2. Background
The Federal Energy Regulatory Commission (FERC) licenses each non-federal hydropower project.1 The Klamath Hydroelectric Project, which includes four PacifiCorp owned dams as well as related plant (Klamath assets), received its original license in 1954. The Klamath assets are located in the Klamath Basin, which consists of the lands tributary to the Klamath River, straddling southern Oregon and northern California. PacifiCorp serves approximately 555,000 customers in Oregon and 45,000 customers in California.2 PacifiCorp's Klamath assets complied with laws applicable at the time of their original licensing at both the state and federal level. There are now many laws that did not exist in 1954, which the Klamath assets would have to comply with in order to be granted a new license.3 Prior to the Klamath Hydroelectric Settlement Agreement (KHSA), the FERC Final Environmental Impact Statement found that the Klamath assets would require substantial modifications to be in compliance with current law and the requirements of a new FERC license.4
For many years, the Klamath assets have been at the center of controversy in the Klamath Basin, with numerous entities calling for the removal of the dams. Native American tribes, environmental groups, and organizations that promote the conservation and health of fish have protested and filed lawsuits, complaining that the Klamath assets threaten, among other things, water quality and the health and availability of local species of fish, such as Klamath River salmon. For example, these fish require cold clean water with sufficient oxygen in order to survive and spawn, and these groups have stated that the dams affect the natural flow of the river, which reduces the flushing of spawning gravel downstream, and causes the water temperature to rise and toxic algae to bloom, threatening the survival of the fish.
In December 2000, prior to the 2006 expiration of its FERC license to operate the Klamath assets, PacifiCorp filed its Notice of Intent to begin the relicensing process, which could take anywhere from eight to 30 years to resolve.5 After starting the FERC relicensing process, PacifiCorp met with stakeholders in the Klamath Basin to discuss relicensing of, and possible alternatives to relicensing of, the Klamath assets, such as removal of the dams, as well as the costs of the various alternatives. Parties also discussed how to resolve numerous related controversies within the Klamath Basin, such as how to address water conservation, water quality, irrigation, hydropower, and restoration of fisheries and wildlife habitats, all of which have been the subject of litigation for many years.
After years of negotiation, in February 2010, PacifiCorp and over 40 federal, state, county, tribal, irrigation, conservation, and fishing organizations, including the states of California and Oregon, executed a final KHSA, which provides an economical framework for resolution of many long-standing and contentious issues faced in the Klamath Basin. By physically removing the Klamath assets pursuant to the KHSA, the cost to ratepayers of resolving issues in the Klamath Basin is capped, protecting ratepayers from the unknown cost of relicensing the dams; and the water of the Klamath River will be able to flow freely downstream, allowing spawning gravel downstream to be flushed clean and the water temperature to return to normal.
In part, as it relates to PacifiCorp's' California ratepayers, the KHSA proposes that, instead of pursuing the unknown cost of and timeline of relicensing, the Klamath assets be transferred to a trustee who would be responsible for their removal, after selected milestones are met. Pursuant to the KHSA, the first source of funding for removal would be from PacifiCorp's California and Oregon customers,6 the customer cost would be capped, and the funds collected from customers would be held in trust over the period between authorization of the funding and the target start of removal in 2020. The KHSA also proposes that, in order for the Klamath assets to be completely depreciated by the estimated removal date of 2020, depreciation of the Klamath assets be accelerated over the same period that the funding is proposed to be collected. In order to fulfill the requirements of the KHSA, PacifiCorp must request authority from this Commission.
On March 18, 2010, PacifiCorp did just that when it filed this application, in which it requests, pursuant to the KHSA: 1) authorization to institute a surcharge of $13.76 million; 2) institution of the California Copco I and II/Iron Gate Dams Trust Account and the California J.C. Boyle Dam Trust Account7 (California Klamath Trust Accounts) for the deposit of the surcharge; 3) authorization to depreciate the rate base of the Klamath assets and to amortize the relicensing and settlement costs associated with the Klamath River Project on an accelerated basis; and 4) authority to transfer the Klamath River Project assets to an entity designated to remove the dams in question. These specific elements are designed to implement the ratemaking and regulatory requirements of the KHSA as they relate to PacifiCorp's California ratepayers, and to allow the Klamath assets to be removed and the KHSA to come to fruition.
On April 26, 2010, the Division of Ratepayer Advocates (DRA) filed a Motion to Hold in Abeyance (Motion), requesting that the assigned ALJ hold A.10-03-015 in abeyance until after the Safe, Clean, and Reliable Drinking Water Supply Act of 2010 (Bond Measure)8 had been voted on by the California voters in the November 2010 election; or the State of California finds another source of funding for the cost of removal allocated to the State in the KHSA. On that same day, a protest to the application was filed by DRA, requesting that A.10-03-015 be either denied without prejudice and PacifiCorp directed to file a new application after California financing had been secured, or that DRA's Motion be approved. PacifiCorp filed a response to the Motion and a reply to the protest on May 6, 2010.
On May 19, 2010, a prehearing conference (PHC) took place in San Francisco to establish the service list for the proceeding, discuss the scope of the proceeding, and develop a procedural timetable for the management of the proceeding. At the PHC, the assigned ALJ granted party status to The Utility Reform Network (TURN), Institute of Fisheries Resources,9 Pacific Coast Federation of Fisherman's Association,10 Trout Unlimited,11 California Trout,12 American Rivers,13 the Karuk Tribe,14 the Yurok Tribe,15 and the Klamath Water Users Association.16 The Institute of Fisheries Resources, Pacific Coast Federation of Fisherman's Association, Trout Unlimited, California Trout, and American Rivers, are collectively referred to as Conservation Groups.17
The Assigned Commissioner's Ruling and Scoping Memo (Scoping Memo) issued on June 18, 2010, set forth the procedural schedule, assigned the presiding officer, and addressed the scope of this proceeding and other procedural matters following the PHC. The Scoping Memo also confirmed the preliminary determination of ratesetting and the necessity for hearings. In the Scoping Memo, the Assigned Commissioner denied DRA's motion to hold A.10-03-015 in abeyance and its request to dismiss A.10-03-015 and require PacifiCorp to file a new application after California state funding has been secured. We confirm his ruling herein.
On July 9, 2010, a workshop was held in San Francisco to discuss the background and details of the KHSA. Status Reports filed by PacifiCorp on July 1, July 30, August 31, October 1, November 1, December 2, and December 29, 2010, and February 1, March 1, and April 1, 2011, addressed progress made by PacifiCorp regarding the formation of the requested trust accounts, development of trustee instructions, and the receipt of permissions required for the proposed surcharge revenues to be deemed tax-free.
On July 30, 2010, PacifiCorp served its supplemental testimony. On September 10, 2010, DRA and the Conservation Groups each served testimony. On October 6, 2010, PacifiCorp served its rebuttal testimony. Evidentiary hearings were held on October 18, 2010. Opening Briefs were filed on November 17, 2010 and Reply Briefs were filed on November 24, 2010 by PacifiCorp, DRA, and Conservation Groups.
1 Pursuant to the Federal Power Act Part I, 16 U.S.C. §§ 791 et seq. Such a license has a term of not more than 50 years, subject to renewal. FERC must assure that the project will comply with laws applicable at the time the new license is authorized.
2 In addition to serving customers in California and Oregon, PacifiCorp provides service in the states of Utah, Washington, Idaho and Wyoming.
3 These laws include but are not limited to the: Clean Water Act (1972); Endangered Species Act (1973); National Environmental Policy Act (1969); Coastal Zone Management Act (1972); and, Forest Land Planning and Management Act (1976).
4 Exhibit CG-1R at 8-11.
5 Exhibit PPL-100 at 4.
6 KHSA Section 4.1.2.A states that the difference between: i) the surcharges collected from both Oregon and California customers; and ii) the actual cost to complete removal of the Klamath assets, would be funded with a California bond or another appropriate California financing mechanism, not to exceed $250 million.
7 KHSA at Section 4.2.2(a) - These two trust accounts are named after PacifiCorp owned dams in the Klamath Basin. The California J.C. Boyle Dam Trust Account would hold 25% of the surcharge funds collected from PacifiCorp's California customers, and the California Copco I and II/Iron Gate Dams Trust Account would hold 75% of the surcharge funds collected from PacifiCorp's California customers.
8 The Bond Measure was originally scheduled to be part of the November 2010 ballot as Proposition 18. However, on August 9, 2010, the State Legislature voted to postpone the vote to the November 2012 ballot.
9 Institute of Fisheries Resources is a California non-profit salmon and marine conservation organization, loosely affiliated with the pacific Coast Federation of Fishermen's Associations, which has been working for a number of years to restore salmon runs to the Klamath River that it states have been damaged by the impacts of the Klamath assets on the Klamath River.
10 The Pacific Coast Federation of Fishermen's Associations is a California non-profit organization that is the largest trade organization of commercial fishing families on the west coast, many of whose member groups and members are PacifiCorp customers.
11 Trout Unlimited is a national coldwater fish conservation organization with over 140,000 members nationwide, including approximately 9,000 members in California. Trout Unlimited is a non-profit corporation whose mission is to conserve, protect, and restore North America's trout and salmon fisheries and their water sheds.
12 California Trout is a statewide organization whose purpose is to protect and restore California's wild trout, native steelhead, and their habitats. California Trout has approximately 7,000 members, and fifty affiliate local angling clubs representing approximately 10,000 more persons.
13 American Rivers is a non-profit conservation organization whose mission is to restore and protect the nation's rivers for the benefit of fish, wildlife, and people. American Rivers has approximately 30,000 members nationwide and approximately 5,000 members in California.
14 The Karuk Tribe is a federally recognized Indian Tribe. The Karuk Tribe is a PacifiCorp ratepayer with a vested interest in both maintaining affordable power rates and a reliable power supply, as well as the restoration of Klamath River fisheries which the Karuk Indians have relied on for time beyond record.
15 The Yurok Tribe is a federally recognized tribe having 5,579 members located along the Klamath River. Tribal headquarters, housing, schooling, police, court, watershed, fisheries, cultural, and Yurok offices are all within the PacifiCorp service area. The Yurok Tribal membership depends on the fish of the Klamath River for their livelihood, culture, and way of life.
16 The Klamath Water Users Association is a non-profit corporation organized to preserve, protect, and defend the water and power rights of landowners of the Klamath Basin, and to promote wise management of resources. Members of the Klamath Water Users Association, who are also customers of PacifiCorp, include irrigation districts and similar public and quasi-public agencies in Oregon and California, who receive water through the Klamath Reclamation Project in the Upper Klamath Basin.
17 The Conservation Groups have intervened in past Commission proceedings regarding PacifiCorp, and have more recently intervened in PacifiCorp's application to the FERC for relicensing of the Klamath assets.
