The license for the Potter Valley Project is undergoing a variety of considerations.
As PG&E prepares its plan for decommissioning the inter-basin water transfer hydropower project, the Federal Energy Regulatory Commission, or FERC, announced that it is considering reopening the license. That means that, although it granted PG&E an annual license in April, it’s thinking about adding requirements for a number of wildlife protection and habitat monitoring measures that were proposed in March by the National Marine Fisheries Service, another federal regulatory agency. PG&E argues that the decommissioning process will provide plenty of opportunity to review protective measures, and that there’s no evidence of harm to embattled salmon. But FERC appears to have taken notice of legal threats by environmental groups claiming the project violates the Endangered Species Act.
FERC has accepted comments for and against the proposed reopening of the license, and PG&E has pledged to submit its decommissioning documents by January of 2025. By that time, the project may technically be under new ownership.
This month, PG&E asked FERC to allow it to transfer a list of hydropower projects to a new Delaware-based LLC called Pacific Generation, writing that the transfers “are part of a broader corporate reorganization being undertaken to facilitate raising equity for PG&E’s utility needs.” PG&E spokesman Paul Moreno noted in an email that, “Nothing will change for Potter Valley or the decommission process. Pacific Generation LLC will be a majority-owned subsidiary of PG&E, which will own other PG&E hydropower facilities as well as natural gas power plants and some solar arrays and battery storage. It was not created just for (the) Potter Valley Project.”
PG&E assured FERC that it plans to “remain the majority and controlling owner of Pacific Generation;” and that its employees “will continue to operate and maintain the assets…just as they do today.”
The restructuring would have to be approved by the California Public Utilities Commission (CPUC), which in 2023 will also set the rates for the next four years. In September, PG&E requested that CPUC expedite the process, completing testimony, hearings, and filing of briefs by May first.
Mark Toney, the Executive Director of The Utility Reform Network, or TURN, a ratepayer advocacy group, said TURN is “opposing the deal strenuously.” One of TURN’s many worries is that if PG&E goes bankrupt again, its assets could be out of reach of settlements. TURN filed an objection to PG&E’s proposal and the request for expediting the proceeding, declaring that, “this application benefits shareholders, and an expedited schedule would only serve to benefit shareholders…not avoid ratepayer harm.” TURN also asked if it was reasonable for PG&E to indemnify Pacific Generation for wildfire damages caused by PG&E’s equipment, writing that “The Commission should examine whether this would result in an unreasonable transfer of risks.”
Environmentalists are concerned, too. Redgie Collins is legal counsel for California Trout, one of the groups that filed a notice of intent to sue PG&E for harming endangered species. Collins is also a steering committee member of the Hydropower Reform Coalition, a statewide consortium of environmental groups dedicated to “restoring environmental and recreational values at hydropower projects presently being relicensed,” according to its website. The licenses for three of the 21 hydropower plants PG&E wants to transfer to Pacific Generation are being surrendered, while seven are up for renewal. Collins suspects that PG&E is “trying to sneak bad assets into its portfolio,” in part by overstating how viable they are.
In its transfer application to FERC, PG&E wrote that Potter Valley is a 9.4-megawatt project, though it hasn’t generated any power since a transformer broke down over the summer. Earlier this year, Moreno said the utility expected to recoup the unspecified costs of replacing the failed equipment within five years. But by mid-December, PG&E filed a brief update with FERC, stating that, “PG&E is currently in the process of considering long-term planning associated with Power Generation’s portfolio. As a result, numerous projects are being reassessed to ensure resources are utilized prudently, including the Potter Valley transformer replacement project.”
Collins also speculates that if the transfer is approved, the company could raise debt on some of its projects. The utility insists that the transfer should enable Pacific Generation to issue debt at lower rates than PG&E, but TURN worries that “the total amount of debt could very well increase as a result of this transaction.”
One thing is certain: ratepayers will cover the costs of decommissioning.
Mark Pocta, a program manager at the Public Advocate’s Office at the California Public Utilities Commission (CPUC), doesn’t believe the transfer would make much of a difference from a regulatory perspective. PG&E would still be regulated on a cost of service basis, and he does not believe that the rates would be set any differently if the assets are held by a subsidiary. The Public Advocate’s Office is an independent group within the CPUC that is charged with representing the interests of ratepayers. Its members participate in proceedings, but they do not set rates or make decisions.
Pocta noted that the cost of decommissioning hydropower plants is “typically funded through rates;” but that no money has been set aside for the purpose, because when hydro projects were built, there was an assumption that they had economic value. Before the Potter Valley license expired in April of 2020, PG&E tried hard to sell it. And a regional coalition tried unsuccessfully to drum up enough money to pay for the studies that were required to take over the license.
Even without the costs that could accrue if FERC orders additional environmental monitoring and mitigation measures, PG&E estimates that decommissioning the project could cost $93 million in 2020 dollars. CalTrout estimated that it could cost between $133-$155 million. Pocta said a stipulation to set aside $48 million per year for the next four years to decommission Potter Valley and Battle Creek, a hydropower project in Shasta county, will come before the CPUC at its general rate case hearings in 2023.
Decommissioning hydropower projects isn’t something that happens with a lot of regularity, so there is not a set procedure in place. But Pocta remembers when plans to decommission another set of dams first got underway: Klamath, he thought, will take longer than ten years.