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Solimar Research

PG&E Asset Sale Spurs Growth Issues: Auction of Hydroelectric System Might Bring Development to Remote Areas

Jan 1, 2001
A Pacific Gas and Electric proposal to auction its hydroelectric assets could bring about a new land rush in the Sierra Nevada, the southern Cascades and the coastal mountain ranges. If the sale goes forward as proposed, as many as 20 different owners could assume control of PG&E's 99 reservoirs, 174 dams, 110 electricity generating units — and 140,000 acres of land, much of which is pristine. State and federal land managers, advocacy groups and a draft environmental impact report make clear that the proposed sale — which is driven by state's energy deregulation plan — has the potential to greatly alter the landscape. The sale could invite large-scale timber and surface mining, and could induce urban development in areas that have remained largely untouched, especially along the Interstate 80 corridor east of Sacramento. In sworn testimony to the California Public Utilities Commission, U.S. Forest Service Lands Officer Carol Efird said, "Auctioning the PG&E facilities and land has a great potential to fragment habitat, increase the risk of negatively impacting water quality, disturb or destroy cultural resources, increase the development of land within National Forest boundaries and reduce the Forest Service's ability to properly manage forest resources across a landscape or watershed." The Forest Service is only one member of a state-federal "Hydro Working Group" that is reviewing the proposed auction and preparing comments on the 4,100-page DEIR that the CPUC released in late November. Other entities involved in the Hydro Working Group include the Bureau of Land Management, National Marine Fisheries Service, the state Resources Agency, the Department of Fish & Game, California Department of Forestry, the Department of Parks and Recreation, and the State Water Resources Control Board. The working group's charge is to protect environmental values associated with PG&E's hydroelectric assets, said Jim McKinney, the working group project manager for the Resources Agency. "These assets have been under PUC regulation for more than 80 years, and there are a lot of public interest environmental values that have accumulated over that time," McKinney said. Now, there is a once-in-a-lifetime opportunity for PG&E to transfer ownership of those assets and greatly reduce government oversight, he said. The working group contends — and the DEIR appears to agree — that licenses granted by the Federal Energy Regulatory Commission, which regulates nearly all of PG&E's generating facilities, do not contain strong enough provisions to protect environmental resources if the ownership changed and new management practices were implemented. The working group and some environmentalists believe the proposed auction creates an opportunity to impose additional conditions on dam operations and land use, and gives the state the chance to take ownership of some sensitive areas at least temporarily. But PG&E is wary of additional regulation. The CPUC ultimately will decide on the proposed sale of assets, and there are serious questions about how far the CPUC can extend its jurisdiction, PG&E Spokesman Jon Tremayne said. The CPUC has mostly stuck to rate-setting in the past, while FERC — not the CPUC — has regulated power plant operations, he noted. So it remains unclear whether the CPUC can impose some of the mitigations suggested in the DEIR, such as conservation easements, parameters for stream flow and reservoir levels, and even the dismantling of some facilities. The auction In September 1999, PG&E filed an application with the CPUC to auction its hydroelectric assets. A year earlier, PG&E had announced that it did not intend to keep its hydroelectric assets within its regulated utility. Instead, PG&E wanted to transfer ownership of the hydroelectric system to an unregulated subsidiary, which could charge market rates for electricity. PG&E shopped this idea to the state Legislature but could not strike a deal, even though it offered a number of pot-sweeteners, such as conservation easements, guaranteed water releases and money. Noting that the state's deregulation legislation calls for establishing the market value for all of PG&E's non-nuclear generating facilities by the end of 2001, PG&E then filed the application to auction its hydroelectric assets to the highest bidders. Undoubtedly, the auction would determine the market value. The proposal divides PG&E's assets into five watershed bundles that include all hydroelectric facilities and equipment, water rights and land interests. These five watershed bundles could be broken down to a total of 20 smaller bundles. Some observers say — but PG&E denies — that the proposed auction is only a bluff intended to get the Legislature to look favorably on PG&E's original plan to transfer the hydroelectric system to a subsidiary. Under this scenario, the environmental and electricity market consequences of the auction would appear so severe that state officials would have to reject it. The utility did offer a "proposed settlement" that was similar to the deal it pitched to the Legislature in 1999. However, PG&E has withdrawn the settlement because it valued the hydroelectric assets at $2.8 billion, and PG&E believes the value has risen considerably during the electricity shortage of recent months, PG&E's Tremayne said. At this point, the proposed auction remains a live project. The DEIR The CPUC ruled that the proposed ownership transfer was a project under the California Environmental Quality Act. After a month-long scoping phase, Aspen Environmental Group commenced a six-month review that resulted in the nine-volume DEIR released in late November. An untold number of public employees, consultants, environmentalists and PG&E experts are now reviewing the report. The document identifies a wide range of very specific impacts, said Tim Duane, a University of California, Berkeley, City and Regional Planning professor with a background in energy policy. The DEIR specifies areas where development is likely to occur and identifies concerns related to the potential development. The DEIR also makes clear that possible changes in forest management practices could have a substantial impact on the region, said Duane, who reviewed the document for the CPUC. The proposed auction would have 49 significant adverse impacts, including two that could not be mitigated: changes in operation of dams would harm some endangered species of fish, and development of lands around hydroelectric facilities would adversely affect air quality in local air basins. "[A] sale to new owners could produce changes in the rate and timing of water releases," according to the DEIR. "A sale could also produce changes in other areas, including forestry or grazing practices on watershed land; recreational access and use of waterways, reservoirs and land; and land development opportunities." The DEIR also makes clear that the auction is not the most environmentally friendly option of the 16 studied. "Nine of these alternatives would be environmentally superior to the auction," the DEIR states. "The best of these — having Pacific Gas and Electric Company retain its hydroelectric facilities under CPUC regulation — would avoid all of the auction's significant environmental effects." Environmentalists and public officials have promised to file extensive comments on the DEIR's findings and recommendations. PG&E itself has assigned a number of people to study the document. Said PG&E's Tremayne, "There are some analytical flaws that need to be corrected and some factual errors that were made." Staff and consultants of the CPUC have scheduled 26 public hearings from January 29 through March 5 to accept testimony on the DEIR. The sessions will be spread among 13 locations from Burney to Porterville. The Concerns The proposed auction includes 88,000 acres of land that is outside boundaries of any project regulated by FERC. Generally, these are undeveloped lands adjacent to reservoirs. These lands, plus about 7,000 acres inside FERC boundaries, are of great interest to state and federal land managers, planners and environmentalists. (A good portion of the remaining "FERC lands" is under water.) According to the DEIR, up to 10,226 dwellings could be built on these 95,000 acres, including nearly 4,000 homes in portions of Placer and Nevada counties. Because most of these lands now have few improvements and lie in remote regions, there is a strong possibility of conflicting land uses, according to the DEIR, which recommends extensive use of conservation easements to offset significant impacts. Nancy Ryan, a consultant to Environmental Defense (formerly the Environmental Defense Fund), said that the potential for extensive land development — and the secondary affects of that development, including inducement of other growth —is one of the principle environmental threats of PG&E's proposal. McKinney, of the Resources Agency, suggested that the DEIR understates the extent of potential development. Depending on the particular county board of supervisors that is involved, the auction presents "a ripe situation for wholesale land use changes," he said. "It just takes one vote to change the zoning on a piece of land in California," McKinney said. "You just look at the development pressures in Placer and Nevada counties, and look at how highly popular recreation is in that area." The U.S. Forest Service has expressed similar concerns. In comments to the CPUC, the Forest Service pointed to an earlier sale of 160 acres in the rugged South Yuba River watershed by PG&E to Manasha Corporation. Manasha logged the land, then sold it to a developer, who convinced Nevada County supervisors to amend the general plan to allow construction of a resort that could accommodate more than 100 visitors at a time. "What goes on on PG&E land greatly affects how we manage our lands," said Christine Nota, the USFS regional forester's representative in Sacramento. In general, PG&E has managed its land similarly to the Forest Service and made its property available to the public, she said. Those stewardship values are especially important in areas where PG&E property and federal holdings form a checkerboard pattern. The DEIR "assumes a new owner would have an economic incentive to develop this land." The analysis found that development on PG&E lands in Shasta, Butte, Plumas, Nevada and Placer counties could induce further growth by introducing roads, utilities and other public services into remote regions. The Bureau of Land Management is worried about the likelihood of many more people building homes and cabins in woods. A bunch of new landowners can hinder federal land management techniques and reduce public access to federal land, said Duane Marti, a BLM realty specialist. "One thing that we're really concerned about is the wildfire — the urban-wildland interface," he said. "It's just getting harder and harder to fight a wildfire because of all the houses." On PG&E lands in the Feather River watershed of Butte and Plumas, in Shasta County's Pitt River watershed, and in portions of the upper Eel River watershed in Lake and Mendocino counties, logging appears to be a greater concern than urban development. A large portion of PG&E's lands are heavily forested, so they will be attractive to logging companies, said Nota of the Forest Service. Laurie Wayburn, president of Pacific Forest Trust, which advocates sustainable logging, commended PG&E's past forest stewardship. But in the past decade, she said, PG&E has increased logging on its land, and has sold thousands of acres to Sierra Pacific Industries. The state's largest private landowner, Sierra Pacific's aggressive clear-cutting of its property in recent years has been criticized by environmentalists and some state regulators. Most people expect Sierra Pacific to bid on PG&E property. The analysis in the DEIR and PG&E's recent track record provide backing for the CPUC to impose a conservation program and allow the state to purchase some sensitive lands, Wayburn said. The CPUC could work with the Resources Agency on a package that would adequately compensate PG&E, said Wayburn, who called the DEIR's alternatives too limited. "They [PG&E] just have some critical watersheds," Wayburn said. "This is a particular point in time that we have a chance to get some people to coalesce around this." The Resources Agency's McKinney agreed that the auction presents a unique opportunity to look for means of enhancing the environmental aspects of PG&E's hydroelectric system. Besides the land, of course, are the actual power generating facilities. The DEIR specifies numerous potential problems if a new owner, including PG&E's subsidiary, would change operations to maximize energy output, of if a new owner would maximize water storage. Such changes would alter dam releases, harming endangered fish and affecting water quality and availability, according to the DEIR. Moreover, PG&E currently provides 90% of the 200,000-acre-feet of water consumed annually by Mendocino County's Potter Valley Irrigation District, the Nevada Irrigation District and the Placer County Water Agency. PG&E's contracts with these three mostly agricultural agencies end at different times during the next 22 years. "If the new owners do not renew these water contracts when they expire, this water could be used to support the consumptive needs of about 1.3 million people elsewhere, possibly producing growth-inducing impacts," the DEIR states. The Prospects While the auction is uncertain at this point, in part because of the volatile electricity market, most interested parties believe the extensive environmental analysis is not an academic exercise. "PG&E has indicated it does not want to continue to operate these generating plants," said UC's Duane. "The PUC clearly needs to address the impacts of that, especially in light of the electricity crisis that has hit the state." Tremayne said PG&E is moving ahead with the auction application. "Obviously, there is a much larger crisis looming, but we still need to move forward and value these assets by the end of 2001," he said. The Resources Agency's McKinney said, "Nobody has ever looked at Pacific Gas & Electric's and Southern California Edison's hydroelectric assets in their entirety." Such an examination makes, he said, because nearly all of PG&E's system drains into the Bay Delta, which serves as the center of California's water universe. Plus, the growth inducements and cumulative effects of new ownership and asset management extend across the entire system. Contacts: Jon Tremayne, Pacific Gas & Electric, (415) 973-5930. Jim McKinney, Hydro Working Group, (916) 654-3999. Duane Marti, Bureau of Land Management, "(916) 978-4675. Nancy Ryan, Environmental Defense, (510) 658-8008. Christine Nota, U.S. Forest Service, (916) 498-5901. Laurie Wayburn, Pacific Forest Trust, (707) 895-2091. CPUC PG&E Hydropower Project Website: http://cpuc-pgehydro.support.net