnerships that have as their ultimate general partners corporations or limited liability companies) that,
in most instances, prevents the creditors from going after the nonproject assets of SPE owner(s) to satisfy
payment of the debt. Thus, by both the contractual provisions of the lending documents and the type of
ownership structure employed for the SPE, the lender’s recourse to enforce payment of the debt is limited to the
project assets and revenue-generating capability.
B. Betting the Farm. The project owner literally “bets the farm.” Assuming that the debt is
properly structured to eliminate or acceptably mitigate the lender’s risk, the lender antes up on this “bet” by
making the loan. The exercise in structuring a limited recourse project financing is focused on those features that
serve to eliminate or mitigate the risk to the lender. This, in turn, leads directly to an exhaustive examination of
all aspects of the project—the wind conditions at the site, the nature and adequacy of the land rights and
permitting for the site, the reliability of the equipment used, the legal obligations and creditworthiness of the key
project participants (such as the output purchaser and turbine manufacturer), the availability of transmission,
how the transmission system handles imbalance penalties for variable resources such as wind, etc. Indeed, if the
lender is to be limited to project assets and revenues to secure repayment of the debt, it is essential that all
aspects of the project be thoroughly vetted to ensure that it will operate successfully (i.e., pay its bills) even in a
“worst case” scenario.
C. Project Viability vs. Collateral Value of Project Assets. It should be noted that while the lender
will generally insist on—and get—a first-priority lien on all project assets, the tangible collateral securing the loan
is, in reality, of secondary importance to the lender. The reason is simple: as a general rule, in a foreclosure
situation, tangible collateral can usually be sold only at a price that produces a relatively small fraction of the
debt it secures. A lender is far more likely to get repaid if the project operates successfully and produces the
needed revenues than it is by liquidating the project assets in foreclosure. Therefore, the detailed examination of
the project for purposes of limited recourse financing is aimed primarily at determining the likelihood that the
project will operate as planned, and then putting in place those security arrangements with the project
participants that, in the judgment of the lender, are best calculated to ensure that the project will in fact perform
up to expectations even in the face of a worst case occurrence.
4
In many cases, the limited recourse nature of the debt financing does not truly come into play until the project has achieved
full commercial operation, as the project owner if often required to guarantee the debt on a full recourse basis during the
construction period. However, due to the technology employed, the construction and start-up risks associated with wind
farms are generally significantly less than with respect to gas- or coal-fired plants.

D. Capacity Factor—The Answer Is Blowing in the Wind. Unlike gas- or coal-fired electric
generation facilities, at this stage of development the technology employed in wind farms is subject to relatively
little risk. This is largely due to the fact that, in comparison to gas- or coal-fired plants, wind turbine technology
is relatively simple—there are far fewer things that can go wrong with a wind plant. This simplicity, in turn,
derives from the fuel source: with no combustible fuel to control and contain, a windmill avoids many of the
stresses and strains that cause gas and coal plants to be comparatively temperamental.
Rather, it is the fuel source itself that presents one of the most fundamental risks associated with wind farms:
that is, the risk as to how often and how fast the wind will blow. No wind means no electricity, and no electricity
means no revenues to pay project operating expenses and debt and to provide a return to the owner. But simple
lack of wind is not the only problem. Excessive wind speeds can be equally problematic, as wind turbines cannot
generally be operated when wind speeds exceed a certain level (generally around 60 to 65 miles per hour).
Furthermore, in many prime wind-site areas, the wind tends to blow most consistently at night during off-peak
hours, rather than during daytime periods of peak usage.
Wind risk is quantified by reference to the “capacity factor” of the wind farm site. This is a convention developed
for expressing (as a percentage of the project’s installed capacity) the amount of electric energy a wind farm can
be expected to produce over an extended period of time (usually one year). Thus a wind farm with an installed
capacity of 100 MW (e.g., 100 one-MW turbines) that has a capacity factor of 30 percent can be expected to
produce, over the course of a year, 30 MWs of electricity on average. It is for this reason that sales of wind
power are often stated in terms of “average MWs” (or “aMW”). Of course, this means that at certain times the
wind farm will be producing 100 MWs, while at others it will be producing zero MWs.
E. Meteorological Studies. The capacity factor for a wind farm is based on meteorological (or
“met”) studies done at the site over an extended period of time. Thus the met study is a key piece of information
that will be given special scrutiny in the financing process, as it is one of the foundations on which an evaluation
of the economic viability of the project must be based.
The longer the period of time over which the met study is conducted, the greater confidence one can have that
the capacity factor will be accurate going forward. Generally speaking, a met study will not be relied upon unless
it was conducted for a period of at least one year. And many participants in the wind industry naturally have a
bias toward met studies conducted over a number of years (after all, “one swallow does not a summer make”).
In addition to providing the information needed to generate a capacity factor for a site, the met study can also
provide valuable information as to how the turbines should be configured on the site in order to optimize
production. The trick here is to put as many turbines on the site as can effectively use the available wind
resource, but to do so without creating counterproductive inefficiencies (such as one turbine being located in the
“wind shadow” of another turbine, thereby reducing the efficiency—or output—of the former).
Because of the length of time it takes to do a usable met study on a site, lenders rarely commission their own
independent study. Rather, it is more typical for the lender to retain its own independent meteorologist to review
the wind study previously done by the project developer’s meteorologist. As with any study of this nature,
reasonable experts can have different views as to proper method for conducting the study and the conclusions to
be drawn. Thus it is not unusual for the lender’s and the developer’s meteorologists to have extended discussions

over the methodology employed and the conclusions to be drawn from the data collected. And one can expect
the lender’s advisor to argue for a more conservative interpretation (i.e., lower capacity factor), while
the developer’s meteorologist is more naturally inclined toward a more generous interpretation (i.e., higher
capacity factor).
F. No Free Fuel. In considering wind farms in comparison to other electric generation facilities,
one may be tempted to think that the fuel is free. This is only superficially the case. It is true that there is no
line item in the wind farm pro forma for fuel costs, as there would be with a gas or coal-fired plant. However,
the cost of fuel for wind farms is embedded in the capital costs of the project when viewed in relation to the
project’s productivity. And rather than being free, careful consideration demonstrates that, at present, the out-of-
pocket costs involved in using wind as the fuel source are significantly higher than the out-of-pocket costs of
alternative fuels such as gas or coal.5
In recent years, the cost of putting up a wind farm is approximately $1 million for each MW of installed capacity.
Thus a 100-MW wind farm (installed capacity) will generally cost about $100 million to build and put into
operation. By way of contrast, the cost of constructing a gas-fired plant tends to be in the range of $600,000
to $900,000 per MW of installed capacity. Thus, out of the box, wind farms are 10 to 40 percent per MW
more expensive to construct than gas-fired plants. However, the fact that a gas-fired plant must also bear the
ongoing operating expense of fuel costs largely eliminates the superficial cost advantage that gas-fired plants have
in this regard.
But when one considers the impact of the capacity factor on wind farm economics, the competitive advantage
once again tilts strongly in favor of gas-fired plants. If one builds a 100 MW gas-fired plant, it will generate 100
MWs of electricity day in, day out, 24/7 for the life of the plant (scheduled maintenance and the occasional
forced outage excepted). But a 100-MW wind farm with a capacity factor of 30 percent (which tends to be
about the average capacity factor these days) will generate only 30 aMWs—a full 70 percent less in power
production over the life of the farms as compared to the gas-fired plant. Since production equals revenues,
one can readily see that if the price for wind power and gas-fired power were the same in the marketplace, the
dollars invested in a wind farm would produce a dramatically smaller return than they would if invested in a
gas-fired plant.
Fortunately for the future of wind, the current market price for wind power (including the “green tags” or
environmental attributes that are sold along with the power, though perhaps to a different buyer than the buyer of
the power) is significantly higher than the price for power generated by means of fossil fuels. Wind power and
associated green tags tend to bring about $12 to $15 more per MW than power generated by fossil fuels. In
fact, this differential is a fair proxy for the value of the green tags and can be viewed as the marketplace’s
acknowledgement that the environmental benefits of green power have real economic value. It is this differential,
5
I stress here out-of-pocket costs, meaning the portion of project revenues that must be devoted to deferring the fuel costs.
This is not to say that the real economic and social benefits that come from utilizing nonemitting resources such as wind
power have no value, for indeed, such benefits seem indisputable though perhaps more difficult to quantify. But, for better or
worse, the out-of-pocket costs tend to be the key driving force behind most economic decisions of this sort. The
societal/environmental benefits of wind power are beginning to hold greater sway in the marketplace, driven by the PR value
to utilities of being able to tout their “green prowess” and the move by many public utility commissions to implement
renewable portfolio standards.

along with subsidies like the production tax credit, that enables wind farms to be a viable alternative in the
current marketplace.
While it is good that the marketplace currently places such a premium on wind power and green tags, the
foregoing nevertheless amply shows that the choice of wind as fuel source has very real costs. Far from being
free, using wind as a fuel source results in direct, tangible out-of-pocket costs that are currently far in excess of
the costs associated with choosing another fuel source. Indeed, wind will not be an economically free fuel unless
the industry evolves to the point where the all-in out-of-pocket costs of producing wind power are equal to or less
than the all-in out-of-pocket costs of producing fossil fuel-generated power minus the fossil fuel costs.
G. Performance Guarantees. Evaluation of the met study is aimed at addressing one of the key
risks associated with wind farms—namely, the fuel risk, or how often, at what times of the day, and how fast
the wind will blow. Moving beyond that, there is the risk associated with the equipment employed. Because
wind farms are variable resources that produce revenue only when the wind is blowing, it is essential that the
project produce the maximum amount of electricity from the available wind resource in order to produce the
maximum amount of revenue. The performance risks are addressed in the various guarantees provided by the
turbine manufacturer.
The types of performance guarantees that are usually sought from the turbine manufacturer are as follows:
Mechanical Availability: The mechanical-availability guarantee is aimed at ensuring the reliability of the
turbines—that, from a mechanical standpoint, they will be ready to produce electricity whenever the wind blows.
In recent years as the technology has improved, typical mechanical-availability guarantees provide for a
guarantee of a mechanical-availability percentage in each contract year of 95 percent. The mechanical-
availability percentage is a fraction, the numerator of which is the actual number of hours in the contract year
during which the turbines were mechanically available for operation, and the denominator of which is the
theoretical number of hours during the contract year in which the turbines could have been mechanically
available to produce electricity.6 To the extent the project falls below the guaranteed mechanical-availability
percentage in a given contract year, the turbine manufacturer is liable for liquidated damages, which are usually
calculated by reference to the cost of replacement power (or cost to cover) in an amount equal to the forgone
production due to failure to meet the guarantee.
Guaranteed Output: While the mechanical-availability guarantee is aimed at providing assurance that
the turbines will be mechanically available to produce electricity, the output guarantee is aimed at ensuring that
a certain level of total output (electricity production) will be achieved over time. The output guarantee starts by
reference to the project’s mean annual output. Mean annual output, in turn, is a negotiated figure usually
expressed in terms of a certain number of megawatt hours (“MWh”) in each contract year. The output guarantee
is typically 75 percent of the mean annual output. The guarantee takes the form of guaranteeing that the
average annual output for the calculation period in question (i.e., the actual amount of MWh produced during
such period) will be not less than the output guarantee.
6
The denominator is essentially the total number of hours in the contract year, less the hours during which the project suffers
transmission curtailment, is down for scheduled maintenance, or is down due to a force majeure event other than a purely
mechanical event related solely to the turbines.

It should be noted that the period over which the output guarantee is tested is usually a rolling two-year period,
rather than an annual test period. By taking the average of two years, one avoids a situation in which a bad
wind year results in a breach of the guarantee. Rather, the guarantee is not breached so long as the average
annual output in each rolling two-year test period is equal to or greater than the guaranteed output.
As with the mechanical-availability guarantee, breach of the output guarantee results in the turbine manufacturer
being liable for liquidated damages calculated by reference to the cost of replacement power (or cost to cover) in
an amount equal to the forgone production due to failure to meet the guarantee.
Power Curve Warranty: The power curve warranty is aimed at ensuring the efficiency of the turbines. A
turbine may meet the mechanical-availability and output guarantees and yet not be producing as much electricity
as it could under the same wind conditions due to inefficiencies resulting from poor design, manufacture, or
installation. To determine compliance with the power curve warranty, one or two turbines in the wind farm are
usually selected for testing upon completion of construction of the wind farm. These turbines are then tested to
determine their actual power curve (basically, how much power the turbine produces at various wind speeds and
ambient temperature conditions). As with the other performance guarantees, to the extent the actual power
curve of the tested turbines is less than the guaranteed power curve, the turbine manufacturer is liable for
liquidated damages calculated by reference to the cost of replacement power (or cost to cover) in an amount
equal to the forgone production due to failure to meet the guarantee. With the power curve warranty, if the
actual power curve of the tested turbines is less than the guaranteed curve, the turbine manufacturer usually has
the right to attempt to fix the turbines and retest.
Parent Guarantee: It is, of course, one thing to secure performance guarantees from the turbine
manufacturer; it is quite another to collect on them should the guarantee be breached. Because many turbine
manufacturers are subsidiaries of larger enterprises, the financial strength of the consolidated group often resides
not in the manufacturing subsidiary, but in the parent or another affiliate. As a consequence, the performance
guarantees often require backing (in the form of a guarantee of payment) from the manufacturer’s parent or
affiliate in order to give them substance over the long term.
H. Security Arrangements—Creating a Sealed System. Thus far we have focused on those aspects
of project finance that are aimed at vetting the risk associated with the ability of the project to perform up to
expectations. We now turn to the security arrangements for project debt.
In the context of a limited recourse financing, the security arrangements are part of the core foundation on which
the financing rests, as the lender has recourse only to the project assets and revenues to enforce payment. The
lender therefore seeks control (by means of security interests, mortgages, and contract assignments) of all project
assets (including all key project agreements) and all project revenues (also by means of security interests, but
coupled with lockbox arrangements as described below).

One way of looking at it is that the lender seeks to create a sealed system whereby all project assets and
revenues are, to the fullest extent possible, sealed off from other creditors by means of the security arrangements,
with the lender exercising control over the assets and revenues to ensure that they do not escape the system so
as to jeopardize the repayment of the debt. This is the essence of the project finance bargain: the lender is
willing to limit its recourse to the project assets and revenues, in exchange for a financing structure that
effectively preserves all project assets and revenues for the sole benefit of the lender.
This essential bargain is preserved even in the context of an “A-B” type of project finance debt structure—that is,
when there are two project loans, the primary (or “A”) loan is payable out of power sales revenues, and the
secondary (or “B”) loan is payable out of the production tax credits available to the project. In such transactions,
each loan corrals (by means of the security arrangements) its own source of repayment, taking paramount rights
in the sealed system so created to the exclusion of the other loan.
Key aspects of the security arrangements that create the requisite sealed system are:
The Power Purchase Agreement: The power purchase agreement (“PPA”) is the core of the credit
picture in a project financing, as it is the source of all revenues that will be needed to make the project
successful.7 As such, the assignment to the lender of the project owner’s rights under the PPA forms the
centerpiece of the security arrangements. In addition to a price for power that will support the project operating
expenses and debt service based on the expected production, lenders generally look for a PPA with the following
features:
• Term: The term of the PPA (exclusive of renewal options) should generally be several
years longer than the term of the financing. Thus, for example, if the term of the
financing is 20 years (fully amortizing), the lender is likely to require a PPA term of 22
to 25 years. The additional years of the PPA term provide the lender with “work out”
room in the event the project encounters difficulties during the term of the financing.
• Purchaser’s Creditworthiness and Credit Maintenance Provisions: The output

purchaser under the PPA must be a creditworthy entity or have its obligations
guaranteed by a creditworthy entity. Generally speaking, lenders will look for at least
an investment grade rating on the long-term, senior unsecured debt of the purchaser or
its guarantor. Because of their dependence on PPA revenues for repayment of the
project debt, lenders often seek credit maintenance provisions whereby if the power
purchaser’s credit rating falls below a certain level,8 the power purchaser is required to
post collateral to better secure its obligation to pay for the power delivered. However,
there is as yet no universal willingness of power purchasers to agree to provide such
credit assurances in the context of wind power, especially when the purchaser is
acquiring the wind resource in order to comply with a renewable portfolio standard
7
Under current market conditions, it is generally not possible to obtain limited recourse financing for a wind farm without a
long-term PPA for the purchase of the output of the project. Merchant wind farms may someday and under some market
conditions be capable of securing limited recourse financing. But for now, balance sheet financing is the only workable option
for merchant wind farms (i.e., those that will sell the electricity into the market rather than pursuant to a long-term PPA).
8
In lieu of using a credit rating as the trigger, other triggers, e.g., maintenance of a specified level of tangible net worth, are
sometimes employed, either by themselves or in combination with a credit rating requirement.

imposed by the local public utility commission.9 But when the purchaser is pursuing
wind resources on its own motion (as many distributing utilities are doing these days for
a variety of reasons that go beyond renewal portfolio standards), one sees a greater
willingness to include credit maintenance provisions in the PPA.
• Reciprocal Credit Maintenance Provisions: While reciprocal credit maintenance

requirements (i.e., in which both the seller and the purchaser agree to maintain a
certain credit posture and to post collateral if the posture is not maintained) are
common in PPAs for gas- and coal-fired resources, they have been less common in
PPAs for wind power, for several reasons. First, historically many wind farm developers
were independent companies without the substantial financial resources to support a
credit maintenance requirement. However, as more financially substantial players
(such as the unregulated development arms of investor-owned utilities) have entered the
wind development arena in recent years, this is proving less a stumbling block. Second,
wind farm owners have argued that because wind is a variable resource from which one
cannot count on having a given amount of power available for delivery at any given
time, the purchaser is not harmed by a failure to deliver in the way it would be, for
example, with a gas-fired base load resource that can be counted on to deliver a given
amount of power on a 24/7 basis. But even this argument seems to be diminishing in
strength as the industry gains more experience with wind and becomes better at
predicting (within certain limits, of course) the output of a wind farm in the short term.
Thus the industry is beginning to see more reciprocal credit maintenance provisions in
wind PPAs than has historically been the case.
Interestingly enough, the project lender may not favorably view a wind PPA that
requires the project owner to agree to a credit maintenance requirement. As the recent
experience with the California energy crisis has shown, credit maintenance provisions
are fraught with risk in that at the very time the project owner is encountering financial
difficulties (as reflected in the credit rating downgrade that serves as the trigger for the
credit maintenance provision), it is called upon to post additional collateral as security
for its PPA obligations—collateral that it may not have available or that will further
undermine the financial position of the project owner if it is posted as required. Thus in
recent years we have seen a number of major players default on their obligation to post
collateral under PPAs in the face of a credit downgrade. The result is a default under
the PPA that can give the power purchaser a right to terminate. Such a risk of
termination may not be welcomed by the lender, who is keenly interested in seeing that
the power purchaser has the ongoing obligation to purchase power during the entire
PPA term (or at least until the project debt is fully repaid). Thus a lender may well
view a credit maintenance requirement on the part of the project owner as a negative,
and may prefer to have a PPA that does not impose any such requirement on the
9
The experience here is similar to that under the Public Utility Regulatory Policies Act whereby the utility is forced to
purchase the output of a qualifying facility: because the power purchase is not pursuant to a truly voluntary, bilateral
arrangement for a resource that the purchaser would otherwise want in its portfolio, the purchaser has little incentive to
bolster the credit of the PPA by agreeing to credit maintenance provisions.

project owner so that the risk of termination for failure to meet the credit requirements
is eliminated.
• Provisions Recognizing Lender’s Rights: The PPA must contain provisions pursuant to
which the output purchaser authorizes the project owner to assign the owner’s rights
under the PPA to the lender as security for the project debt and recognizes the right of
the lender to cure defaults and perform the owner’s obligations under the PPA. Any
PPA signed without such provisions will certainly be revisited before project financing
can be put in place.
• Transmission Curtailment Risk: While not universally required, a PPA will provide
better security for the lender (and better revenues for the project owner) if it shifts the
risk of transmission curtailment to the output purchaser. This is done by providing that
during periods of transmission curtailment, the output purchaser will be obligated to
pay for the power that would have been produced and delivered (based on wind
conditions during the curtailment period) had the curtailment not prevented the plant
from operating.
Assignments of Key Contracts and Permits: To ensure that it has control (via the security arrangements)
over the entire project as a going concern, the lender will also require first-priority assignments of all key project
contracts and permits. On the contract side, this includes the turbine supply agreement, the construction
contracts, the interconnection agreement, the parts supply agreement, the equity contribution agreement among
the owners of the project owner, the operation and maintenance (“O&M”) agreement (if the wind farm is to be
operated by a third-party operator), the leases or rights-of-way for the project site, and, of course, the PPA.
In addition to taking assignments of the contracts from the project owner, the lender will also insist on having
each counterparty to the assigned contracts consent in writing to the assignment in a manner in which the
counterparty acknowledges the lender’s rights, agrees to give the lender notice of any default by the project
owner, and agrees to grant the lender certain cure rights. The consents may also include a so-called “bankruptcy
replacement clause” whereby the counterparty agrees to enter into a replacement agreement with the lender in
the event the project owner is the subject of a bankruptcy proceeding. Finally, when payments are or may be
owing by the counterparty to the project owner under the contract (for example, the PPA), the consent also
makes provisions for those payments to go directly into an account controlled by the lender, as part of the
lockbox arrangement discussed below.
On the permit side, it can be more problematic to obtain a valid and enforceable assignment of a needed project
permit. This is because under applicable law, the permit is often granted to a particular entity (i.e., the project
owner), and either no provision is made for assignment of the permit to a third party or the nature of the permit is
such that it may no longer be valid in the hands of anyone other than the original permittee. To solve such
problems, the lender may sidestep the issue by taking a first-priority security interest in the equity ownership
interests of the project owner (e.g., the stock of the project owner if it is a corporation, or the membership or
partnership interests in the project owner if it is a limited liability company or partnership). In this way, in a
foreclosure situation, the lender forecloses upon the equity ownership interests, thus taking over ownership of the
project owner and therefore the permits that are held by the project owner, but the permits themselves are never

transferred from one entity to another. This may still require some action on the part of the lender to effectively
complete the foreclosure. For example, in certain situations, foreclosing on the equity interests of the project
owner may require authorization from FERC under section 203 of the Federal Power Act (if taking over the
project owner results in a transfer of FERC jurisdictional assets that cannot be lawfully done without an approving
order from FERC). But it nevertheless provides a path forward for the lender that may not otherwise be available
(or be subject to significant legal doubt) were it to attempt to foreclose directly on a security interest in a permit.
Flow of Funds and Lockbox Arrangements: The final piece of the puzzle needed to create a sealed
system to protect the lender is the creation under the credit agreement of a flow of funds (often called a
“waterfall”) and an accompanying lockbox arrangement. Again, the key purposes of these provisions are to
ensure that the project revenues are applied in a manner that will ensure the timely repayment of the project
debt, and to place the lender in the position of controlling the revenues to see that they are, in fact, so applied.
The lockbox arrangement requires all persons making payments to the project owner under the project
agreements to pay those amounts into an account controlled by the lender. Thus all PPA payments flow directly
into this account, as do warranty or liquidated damage payments under the turbine supply agreement and
balance of plant contract. Typically, the account in question is an account established with the lender itself, if
the lender is the type of financial institution capable of handling such an account. Alternatively, the account may
be established with a third-party financial institution, in which case the lender’s rights with respect to the
account will be memorialized pursuant to a custodian agreement among the lender, the project owner, and the
custodian financial institution.
It is the flow-of-funds, or waterfall, provisions in the credit agreement that govern the lender’s (and, by negation,
the project owner’s) rights with respect to the project revenues captured by the lockbox arrangement. Given that
under limited recourse financing the project debt will be repaid only if the project operates more or less according
to projections, the flow-of-funds provisions generally specify a priority of application of project revenues that has
as its primary goal the maintenance of the project operations so that the project will continue to produce power
and earn the needed revenues from power sales. It does this in part by directing the project revenues first to
those expenses that are needed to keep the project operational, and in part by requiring the funding of various
subaccounts in a manner that will, in effect, create reserves to protect against adverse events that could interrupt
the flow of project revenues.
Moneys get paid out of the lockbox in accordance with the priorities or “waterfall” established under the credit
agreement. Disbursement of lockbox moneys is made against a requisition presented by the appropriate party
(the project owner or the O&M operator), accompanied by the relevant invoices documenting the expenditures for
which disbursement is sought. It is not unusual for the lender to remit lockbox moneys directly to the party to
whom they are owed, in order to avoid misapplication by the project owner or O&M operator.
A typical flow of funds will provide that project revenues will be applied for the following purposes in the order of
priority set forth below:
• O&M Expenses: First, project revenues are applied to the payment of the ongoing O&M
expenses of the project. For this purpose, O&M expenses are generally defined to
capture the cash outlays the project will need to make to stay operational, and to
exclude noncash items such as depreciation expense. A typical flow-of-funds provision

will, over time, trap project revenues in the O&M subaccount until an amount (or
reserve) equal to six months’ O&M expenses is on hand.
• Debt Service: Second, project revenues are applied to the payment of debt service on
the project debt. Again, typical flow-of-funds provisions will, over time, capture project
revenues at this level of the waterfall until the debt service subaccount has on hand an
adequate debt service reserve amount (typically six months’ debt service on the project
debt, but sometimes as long as one year).
• Major Maintenance Reserve: Third, project revenues are deposited into a major
maintenance reserve account. This reserve is required to be funded over time in an
amount such that sufficient funds will be on hand to pay for anticipated items of major
maintenance on the project assets and to provide a source of funding to cover the cost
of major unanticipated equipment failures.
• Distributions to the Project Owner: Finally, any remaining project revenues are
deposited in a subaccount that is variously called a “sweep account,” a “distribution
account,” or a “surplus cash account.” Subject to restrictions imposed under the credit
agreement, the project revenues that end up at this level of the waterfall are available
for distribution to the project owner. Generally such distributions are permitted only on
a quarterly basis, and then only to the extent the subaccounts higher up in the waterfall
are fully funded at the time of the proposed distribution and there is no default under
the credit agreement. Typically, the credit agreement will use a debt service coverage
ratio (“DSCR”) as one of the tests for determining how cash in the distribution account
is to be applied. The DSCR is the ratio of net project revenues10 to annual debt service,
expressed as a number, e.g., “1.20” (which means net revenues for the fiscal year must
be at least equal to 120 percent of annual debt service). To the extent the project fails
to produce revenues sufficient to meet the DSCR, it generally means that the project
has not been able to make the required payments into one or more of the subaccounts
higher up in the waterfall. In such a situation, moneys in the distribution subaccount
are not permitted to be distributed to the project owner, but instead are swept into the
higher waterfall subaccounts until they are fully funded.
IV. Conclusion. There are a great many more topics that could be covered under the heading of wind farm
finance: insurance requirements, means of integrating third-party equity investments into the debt financing
structure, monetization of production tax credits, issues relating to transmission and imbalance charges, the fine
details of force majeure provisions in PPAs and other major project agreements, etc. But while the foregoing
treatment is not exhaustive, it nevertheless provides a framework for approaching these and other topics. For no
matter what aspect of wind farm financing one examines, the essential dynamic at play will be the search for
credit and the corresponding effort to reduce or eliminate risk.
10
Net revenues equals (i) gross project revenues for the fiscal year in question minus (ii) operating expenses for that fiscal
year, but not including debt service on the project debt.

Edward D. Einowski
Project Finance and Development Practice

Ed Einowski specializes in project finance and development, representing
developers, investor owned utilities and their unregulated subsidiaries,
investment banking firms, commercial banks and other financial institutions, and
state and local governments. He has handled project financings throughout the
United States, from West Virginia to California. He also regularly represents
electric industry clients in matters such as the negotiation of long-term power
purchase agreements for the output of wind powered, gas-fired and coal-fired
generation facilities, as well as the buying and selling of electric generation
assets. His project finance work covers a broad range of infrastructure projects,
including: electric generation facilities (gas fired CT projects, wind farms, hog
503-294-9235 Direct
fuel burners, landfill gas to electricity, solid waste-to-energy facilities), light rail
503-220-2480 Fax
and other mass transit facilities, airports, docks and wharfs, water and sewer eeinowski@stoel.com
utilities, solid waste disposal facilities, hospital and health care facilities,
housing projects, manufacturing facilities, commercial office buildings and retail Education
J.D., cum laude, University of Michigan Law
facilities, higher education facilities, museums and other cultural facilities, and School, 1978
manufacturing facilities, commercial office buildings and retail facilities ranging B.A., summa cum laude University of
from regional shopping malls to automobile assembly plants. Among his Michigan Residential College, 1975
accomplishments are a number of “firsts” in the field of project financing, Osborn High School, Detroit, Michigan, 1971
including: the first use of a Chapter 190 intergovernmental entity in Oregon to
Admissions
finance an electric generating plant at a paper mill (the output of which is State bar of Oregon
utilized by two municipal utilities); conceiving and drafting the Oregon statutes
that provided for the first rated bonds backed solely by State lottery revenues to
finance the State share of the Portland area Westside light rail extension; and
the development of a framework for the public-private partnership that
developed the light rail extension to the Portland airport and the creation of the
necessary financing vehicles for that project. Many of the project financings Ed
has handled involved tax-exempt and taxable municipal bonds, having served on
numerous occasions as bond counsel and underwriter’s counsel. He has a
national reputation in the area of municipal bonds and municipal law. He is a
member of the National Association of Bond Lawyers (having served on its
Steering Committee for a number of years) and is currently serving a member of
the State of Oregon Municipal Debt Advisory Commission, having first been
appointed by the Governor in 1999. Over the years he has conceived of, drafted
and helped marshal through the State legislation a number of improvements to
municipal finance laws, including changes to bring more flexibility to Oregon’s
Edward D. Einowski
Uniform Revenue Bond Act and changes to ORS Chapter 190 to allow for the issuance of revenue bonds by intergovernmental
entities created under that Chapter. In addition, he has handled a number of highly specialized project-related transactions,
including tax-advantaged U.S. leveraged leases, cross-border leases, and public-private partnerships for the joint
development and financing of major infrastructure projects. Mr. Einowski’s legal expertise covers the diverse range of
substantive areas that are encountered in project financing and development, including secured transactions, state and
federal securities laws, federal income tax laws, real estate, and regulatory matters.
Professional Activities
Admitted to Michigan Bar, 1978; Oregon Bar, 1984. Member of the Oregon Municipal Debt Advisory Commission (199 to
present); Editor-in-Chief and Editor Emeritus of the Municipal Finance Journal; member, National Association of Bond
Lawyers; member, American Bar Association; Steering Committee member of National Association of Bond Lawyers,
(1991-1993); Associate Member, Oregon Municipal Finance Officers Association.
Publications
Author, "Private Purpose Tax-Exempt Financing in Oregon," Or Bus & Corp L Dig, February 1985; "Response to the Treasury Tax
Reform Proposal: The Need for Flexibility in Determining the Business of Government," 6 Mun Fin J 73 (1985); "Tax Reform,
Federalism, and State Sovereignty," 7 Mun Fin J 91 (1986); "Preventing Further Restrictions on Tax-Exempt Obligations," 8 Mun
Fin J 3 (1987); The “Project Finance for Wind Power Projects” Chapter in the Stoel Rives publication The Law of Wind; and
numerous other articles on various aspects of project financing.
Chapter Six
The Law of Wind
—Tax Issues—
Robert T. Manicke, Kevin T. Pearson
The taxation system often is used to implement governmental policy directives. Because the wind power industry
is developing at the crossroads of several important trends in public policy, wind power projects raise numerous
federal, state, and local tax issues in addition to those involved in general choice-of-entity considerations. These
tax issues create the potential for significant economic benefits if wind power project ownership is structured
carefully. But if not carefully analyzed, tax matters can cause significant costs and competitive disadvantages.
I. Federal Income Tax: The Production Tax Credit. For facilities that were originally placed in service
after December 31, 1993 and before January 1, 2006, Section 45 of the Internal Revenue Code of 1986, as
amended (the “Code”), provides a credit against income tax for electricity produced from certain renewable
resources, including wind. This credit is known as the “production tax credit” (“PTC”). See discussion of sunset
date below.
A. Requirements for Claiming the Credit. The PTC for wind power applies only to electricity that is
produced at a qualified facility during the 10-year period beginning on the date the facility was originally placed
in service and sold by the taxpayer to an unrelated person during the taxable year. Each of the following
requirements must be satisfied for a taxpayer to claim the PTC:
1. Produced by the Taxpayer. The electricity must be produced by the taxpayer seeking
to claim the PTC. If more than one person has an ownership interest in a facility, production from the facility is
allocated among the owners in proportion to their respective ownership interests in the gross sales from the
facility. A partnership, however, should be treated as one person for purposes of this rule, so that the individual
partners are not treated as owning individual allocable portions of a facility owned by the partnership.
2. Qualified Energy Resources. The electricity must be produced from wind or another
listed renewable resource.
3. Qualified Facility. The electricity must be produced by a facility in the United States
that is owned by the taxpayer seeking to claim the PTC and that was originally placed in service after December
31, 1993 and before January 1, 2006. A facility is considered to be “placed in service” for purposes of this rule
when the wind turbines are placed in a condition or state of readiness and are available to produce electricity.
Each wind turbine that is capable of being separately operated and metered, together with its tower and
supporting pad, is considered a separate “facility” for purposes of this rule.
4. Sold by the Taxpayer. The electricity must be sold by the taxpayer seeking to claim the
PTC to an unrelated person during the taxable year for which the PTC is sought.
5. No Advance Approval Required. There is no advance approval requirement for

claiming the PTC. A taxpayer who is entitled to the credit simply reports it on the taxpayer’s federal income tax
return.

B. Calculation of the Credit. The PTC for any taxable year generally is equal to 1.5 cents
multiplied by the number of qualified kilowatt hours of electricity produced and sold by the taxpayer during the
taxable year. The 1.5 cents is multiplied by the inflation adjustment factor published by the Internal Revenue
Service for the calendar year in which the sale of qualified electricity occurs. For electricity produced and sold
during 2005, the adjusted PTC amount is 1.9 cents per kilowatt hours.
C. Disqualified Wind-Generated Electricity. Disqualified wind-generated electricity is not taken

into account in computing the PTC. With certain exceptions, disqualified wind-generated electricity generally is
electricity that is (1) produced at a facility using wind that is placed in service by the taxpayer after June 30,
1999 and (2) sold to a utility under a contract originally entered into before January 1, 1987, whether or not
amended or restated after that date.
D. Nonrefundable Credit. The PTC is a “nonrefundable” credit. If a person entitled to claim the
PTC does not have sufficient income tax liability to use the entire PTC for a particular year, that person generally
will not be entitled to a refund of federal income tax as a result of the PTC. Unused PTCs may, however, be
carried forward to subsequent taxable years and/or back to previous taxable years under certain circumstances.
E. Effect of Foreign Ownership. The PTC can be used against all U.S. federal income tax.
Accordingly, foreign ownership of a qualified facility is not necessarily a barrier to claiming the PTC as long as the
foreign owner has U.S. taxable income. Similarly, consolidated groups of corporations can claim the PTC as long
as the consolidated group has U.S. taxable income, regardless whether the ultimate owner is a U.S. entity or a
foreign entity.
F. Cutback for Other Grants and Credits. The amount of the PTC is reduced with respect to
certain grants, tax-exempt bond proceeds, and subsidized energy financing used to fund construction of a project,
as well as with respect to certain other credits allowable with respect to property that is part of the project.
There is very little authority regarding the circumstances under which the PTC is reduced to reflect other credits
with respect to property that is part of the project. In general, however, a cash award from a government body is
more likely to reduce the PTC if the amount of the award is measured by the cost of construction, rather than by
the amount of electricity generated. These issues should be carefully analyzed in financing a wind power facility.
G. Sunset Date and Possible Reinstatement. To qualify for the PTC, electricity must be produced
at a facility that was originally placed in service before January 1, 2006. Earlier sunset dates were extended a
number of times after Section 45 was originally added to the Code, and a number of attempts were made during
and prior to 2004 to pass legislation that would have extended the January 1, 2006 sunset date. Although none
of these attempts was successful, many practitioners and industry representatives continue to be hopeful that
future legislation will reinstate the PTC for facilities placed in service in 2006 and thereafter. At present,
however, electricity produced by facilities placed in service on or after January 1, 2006 will not qualify for the
PTC.
H. Monetizing the Credit. A taxpayer that has little or no need for tax credits (e.g., because it has
little or no taxable income) may nevertheless be able to obtain the benefit of the PTC by entering into an
arrangement with an investor that needs credits. For example, a taxpayer could enter into a partnership with an

investor that is willing to contribute cash to help finance a wind power facility. The partnership could then
operate the facility and, within certain limits, the PTC could be allocated to the partner having a need for credits.
Another possible technique would be for the taxpayer to sell a facility to an investor that needs tax credits. The
investor could then enter into a power purchase agreement and an operation and maintenance agreement with
the taxpayer. The investor could also consider granting the taxpayer an option to repurchase the facility in the
future. Both of these techniques involve risk and require careful tax planning. These and other considerations
should be taken into account when choosing the type of entity that will own a production facility and the various
financing alternatives.
II. State and Local Tax Issues. In addition to federal income tax issues, construction and operation of wind
power facilities also raise numerous state and local tax issues.
A. Net Income Tax States. Forty-six states impose a corporate net income tax. States generally
base their income tax system on the federal system, and many states have adopted relatively uniform rules
governing division of the tax base and computation of taxable income. Despite these similarities, each state’s tax
system is different and must be separately analyzed.
1. Nexus and Apportionment. Siting a wind project in a state generally will create “nexus”
with the state and will allow the state to tax the income of the company that owns or operates the project. Less
substantial activities, such as consulting, also may create nexus with a state.
States generally measure the taxable income of a multistate company by allocation and apportionment. There is
a trend toward apportioning income based solely on sales within the state. However, many states still apportion
a company’s overall business income based on property and payroll, as well as sales, in the state. In determining
where a sale of electricity occurs, some states such as California source the sale based on where the majority of
the income-producing activity occurs. Other states may use different sourcing rules for sales of electricity.
Corporate structure can greatly affect state income taxation, and it is worthwhile to consider tax issues when
deciding whether to form a new subsidiary for a project in a new state. More than one-half of the states are
“separate return” states: Tax is imposed only on the apportioned income of the particular corporation doing
business in the state, even if the corporation is part of a consolidated group. Other states, particularly western
states, impose a “unitary tax”: Tax is imposed on the combined income of some or all members of the corporate
group, as apportioned to the state.
The apportionment rules can produce surprising results. For example, in a unitary state, if the corporate group as
a whole has taxable income, state tax may be owing even if the activities in that state are not profitable on a
stand-alone basis. By contrast, in a separate return state the income of multiple subsidiaries in different states
may be subject to tax if the subsidiaries are formed as single-member limited liability companies instead of
corporations.
2. Income Tax Incentives. Some income tax states offer incentives to promote the
development of wind power and other alternative energy projects. It is important to understand the nature of
each incentive, as there is considerable variation among the states. Also, as noted above, some state incentives
may reduce the amount of the PTC available for the project.

For example, Oregon has adopted a business energy tax credit (the “BETC”). The BETC program allows an
Oregon taxpayer that owns and operates a wind power project to claim a credit against Oregon income tax to
offset the eligible costs of construction of the project. The amount of the credit is 35 percent of the eligible costs,
up to a maximum total credit amount of $3.5 million. The total credit amount is claimed over five years, and
unused credit may be carried forward for up to eight years. Because the BETC is based on construction costs,
there is a risk that the BETC reduces the amount of PTC available, although the IRS has not addressed this issue.
Furthermore, it is possible that Oregon law may reduce the amount of BETC if the PTC is claimed with respect to
production from the facility.
B. Sales and Use Taxes. Forty-six of the states impose a sales tax. In most states, the tax is
imposed only on sales of tangible personal property. Some states also impose use tax on sales of certain kinds of
services. In addition, some states impose a transfer tax on the sale (and sometimes the lease) of real property.
1. Purchase or Use of Turbines and Other Equipment. Most states’ sales and use taxes
will apply to purchases or use of turbines and other equipment within those states. Idaho, however, recently
adopted an exemption from sales tax for machinery and equipment used in electricity projects of twenty-five
(25) kilowatts or greater involving alternative methods of energy generation, including wind. The exemption
is effective April 12, 2005. The Idaho exemption is based in part on a similar Washington exemption that
applies to machinery and equipment, and services, used in constructing a facility of 200 watts or more.
2. Generally No Sales or Use Tax on Sales of Power. Most states that impose sales and
use taxes do not impose those taxes on sales or use of electricity.
C. Property Tax. Virtually all states impose property tax that is measured by the value of real
property and is assessed annually. Most states also tax tangible personal property that is used for business
purposes. Intangible property is taxable in some states if the owner is centrally assessed as discussed below.
1. Central Assessment Likely. In many western states, such as Oregon and Washington,
a company that produces electricity is automatically “centrally assessed” for property tax purposes. Central
assessment means that the amount of property tax is determined by the state revenue authority rather than by
the county assessor’s office.
2. Valuation. States generally accept the three traditional valuation methods for valuing
utility property (the cost approach, income approach, and comparable sales approach). Determining the correct
value of a particular project is a matter of frequent controversy. It is often useful to consult an expert in the area
of utility appraisal.
3. Property Tax Reporting. Some states require owners of centrally assessed property to
file annual returns reporting the value of their property. It is good practice to consult a valuation expert before
filing the first return with respect to the property, in order to accurately communicate on the return items that
could result in tax savings in future years.
4. Rollback Penalties in Farm and Timber Use Areas. Some states, such as Oregon,
impose property tax penalties when land that is used for farming or timber is dedicated to a different use. In

addition to those penalties, the property is subject to a higher rate of tax after the change of use. This issue
typically arises when leases for turbine sites are negotiated.
5. Property Tax Incentives. As part of due diligence in constructing or acquiring a wind

facility, it is worthwhile to inquire whether any property tax incentives are available. In Oregon, for example, it
may be possible to obtain a temporary property tax exemption under the state enterprise zone program.
Enterprise zones are geographic areas established by one or more cities or counties within which new property
may obtain an exemption, typically for three to five years. To qualify, state law requires that the company
increase its permanent, full-time employment within the zone by at least 10 percent (i.e., one employee may
satisfy the minimum hiring requirement if the company has not previously operated within the zone). Other
requirements, such as minimum capital investment size, may apply. Oregon legislation in 2003 facilitates wind
projects by allowing any rural county to apply to become a “Rural Renewable Energy Development” zone (“RRED
Zone”). A county that becomes a RRED Zone may grant exemption for renewable energy projects (including wind
power projects) throughout the county, without regard to the boundaries of the regular enterprise zone within the
county. A per-county cap applies: The value of renewable energy property within the county that is eligible for
the exemption may not exceed $100 million.
D. Excise Taxes. When considering operation of a wind power facility, state and local excise taxes
also should be taken into account.
1. Washington Public Utility Tax. The state of Washington and a number of

municipalities within Washington impose a public utility tax (“PUT”) on the privilege of engaging in certain utility
businesses within the state and those localities. The state PUT is imposed at a rate of 3.62 percent of gross
income derived from certain enumerated public service businesses, including the “light and power business.”
The “light and power business” is defined for purposes of the state PUT as “the business of operating a plant or
system for the generation, production or distribution of electrical energy for hire or sale and/or the wheeling of
electricity for others.” The state PUT is intended to apply only to revenues derived from the retail sale of
electricity to consumers. Accordingly, deductions in computing gross revenues are allowed for, among other
things, revenues derived from the sale of electricity for resale. To the extent a business is subject to the state
PUT, that business will not be subject to the Washington business and occupation tax. Cities and towns may
impose a PUT of up to 6 percent of gross revenues derived from conducting an electrical energy business.
2. Other State and Local Excise Taxes. Other states and localities may impose other
kinds of excise taxes. For example, some Nevada counties and cities impose gross receipts taxes for the privilege
of doing business in the locality. California imposes a fee based on gross receipts for the privilege of doing
business as a limited liability company. All potentially applicable taxes, including state and local excise taxes,
should be carefully analyzed in determining the costs and benefits of operating a wind power project.

Robert T. Manicke
Law Practice
Robert Manicke is a member in the firm’s Portland office. His practice
emphasizes state and local tax matters, federal income tax planning and
employment tax matters. He regularly represents clients in the Oregon Tax
Court and before the Internal Revenue Service. His practice includes advance
federal and state tax rulings and drafting and advising on state and local tax
legislation.

Associate, Tax and International Transactions Group, Pillsbury Madison & Sutro
(1992-95).
503-294-9664 Direct
503-220-2480 Fax
Professional Activities rtmanicke@stoel.com
Member, ABA Tax Section, including state tax nexus article group and
Employment Tax Committee. Education
Executive Committee, Oregon State Bar Tax Section. J.D. summa cum laude, Order of the Coif,
University of Illinois College of Law, 1992
Former Board Member, Oregon Tax Research. Board of Editors, University of Illinois Law
Board Member, German American School of Portland. Review
B.A. cum laude, Willamette University, 1984
Publications Centralia High School, Centralia,
“Property Tax Exemptions in Oregon: Slips and Tips,” 8 Oregon State Bar Washington, 1980
Taxation Section Newsletter 1 (Spring 2005). Admissions
State bar s of California, Oregon,
“Tax Issues,” in The Law of Wind: A Guide to Business and Legal Issues Washington
(Stoel Rives 2005), co-author with Kevin T. Pearson.
Foreign Languages
“Tax Issues,” in Lava Law: Legal Issues in Geothermal Energy Development German, Dutch (reading ability)
(Stoel Rives 2005), co-author with Kevin T. Pearson.
Council on State Taxation, co-author of survey of Oregon income tax

developments, semiannually since 1995.
ABA Property Tax Deskbook, co-author of chapter on Oregon property tax,

annually since 1996.
“Oregon Pollution Control Facility Tax Credits: 2001 Legislative Changes,”

Oregon Insider, Issue 279 (September 1, 2001), co-author with David E. Filippi.
“Using a German ‘Hybrid’ Entity: New Proposed ‘Check-the-Box’ Regulations

Would Simplify Planning, Require Election,” Oregon State Bar Int’l Law Section
Newsletter 1 (July 1996), reprinted in International Lawyers’ Newsletter 5
(September/October 1996).
Kevin T. Pearson
Law Practice
Kevin is a member of the Tax Section of the firm’s Business Services Group. His
practice focuses principally on federal income tax law, including both
transactional matters and tax controversy matters. As part of his transactional
practice, Kevin regularly advises clients regarding all aspects of corporate
taxation, including taxable and tax-free mergers and acquisitions, debt and
equity offerings and other corporate finance transactions, consolidated return
issues, and general corporate tax issues. He also regularly represents clients
with respect to partnership, S corporation and limited liability company
transactions and tax issues, as well as choice-of-entity issues, tax accounting
issues, and general tax planning issues. In addition, Kevin frequently represents
clients in renewable energy financing transactions, particularly those involving
503-294-9622 Direct
the federal production tax credit. As part of his tax controversy practice, Kevin 503-220-2480 Fax
regularly represents taxpayers in IRS audits and administrative appeals, ktpearson@stoel.com
deficiency litigation in the U.S. Tax Court, and refund litigation in U.S. District
Courts and the U.S. Court of Federal Claims. Education
LL.M. (Taxation), Georgetown University
Law Center, 1998
J.D. summa cum laude, Gonzaga University
Attorney-Adviser to Judge Laurence J. Whalen of the U.S. Tax Court (1996-98); School of Law, 1996
legal intern, Office of the U.S. Attorney for the Eastern District of Washington Articles Editor - Gonzaga Law Review,
(1994-96). 1995-96
National Moot Court
Professional and Community Activities B.S., Linfield College, McMinnville, Oregon,
Member, American Bar Association Tax Section, Washington State Bar Association 1992
Tax and Business Law sections, Oregon State Bar Tax Section, Multnomah Bar Admissions
Association, Portland Tax Litigation Club; former board member, Linfield College State bars of Oregon, Washington
Alumni Association. U.S. Court of Federal Claims
U.S. Tax Court
Coauthor, “Investing in Renewable Energy: Investment by Non-Utilities in
Electric Generation Can Have Far-Reaching Tax Benefits,” in The Energy and
Utilities Project: Innovation for the Future (vol. 5 2005)
Coauthor, “Tax Issues” in The Law of Wind (Stoel Rives, 2005)
Coauthor, “Tax Issues,” in Lava Law: Legal Issues in Geothermal Energy
Development (Stoel Rives 2004)
Coauthor, “The 2003 Confidential Transaction Tax Shelter Regulations: Another
Chapter in the Disclosure and List Maintenance Regulations Saga,” in Corporate
Taxation, (May/June 2004)
Coauthor, “Tax Issues,” in The Law of Wind: A Guide to Business and Legal
Issues (Stoel Rives 2003)
Kevin T. Pearson
Publications and Presentations (cont.)

Coauthor, “The Sarbanes-Oxley Act of 2002: Important Tax-Related Issues,” presented to the Tax Executives Institute
(October 2002)
Author, “What Every Business Lawyer Needs to Know About Tax,” presented to the Oregon State Bar Young Lawyers Division
(October 2002)
Speaker, “New Proposed Anti-Morris Trust Regulations Under IRC § 355(e),” Portland Tax Forum (May 2001)
Coauthor, “Corporate Reorganizations: Basic Concepts, Emerging Issues, and Unique Reorganizations,” Oregon State Bar Tax
Institute, (June 2000)
Coauthor, “Equity Compensation: Basic Concepts and Emerging Issues,” presented to the Tax Executives Institute (April 1999)
Kevin frequently speaks at continuing legal education and other seminars regarding a wide variety of tax issues, including tax
considerations in choosing a form of business entity, tax aspects of corporate reorganizations and other corporate
transactions, tax considerations in partnership, S corporation and real estate transactions, tax planning for equity
compensation, and ethical rules governing tax practitioners.
Chapter Seven
The Law of Wind
—Choice of Corporate Structure and Entity—
Todd E. Barker
The developer or owner of a wind power project typically holds a variety of real property rights, equipment,
permits and regulatory approvals, and intellectual property. Creating the optimal corporate structure and entity to
hold these assets is an important first step toward the project’s success. Planning early helps avoid costly
transitions later.
I. Use of Subsidiaries. There are many reasons to develop, own, or operate a wind power project through
a subsidiary created specifically for that purpose:
A. Insulation From Risk. The use of a single purpose subsidiary to own a wind power project
allows the parent company to limit its potential liability to the value of the assets of the project. If a company
holds several projects directly or owns other assets, a creditor with respect to one project can seek recovery
against all of the company’s assets.
B. Financing. Financing for wind power projects is typically provided on a stand-alone, limited
recourse basis in which the lender looks primarily to the cash flow and assets of the project to satisfy debt service
obligations. In this regard, the ownership of the project assets in a single purpose subsidiary enables a project
lender to protect its collateral package from other creditors. For more information about financing, see Chapter
Three.
C. Regulatory Considerations. To avoid restrictions under the Public Utility Holding Company Act
of 1935, most wind power projects seek to qualify as an exempt wholesale generator (“EWG”). A substantial
parent energy company probably would not qualify as an EWG, because it most likely would not exclusively own
and operate generation projects and sell power at wholesale. A subsidiary that solely owns and operates the
wind power project and satisfies other conditions will likely qualify for EWG status. For more information about
EWGs, see Chapter Nine.
D. Exit Strategy. The use of a subsidiary also facilitates a transfer of all or portions of the project.
It is far easier to sell a wind project by transferring the stock of or interest in a subsidiary that owns the project
than to identify and transfer commingled assets. Even if a company prefers to sell assets, the isolation of the
assets in a subsidiary simplifies the transaction.
II. Choice of Entity. The choice of the type of entity to own the project, whether a corporation, partnership,
or limited liability company (LLC), is generally less significant than the choice to use a subsidiary. Subtle
differences exist, however, among the entities based on various factors, such as taxation, liability, and
transferability issues.
A. Taxation. Corporations are separate tax-paying entities. As a result, the income of a corporation
is generally subject to two levels of tax: one at the corporate level and a second at the shareholder level when
distributions are made or when stock is sold or the corporation is liquidated. Partnerships and LLCs are “pass-
through” entities that are generally not themselves subject to income tax; rather, the income, deductions, gains,
and losses flow directly to the partners or members, who report these amounts on their individual returns.

1. Distributions. Corporate distributions must generally be made on a pro rata basis;
however, partners and members have more flexibility in allocating profits, losses, and credits, including the
production tax credit, and in making distributions on a non-pro-rata basis. They can also generally allocate
profits or credits in one way and losses in another. Moreover, subject to the tax laws regarding deductibility,
partners and members may use partnership and membership losses against other taxable income.
2. Tax Credits. A corporation (rather than its shareholders) must use tax credits. If it
cannot use the tax credits (for example, if it has insufficient net income), and if it cannot carry the credits forward
or back to a tax year in which the credits can be used, the credits expire. Partnerships and LLCs, however, may
pass credits through to their partners or members, who generally may use them to offset their tax liability,
including their tax liability from other activities or operations. As discussed in Chapter Six, this may be an
especially important consideration if a developer wishes to “monetize” tax credits.
3. Losses. Corporate losses also must be used, if at all, at the corporate level. Losses of a
partnership or an LLC, however, are passed through to its partners or members, who may be able to use them
against their income, including income from other sources. The ability of partners and members to use losses
may be limited by the “at risk” and “passive activity” limitations imposed by tax rules.
4. Contributions. Contributions of property (i.e., not services) to a corporation, either

upon its initial organization or admission of additional owners, may trigger the recognition of gain with respect to
the contributed property unless certain control requirements are satisfied. On the other hand, except in certain
limited circumstances, contributions to partnerships or LLCs in exchange for an ownership interest are generally
not taxable events.
5. Reorganizations. Generally corporations may engage in tax-free reorganizations and

spin-offs, whereas a partnership or an LLC may not.
6. State Taxes. Applicable state taxes may favor the selection of one legal structure over
others. For example, in Texas, limited partnerships are not subject to franchise tax, whereas corporations and
LLCs must pay it.
B. Liability. Shareholders, limited partners, and members are generally not liable for the debts of
the entity beyond their capital contributions, while the general partner is generally liable for the debts and
obligations of the partnership. In certain circumstances, such as when the entity fails to comply with corporate
formalities or when the subsidiary is undercapitalized, owners may be held liable for the debts of the entity.
Because corporations generally must comply with more formalities than partnerships or LLCs, there may be less
risk that limited partners or members of an LLC would be liable for the debts and obligations of the entity.
C. Management and Operations. Corporations must follow the formalities that are prescribed by
law, such as holding annual shareholder meetings and annual board meetings and maintaining records of actions
of the board of directors. Partners and members generally determine how the partnership or LLC is managed in
the partnership or operating agreement and generally have more flexibility regarding management of the entity.

D. Transferability. A parent corporation can generally freely transfer the stock of a subsidiary,
subject to restrictions under federal and state securities laws. The operating and partnership agreements
generally determine how a transfer of interest occurs. Owning the project through a subsidiary LLC may facilitate
a sale of a partial interest in the project because the sale of a membership interest or issuance of a new
membership interest allows a third party to acquire and own an interest in a tax-efficient manner. Also, from an
exit-strategy perspective, an LLC does not lock a potential buyer into the corporate form. This flexibility can be
advantageous if investors are interested in owning and operating the project. Further, the sale of all interests in a
multiple-member LLC to a single buyer may be treated as an asset purchase by the buyer, with the
accompanying tax benefits.
E. Regulatory Considerations. As discussed earlier in this section, to qualify as an EWG the owner
must exclusively own and operate the wind power project and sell power at wholesale rates. Any type of entity
may obtain EWG status.
F. Financing. As discussed more thoroughly in Chapter Five, while financing is best done through
a subsidiary, the type of entity that owns the wind power project generally does not have an effect on financing..
III. Benefits of Early Choice of Structure and Entity. Many developers tend to begin work on a prospective
wind project in the name of the parent corporation and create a project-specific subsidiary when the project is
relatively far along. While this process has a degree of logic to it, it is very important to understand that some
property rights, permits and contracts may have restrictions on transfer that would be triggered when the parent
company attempts to transfer the rights and permits to the newly formed subsidiary. Transfer approval processes
may be public (in case of permits) or may reopen previously negotiated contract terms. For these reasons,
choices of entity and structure should be settled as early as possible. In addition, transfers of assets which have
become subject to the jurisdiction of the Federal Energy Regulatory Commission under the Federal Power Act
may trigger a requirement to obtain the approval of FERC, under Section 203 of the Act, for the transfer.

Todd E. Barker
Law Practice
Todd Barker is an associate in the Corporate practice group. Todd assists
companies in public and private financings, mergers and acquisitions and general
corporate and contracting issues.

Summer associate, Stoel Rives LLP (1999); summer associate, Ater Wynne LLP
(1998); extern, Judge Diarmuid F. O’Scannlain, U.S. Court of Appeals, Ninth
Circuit (1998).
Community Activities
Todd has assisted various 501(c)(3) organizations as a board member and with 206-386-7644 Direct
206-386-7500 Fax
legal issues. tebarker@stoel.com

J.D. magna cum laude, Notre Dame Law
Member, Executive Committee, Business Law Section, Washington State Bar
School, 2000
Association; co-chair, Recent Developments Committee, Business Law Section,
Editor-in-chief, Notre Dame Journal of
Washington State Bar Association; member, Securities Regulation Section, Law, Ethics & Public Policy (1999-2000)
Business Law Section and International Law Section, Oregon State Bar B.A., Lewis & Clark College, 1994
Association; member, Multinomah County Bar Association.
Admissions
State bars of Washington, Oregon
Publications
Foreign Languages
Co-author, “Public Financing” and “Assisting an Extranational Corporation in Spanish
Oregon,” in Advising Oregon Businesses (OSB CLE 2001); co-author, “Overview
of Authorities Governing Attorney Conduct,” in The Ethical Oregon Lawyer
(OSB 2003).
Chapter Eight
The Law of Wind
—Labor Issues—
James M. Shore
I. Organized Labor Issues. As in any construction project, wind power project developers will face the
question of whether to use union labor. The Carpenters Union, Ironworkers Union, International Brotherhood of
Electrical Workers, Laborers Union, and Plumbers and Pipefitters Unions cover almost any job that is performed
on a construction site. There are arguments both for and against the use of union workers. Opponents assert
that union labor simply raises the costs of a project for no reason. By contrast, unions argue that union
craftsmen are the most skilled and, therefore, projects will have fewer accidents and a higher-quality product.
Whatever one’s opinion may be, it is important to be aware of the issues surrounding organized labor. It is also
important to understand the way in which these issues can go directly to a project’s bottom line, whether as
increased labor cost or as increased permitting and mitigation costs caused by union opposition at early stages of
a project.
A. Organizing. Lately, unions have stepped up their efforts to organize workers in new fields and
industries. For example, in the Northwest, the International Brotherhood of Electrical Workers has focused its
efforts on contractors engaged in gas pipeline expansion projects. Organizing construction workers is different
from the typical organizing that takes place in other private industries. Federal labor law allows construction
unions and employers to enter into prehire agreements. This means that the employer and the union can
enter into a collective bargaining agreement before a single employee is hired. Such agreements are illegal in
other industries.
Because prehire agreements are legal in the construction industry, organizing typically focuses on the contractor.
The unions focus on getting the contractor to sign an agreement rather than on soliciting employees. If a
contractor refuses, the unions will usually picket the site and engage in other pressure tactics to force the
contractor to relent and sign an agreement.
1. Picketing. Picketing is the most common tactic used at construction sites. The union
will strategically place pickets at the entrances to a site, in hopes of stopping union deliveries, preventing any
union subcontractors from entering, garnering public support, and generally disrupting operations. Contractors
and project managers can limit the effectiveness of any picketing campaign by establishing separate reserved
gates. If such gates are established correctly, the union will be limited in where it can picket, thus allowing
deliveries and work to proceed without significant interruption.
2. Legal Challenges. A new union strategy that has proven costly to employers is the
funding of lawsuits against union-free employers. The most common suit is for wage and hour violations such as
the failure to pay overtime properly. Unions have also attacked companies by filing multiple safety complaints
with the Occupational Safety and Health Administration. The goals are transparent. First, the union wants
to increase the cost of remaining union-free by forcing the employer or contractor to incur legal expenses.
Second, the union’s lawsuit is meant to show employees the union’s power to protect employees from
“greedy” employers.

3. Other Types of Pressure. In addition to picketing and legal challenges, unions have
increasingly turned to the media and politics to put pressure on businesses and contractors. Rather than
concentrating on the “bread-and-butter” economic issues, which tend to be boring to the average mass-media
consumer,, unions have turned to “hot-button” moral and ethical issues to increase the heat on nonunion
companies. Unions are now joining forces with community, health and safety, immigration, and environmental
groups such as Greenpeace. For example, to pressure the increasingly nonunion lumber industry, unions have
joined forces with environmental groups to protest logging.
A more potent weapon for unions has been political pressure. If a wind project will involve public land or the
cooperation of local government, it is important to keep in mind that union members may form an important part
of the local politicians’ constituencies. The unions may pressure politicians to condition governmental
cooperation on the use of union labor. The issue of prevailing wages will also be championed by unions.
4. Salting. Salting is a very common tactic in construction trades and is becoming more
popular in private industry. A union will “salt” a work force by sending a paid union organizer to apply for a full-
time position on the job site. The organizer will openly state on his or her application that he or she is applying
for work in order to organize the work force. If the organizer is qualified for the position, this puts the employer
in a difficult situation. The employer can either hire the organizer or refuse to hire the individual and face a
possible discrimination charge. Another salting technique is to flood the job site with applications from union
members. This places the employer in the same untenable position.
5. Permit Extortion. In recent years unions have become fairly sophisticated at identifying
energy projects at a very early permitting stage and at opposing projects that have not signed a prehire
agreement. Unions often raise a wide variety of environmental issues. They can be very dangerous opponents
because they have the resources to hire lawyers and technical consultants. Unions often make a large issue out
of “local hiring” and tend to get a good reception for this theme with local- and state-level decisionmakers.
B. Elections Before The National Labor Relations Board. The law does not require an employer to
voluntarily recognize a union in the construction industry or any other industry. If an employer refuses to agree to
a union’s demand for recognition, the union can petition the National Labor Relations Board (the “NLRB”) to
conduct an election. To get an election, the union must have the support of 30 percent of the employee group
that it seeks to represent. To win an election, the union must garner support from a majority of the group.
Before the election, there is a period during which both the union and the employer may campaign. During that
time, certain legal rules must be followed. In fact, the restrictions apply whenever an employer has knowledge
of a union drive. For example, an employer may not promise increased benefits to induce employees to reject
the union and cannot change wages, hours, and working conditions in an attempt to dissuade employees
from voting for the union. In addition, an employer may not threaten employees or punish them for supporting
the union. Similarly, an employer cannot spy on union meetings or question employees about their union
affiliation. The NLRB has interpreted these rules broadly, so employers must be wary when speaking with
employees about unions. There are many subtle interpretations, and employers faced with organizing are
encouraged to seek legal counsel.

II. Union Organizing May Arise in Operations as Well. Union organizing is not limited to construction.
Unions may attempt to organize the employees who operate or maintain the wind farm. There has been at least
one election in California in which a union attempted to organize wind farm employees. The simplest way to
avoid or defeat a union organizing drive is to manage the work force fairly so that employees do not feel the need
to seek outside representation. An organizing drive, however, is not the end of the road. Employers have been
successful both in union elections and at the bargaining table.
III. Collective Bargaining. A common misperception about unions is that once a union wins an election, the
employer must then pay so-called “union wages.” That is simply not true. Unless the employer is in the
construction industry and has signed a prehire agreement, the determination of wages, hours, and working
conditions is left to the collective bargaining process. During the collective bargaining process, nothing is
automatic or guaranteed. Employees can end up with the same, more, or fewer wages and benefits than they
currently enjoy. In fact, wage rates may decrease because of bargaining. Moreover, an employer is not legally
required to come to an agreement with the union. The only requirement is that the parties bargain in good faith.
IV. Conclusion. Obviously, this article cannot cover the full expanse of labor law and the conflicts and
challenges that might develop. However, labor issues are usually one of the last considerations in planning and
developing projects such as wind farms. Knowing the risks, costs, and options will allow developers to better
plan for any issues that may arise.

James M. Shore
Law Practice
Jim Shore is a labor and employment attorney and a principal in Stoel Rives LLP.
He has extensive experience representing employers in all aspects of labor
relations and employment law, including business acquisitions and
reorganizations, union organizing campaigns and representation proceedings,
collective bargaining negotiations, arbitrations, non-competition and trade secret
litigation, wrongful discharge litigation, individual and class action employment
discrimination claims, sexual harassment litigation, wage and hour cases, and
advice and document preparation regarding personnel policies, executive
agreements, employee discipline and discharge and labor relations. He has
represented all types of private and public employers in federal and state court
litigation and before administrative agencies, including the National Labor
206-386-7578 Direct
Relations Board, Equal Employment Opportunity Commission, Department of 206-386-7500 Fax
Labor, numerous state human rights commissions and the Office of Federal jmshore@stoel.com
Contract Compliance. In addition to his private practice experience, Jim has
been an in-house attorney and a director of labor relations for Associated Education
J.D. magna cum laude, Hastings College of
Grocers, Inc. He is a member of the Washington, Oregon and California bars, and the Law, University of California, 1987
is a past chair of the Employment Law Committee of the Washington Defense Trial
Hastings Law Review, 1985-1987
Lawyers Association.
Order of the Coif
B.A., New College of University of South
Professional and Community Activities
Florida, 1983
Member, Northwest and National Societies for Human Resource Management
(legislative chair of Northwest Section, 2001); member, Labor and Employment Admissions
State bars of Washington, Oregon and
Law Sections of the Washington State, California State, King County and American California
Bar Associations; member, Pacific Coast Labor Law Conference Planning
Committee; member, American Bar Association Litigation Section; member and
past chair, Employment Law Section of the Washington Defense Trial Lawyers
Association; Bainbridge Island Chamber of Commerce.
Representative Cases
Successfully defended an investment advisory firm in a breach of employment
contract lawsuit in the United States District Court, Western District of
Washington, and obtained a six-figure recovery for the client on its
counterclaims.
Successfully obtained summary judgment in favor of McDonald’s Corporation in a

sex harassment and negligence lawsuit filed by a former franchisee’s minor
employee and her family in King County Superior Court.
Successfully obtained summary judgment in favor of McDonald's Corporation in a

sexual harassment and multiple tort lawsuit filed by an employee in Montana
State Court.
James M. Shore
Representative Cases (cont.)

Successfully defended a major grocery distributor in a breach of contract lawsuit filed by an employee in the United States
District Court, Western District of Washington.
Obtained a jury verdict in favor of a major airline in a disability discrimination cased filed in the United States District Court
of Oregon.
Successfully defended a major grocery chain in a sexual harassment case filed by an employee in Humboldt County Superior
Court in California.
Successfully defended numerous public and private sector employers in arbitrations with unions concerning employee
discharge and contract interpretation matters.
Successfully represented a college in an appeal to overturn an arbitrator’s award. The published court decision created new
law concerning overturning an arbitrator’s decision.
Successfully represented numerous private and public sector employers in EEOC, NLRB and other federal and state labor and
employment law agency proceedings.
Lead labor and employment law attorney on numerous national and multi-national corporate transactions.

"'Can I Fire This Employee?' Responding to Your Client's Termination Crises," WSBA Employment Law Institute (2005);
“Sarbanes-Oxley and Whistleblowers,” WSBA Employment Law Institute (2004); “Interviewing and Hiring: Keeping Your
Recruitment Strategies Legal,” “Documentation and Recording-Keeping: Drafting Lawful Policies and Procedures and
Maintaining Personnel Records,” The Definitive Guide to Employment Law for HR Professionals in Washington (2003);
“Termination Without Tears,” HR Northwest Breakfast Briefing (2003); “Employment Law Update,” South King County
Chapter of the Society for Human Resource Management (2003); “Preserving Employer Discretion Through Proactive Policies,
Handbooks and Practices,” Discharge, Documentation and Employee Handbooks in Washington Seminar, Lorman Educational
Services (2002); “Employment Law Update: Practical Training for Current Issues in Washington,” Lorman Seminar Group
(2002); “Legal Update” West Sound SHRM Chapter (2002); “Survival 101: The Employer’s Survival Guide,” Stoel Rives Labor &
Employment Seminar (2002); “Effective Planning and Management Layoffs,” Lorman Seminar Group, (2002); “Limiting
Workplace Violence: Effective Management of Volatile Employees,” Lorman Seminar Group (2002); “Handling Workplace
Violence: A Collaborative Approach to Protecting Your Organization From Liability & Your Employees From Harm,”
Washington Personnel Law Update (2001); “What to do When Performance Issues and Reasonable Accommodation Obligations
Collide,” Stoel Rives Labor & Employment Seminar (2001); “Minimizing the Risk of Employment Litigation,” Puget Sound
Hospitality Human Resources Association (2000); “Employment Law for In-House Counsel and General Practitioners,” King
County Bar Association (1999-2001, speaker and program chair); “Representing High Technology Companies,” King County Bar
Association (1999-2001, speaker and program chair); “Top Ten Ways to Get Sued by Your Employees and How to Minimize the
Risk,” Bainbridge Island Chamber of Commerce (2000); Best Employment Practices and EPLI Insurance, Sullivan & Curtis
(2000); “Recruitment Solutions,” Washington Bankers Association Human Resources Conference (2000); “Investigating Sexual
Harassment Complaints and Other Alleged Employee Misconduct,” Washington State Bar Association (1999); “Employee
Handbooks and Personnel Policies,” Washington State Bar (1999); “Don’t Say You Didn’t ‘WARN’ Them: Analysis of Federal
Plant Closing Law,” San Francisco Attorney Magazine (1989); “Attorney or Persuader: Analysis of Attorney Involvement in
Combating Union Organizing Campaigns,” San Francisco Attorney Magazine (1989).
Chapter Nine
The Law of Wind
—Regulatory and Transmission-related Issues—
Stephen C. Hall, Marcus A. Wood
Long before a wind energy developer begins generating the first MW of power, the developer must decide on a
regulatory structure for the project, negotiate and execute transmission and interconnection agreements, and
purchase necessary transmission ancillary services. This chapter presents a general discussion of these issues
only. Before embarking upon a particular course of action, it is highly recommended that a developer seek the
opinion of qualified counsel, especially considering that many of the laws and regulations relating to these topics
may be affected by recently proposed legislation and ongoing rulemaking proceedings.
I. Regulatory Structure Issues—PUHCA, EWGs, and QFs. (Legislation that would repeal the Public Utility
Holding Company Act of 1935 (“PUHCA”) currently is before the United States Congress. If such legislation is
enacted, the current regulatory considerations discussed here will change substantially.) Unless exempted, wind
energy project companies are “public utility companies” under PUHCA. The main consequence of this
classification is that an entity that owns 10 percent or more of the voting securities or otherwise is deemed to
control any such company may be deemed to be a “public utility holding company.” PUHCA subjects public
utility holding companies and their subsidiaries to extensive regulation by the Securities and Exchange
Commission. Accordingly, most independent power producers take advantage of the various exemptions from
PUHCA. The two most common exemptions are for the project owner to obtain status as an exempt wholesale
generator (“EWG”) or a qualifying facility (“QF”). Each of these categories is summarized below.
A. Exempt Wholesale Generator Status. In an effort to stimulate wholesale electric competition,

Congress enacted the Energy Policy Act of 1992, which created an exemption from PUHCA for independent
power producers that qualify as EWGs. EWG status is determined by the Federal Energy Regulatory Commission
(“FERC”), and the EWG status begins once the independent power producer files an application with FERC.
EWG status is available to any generator of electricity, regardless of size or fuel source, so long as such entity is
exclusively in the business of owning and/or operating electric generation facilities for the sale of energy to
wholesale customers.
Independent power producers should be aware of several issues associated with EWG status. First, the
“exclusively own and/or operate” requirement mentioned above typically requires the creation of a special
purpose entity to own the wind generation facility and sell its electric output. Second, EWGs are restricted to
wholesale sales and therefore cannot take advantage of retail sale opportunities in jurisdictions that have
approved retail direct access. Finally, EWGs are restricted in their ability to enter into certain types of
transactions (such as leases) with affiliated regulated utilities.
Rates for power sales by EWGs are subject to FERC regulation under section 205 of the Federal Power Act. As a
result, EWGs must apply for and be granted market-based rate approval, i.e., power-marketing rights, from
FERC before entering into wholesale transactions for the sale of power at market-based prices. FERC generally
grants market-based rate approval, provided that the applicant and its affiliates (if any) demonstrate a lack of
market power over electric generation and/or transmission in the relevant markets, do not control barriers to
entry, and (if affiliated with a regulated utility) have adequate safeguards to prevent affiliate abuses. Once FERC
grants market-based rate approval, the EWG will have ongoing filing requirements.

B. Qualifying Facility Status. During the energy crisis in the late 1970s, Congress passed the
Public Utility Regulatory Policy Act of 1978 (“PURPA”) to encourage the development of cogeneration and small
renewable energy projects, including wind projects, which are referred to as QFs. Wind QFs up to 30 MW are
exempt from regulation under PUHCA, most of the provisions of the Federal Power Act, and certain types of state
utility regulations. One significant limitation on QF eligibility is that no QF may be principally owned (greater
than 50 percent) by any electric utility or electric utility holding company or any combination thereof.
Although subject to ownership limitations, wind generation QFs enjoy several advantages over EWGs. First,
PURPA does not restrict the ability of QFs to make retail sales to the extent such sales are allowed under state
law. Second, by virtue of the Federal Power Act exemption, QFs do not need FERC authorization to sell power at
market-based rates. Third, PURPA allows QFs to require retail public utilities to purchase QF output at the
utility’s “avoided costs,” i.e., the costs the utility would have incurred but for the QF purchase. State-established
avoided cost rates may exceed prevailing wholesale market prices.
II. Transmission and Interconnection Issues. Wind project developers will need to negotiate agreements to
interconnect with the transmission system of the applicable transmission provider. In addition, a developer will
need to obtain any necessary transmission service to deliver project output to the purchasers of that output.
Most lenders and many investors will require evidence of executed generation interconnection and/or transmission
service agreements as a condition of financing or project purchase. For projects located within the contiguous
states (and not in the Electric Reliability Council of Texas), both transmission service agreements and generation
interconnection agreements are subject to regulation by FERC.
A. Generation Interconnection Agreements. A generation interconnection agreement is a contract

between the generation owner and the transmission provider that owns the transmission system with which the
project will be connected. FERC’s Order 2003 establishes standard procedures and a standard agreement for the
interconnection of generators larger than 20 megawatts (“Large Generators”). The rule applies to the
approximately 176 investor-owned utilities that own, control or operate interstate transmission facilities. Non-
jurisdictional utilities that own, control or operate interstate transmission facilities, such as the Bonneville Power
Administration, that intend to maintain a FERC-approved Open Access Transmission Tariff will likely adopt the
standard procedures and standard agreements provided under Order 2003. Some flexibility may be allowed
within the rule, however, if the transmission provider is a regional transmission provider or an independent
transmission company.
FERC is currently conducting a rulemaking for generators with a capacity of 20 megawatts or less
(“Small Generators”). Until such time as FERC adopts a final rule, however, interconnection agreements and
procedures for Small Generators may vary from one transmission provider to the next, leaving FERC to continue
to decide interconnection issues on a case-by-case basis. Nevertheless, many utilities have their own standard
form of interconnection agreement that will serve as a starting point for negotiations. The two main purposes of
such agreements are (1) to identify and allocate the costs of any new facilities or facility upgrades that need to be
constructed and (2) to set forth the technical and operational parameters governing the physical interconnection.

1. Interconnection Facilities and Cost Allocation. In general, before the execution of an
interconnection agreement, the transmission provider will commission a series of interconnection studies, at the
interconnection customer’s expense, to determine what new interconnection and transmission facilities need to
be constructed to accommodate the new generation facility, and the cost of such construction. Because wind
projects typically span large geographical areas and are often located in remote locations, substantial new
facilities and facility upgrades may be required.
Order 2003 provides that Large Generators pay for the construction costs associated with connecting the
generating facility to the transmission grid (including any lines up to the point of interconnection). Any new or
upgraded facilities on the transmission provider’s side of the point of interconnection, as well as the point of
interconnection, are deemed to be “network facilities” or part of the transmission network. Network upgrades
are initially funded by the generator, and are paid back by the transmission provider, with interest, in the form of
transmission credits after the generator begins commercial operation. The generator also pays for the cost of
upgrades to the transmission provider’s jurisdictional distribution system to accommodate the new generator.
Similarly, under FERC’s current interconnection policy for Small Generators (e.g., 20 megawatts or smaller), the
generator pays for construction costs associated with new facilities on the generator’s side of the point of
interconnection. Likewise, network upgrades are often initially paid by the party requesting the interconnection;
however, once the delivery component of transmission service begins, the developer will receive transmission rate
credits that recognize the costs of the network upgrades. In some circumstances, however, the transmission
provider will pay for the transmission network upgrades, subject to the transmission customer’s posting of a letter
or credit or provision of a guarantee to ensure ultimate recovery of the cost of such facilities.
Determining the point of interconnection for purposes of distinguishing between interconnection facilities and
network facilities is an area of potential dispute between the parties. Transmission providers have an incentive to
design interconnections in a manner that places the majority of the new facilities on the customer’s side of the
interconnection, thereby depriving the customer of a transmission credit to offset the costs of such facilities.
Consistent with FERC precedent, only such facilities as are necessary to reach the point of interconnection are
properly classified as interconnection facilities.
Agreements to reclassify interconnection facility costs as network upgrades, or vice versa, have not been found to
be ‘just and reasonable,’ and have been rejected by FERC. However, FERC also has indicated that in the future
it may allow regional transmission operators and independent transmission companies more flexibility in deciding
how to allocate the cost of transmission additions between the transmission provider and the project owner..
2. Technical and Operational Issues. Interconnection agreements address such technical

and operational issues as reactive power factors, responsibility for electrical disturbances, metering and testing of
equipment, exchange of operating data, and curtailment events.

One operational issue of particular importance to wind plants is reactive power factors. Interconnection
agreements will specify the applicable reactive power factor within which the generator is required to maintain its
operation, typically a 95 percent lagging-to-leading factor. Variations in wind output may make it difficult for
wind generators to meet such reactive power requirements. Wind project owners often have to install substantial
additional capacitor banks to meet the reactive power requirements.
B. Transmission Service Agreements. Interconnection service or an interconnection by itself does

not confer any delivery rights from the generating facility to any points of delivery. Therefore, assuming the point
of sale of output from a project differs from the point at which the project interconnects with the transmission
grid, project owners may be required to obtain transmission service from one or more transmission providers to
wheel project output to the purchaser. Transmission providers are required by FERC to offer transmission service
on an open, nondiscriminatory basis pursuant to a transmission tariff that will govern the terms by which such
service is provided. Upon receiving a request for service, the transmission provider will evaluate available
transmission on its system and determine whether additional transmission facilities need to be constructed to
accommodate the requested service. In major parts of the United States, the transmission provider is a Regional
Transmission Organization (“RTO”) or Independent System Operator (“ISO”) rather than the actual owner of the
applicable transmission facilities.
Under FERC’s general transmission pricing policy, generators pay the greater of the incremental costs or
embedded costs associated with requested transmission service. Incremental costs refer to the additional system
costs (e.g., construction of new facilities and upgrades) resulting from the requested service. Embedded costs
reflect an allocation of system costs to the various users, generally based on MW of service. Wind projects,
because of their remote locations, may necessitate substantial system upgrades that will result in the
transmission customer paying an incremental cost rate that exceeds its pro rata share of the system costs.
Although the average output of wind projects is in the 30 to 40 percent range, during periods of adequate wind
flow, wind projects can operate at or near full capacity. As a result, the owners of wind projects need to have
available transmission service to accommodate the full project capacity. One result is that much of this
transmission capacity will go unused during periods when wind flows allow for less than full operation. Another
result is that the cost of transmission for a wind project normally will be substantially higher on a per-MWh basis
than the cost of baseload thermal generation.
These transmission pricing rules may be different if the transmission provider is an RTO. The rules of the existing
and proposed RTOs may in fact be much more favorable to wind generation than FERC pricing. For example, an
RTO may recover the fixed costs of the applicable transmission system from end users, with a generator facing
only any transmission congestion charges. The RTO also may eliminate rate “pancaking,” which is the
imposition of multiple transmission charges for use of more than one transmission owner’s transmission facilities.

III. Ancillary Services—Imbalance Charges, and Firming and Shaping Products. Project owners will be
required under the transmission provider’s tariff to either provide or purchase transmission ancillary services,
which are products designed to ensure the reliability of the transmission system. Of these products, generation
imbalance service often poses the most difficult issues for wind operators. Generation imbalance service is a
product that allows a generator to deliver an amount of energy that differs from the amount it had prescheduled
for an hour.
Most transmission providers price generation imbalance service based on the cost or value of the generation, plus
a premium. For example, a transmission provider may charge generators 110 percent of the cost of providing
replacement energy in hours when the actual output of a generator is less than scheduled output, and
compensate generators 90 percent of the value of energy produced in excess of the amount scheduled. In
addition to this basic charge, penalties may attach if the difference between scheduled and actual generation
exceeds a specified threshold. One common penalty is a 100 mill/kWh charge in the event that scheduled
output exceeds actual output by some percentage of the amount scheduled. Such charges are intended to
promote accurate scheduling and to prevent system reliability concerns associated with large-scale imbalances.
The disproportionate impact of generation imbalance charges on wind projects relative to other types of
generators is widely recognized. The basic problem is that the output from wind projects is dependent on wind
flows that often cannot be predicted with sufficient precision to avoid the imposition of such charges. As a result,
wind projects will experience greater deviations between actual and scheduled output, and will be subject to
greater imbalance penalties, than other types of generators that have greater control over their fuel source.
Penalty-type imbalance charges, as applied to wind generation, are view by the wind industry as unfair because
they penalize generators for variations in output over which the generators lack control.
Some transmission operators have enacted tariff or rate changes that remove the penalty-type charges for wind
and other intermittent-resource generators that lack the ability to schedule with sufficient precision to avoid such
charges. For example, the California Independent System Operator recently adopted a provision that provides for
monthly netting of imbalance charges, at market-based rates and without penalty charges, for wind and other
intermittent-resource generators. Also, the Bonneville Power Administration recently removed the 100 mill/kWh
penalty rate for generation imbalances by wind projects. FERC has been supportive of such initiatives and has
issued policy statements in connection with its recent market design efforts, calling for the further removal of
such penalties. Notwithstanding these limited initiatives, most transmission operators make no special allowance
for wind generation in the pricing of imbalance charges.
To avoid punitive imbalance charges, wind project operators may look to other generation suppliers to provide
firming and shaping products to accommodate their uncontrollable variations in output. Such products consist of
arrangements whereby the supplier will take or provide energy, as applicable, in hours when the actual
generation differs from the scheduled amount. One promising development in the Pacific Northwest is a product

called Shaping and Storage Service, which is offered by the Bonneville Power Administration’s Power Business
Line. Under this service, BPA takes the output of a wind resource and integrates and stores it in the Federal
hydro system. BPA then redelivers the product one week later in peak and off-peak blocks. In addition to a
per/MWh charge, the wind generator is responsible for two transmission wheels and imbalance charges, making
this a potentially expensive product. However, BPA is currently examining different ways to reduce transmission
costs for its Shaping and Storage Service, thereby reducing the price of this innovative product.
IV. Summary. Although much work remains in order to guarantee fair transmission access at reasonable
prices for renewable power sources, recent developments have made access to the transmission grid both easier
and more economical. FERC’s Order 2003, which adopted standardized interconnection procedures and
agreements for Large Generators, and is expected to adopt similarly standardized procedures and agreements for
Small Generators in the near future, is likely to expedite the interconnection of renewable power sources with the
transmission grid. Further, the elimination of penalties related to imbalance charges by certain transmission
providers, such as the Bonneville Power Administration, will help to reduce the cost of transmission of
intermittent resources, such as wind power. Finally, the increased availability of shaping and storage products---
if economically priced---should allow wind developers to diversify the markets for their products, thereby creating
additional opportunities for renewable wind energy.

Stephen C. Hall
Law Practice
Stephen Hall is a partner who practices energy law, with an emphasis on the
electric power industry. His background includes experience with major utilities,
investment banks, power marketers, consumer-owned utilities, federal power
marketing agencies, independent power producers, the California ISO, and wind
power plant developers. He has represented both regulated and independent
energy companies in a variety of business transactions, regulatory proceedings,
and litigation involving issues related to wholesale energy and transmission.

Director, UBS Warburg Energy LLC, (2002-03); Senior Counsel, Enron North
503.294.9625 Direct
America Corp. (2001-02); associate, Stoel Rives LLP (1997-2001); law clerk, Chief
503.220.2480 Fax
Justice James H. Brickley, Michigan Supreme Court (1996-97). schall@stoel.com

Oregon State Bar Public Utility Law Section; American Bar Association Public J.D., cum laude, University of Notre Dame
Law School, 1996
Utility Section; Energy Bar Association; Multnomah County Bar Association;
Book Review Editor, University of Notre
Western Power Trading Forum. Dame Law Review, 1995-96
B.B.A., cum laude, accounting, Western
Community Activities Michigan University, 1992.
Multnomah County Legal Aid Clinic Volunteer.
Admissions
Oregon State Bar
Marcus Wood
Law Practice
Marcus Wood concentrates his practice in the representation of regulated and
unregulated energy providers. He has extensive experience in representing
independent power company owners of both conventional and renewable
energy projects, as well as regulated electric, natural gas and water utilities.
He practices before the Federal Energy Regulatory Commission and before
utility regulatory bodies in the states of Oregon, Washington, California, Idaho
and Wyoming. He has been selected by his peers for inclusion in the Public
Utility Law section of The Best Lawyers in America (2005-06).
Practice Experience
503-294-9434 Direct
Marcus has represented numerous parties in the acquisition and financing of
503-220-2480 Fax
interests in and in the disposition of the output from cogeneration and other mwood@stoel.com
conventional electric generation facilities, as well from wind-powered and
geothermal energy resources. He has extensively advised and negotiated on Education
J.D., Yale University Law School, 1974
behalf of clients with respect to the structuring of energy projects and with
B.A., Phi Beta Kappa, cum laude, Vanderbilt
respect to the operating contracts, power sales contracts and transmission University, 1969
contracts required for such projects. He also has extensive experience advising
Admissions
sellers, purchasers and exchangers of electric capacity and energy, as well as State bar of Oregon
advising both transmission service providers and purchasers of electric U.S. District Court
transmission and related services. He has been a leader in efforts for the
U.S. Court of Appeals for the Ninth Circuit
creation of Regional Transmission Organizations. He has represented clients
U.S. Court of Appeals for the District of
both in rate proceedings and in investigations before the Federal Energy Columbia Circuit
Regulatory Commission.
Civic and Charitable Activities

Former vice-chairman, Tigard Planning Commission; former member board of
directors, Portland Youth Advocates; former director and board president,
Indochinese Cultural and Service Center; former director and board president,
Pacific Ballet Theatre; director, Outside In.
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A GUIDE TO BUSINESS AND LEGAL ISSUES

Compliments of Stoel Rives Attorneys

Welcome to the Law of Wind

2 Siting and Permitting Wind Projects

3 Power Purchase Agreements and Environmental Attributes

4 Design, Engineering, Construction & Turbine Purchase Agreements

5 Project Finance for Wind Power Projects

7 Choice of Corporate Structure & Entity

9 Regulatory & Transmission-Related Issues

Peter Mostow, Chair

• In today’s competitive environment, developers often begin acquiring rights in real

STOEL RIVES LLP © 2006 Ch. 1 – Pg. 1

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Comment, “Not in My Backyard: The Clash Between Native Hawaiian Gathering

STOEL RIVES LLP © 2006 Ch. 2 – Pg. 1

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STOEL RIVES LLP © 2006 Ch. 2 – Pg. 4

STOEL RIVES LLP © 2006 Ch. 2 – Pg. 5

STOEL RIVES LLP © 2006 Ch. 2 – Pg. 6

Tim has extensive experience in representing energy facility developers,

Professional Organizations and Community Activities

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 1

To be a qualifying facility, a wind plant must be either:

II. The Term.

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 2

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 3

C. Environmental Attributes. Environmental attributes are the credits, benefits, emissions

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 4

IV. Permitting and Development.

V. Interconnection and Transmission.

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 5

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 6

VII. Curtailment and Force Majeure.

VIII. Operation and Metering.

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 7

IX. Billing and Payment.

• failure by any party to pay an amount when due;

• the bankruptcy, reorganization, liquidation or other similar proceeding of any party;

• a material default by a party’s guarantor.

STOEL RIVES LLP © 2006 Ch. 3 – Pg. 8

Prior Legal Experience

Civic and Charitable Activities

• design and engineering;

• procurement of necessary equipment (wind turbine generators and related components

• obtaining construction, erection, installation and balance-of-plant services necessary to

• warranty and insurance arrangements set forth in the agreements.

STOEL RIVES LLP © 2006 Ch. 4 – Pg. 1

STOEL RIVES LLP © 2006 Ch. 4 – Pg. 2

STOEL RIVES LLP © 2006 Ch. 4 – Pg. 3

C. Warranty Obligations. Warranty-related obligations are likely to be an issue of substantial

D. Limitation of Liability. As with any other construction-services and procurement agreements, a

• Performance Guarantee: a performance guarantee is usually issued by a bank, selected

STOEL RIVES LLP © 2006 Ch. 4 – Pg. 5

• Payment Guarantee/Bond: a payment guarantee or bond is intended to ensure that, in

STOEL RIVES LLP © 2006 Ch. 4 – Pg. 6

Professional Activities Education

Publications and Presentations

II. Full Recourse (Balance Sheet) Financing.