20210114Application.pdf

Y ROCKY MOUNTAIN
POWER
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1407 W. North Temple, Suite 330
Salt Lake City, Utah 84116
January 14,2021
VIA ELECTRONIC DELIYERY
JanNoriyuki
Commission Secretary
Idaho Public Utilities Commission
11331 W. Chinden Blvd
Building 8 Suite 20lA
Boise,ID 83714
?ac- L- qt-ol
Re:IN THE MATTER OF THE APPLICATION OF ROCKY MOUNTAIN POWER
FOR APPROVAL OF THE TRANSFER OF TIIE LOWER KLAMATH
ITYDROELECTRIC PROJECT GENERATING FACILITIES
Dear Ms. Noriyuki:
Please find for filing Rocky Mountain Power's application along with supporting testimony and
exhibits of Mr. Timothy J. Hemstreet in the above-referenced matter.
Informal inquiries may be directed to Ted Weston, Idaho Regulatory Manager at (801) 220-
2963.
truly yours,
t^--D
Joelle R. Steward
Vice President of Regulation
Enclosures
Adam Lowney (158#10456)
McDowell Rackner Gibson PC
419 SW llftAve., Suite 400
Portland, Oregon 97205
Telephone: [phone]
E-mail: adam@mrg-lawcom
Attorneyfor Roclcy Mountoin Power
BEFORE TIIE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
ROCKY MOUNTAIN POWER FOR
APPROVAL OF TIIE TRANSFER OF TIIE
LOWER KLAMATH I{YDROELECTRIC
PROJECT GENERATING FACILITIES
CASE NO. PAC-E-2I.OI
APPLICAIION
APPLICATION OF ROCKY MOUNTAIN POWER FOR APPROVAL OF TIIE
TRANSFER OFTHE LOWER KLAMATH HYDROELECTRIC PROJECT
GEI\TERATING EACILITIES
Comes now PacifiCorp, dlbla Rocky Mountain Power ("Rocky Mountain Power" or
"Company") pursuant to I.C. $ 6l-328 hereby submits this application to the Idaho Public Utilities
Commission ("Commission"). Rocky Mountain Power respectfully requests an order approving
the Property TransferAgreement ("TransferAgreemenf') between the Company and the Klamath
River Renewal Corporation ("Renewal Corporation") with a determination that the properly
disposition is in the public interest. The Transfer Agreement provides for transfer from the
Company to the Renewal Corporation of four hydroelectric dams, J.C. Boyle, Copco No. l, Copco
No. 2, and lron Gate (collectively, the "Lower Klamath Projecf'), as well as approximately
8,000 acres of real and personal property associated with the dams. The Company requests
approval of this application within six months, on or before luly 15,2021.
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The transfer of the Lower Klamath Project to the Renewal Corporation is in the public
interest because it is lower cost and lower risk than relicensing the dams. Accordingly, the transfer
will not adversely impact the Company's ability to provide service to [daho customers or increase
the Company's rates. The Company's quantitative and qualitative analysis demonstrates that the
transfer of the Lower Klamath Project, under the terms of the Klamath Hydroelectric Settlement
Agreement ("KHSA"), is lower cost than relicensing the dams based on the Company's assessment
of the likely mitigation requirements that would have been imposed had the Company pursued
relicensing. Moreover, the KHSA provides critical protections designed to shield customers from
the potential for escalating costs and liabilities associated with dam removal. Taken together, the
framework for transfer of the Lower Klamath Project set forth in the KHSA is in the public interest
and should be approved.
In support of this Application, Rocky Mountain Power states as follows:
I. NAME AI\D ADDRESS OF THE APPLICAIIT
l. Rocky Mountain Power, a division of PacifiCo{p, an Oregon Corporation, whose
address is 1407 West North Temple, Suite 320 Salt Lake City, Utah 84116, is authorized to do and
is doing business in the state of Idaho. The Company provides retail electric service to
approximately 84,000 customers in the stale and is subject to the jurisdiction of the Commission.
The Company's retail certificated service territory encompasses portions of Fremont, Madison,
Teton, Clark, Jefferson, Lemhi, Oneida, Bannock, Franklin, Caribou, Butte, Bingham, Bear Lake
and Bonneville counties. Rocky Mountain Power is a public utility in the state pursuant to Idaho
Code $ 6l-129.
2. Formal correspondence and requests for additional information regarding this
matter should be addressed to:
2
By email (prefened): [e-mail]
By regular mail:
Data Request Response Center
PacifiCorp
825 NE Multnomah, Suite 2000
Portland, Oregon 97232
With copies to:
Ted Weston
Idaho Regulatory Affairs Manager
1407 W. North Temple, Suite 330
Salt Lake city, utah 84116
Telephone : (801\ 220 -2963
Fax: [phone]
Email: ted.weston@pacifi corp.com
John Hutchings
SeniorAffomey
Rocky Mountain Power
1407 WestNorth Temple, Suite 320
salt Lake city, utah 841l6
Email: iohn.hutchines@pacifi corp.com
Informal inquiries related to this Application should be directed to Ted Weston, Idaho
RegulatoryAffairs Manager, at [phone].
II. SUPPORTING TESTIMOI\IY
3. Rocky Mountain Power's filing consists of an Application for approval of the
transfer of the Lower Klamath Project, which is supported by pre-filed written direct testimony
and exhibits from Mr. Timothy J. Hemstreet describing the Lower Klamath Project and explaining
why the disposition of the dams is in the public interest.
IIL BACKGROUND
4. The Klamath Hydroelectric Project, located primarily on the Klamath River in
Klamath County, Oregon and Siskiyou County, California, includes seven hydroelectric
3
By emai I (preferred) : datareq uest@pacifi corp.com
By regular mail:
Data Request Response Center
PacifiCorp
825 NE Multnomah, Suite 2000
Portland, Oregon 97232
With copies to:
Ted Weston
Idaho Regulatory Affairs Manager
1407 W. North Temple, Suite 330
salt Lake city, utah 84116
Telephone : [phone]
Fax: [phone]
Email : ted.weston@f acifi corp.com
John Hutchings
SeniorAttomey
Rocky Mountain Power
1407 WestNorth Temple, Suite 320
salt Lake city, utah 84116
Email: john.hutchines@pacifi corp.com
Informal inquiries related to this Application should be directed to Ted Weston, Idaho
RegulatoryAffairs Manager, at [phone].
IL SUPPORTING TESTIMONY
3. Rocky Mountain Power's filing consists of an Application for approval of the
transfer of the Lower Klamath Project, which is supported by pre-filed written direct testimony
and exhibits from Mr. Timothy J. Hemstreet describing the Lower Klamath Project and explaining
why the disposition of the dams is in the public interest.
III. BACKGROUND
4. The Klamath Hydroelectric Project, located primarily on the Klamath River in
Klamath County, Oregon and Siskiyou County, California, includes seven hydroelectric
aJ
developments-East Side, West Side, Fall Creek, J.C. Boyle, Copco No. l, Copco No. 2, and Iron
Gate-and one non-generating development, Keno ("Larger Klamath Project"). The Federal
Energy Regulatory Commission ("FERC") originally licensed the Larger Klamath Project in 1954
as license P-2082.1 This original license expired in 2006. Since that time, the Company has
operated the project under annual licenses.2
A. The KHSA
5. In 2004, the Company filed an application with FERC to relicense the Larger
Klamath Hydroelectric Project.3 In 2007, FERC Staff issued a final Environmental Impact
Statement ("EIS") forthe relicensing application, which ultimately recommended relicensing with
mandatory conditions to provide for fish passage improvements at the J.C. Boyle, Copco No. l,
Copco No. 2, and lron Gate developments.a The Company determined that these protection,
mitigation, and enhancement ("PM&E") measures would reduce power generation for the Lower
Klamath Hydroelectric Project and increase the costs of a new license.
6. Concurrent with the relicensing process, the Company engaged in relicensing
settlement talks with a wide range of parties to address the complex resource management issues
in Oregon and California raised in the relicensing process. After many years of settlement
negotiations, on February 18, 2010, the KHSAwas executed by 48 parties, including the Company;
the states of Oregon and California (collectively, the "States"); the U.S. Department of the Interior
("Interior"); the U.S. Department of Commerce's National Marine Fisheries Service ("NMFS");
I In the Matters of the California Oregon Power Co.,13 F.P.C. I (Jan.28, 1954). On June 16, 1961, the license was
transferred to Pacific Power and Light Company, The California Oregon Power Co. and Pacific Power & Light Co.,25
F.P.C. ll54 (June 16, 196l), and then to PacifiCorp on November 23, 1988. PacifiCorp, d.b.a. Pacific Power and
Light Co. & PC/UP&L Mergrng Corp.,45 FERC n62,146 (Nov. 23, 1988).
2 Order Approving Partial Transfer of License, Lifting Stay of Order Amending License, and Derrying Motion for
ClariJication and Motion to Dismiss,lT2 FERC n61,062, at ![ 2 (July 16,2020); see also l6 U.S.C. $ 808(aXl).
3 172 FERC 61,062at\3.
a Id. at\3.
4
several Native American tribes; and irrigation, conservation, and fishing groups.
7 . The KHSA provides a framework to decommission and remove the four mainstem
hydroelectric developments comprising the Lower Klamath Project-J.C. Boyle, Copco No. l,
Copco No. 2, and Iron Gate-and sets forth requirements related to their operation until removal.s
To facilitate dam removal, the KHSA requires the Company to transfer the Lower Klamath Project
developments to a Dam Removal Entity ("DRE") once each facility is decommissioned6 and ready
for removal.T Initially, this transfer was contingent on several conditions, including Congressional
approval and authorization of the KHSA and a companion sefflement agreement, the Klamath
Basin Restoration Agreement (that addressed broader Klamath Basin resource issues) and a
scientific assessment by the Secretary of Interior confirming that dam removal is in the public
interest.8 The KHSA also conditioned removal upon federal legislation to authorize
implementation of the KHSA and provide liability protection for the Company and its customers.
8. The KHSA provides $450 million in public funds to cover the costs of dam
removal.e The Company would collect $200 million from Oregon and California customers
through dam removal surcharges,lo and California bond funding would supply the remaining
$250 million.rr
9. The Company relied on four core principles when negotiating the KHSA: (l)
protect customers from uncertain costs of removal of the Klamath dams; (2) transfer the dams to
5 KHSA $ 1.2.
6 Under the KHSA, "decommissioning" means "PacifiCorp's physical removal from a facility of any equipment and
personal property that PacifiCorp determines has salvage value, and physical disconnection of the facility from
PacifiCorp's transmission grid." The term does not refer to dam removal activities. See KHSA Definitions section.
7 KHSA $7.4.2.8 See KHSA $ 7.4.1.
e Id.
to KHSA $ 4.1.1.rr KHSA $ 4.1.2. In2014, Califomia voters passed Proposition l, a water bond that included $250 million for
implementation of the KHSA.
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a third party for removal; (3) protect customers from liabilities of dam removal; and (4) ensure that
customers continue to benefit from the low-cost power of the dams until the dams are removed.
The I(HSA addressed these principles in several ways. First, the $200 million cap on customer
contributions protected customers from any uncertain costs associated with dam removal. Second,
the KHSA reduced risk by transferring ownership of the Lower Klamath Project dams to a DRE
that would be solely responsible for designing and conducting dam removal. Third, the passage of
federal legislation enacting the KHSAwould provide liability protection to further reduce risk once
the Company transferred ownership of the properties to the DRE. Finally, the Company committed
to operating the dams until at least2020, allowing customers to benefit from low-cost power from
the facilities while dam removal surcharges were collected.
10. At the time the Company entered the KHSA in 2010, the Company estimated the
cost of relicensing the dams and implementing the required PM&E measures would be at least
$400 million in capital, and $60 million in operations and maintenance ("O&M") costs over a 40-
year license term. These projected costs were conservative, and it was understood they could go
much higher considering the risks of escalating PM&E costs, litigation, and the risk that the project
could not successfully be relicensed (thereby potentially exposing customers to the costs and risks
of dam removal).
ll. Conversely, under the KHSA, the Company's costs for dam removal would be
capped at $200 million with an additional amount (approximately $70 million) in O&M costs to
manage hatchery operations, monitor and improve water quality, and enhance the aquatic habitat
for threatened species until decommissioning. The Company's Present Value Revenue
Requirement ("PVRR") analysis of the alternatives showed that dam removal under the I(HSA
was more beneficial to customers than the uncapped and unknown costs and risks of relicensing.
6
12. Both the Public Utility Commission of Oregon ("OPUC") and the California Public
Utilities Commission ("CPUC") approved the surcharges contemplated by the KHSA, allowing
the full $200 million contribution towards dam removal to be collected from customers in those
states.12 Since the OPUC and CPUC authorized the dam removal surcharges in 2010, the Company
has collected surcharge funds and deposited these funds into four separate interest-bearing
accounts, two for each state, each managed by a trustee appointed by either the CPUC or the
OPUC.13
13. The Company has now collected the authorized surcharges in both states. As of
December 31, 2020, the four trust accounts contain a total of $106,629,265 reflecting total
customer surcharge collections of $ I 87,840 ,579 net earnings of $15 ,772,649 and disbursements to
the Renewal Corporation of $96,983,963 which funded engineering and planning related to dam
removal.
14. Consistent with the terms of the KHSA, which provided that dam removal costs
would be collected from California and Oregon customers, the Company has not requested dam
removal costs from Idaho customers.
B. The KHsAAmendments.
15. Implementation of the KHSA was delayed because Congress did not pass the
necessary legislation by December 2015,which triggered a potential termination of the settlement.
Consequently, in January 2016, the KHSA s dispute resolution procedures were triggered,
t2 In the Matter of PactfiCorp, dba Pacific Powea Applicstion to Implement the Provisions of Senote Bill 76,Docket
UE 219, Order No. 10-364 (Sept. 16, 2010), corrected by Errata Order No. 10-390 (Oct. ll, 2010); In the Matter of
the Application of PacifiCorp (U90lE), an Oregon Company, for an Order Authorizing a Rate Intease ffictiveJanuary l, 2011 and Granting Conditional Authorization to Tiansfer Assets, pursuant to the Klamath Hydroelectric
Settlement Agreement, CPUC Application l0-03-01 5, Decision Approving a Rate Increase for PacifiCorp Pursuant to
the Klamath Hydroelectric Settlement Agreement,Decision I l-05-002 (Mar. 5, 201l).
13 See KHSA $$ 4.2.1 & 4.2.2.
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Resulting in proposed limited amendments to the KHSA.I4 The amendments were executed on
April 6, 2016, by the principal parties to the KHSA, including the Company, the States, Interior,
NMFS, the Yurok Tribe, and the Karuk Tribe.ls
16. The KHSA, as amended, retained the core customer protections of the original
settlement while charting a new procedural course for dam removal. Rather than relying on federal
legislation, the amended settlement established a process by which the Company's FERC license
for the Lower Klamath Project would be transferred to a newly formed DRE (the Renewal
Corporation) for the purpose of license surrender authorizing dam removal. The amended
settlement relies upon FERC's existing authority under the Federal Power Act to review and
approve such license transfer and surrender. As was the case in the original settlement, the lands
associated with the project will be transferred to the respective states once dam removal is
complete so the property can be used to benefit the public in other ways such as habitat
conservation or recreation. 1 6
17. The parties worked diligently to implement the amended settlement. In March
2016, the Renewal Corporation was incorporated for the exclusive purpose of accepting the
transfer and conducting the removal of the Lower Klamath Project dams. The Renewal
Corporation is a public benefit corporation organized under the laws of California. Consistent with
its bylaws, the Renewal Corporation has a fully functioning independent board of directors. The
directors have considerable technical, legal, and political experience in water issues,
'4 KHSA $ 8.11.3.
rs Other signatories to the amendments axe the Califomia Department of Fish and Wildlife; the California Natural
Resources Agency; the Oregon Department of Environmental Quality; the Oregon Department of Fish and Wildlife;
the Oregon Water Resources Department; Humboldt County, Califomia; American Rivers; Califomia Trout; the
Institute for Fisheries Resources; Northern California Council, Federation of Fly Fishers; Pacific Coast Federation of
Fishermen's Association; Trout Unlimited; and Sustainable Northwest.
16 KHSA $ 7.6.4.D.
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environmental planning, and the Klamath Basin.lT
18. On September 23,2016, and later supplemented, the Company and the Renewal
Corporation filed a license amendment and transfer application with FERC to: "(l) amend the
Klamath Project license to administratively remove the [Lower Klamath Project] to be
decommissioned and place those developments into a new license that would become the Lower
Klamath Project; and (2) transfer the license for the Lower Klamath Project from the Company to
[the Renewal Corporation]."18 In a concurrent filing with FERC, the Renewal Corporation applied
to surrender the Lower Klamath Project license and remove the four dams.le
19. On March 15, 2018, FERC approved the proposed amendment to separate the J.C.
Boyle, Copco No. 1, Copco No. 2, and Iron Gate developments from the existing FERC license
and transfer them into a new license created for the Lower Klamath Project under license No.
14803.20 At the same time, FERC defened a ruling on the pending request to transfer the license
to the Renewal Corporation, and instead solicited additional financial, insurance, and risk
management information to inform its assessment of the Renewal Corporation's capacity to
become the FERC licensee for the Lower Klamath Project.2l
C. FERC's July 2020 Order
20. Following the filing of the 2016 Application and FERC's March 2018 Order, the
Renewal Corporation-with the assistance of the Company and the States{eveloped and
provided significant information to FERC regarding the legal, technical, and financial capacity of
the Renewal Corporation to accept the new license and to decommission and remove the facilities.
17 See Renewal Corporation Bylaws $ 3.1.
18 Approving Partial Tiansfer of License, Lrfting Stay of Order Amending License, and Denying Motion for
Clarification and Motion to Dismiss,l72 FERC 161,062, at fl 6 (July 16,2020). The other four developments-East
Side, West Side, Keno, and Fall Creek-are still under license P- 2082.
te Id.
20 Id. atl9.
2t Id.
9
21. Based on the information provided to FERC regarding the Renewal Corporation's
capacity, on July 16,2020, FERC approved a partial transfer of the Lower Klamath Project license
from the Company to the Renewal Corporation (the "July 2020 Order").22 FERC determined that
it was "generally satisfied that the Renewal Corporation has the capacity to carry out its proposed
decommissioning But rather than approving a full transfer of the license, FERC determined
that, "the public interest would be best served by approving a partial transfer of the license and
requiring PacifiCorp to remain on as co'licensee."24 FERC observed that by remaining a co-
licensee, the Company "not only can provide legal and technical expertise, as the parties
envisioned, but can also provide further assurance that there will be sufficient funding to carry out
decommissioning, should we approve the surrender application."25
22. FERC acknowledged that its conclusion to authorize only a partial transfer of the
Lower Klamath Project license "represents a significant change from what the parties envisioned"
since the KHSA required a full transfer of the license to the Renewal Corporation for purposes of
dam removal.26 FERC also recognizedthat the parties to the KHSA "may elect to amend their
arrangement" to provide resources "sufficient to cover the costs of decommissioning."2T
D. The November 2020 Memorandum of Agreement
23. Because PacifiCorp concluded that the July 2020 Order conflicted with the KHSA
by not allowing the Company to be fully discharged from the license, the KHSA's dispute
resolution mechanisms were, once again, triggered.28 The Company engaged with parties to
22 Order Approving Partial Transfer of License, Lifting Stays of Order Amending License, and Denying Motion for
ClariJication and Motionto Dismiss,lT2 FERC n61,062 (July 16,2020).
23 Id. atn7t.
24 Id.
2s Id.
26 Id. at 46.
27 Id.
28 KHSA g 8.11.
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determine how to resolve the conflicts between the KHSA and the July 2020 Order. On November
17,2020,the Company, the States, the Renewal Corporation, the Karuk Tribe, and the Yurok Tribe
entered into a Memorandum of Agreement ("MOA") to implement the KHSA while satisffing
FERC's public interest considerations as stated in the July 2020 Order.2e Under the MOA,
PacifiCorp will be removed from the license and the States, along with the Renewal Corporation,
will become co-licensees for the purpose of license surrender authorizing removal of the Lower
Klamath Project dams.3o
24. To ensure commencement of the dam removal process, the MOA required that the
Company and the Renewal Corporation file an amended license surrender application ("ALSA")
with FERC to begin the environmental review process.3l The ALSA, which was filed on November
17,2020, updates the Renewal Corporation's 2016 surrender application with a detailed design for
achieving a free-flowing river, volitional fish passage, site remediation, and restoration.32 The
ALSA also asks FERC to commence a technical review of the dam removal proposal, including
evaluations under the National Environmental Policy Act, the Endangered Species Act, and other
federal resource laws. On December 16, 2020, FERC provided general notice of the ALSA and
invited protests, comments, and interventions. 33
25. Pursuant to the MOA, a new license transfer application was filed on January
13,2021.34 The license transfer application notified FERC that the Company and the Renewal
2eMOAat l.
30 Id. at3.
3t Id. alz.
32 Amended Application for Surrender of License for Major Project and Removal of Project and Removal of Project
Works, Dockets P-14803-001, P-2082-063 (Nov. 17, 2020) at hfip://www.klamathrenewal.ors/wn-
content/uploads/202Oi11/Klamath-Amended-Sunender-Application-2020-ll-l7.pdf.
33 FERC, Notice of Application for Surrender of License, Soliciting Comments, Motions to Intervene, and Protests,
Dockets P- I 4803-00 l, P -2082-063 (Dec. I 6, 2020).
34 Joint Application forApproval of License Transfer and Request for Expedited Review and Other Reliei Docket P-
14803 (Jan. 13,2021).
1l
Corporation are not accepting the July 2020 Order that included the Company as a co-licensee but
instead seek an order to remove PacifiCorp from the Lower Klamath Project license and approve
a transfer of the license to the Renewal Corporation and the States as co-licensees, in connection
with FERC's issuing a license surrender order consistent with the MOA section 3(c).
26. By removing PacifiCorp and adding the States as co-licensees with the Renewal
Corporation, the MOA is intended to address the public interest concerns that caused FERC, in the
JuJy 2020 Order, to approve only a partial license transfer. Specifically, the role of the States as
co-licensees together with contingency funding pledges in the MOA are intended to provide FERC
the assurances it requires to approve a license transfer.
27. Once the new license transfer application is approved by FERC, the MOArequires
that within 30 days of issuance of a final license surrender order by FERC, the States and the
Renewal Corporation will accept the license transfer order making the Renewal Corporation and
States co-licensees for the Lower Klamath Project. This must occur unless the States and
PacifiCorp, in consultation with Karuk and Yurok Tribes, mutually agree to reject the license
surrender order on the basis that the terms of the order, including terms of any federal agency
consultation concerning the order, are significantly outside the norm for FERC orders involving
major project construction or deconstruction in a manner that creates significant financial risk to
the States or PacifiCorp.3s This approach maintains the KHSA s foundational license transfer
structure (which provides significant liability protection benefits for PacifiCorp) while addressing
FERC's concerns regarding adequate assurances that the project is supported by appropriate
entities and commitments.
28. Under the MOA and the KHSA, and consistent with the concept that the FERC
3s MOA at 3
t2
license is inextricably tied to physical assets, the Company will transfer its property interests in
the Lower Klamath Project to the Renewal Corporation once all anticipated FERC Orders and
State disposition approvals are secured.36
29. The Company and the Renewal Corporation have negotiated a TransferAgreement
to effectuate the property transfer provisions of the KHSA as implemented by the MOA. Under
the MOA, PacifiCorp agreed to file applications before this Commission and other public utility
commissions to approve the Transfer Agreement. This application is in fulfillment of that
obligation.3T
30. PacifiCorp also agreed concurrently to file a license transfer application at FERC,
consistent with the MOA. This alignment in regulatory reviews is necessary to implement the
KHSA, and specifically the requirement that the Renewal Corporation and the States accept license
transfer before commencing dam removal. The Company is seeking state approvals of the Transfer
Agreement, so that property transfer to the Renewal Corporation is ready to occur when the
Renewal Corporation and States accept license transfer. Under the Federal PowerAct, an applicant
for license transfer must show that it holds fee title to the properties subject to the license, as a
precondition for the license transfer to be effective.38
31. The MOA includes a schedule in Exhibit A designed to ensure that all necessary
regulatory approvals are obtained expeditiously. This is critical because the Renewal Corporation
has determined that the costs will increase if dam removal is delayed.3e For this reason, PacifiCorp
is seeking approval of this application within six months.
36 Id. at 4.
37 Id.
38 18 C.F.R. $ 9.3(a).
3e ALSA Exhibit D-1, Section 2.6 (estimating annual cost escalation of 4 percent) at
http://www.klamathrenewal.org/wp-content/uploads/2020ll l/Klamath-ALSA-Exhibit-D.pdf
13
32. The Renewal Corporation's current budget shows that, with a high degree of
certainty, dam removal can be completed within the funds available under the KHSA. The Renewal
Corporation has negotiated guaranteed maximum price confacts with experienced, best-in-class
firms (Kiewit Infrastructure West and Resource Environmental Solutions, Inc.) for all dam removal
and restoration work. Those contracts are based on detailed project designs and are backed by
parent company guarantees. The Renewal Corporation has also developed a comprehensive risk
mitigation program, including insurance, broad indemnifications, and liability transfer
mechanisms. The Renewal Corporation's current budget also includes a $35.1 million contingency
fund supported by a comprehensive risk register. That reserve, combined with an additional
$15 million built into the guaranteed maximum price contracts, provide combined contingency
coverage over $50 million.ao
33. An independent Board of Consultants ("BOC"), convened at FERC's direction, has
reviewed the Renewal Corporation's budget, guaranteed maximum price contracts for dam
removal and restoration, and insurance/risk mitigation program. The BOC found that the Renewal
Corporation's cost estimate for the Project "meets or exceeds" cost estimation standards applicable
to the hydropower industry.al The Board of Consultants also determined that the "[c]osts and
contingencies appear to be reasonable and have a high likelihood of being adequate given the PDB
[progressive-design-build] contracting model, the choice of a proven, competent contractor and
proposed Risk Management PlanJ'42 And in the July 2020 Order, FERC found that the BOC had
"thoroughly examined ... concems [about the Renewal Corporation's capacity] and found the
40 ALSA Exhibit D, pg. D-2 at http://www.klamathrenewal.ors/wp-contentiuploads/2020l11/Klamath-ALSA-
Exhibit-D.pdf
at Letter Report: Board of Consultants Mtg. No. I at3-4 @ecember 12,2018),
https://elibrary.ferc.gov/eLibrary/filelist?document-id=14728045&accessionnumber:20181212-5 147.
a2 Letter Report: Supplement to Board of Consultants Mtg. No. / at 5 (July 29,2019), available as Attachment A at:
https://elibrarv.ferc.eov/el.ibrary/filelist?document-id=14788704&accessionnumbeF20l90729-5039
t4
Renewal Corporation's financing, insurance, and contingencies to be appropriate for what it
proposes to do."43 FERC concluded that it was "generally satisfied that the Renewal Corporation
has the capacity to carry out its proposed decommissioning,"44 including financial capacity based
on the $450 million of funds committed under the KHSA.
34. Nevertheless, to satisfu FERC's expressed desire for additional "assurances" and
provide a clear and definitive commitment of resources that will ensure the successful completion
of dam removal,the MOAprovides additional financial commitments if dam removal costs exceed
the KHSA cost cap.as Under the MOA, PacifiCorp and the States each pledge an additional, fixed
amount of $15 million to a $45 million contingency fund, to be utilized only in the unlikely event
the $450 million available to the Renewal Corporation needs to be augmented to ensure completion
of dam removal.46 Should cost ovemrns deplete the fixed contingency fund, then such unlikely
costs shall be shared equally by the Company and the States.aT
35. The Company is not seeking authorization for any accounting treatment or cost
recovery associated with any potential contingency funding contemplated by the MOA at this time.
In the unlikely event that contingency funding is necessary the Company will consider whether
and how to make any necessary request before the Commission. [n addition, any remaining plant
balance at the time of the transfer will be moved to a regulatory asset and will continue depreciating
over the current life prior to the next general rate case. The recovery period for the remaining
balance, if any, will be determined at the time of the next general rate case.
43 July 2020,172 FERC n il,062 Order at fl 7l
M Id.
4s Id.
46 Id.
47 Id.
l5
E. The TransferAgreement
36. The TransferAgreement governs the conveyance of the Lower Klamath Project to
the Renewal Corporation so that dam removal may begin. The Transfer Agreement provides for
PacifiCorp's reservation of easements for all transmission, distribution, service, substation, and
communications assets required to preserve the safe and reliable function of the utility system after
the land upon which the assets are located is transferred to the Renewal Corporation. The
Transmission Facility Easement Area is designed to aid vegetation management and fire
prevention by establishing a 1OO-foot buffer from Company facilities including conductors. The
Company may also remove trees outside the 100-foot buffer if those trees present a threat of
contact with Company facilities. The reservation of easement interests includes access rights and
other rights necessary for the Company to protect and manage its reserved facilities and easement
areas in perpetuity.
37. The Transfer Agreement also anticipates the grant of a Fall Creek Hatchery
leasehold interest. The approximately four acres of land subject to the Fall Creek lease are currently
occupied by a non-functional hatchery originally established with the development of the Copco
No. I dam that will be rehabilitated by the Renewal Corporation and the State of California in
satisfaction of section 7 .6.6 of the KHSA. Other, immaterial grants are anticipated in the Transfer
Agreement including temporary construction easements over certain lands not conveyed to the
Renewal Corporation. Surveys and potential modifications to easements are anticipated to
accommodate dam removal activity but such modifications are limited to those that pose no
material threat to the reliability of the transmission facilities.as
a8 Section I 1.3 of Transfer Agreement.
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38. The Transfer Agreement contains a set of conditions precedent to closing in
Sections 4.2 (Renewal Corporation's) and 4.3 (PacifiCorp's) including that: a FERC Surrender
Order has issued and has not been rejected; a FERC License Transfer Order has issued; all required
state utility commission property transfer approvals are obtained; and that other permitting and
financial matters are completed such that the Renewal Corporation is ready to take title to the
facilities and associated lands and implement dam removal.
39. PacifiCorp also agreed to address specified environmental conditions that currently
exist on lands that will be conveyed to the Renewal Corporation, and for which PacifiCorp already
has responsibility for addressing based on its status as the property owner. These pre-existing site
conditions were identified during environmental site assessments conducted by the Renewal
Corporation as part of its site due diligence. The Renewal Corporation's contractors estimate that
the cost of mitigating the pre-existing environmental conditions ranges from $4.2 million (low) to
$31.5 million (high). The risk associated with this obligation is mitigated partly by the
establishment of a finite list of pre-existing environmental conditions identified on Exhibit C to
the TransferAgreement. This obligation is furthermitigated by a "reasonable satisfaction" standard
as reflected in Section 3.5 of the Transfer Agreement and in Exhibit F to the Transfer Agreement
- the Form of Post-Closing Environmental ResolutionAgreement.
40. The Transfer Agreement contains a number of other provisions that are typical to
land transfer transitions or that anticipate the continued technical coordination between the
Company and the Renewal Corporation.
IV. LEGAL STAI\DARI)
41. Idaho Code $ 6l-328(l) requires the Company to obtain Commission approval
before transferring property used in the generation of electric power to the public. As relevant here,
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in order to approve a property transfer, I.C. $ 6l-328(3) requires that the Commission determine:
"(a) That the transaction is consistent with the public interest; [and] (b) That the cost of and rates
for supplying service will not be increased by reason of such transaction[.]"4e Here, transferring
the Lower Klamath Project pursuant to the KHSA is lower cost and lower risk than pursuing a new
FERC license or simply surrendering the license and removing the facilities without the customer
protection benefits of the KHSA. Therefore, the property transfer will not increase rates and is in
the public interest.
A. The KHSA advances the public interest and does not harm customers.
42. Relicensing the Lower Klamath Project or surrendering the license and removing
the dams would have exposed the Company and customers to substantial costs, risks, and
liabilities. To mitigate these risks and limit customers' exposure to uncertain and potentially
escalating costs, the Company instead pursued a settlement that ultimately resulted in the execution
of the KHSA in 201 0. The KHSA provides a framework for removal of the Lower Klamath Project,
while providing robust customer protections.
43. The KHSA benefits customers by providing a more certain and less risky path
forward. As discussed above, when negotiating the KHSA, the Company sought to ensure that the
settlement: (l) protected customers from uncertain costs of dam removal; (2) transferred dams to
a third party for removal; (3) protected customers from liabilities of dam removal; and (4) ensured
that customers continue to benefit from the low-cost power of the dams until the dams are removed.
The KHSA achieves each of these objectives.
44. Before executing the KHSA in 2010, the Company undertook a comprehensive
o, I.C. $ 6l-328(3Xc) also requires a finding, "That the applicant for such acquisition or transfer has the bona fide
intent and financial ability to operate and maintain said properly in the public service." This provision is not directly
relevant here because the Company is not acquiring the property and the Renewal Corporation is not acquiring the
propefi for purposes ofproviding utility service.
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economic analysis that examined the relative costs and risks associated with continuing to pursue
relicensing or entering into the KHSA and transferring the dams so that they could eventually be
removed by the dam removal entity. The costs to customers under the KHSA were compared
against a baseline relicensing scenario reflecting the terms and conditions that would be imposed
on future project operations, as informed from the extensive relicensing record developed at that
time. This analysis ensured that customers would be no worse off under the KHSA as compared
to a conservative estimate of relicensing costs. This analysis, combined with the significant risk-
reducing elements of the KHSA, ensures that the KHSA is in the public interest.
45. To estimate the costs of relicensing, the Company relied on the costs and data
developed as part of the 2007 FERC EIS, which represented the best estimate of the PM&E
measures likely to be required in a new license. The Company also included costs associated with
measures potentially necessary to comply with water quality standards and requirements that
would be imposed on the project, consistent with then-existing water quality standards and
requirements developed by the States.
46. The Company's estimated relicensing costs were in excess of $400 million in
capital costs and $60 million in O&M costs over a4}-year license term. The majority of the capital
costs would result from implementing aquatic resource PM&E measures, including the fish
passage conditions that would be contained in a new FERC Project license. Furthermore, the
Company would need to expend additional funds for terrestrial resource, recreational resource,
land use, and cultural PM&E measures. Because the costs related to water quality requirements
are uncertain, the Company based costs for such measures on those explored during the relicensing
proceeding to address project-related water quality effects.
47. The Company's baseline relicensing case was conseryative. This scenario was
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based on cost estimates developed during the relicensing proceeding that preceded the 2010 KHSA
and the subsequent adoption of stringent new water qualrty standards for the Klamath River by
Califomia and Oregon.so Accordingly, the final terms and conditions for relicensing could be
higher than the Company's estimates.
48. The relicensing scenario evaluated by the Company included a 20 percent reduction
in the energy that could be produced from the Lower Klamath Project as a result of additional
instream flow requirements. The Company assumed that lost generation would be replaced with
renewable, non-carbon emitting resources.
49. The Company also evaluated the costs of settlement under the KHSA. The
Company estimated capital costs to be approximately $9 million and O&M costs to be
approximately $70 million. The estimated capital costs reflect the costs of interim water quality
improvements and hatchery improvements. The O&M costs reflect increased funding related to
hatcheries; restoration and study funding; lands and cultural resources funding; aquatic habitat
enhancement; water quality monitoring and improvement measures; and implementation and
management costs.
50. In addition, costs under the KHSA scenario included the cost of renewable
replacement power, based on the assumption that generation at the Lower Klamath Project would
cease effective Decemb er 31,2020. The settlement costs also included $3 million to decommission
the East Side and West Side developments and dam removal customer surcharges set to raise
50 In March 2010, the California State Water Quality Control Board adopted the North Coast Regional Water Quality
Control Board's Final Staff Report for the Klamath River Total Maximum Daily Loads (TMDLs) Addressing
Temperature, Dissolved Oxygen, Nutrient, and Microcystin Impairments in California, the Proposed Site Specific
Dissolved Oxygen Objectives for the Klamath River in Califomia, and the Klamath River and Lost River
Implementation Plans. In December 2010, the Oregon Department of Environmental Quality adopted the Upper
Klamath and Lost River Subbasins Total Maximum Daily Load (TMDL) and Water Quality Management Plan
OyPI\P). The TMDL requirements of both states would impose additional operational limitations and water quality
compliance costs on the operation of the Klamath Hydroelectric Project'
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$200 million, which was recovered from the Company's Oregon and California customers.
51. To evaluate the costs and benefits of continuing with relicensing the Lower
Klamath Project as compared with the costs and benefits of entering into the KHSA, the Company
compared the PVRR of relicensing to the PVRR of the KHSA over a 44-year period beginning in
20 I 0, which reflected a 4}-year license beginning in 20 I 3. The economic analysis showed that the
KHSA resulted in a PVRR that is less than the cost of relicensing.
52. In addition to evaluating the costs of relicensing and settlement under the KHSA,
the Company also evaluated risks to customers under each scenario. Without the KHSAto facilitate
removal of the dams, customers would be exposed to additional risks and liabilities related to
relicensing. For example, there is a risk that costs for PM&E measures would escalate once the
measures are designed and constructed. In addition, the Company may be required to implement
additional PM&E measures, specifically those necessary to provide for the passage of fish through
the Lower Klamath Project should the fishways prescribed by federal agencies fail to accomplish
this objective adequately, and to comply with continually evolving water quality standards to
remedy impaired water quality in the Klamath basin. The Company would also be exposed to the
risk that it may not be able to secure approvals for relicensing and it could be required to
decommission and remove the Project without cost and risk protections. Finally, the Company
would likely incur additional costs resulting from continued litigation related to environmental
issues and an ongoing relicensing proceeding. The KHSA protects the Company's customers from
all these risks.
53. The KHSA, as amended, and the MOA preserve the settlement outcomes reflected
in the settlement reached in 2010 and the Company's rationale for pursuing a settlement that results
in dam removal. The commitment in the MOA that the States will become co-licensees with the
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Renewal Corporation responds to FERC's concerns. While the MOA does provisionally commit
additional funds to the dam removal process, the parties to the MOA have mutually agreed that
these funds will likely be unnecessary.sl Even with these additional, contingent financial
commitments, relicensing remains a much more costly and risky alternative than dam removal
under the KHSA. Moreover, this responsibility for additional funding is shared by both the States
and the Company. The cost-sharing mechanisms of the MOA show the Company's commitment
to mitigate the risks associated with the dam removal process while ensuring that removal occurs
in a timely and orderly fashion.
54. Significantly, the Renewal Corporation's current budget shows that dam removal
can be completed within the funds available under the KHSA lincluding over $50 million in
contingency funding coverage), and that the additional contingency funding provided for in the
MOA will likely not be needed. As noted above, both the BOC and FERC have expressed
confidence in the Renewal Corporation's ability to complete the project within the funds available
under the KHSA.52
55. This transfer of the Lower Klamath Project to the Renewal Corporation culminates
a regulatory process that started over ten years ago. The Company has already collected all of the
surcharges associated with dam removal and has concurrently depreciated the book value of the
Lower Klamath Project over that same time period. The Company has reflected the removal and
replacement of the Lower Klamath Project in its integrated resource plans for many years, ensuring
that there are no reliability or customer service issues associated with removal of the dams.
56. Furthermore, the property transfer (as a required step to implement the KHSA) will
51 MOA at 4 ("The Implementing Agreement Parties believe that funding for Facilities Removal beyond the
[Amended] KHSA State Cost Cap is unlikely to be needed. . ' .").
s2 Letter Report: Board of Consultqnts Mtg. No. 1 (November 28,2018) and Letter Report: Supplement to Board of
C onsultants Mtg. N o. I (July 29, 20 I 9); July 2020 Order, I 72 FERC n 61,062 at I 7 l.
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reduce Rocky Mountain Power's risks and liabilities by eliminating the Company's need to
relicense the Lower Klamath Project. Since the KHSA was executed in 2010, the risks of higher
costs associated with relicensing have only increased while the plans and estimated costs for
decommissioning and removal have become more concrete and reliable. For example, since the
execution of the KHSA, the California State Water Resources Control Board and Oregon
Department of Environmental Quality have adopted stringent new water quality standards for the
Klamath River that would substantially increase operation costs if applied to the Lower Klamath
Project dams.s3 Additionally, deteriorating anadromous fish returns in the Klamath Basin, similar
to those experienced elsewhere on the West Coast, continue to exacerbate natural resource conflicts
in the basin, and create challenges for Tribal communities that depend on the Klamath River and
its aquatic resources. These deteriorating conditions imperil the Company's ability to secure a
long-term license for the project.
57. The States' strong support of dam removal has increased the uncertainty of
relicensing, considering the States' significant role in the relicensing process. At the same time,
the ALSA that the Company and the Renewal Corporation recently submitted to FERC describes
a detailed scope of work for decommissioning the Lower Klamath Project based on completed
project removal design of 60 percent and a record incorporating information gleaned from years
of technical, environmental, and regulatory analysis. Taken together, the KHSA and the MOA
outline an attainable scope of work, schedule, and cost estimate for dam removal.
s3 In March 2010, the Califomia State Water Quality Control Board adopted the North Coast Regional Water QualityControl Board's Final Staff \eport for the Klamath River Total Maximum Daily Loads (TMDLs) Addressing
Temperature, Dissolved Oxygen, Nutrient, and Microcystin Impairments in California, the Proposed Site Specific
Dissolved Oxygen Objectives for the Klamath River in California, and the Klamath River and Lost River
Implementation Plans. In December 2010, the Oregon Department of Environmental Quality adopted the Upper
Klamath and Lost River Subbasins Total Maximum Daily Load (TMDL) and Water Quality Management Plan
(WPI\P). The TMDL requirements of both states would impose additional operational limitations and water quality
compliance costs on the operation of the Klamath Hydroelectric Project.
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58. As demonstrated above, Commission approval of this Transfer Application will
cause no harm to Idaho customers. The Renewal Corporation is fully qualiflred to accept the Lower
Klamath Project developments and remove the dams. Moreover, the transfer will reduce the risk
of fuither costs to the Company and its customers associated with the Lower Klamath Project and
dam removal while advancing public policy goals. Approval of this application within six months
will allow the Transfer Agreement to take effect according to its terms upon FERC's approval of
the ALSA and the license transfer application.
B. The majority of dam removal costs will be paid by Oregon and California.
59. Since the KHSA was executed in 2010, the Company's Idaho rates have included
the operational costs and benefits of the Lower Klamath Project and reflected accelerated
depreciation of the dams. But Idaho customers have not paid the incremental costs associated with
dam removal under the KHSA; ratheg the Company's Oregon and Califomia customers have
provided $200 million towards the costs of dam removal, and California has contributed
$250 million in bond funding. The $450 million in dam removal funds already collected from
Oregon and California are expected to cover most, if not all, the costs of removing the dams.
Therefore, the benefits of the KHSA to Idaho customers are even greater than are reflected in the
Company's economic analysis given Idaho customers receive the benefits of the KHSA without
paying incremental costs for dam removal.
V. CONCLUSION
60. Approval of this application within six months will allow the Transfer Agreement
to take effect according to its terms after the conditions of closing in the Agreement are met,
including FERC approval of the ALSA and FERC approval of the license transfer application. The
Company respectfully requests a Commission order (l) approving the Transfer Agreement based
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on the finding that it will not harm the Company's customers and is consistent with the public
interest and (2) granting other such relicf as thc Commission deems nccessary and proper.
Respectfully submitted this 146 day of January 2021.
til
Adam Lowncy (ISB#I 0456)
McDowell Rackner Gibson PC
419 SW ll6Ave., Suite 400
Portland, Oregon 97205
Telephone: [phone]
Bmail: [e-mail]
Attorneyfor Rocky Mountain Power
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