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PG&E's Hydro Workout: Can This Deal Be Saved?

For the utility, wresting its assets from PUC control is the real point.
Fortnightly Magazine - February 15 2001

each regional bundle.

If the auctioning process were allowed to continue, likely purchasers would not be utilities. As a result, the PUC most likely would cease to regulate these facilities. In addition, three of the facilities are not subject to oversight by the FERC, and would not be subject to regulatory oversight by either FERC or the PUC following an auction.

While PG&E's auction proposal is bucking strong headwinds in forums throughout the state, Edison is finding relatively smooth sailing at the PUC with a hydropower application of its own filed in December 1999. Edison's hydro assets are considerably smaller than PG&E's—about a third the size on a capacity basis—and the utility is not looking to divest. Instead, it is proposing to keep its hydro facilities in the rate base and under regulation, but with more favorable rate treatment. A settlement on this application is before the commission now, but no decision has been reached.

Others with hydroelectric operations in the state include the U.S. Bureau of Reclamation, the California Department of Water Resources, and the Sacramento Municipal Utility District.

For Environment, Status Quo Seen as Best Option

In November the PUC's draft EIR on PG&E's auction application hit the streets and new debate erupted. The draft, a 4,000-page, nine-volume document, estimates that the auction would produce 49 significant adverse effects on the environment in areas relating to land use, forestry, hydrology and water quality, fisheries and aquatic biology, terrestrial biology, recreation, air quality, aesthetics, geology, soils and minerals, and more.

Of these, it reports that two impacts could not be reduced, avoided, or mitigated: harm to fish as a result of anticipated changes in system operation, and adverse affect to air quality in local air basins attributable to anticipated development of watershed land.

Significantly, the draft also identifies 16 alternative dispositions to auctioning and ranks these based on how many environmental impacts each would avoid or mitigate. The "top-ranked alternative"—the one that would avoid all of the auction's significant negative environmental effects—is that PG&E retain the facilities under PUC regulation.

PG&E's response to this suggestion is that AB 1890 would need to be changed to accommodate it. That is consistent with the company's contention—challenged by others—that once the assets are market valued they are freed from regulation, and that AB 1890 requires that this valuation be completed by year end. PG&E also has identified what it views as a number of technical and analytical flaws in the water and power models used to come up with some of the report's other conclusions.

PG&E's Hydropower System
At stake is ownership of the largest U.S. hydro system.

Gen Capacity. Total of 3,896 megawatts, consisting of 68 powerhouses with 110 electricity generating units.

Reservoirs. Approximately 2.3 million acre-feet.

Water Flow System. 99 reservoirs, 174 dams, and 76 diversions that alter rivers. Plus 184 miles of canals, 44 miles of flumes, 135 miles of tunnels, 19 miles of pipes, five miles of natural waterways.

Land Rights. Interest in approximately 140,000 acres of lands (88,000 acres of which are outside the boundaries of the Federal Energy