Friday, March 30, 2012

The Big Policy Picture: Is the KHSA a good model for other rivers with obsolete hydro dams?

Beginning early in the 20th century and continuing through the 1960s thousands of hydroelectric dams were constructed on hundreds of US rivers and streams. Now portions of that vast infrastructure are reaching the end of their useful livers and will be shut down; the dams will be breached, removed or left in place. Thus, over the next decade, the current dam removal trickle is likely to become a flood.
How the US deals with this vast undertaking has implications not only for the rivers and streams on which these projects are located but also for American Taxpayers.

Removal of  Glines Canyon Dam on the Olympic Peninsula

Whether removing PacifiCorp's Klamath River dams is in the public interest continues to be publicly debated. However, broader policy implications of how Klamath dam removal would be accomplished under the Klamath Hydroelectric Settlement Agreement - the KHSA - have not been discussed.

Members of Congress and taxpaying citizens should consider what sort of precedent the KHSA would set and whether it is a good and a fair approach to dam removal not just on the Klamath but nation-wide.Those questions are discussed below.

To FERC or not to FERC?

Dam removal under the KHSA Dam Deal would transfer responsibility for dam removal from the owner - PacifiCorp - to a "dam removal entity" yet to be identified. The KHSA would also free PacifiCorp from all liability not just for dam removal but also for unassessed toxic legacies that are likely lurking in and around powerhouses and other facilities some of which are over 100 years old.

There is an established, legal process for decommissioning hydroelectric projects which have become obsolete or which - for reasons of operational or environmental cost - must be decommission and removed. That process is set out in the Federal Power Act and is administered by the Federal Energy Regulatory Commission. In 1986 the Electric Consumers Protection Act (ECPA) altered the relicensing process for hydroelectric projects. ECPA requires that FERC give equal weight to environmental and other non-developmental values in addition to power and development purposes.  Under these conditions, it is becoming more common if not routine for FERC to order dam removal or to oversee and endorse settlements within the established regulatory process.

Dam removal under the normal FERC process does not require Congressional approval.The KHSA does not follow the normal FERC process; dam removal under the KHSA would not be overseen by FERC.

As they did on the Klamath, the main environmental coalitions pushing for dam removal - the Hydropower Reform Coalition and its California counterpart, the California Hydropower Reform Coalition - are actively promote politically brokered settlements with the owners of hydroelectric dams outside of the FERC process. AR and TU pushed for the KHSA Dam Deal, are actively promoting it now, and are promoting similar approaches on other US rivers.

Why have leading river organizations and environmental coalitions adopted the outside-FERC settlement strategy? They say it is because negotiated settlements are quicker and assertion which is looking increasingly doubtful in light of Klamath River developments.

In recent years corporate interests have established themselves on the boards of directors of the largest US conservation and environmental organizations. For example, PacifiCorp is substantially owned by Warren Buffett. His son and designated heir, Howard Buffett, serves or has served on corporate boards governing The World Wildlife Fund and portions of The Nature Conservancy.

KlamBlog doesn't know if there are corporate connections among members of the National and California Hydropower Reform Coalitions and PacifiCorp or its owners...but we would not be surprised if those connections exist. Even if there are no direct connections, corporate board members inject corporate culture and bias into the decisions of major US conservation and environmental organizations. These organizations now often appear to be just as dedicated to advancing corporate interests as they are to protecting the environment. 

Who should pay for Klamath dam removal?

Are dam settlements outside the FERC process in the interest of the American Taxpayer, the environment and the rivers themselves? The answers are not self-evident and are strongly influenced by one's values and perspective. For some, any loss of "clean" hydroelectric power is a mistake; for others, settlements outside FERC offer advantages including the ability to negotiate, shape and fund river restoration post-dam removal.

KlamBlog has already explored many aspects of the public interest question with respect to PacifiCorp's Klamath dams. We have sought to disclose who benefits from the KHSA and in what ways they benefit. And while KlamBlog has concluded that the KHSA Dam Deal is not in the interest of the River or Klamath Salmon, we acknowledge that our conclusions are based on judgements; only the future will reveal whether those judgements are correct or in error.

Unlike most other public interest considerations, however, the question of who should pay for Klamath dam removal has broader policy and economic implications: Should rate-payers (electric customers), taxpayers or shareholders bear the cost of removing dams which can not meet relicensing requirements or which would be subject to annual operating losses if relicensed?

PacifiCorp's Klamath dams would lose an estimated $20 million a year if relicensed with modern requirements; that's why the company has embraced dam removal. Furthermore it appears likely that the company's Klamath dams could not be certified as meeting Clean Water Act standards established by the State of California.Without that certification, FERC cannot relicense PacifiCorp's Klamath dams.

Under these circumstances decommissioning of the Klamath Hydroelectric Project is inevitable and the only questions to be decided are: how will dam removal be accomplished and who will pay the cost? If removal occurs via the FERC process, removal cost would presumably be allocated in accord with a basic principle of free market capitalism: those who benefited from the dams' operations should pay for their removal.

Ratepayers have clearly benefited; so have the dam owner's shareholders who take home 9% profit on all Klamath operations. Under FERC, therefore, ratepayers and shareholders would share the cost of dam removal with PacifiCorp shareholders on the hook for at least 9% of the bill. The KHSA alters that free market approach; removal cost under the KHSA Dam Deal would be shared by ratepayers and California taxpayers; PacifiCorp's shareholders would pay nothing.

Legislation to authorize the KHSA would relieve PacifiCorp - and its Berkshire Hathaway shareholders including Warren Buffett - from the responsibility, liability and cost of Klamath dam removal; it would transfer the company's responsibility, liability and costs to taxpayers. That is why Congressional approval is necessary.

A model for the future?

Is the KHSA a good model for dealing with the plethora of aging hydroelectric projects coming up for relicensing? Should taxpayers pick-up the tab to relieve power corporations and their investors from responsibility for physical assets which are no longer performing (i.e.profitable)? Clearly the National and California Hydropower Coalitions and their dominant members at American Rivers and Trout Unlimited think golden parachutes for power companies holding non-performing assets is a good idea. But is it really?

KlamBlog can find no evidence that Congress has grappled with the broader policy questions being raised by the KHSA and Merkley-Thompson legislation. House Republican Doc Hastings came closest to framing these questions in 2011 in response to the KHSA's signing:
          “Congress needs to ask some real hard questions on why federal taxpayers should be footing any of the bill to tear out dams owned by a private corporation.  Paying for this study and agreement should be the responsibility of the private company that owns these dams, and not Americans who face a nationwide unemployment rate of nearly ten percent."

Whether Congressman Hastings would reject such corporate welfare if PacifiCorp or Berkshire Hathaway were among his major corporate contributors remains open to speculation. To date, KlamBlog can find no evidence that either Hastings or any other Member of Congress is pushing for hearings to consider the broader policy questions - including the most important question: Who should pay for dam removal?        

Will Congress take up these broader policy questions?

As noted above, in a free market taxpayers are not responsible for disposing of non-performing corporate assets. Contemporary history, however, suggests that corporate bailouts are the mothers' milk of US politics. So far at least, American Taxpayers have been willing to accept that burden with minimal complaining.

Whether or not the Democrats recapture control of Congress and retain the White House, the Merkley-Thompson legislation to approve and fund the KHSA Dam Deal and the KBRA Water Deal will most likely pass Congress and become law sooner or later; Congress and US Presidents almost always approve corporate bail-outs. Under both Republican and Democratic control, Congress also has a consistent record of approving western water deals which (like the KBRA) effectively transfer tribal water rights to agricultural interests.

The Merkley-Thompson legislation could clear Congress as early as this fall as a "rider" tacked on to a must pass funding bill during the lame duck session (after the November election and before the new Congress convenes). Deal promoters are currently courting California Senator Diane Feinstein who, as a member of the Senate Appropriations Committee, has become skilled at shepherding appropriations bill riders through Congress. If that happens there will be no Congressional hearings and the broader policy questions raised here will not be discussed.

Whatever their positions on the Klamath Deals, members of the best Congress money can buy may wish to avoid the core policy questions raised in this post. As long as Congress is for sale, corporate donor interests will continue to trump policy considerations; the KHSA and other forms of corporate welfare at the expense of American Taxpayers will likely continue to make it thorugh Congress.

Who do you think should pay for removing obsolete hydroelectric projects which cannot meet modern requirements and remain profitable? Leave a comment here to join the discussion.

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